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Airlines Face Winter Survival Test After Virus Slows Rebound

Bloomberg logoBloomberg 10/26/2020 Siddharth Philip

(Bloomberg) -- The resurgent Covid-19 pandemic is pushing back the recovery in air travel, turning winter into a survival test for carriers now pinning hopes on a spring rebound.

Airlines are urging governments to introduce more testing and travel bubbles to help spur demand. The industry is on track to burn through an estimated $77 billion in cash the second half. The International Air Transport Association has called for fresh government support, while stressing the safety of flying.

a group of people standing in a room: Operations at Haneda Airport Ahead of ANA and JAL Earnings © Bloomberg Operations at Haneda Airport Ahead of ANA and JAL Earnings

An All Nippon Airways staff moves a SoftBank Pepper humanoid robot at Haneda Airport departures lobby on Oct. 25.

Photographer: Kentaro Takahashi/Bloomberg

The pain is evident across the globe, where airlines have rescinded earlier forecasts that called for traffic to gradually increase toward normal levels during the fourth quarter. Instead, carriers are retrenching and shoring up their finances.

chart, bar chart: Bleaker Winter © Bloomberg Bleaker Winter

Hong Kong’s Cathay Pacific Airways Ltd. will slash more than 5,000 jobs and close a regional carrier to reduce its cash burn. British Airways parent IAG SA no longer expects to break even during the last three months of the year and has slashed capacity. American Airlines Group Inc. authorized the sale of $1 billion in shares as it burns up to $30 million a day this quarter.

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One exception is in China, where the pandemic is in check and domestic flights have surged past where they were a year ago. In the U.S., airlines carried 1 million passengers on a single day for the first time since March. Still, air travel is at about the level it was more than three decades ago.

chart, line chart: China Takeoff © Bloomberg China Takeoff

“It is still very unclear as to whether China is a model for what recovery will look like in other short- to medium-haul markets such as the U.S. or Europe, or whether aspects of its geography and culture make it different,” Nick Cunningham, an analyst at Agency Partners, wrote in an Oct. 23 note.

There are some signs of progress toward standards that would unlock long-distance travel, which has lagged behind domestic and regional flying. An international protocol will be ready in the next four weeks, said Gloria Manzo, the chief executive officer of the World Travel & Tourism Council.

“We can’t wait for a vaccine,” Manzo said at the Future Hospitality Summit on Monday. Travel corridors between London and Dubai, as well as London and Newark, New Jersey, are ready but hinge on government signoffs, she said.

The pace of a reopening will factor into production plans for planemakers Airbus SE and Boeing Co. Airbus is preparing to ramp up output next year of its most important jet, the A320neo, in a sign of growing confidence that jetliner demand is poised to recover. The European planemaker stressed that the plans are tentative and no decisions have been made.

Boeing is getting ready to unground its workhorse 737 Max jet, which has been sidelined for 17 months after two fatal crashes. U.S. and European regulators are in the final phases of approving the plane’s re-entry into service. Chinese authorities say the plane is a priority, but have no clear timetable for its return.

chart, bar chart, histogram: Delivery Rebound? © Bloomberg Delivery Rebound?

(Updates with remarks from World Travel & Tourism Council in seventh paragraph)

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