Airlines are struggling to get back into the skies following two years of travel restrictions, leaving passengers facing a frustrating barrage of delays and cancellations. Experts expect the continuing impact of the Corona epidemic crisis for years to come on the aviation industry, as the largest transport companies in the world work to eliminate billions of dollars in debts in their balance sheets, according to the “Financial Times”.
Over two years, 10 airlines in the United States and Europe accumulated regarding $193 billion in debt, up from $109 billion in 2019. Isabella Listowska, credit analyst at S&P Global Ratings, said there is no quick fix to the debt buildup problem. Some airlines with weaker balance sheets have already faltered.
Application for bankruptcy protection
The Scandinavian airline SAS earlier this month filed for bankruptcy protection in the United States to allow it to restructure its finances, following its Norwegian rival, which faced bankruptcy and debt restructuring in 2020 and 2021. Major carriers in the United States and Europe are suffering losses, and Lufthansa in Europe has received a 9 billion euro bailout from the German government, which has already paid it off. British Airways owner IAG has raised 2.75 billion euros from shareholders and tapped into corporate debt markets, including a 2 billion pound state-backed loan.
“A lot of the money raised through debt is on balance sheets,” said Jonathan Root, senior vice president at rating agency Moody’s. The industry has also shifted from raising money to survive to worrying regarding how to get enough planes in the air to meet demand, which means money is flowing once more.”
balance sheet reform
Some airlines, particularly low-cost carriers such as Wizz Air, Sprite and Rhea Air, will carry more passengers this summer than the same period in 2019. Marie Owens Thompson, chief economist at the International Air Transport Association, said: IATA said this means that industry-wide losses are expected to drop to regarding $10 billion this year, with profits likely in 2023. It said this represented “an inflection point as we move to fix balance sheets”.
Major airline stocks have fallen this year, the Bloomberg Global Airlines Index is down 25% since February, IAG is trading at its lowest since fall 2020, while EasyJet is down to a 10-year low.
In addition to the cost of travel disruption, including compensation payments, airlines are exposed to deteriorating economic expectations and concerns regarding inflation that might limit consumer spending, although executives say there are no indications that demand for aviation is weakening so far.
Perhaps even more worrisome with the soaring price of oil, which can account for up to a third of aviation costs. Airlines have raised their fares this year, S&P Lustuska said, but European airlines are likely to raise prices once more in 2023 with higher fuel prices.
