News that Virgin Atlantic has secured court approval for its planned recapitalisation marks the latest in series of rescue deals that have been struck to ensure airlines around the world can stay airborne.
Some have simply secured protection from creditors while they re-organise. Others have secured fresh capital – be it from private investors or the state – and almost all have brokered some level of cost-savings from staff or from aircraft cuts or deferrals. Many have tapped all these.
But the stuttering opening up of passenger markets – in which an increasing number of travel restrictions have clipped the hoped-for pace of a recovery in international air travel – begs the question for airlines of what comes after the initial rescue.
In the case of Norwegian, which carried out its own lifeline restructuring in May to unlock critical state aid, the answer is a quest for more funding.
“We have secured cash through the rest of this year,” explained chief executive Jacob Schram during the airline’s half-year results call on 28 August. But he added: “I have been very clear, we will need more if Covid continues – which it has done. We will need more financing to come through the winter.”
It remains to be seen how many other airlines will also require further funding solutions as the northern hemisphere winter draws on. And the question of how much funding is enough hinges on how quickly and to what extent air travel demand recovers.
But these are questions to which airlines neither possess a clear answer, nor have many tools to influence. Normal route-development practices around revenue management, price stimulation or identifying growth markets are trumped by travel restrictions – which can make or break a market at a stroke. And these restrictions are guided by the evolution of the virus and states’ ability to contain it, rather than network planners.
In essence airlines and their backers have so far bought themselves breathing space. Some have secured more than others. But all need to see a confident reopening of air markets before they can start to feel comfortable they have enough to come out on the other side of the crisis. So far, that confidence is in short supply.
Few countries acted more quickly to provide a financial lifeline to its airlines than the USA. Before the end of March the US Congress had passed the CARES act, which provided airlines with up to $58 billion in grants and loans.
While the financial lifeline came with its own caveats – notably requiring airlines to retain minimal levels of services during this period – it averted the wholesale job cuts a smaller US airline market would require.
But the flip side of having acted quickly is that US policymakers are already facing up to what happens next. Because if the hope was that by the time the CARES act expires at the end of September there would be some semblance of a recovery in air travel, that is far from evident. Data from trade body Airlines for America shows that for the week ending 30 August, US carrier passenger volumes remain 70% down on the same week last year. International traffic is down 86%.
Little wonder then that the talk of what comes after the rescue in the US centres around a possible sequel to the first act. A so-called CARES-2 package is being discussed in Washington – against a backdrop that US passenger airlines are preparing to shed up to 100,000 jobs in the coming weeks unless there is an extension to the financial relief that kept workers employed until now.
And, in the absence of a transformative medical breakthrough, expect many more airlines, investors and governments to face the same challenge before this crisis is over.