After two years of travel restrictions, airlines are finding it difficult to resume operations, which is irritating for passengers as they experience a constant stream of delays and cancellations. Out of many critical issues in airline industry , Debt remains one of the major issue for big airlines.
The pandemic’s invisible effects, however, will continue to affect the industry for years to come as the major carriers in the globe attempt to deleverage their balance sheets from the billions of dollars in debt they accrued during the crisis.
Ten of the top airlines in the US and Europe have amassed a combined gross debt of $193 billion over the past two years, up from $109 billion in 2019.
Airline Debt in Billion US Dollar and Debt Due
Some airlines with less robust financial standing have already had problems. In order to restructure its finances, Scandinavian airline SAS filed for bankruptcy protection earlier this month in the US, following competitor Norwegian, which underwent bankruptcy and debt restructuring in 2020 and 2021.
Big airlines are currently in a much better situation.
A wall of capital that has been accumulated by a combination of shareholders, debt markets, and frequently national governments protects the main airlines in the US and Europe.
In order to acquire money, airlines have used their frequent flyer programs as collateral in the US. In contrast, Lufthansa received a €9 billion bailout from the German government for its operations in Europe, which it has since repaid.
IAG, the company that owns British Airways, raised $2.75 billion from shareholders and borrowed $2 billion from the corporate debt market.
critical issues in airline industry = Debt , Can they handle it ?
Additionally, the industry has shifted its focus from seeking money for survival to figuring out how to get enough planes into the air to meet demand, resulting in money flowing back into the system. This summer, certain airlines will carry more passengers than they did during the same time period in 2019, especially low-cost carriers Spirit, Ryanair, and Wizz Air.
According to Marie Owens Thomsen, chief economist of the International Air Transport Association, Iata, this indicates that overall industry losses are anticipated to drop to roughly $10 billion this year, with profitability being conceivable in 2023. According to her, there is a “inflection point where we proceed to repairing balance sheets.”
However, the picture for the sector has grown even more gloomy just as one crisis seems to be almost over with the lifting of most travel restrictions.
The Bloomberg World Airlines Index is down 25% since February as shares of major airlines have fallen this year. IAG hasn’t traded this low since the fall of 2020, while easyJet has fallen to 10-year lows.
Although CEOs claim there are still no evidence that demand for flying has started to decline, airlines are subject to the rising cost of travel interruption, including compensation payments, as well as the weakening economic outlook and concerns over inflation that could limit consumer spending.
The increase in gasoline prices, which can make up as much as a third of airline expenses, may be even more concerning.
According to S&P’s Listowska, airlines have so far been able to pass these costs on to customers through increased ticket prices, but European airlines that hedge their future fuel needs will definitely pay more when these run out in 2023.
Much will rely on whether the strong demand for travel this summer marks the beginning of a comprehensive rebound in travel, including business class, or simply the release of two years’ worth of pent-up demand, as Heathrow airport believes.
The fact that inflation will reduce the industry’s overall debt and lower the cost of financing it is at least one positive aspect of the trend.