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Dubai: Several airlines in the Middle East face heightened risk of bankruptcy – despite the industry receiving $4.8 billion in government aid in 2020. Most of this support ($4.1 billion) was distributed through direct cash injections.
“Government relief for airlines avoided massive failures that would jeopardize a restart,” said Kamil Al Awadhi, IATA Regional Vice-President for Africa and the Middle East. “[But] with no clear timeline to recovery the situation is far from resolved.
“Governments that have provided relief will need to be prepared for more – and governments that have not yet stepped up must recognize the growing risks as the crisis drags on.”
Financial hit
Middle East airlines posted losses of $7.1 billion in 2020 – or $68.47 for each passenger flown. With traffic at less than 20 per cent of 2019 levels, the cash burn has continued even with severe cost-cutting.
Meanwhile, passenger traffic in the region was down 82.3 per cent in January, compared to the same period in 2019. “Governments have long established global best practices for working together with industry and with each other – this same approach will help the re-start,” said Al Awadhi. “There are two ends to every route. Both must be prepared or the restart cannot happen.”
Oil’s rise
Adding on to airlines’ worries is rising crude prices. The Brent has surged by over 25 per cent this year as prospects of a global economic recovery become clearer.
“The average oil and jet fuel price strengthened further in March and hovered close to pre-pandemic levels for the second consecutive month,” said IATA in a report. “The resulting surge in jet fuel costs will put increased pressure on airline bottom-lines and add to the challenge of making restart of air travel cash positive.”
Airline shares pick up
Despite the gloom and doom, it looks like investors are once again placing bets on airline stocks. As per IATA’s recent analysis, airline shares rose 21 per cent in February as vaccination efforts gained momentum, COVID-19 cases started to fall and investors became increasingly optimistic about the recovery in leisure travel in the summer.
North American airline shares showed the largest value increase, followed by Europe. However, “daily March data show a new deterioration in prices as the new COVID-19 wave in Europe negatively impacts prospects about summer travel,” said IATA.
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