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Airlines will fail in weeks if governments do not intervene, IATA warns

FABRICE COFFRINI/AFP via Getty Images

Airlines around the world may collapse and fail if governments do not intervene soon, an industry group is warning.

Alexandre de Juniac, the chief executive of the International Air Transport Association (IATA) told reporters on a conference call Tuesday morning that many airlines do not have strong enough balance sheets to survive the crisis prompted by the coronavirus outbreak. Airlines everywhere are grappling with a severe decline in traffic as passengers stay home and governments impose strict travel restrictions.

“We need governments to act fast with financial relief to avoid a liquidity crisis, where (airlines) run out cash and almost half of the companies die in the coming weeks,” IATA CEO Alexandre de Juniac said from Geneva.

“We are now working hard to survive. We need government help.”

The warning from IATA, an industry group that represents 290 airlines from around the world, comes as WestJet Airlines becomeese the latest Canadian carrier to slash its workforce.

WestJet announced Tuesday that 6,900 workers – almost half of its employees – will leave the company. The Calgary-based airline said that 90 per cent of the employees are leaving voluntarily, through early retirements, buyouts and voluntary leaves.

“This is devastating news for all WestJetters,” the company’s chief executive Ed Sims said in a statement.

“The fact that we avoided a potentially worse outcome is a testament to the spirit and selfless attitude demonstrated by our people, who have enabled WestJet to continue operating with a collective remaining workforce of 7,100.”

WestJet has cut its domestic capacity in half and cancelled all international routes, including to the U.S., for 30 days. Air Canada has also slashed its capacity, suspending a majority of its international and transborder flights by the end of the month. So far, at least 15,600 people have been laid off from WestJet, Air Canada and Transat.

Airlines have cut capacity, grounded planes and laid off employees in order to reduce costs amid the drastic decline in revenue. Over the last several weeks, IATA has urged governments to step in and provide financial support to airlines.

IATA’s chief economist Brian Pearce said Tuesday that the group’s previous worst-case scenario estimate – that airlines would collectively lose $113 billion in revenue as a result of COVID-19 – was a gross underestimate.

“What this suggests now is we’ll see a revenue loss compared to 2019 of over $250 billion, which is something like 44 per cent down from 2019 levels,” Pearce said. “Clearly, this is a tremendous revenue shock.”

Pearce said that, outside of the world’s top 30 airlines, many companies are in a position where they can’t survive a prolonged stall in traffic. According to Pearce, the median airline has about two-months worth of cash or cash-equivalents on hand.

“There are lots of debt-servicing and fixed obligations for airlines to have to pay,” he said. “The challenge is that, before any recovery takes place, airlines may well run out of cash.”

Prime Minister Justin Trudeau has held discussions with the chief executives of Air Canada and WestJet, and has signalled that financial relief for the airline industry is coming. So far, the government has not announced any supports for the industry, despite repeated calls from airlines.

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