LatAm airlines face long haul to recovery

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 United States 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, ChileanBrazilian 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 released by the Bureau of Economic Analysis. In the fourth quarter of 2019, real GDP increased 2.1 percent.

The figures did little to affect markets as the downturn was widely expected by economists and the Fed. Forecasters believe growth will rebound sharply in the third quarter with the Congressional Budget Office predicting GDP will rise at an annual rate of 21.5 percent.

EU proposes new stimulus

The euro has struggled since falling in March, when investors rushed for the safety of dollars amid increased volatility in global financial markets. Last week, we saw the euro rebound as risk appetite steadily returned to markets and as the European Commission unveiled a new 750 billion euro stimulus package.

Brexit

While the British pound also saw gains against the US dollar, the currency and economy still seem hampered by the now four-year ongoing Brexit process. While some strides were made this week regarding rights of fishing waters, Britain is still a long way from agreeing on a trade deal with the European Union.

Regional trade increases in China

While the downturn of global trade has taken its toll on China, the trade relationship between China and the Association of Southeast Asian Nations members remains resilient despite the COVID-19 pandemic. China said that there was a 6.1 percent growth of ChinaASEAN trade in goods in the first quarter of 2020 with a value exceeding $140 billion. The ASEAN became China’s largest trading partner for the first time, surpassing both the European Union and the United States.

Japan in a severe situation

Bank of Japan Governor Haruhiko Kuroda stressed the effects of the coronavirus on Japan this week. Kuroda stated that uncertainty remains extremely high for the economic outlook and the situation in Japan to remains in a “severe” state. Nonetheless, he mentioned the BoJ is ready to act by further expand lending programs, cut interest rates and ramping up purchases of exchange-traded funds.

Volatility in oil markets

Oil prices moved in a volatile manner last week as they adjusted to market developments. Prices initially rose, supported by growing confidence that producers are following through on commitments to cut supplies and as fuel demand picks up with coronavirus restrictions easing. However, prices plunged lower again over the renewed US-China tensions. The fall, due to fears over effected future demand, even overshadowed the latest news on cooperation between OPEC and allies to curb supply. Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman agreed during a telephone call on further “close coordination” on oil output restrictions.

Kuwait

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likely to increase. The IATA official says the impact to the industry is even worse than the aftermath of the September 11, 2001 attacks on the United States.

“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.

‘Not a rescue’

“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.—AFP