Latin America’s stricken airlines facing long haul to recovery

A security guard stands guard at the Benito Juarez International Airport, amid the outbreak of coronavirus disease in Mexico City. (Reuters/File)
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Updated 01 June 2020

Latin America’s stricken airlines facing long haul to recovery

  • Flight activity plummeted 93%, with losses in revenue estimated at $18 billion

MEXICO CITY: Latin America’s beleaguered airlines will take up to three years to recover losses due to the coronavirus pandemic, and in the meantime desperately need government help, according to experts surveying the damage to the industry.

The International Air Transport Association (IATA) estimates it will take at least that time for the region’s airlines to inch back to their pre-pandemic level for domestic and regional flights.

Long-haul services to the US and Europe will take until 2024 to come back, it says.

“It’s a long-range view; it will not be short term. It will take a lot of work,” said Peter Cerda, IATA vice president for the Americas.

Evidence of the severity of the crisis came last week when the region’s two largest airlines, Chilean-Brazilian LATAM and Colombia’s Avianca, filed for bankruptcy in the United States.

With countries across the region in lockdown, flight activity has plummeted 93 percent from around 200,000 a day, with losses in revenue estimated at $18 billion.

Cerda says that figure is likely to increase.

The IATA official says the impact to the industry is even worse than the aftermath of the 9/11 attacks on the US.

“We are going to have airlines that are not going to be able to recover, that will have to shut down their operations for good,” he said.

After almost three months of lockdowns and restrictions on movement across the region, airlines have run out of cash
and government support is “urgent,” he says. “What we are asking for is not a financial rescue. It’s support, immediate relief that allows the industry to sustain operations,” said Cerda.

Airlines are seeking tax relief and credit guarantees from governments.

Globally, government aid to the airline sector stands at $123 billion, including $300 million from Latin America, according to IATA.

“Airports and airlines as well as governments are all losing out at this juncture,” because of the lack of connectivity across the continent, says Fernando Gomez Suarez, an aviation industry analyst in Mexico.

Governments are conscious of the broader effects and Chile is considering a bailout for LATAM, seeing the airline as vital to the economy, and seeking to
preserve 10,000 direct jobs as well as the livelihood of up to 200,000 people the government says are dependent on the airline indirectly.

The company has already cut 1,800 of its total 42,000 staff.

The company is also holding discussions with the governments of Brazil, Peru and Colombia to save jobs there.

In Brazil, the largest internal market in the region with 90 million passengers a year, private banks headed by a development bank have granted a $1.1 billion loan to its three largest airlines — Gol, Azul and LATAM.

Gol and Azul first had to agree to cut executive salaries and provide special rates and packages to stimulate recovery.

In Mexico, the region’s largest destination for foreign tourists, Tourism Minister Miguel Torruco insisted his country would continue to have “strong, solid airlines.”

IATA said talks are underway with the government to reduce airline charges. The country’s largest, Aeromexico, will resume some routes starting Monday, though ratings agency S&P lowered its credit rating this week due to the possibility of its debt being “unsustainable.”

In Argentina, state-owned Aerolineas Argentinas announced a merger with its subsidiary Austral this month to reduce infrastructure and staff to save up to $100 million.

IATA meanwhile warned about the impact of the government’s decision to keep Argentina’s airspace closed until September.

Airline workers who escaped mass layoffs have had to take full or partial wage cuts to keep their jobs.

“Imagine losing half or more of your salary ... and the bills keep coming in,” says Jose de Jesus Suarez, spokesman for the Mexican pilots union ASPA, whose members have gone from six flights a week to just one or two a month.

Analyst Gomez Suarez says the markets left vacant by stricken airlines will quickly be absorbed by others.

And he says their most urgent challenge will be to harmonize new health protocols between countries, which will mean higher costs for passengers.

“People will keep flying. Of course, they will have to change their habits and customs.”


Analysts urge Canada to focus on boosting the economy

Updated 06 July 2020

Analysts urge Canada to focus on boosting the economy

  • Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time

TORONTO: Canada should focus on boosting economic growth after getting pummeled by the COVID-19 crisis, analysts say, even as concerns about the sustainability of its debt are growing, with Fitch downgrading the nation’s rating just over a week ago.

Canadian Finance Minister Bill Morneau will deliver a “fiscal snapshot” on Wednesday that will outline the current balance sheet and may give an idea of the money the government is setting aside for the future.

As the economy recovers, some fiscal support measures, which are expected to boost the budget deficit sharply, could be wound down and replaced by incentives meant to get people back to work and measures to boost economic growth, economists said.

“The only solution to these large deficits is growth, so we need a transition to a pro-growth agenda,” said Craig Wright, chief economist at Royal Bank of Canada. The IMF expects Canada’s economy to contract by 8.4 percent this year. Ottawa is already rolling out more than C$150 billion in direct economic aid, including payments to workers impacted by COVID-19.

Further stimulus measures could include a green growth strategy, as well as spending on infrastructure, including smart infrastructure, economists said. Smart infrastructure makes use of digital technology.

“We have to make sure that government spending is calibrated to the economy of the future rather than the economy of the past,” Wright said.

Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time, citing the billions of dollars in emergency aid Ottawa has spent to help bridge the downturn caused by COVID-19 shutdowns.

Standard & Poor’s, Moody’s and DBRS still give Canadian debt the highest rating. At DBRS, Michael Heydt, the lead sovereign analyst on Canada, says his concern is about potential structural damage to the economy if the slowdown lingers too long.

Fiscal policymakers “need to be confident that there is a recovery underway before they start talking about (debt) consolidation,” Heydt said.

Fitch expects Canada’s total government debt will rise to 115.1 percent of GDP in 2020 from 88.3 percent in 2019.

Royce Mendes, a senior economist at CIBC Capital Markets, said the economy still needs more support.

“Turning too quickly toward austerity would be a clear mistake,” he said.