Tim Clark: Airlines face failure even after state bailouts if flights do not restart soon

Published: 2 June 2020 - 5 a.m.

Emirates president Sir Tim Clark has said that airlines which have been bailed out by governments are “nowhere near out of the woods” and must start flying meaningfully and profitably soon or face failure further down the line.

Some of the world’s largest airline groups, including the likes of Lufthansa and Air France-KLM, have secured state-funded bailout deals, allowing them to stay afloat during the coronavirus crisis, which has decimated travel demand and ripped out revenues.

But Clark has warned that most rescue packages so far are based on the assumption that airlines will begin generating positive cash flow in the next few months.

Speaking on a video conference hosted by Arabian Travel Market, Clark said while governments are beginning to realise that airlines will not survive unless they are bailed out, nobody knows when the funding will run out.

“All the money that has gone into those companies is absorbing the cash obligations they have at the time,” he said.

“But it presupposes that you will be starting to fly meaningfully and profitably, generating positive cash flow in the next few months. Unfortunately, I don’t see it to the scale that these companies need to meet their cash obligations; so we’re nowhere near out of the woods.”

With fleets grounded, airlines are facing a severe liquidity crisis with billions of dollars expected to be burnt in Q2 alone. Even though carriers are beginning to resume scheduled flights, demand for air travel remains low and so profitability is near impossible.

“It is important that governments understand – I am sure they are aware of other priorities in their economies – but this [aviation] business is at a critical and very fragile state at the moment and it needs all the help it can get,” Clark said.

He said that without lifelines for airlines, he is “not optimistic that some of the [airlines] that are here today, and have already been significantly bailed out, will get through the next few months”.

Clark does not expect demand to reach pre-Covid levels until at least 2022, but possibly as a late as 2024.

“You’ve got to make a stand and say ‘this is what we’re going to work towards’, otherwise you’re looking into a big black hole. You’ve got to come up with some kind of solution about your cash flows and hope for the best and plan towards that.”

He believes that a global inoculation process combined with certain social distancing measures will be the key to getting demand back to the way it was, predicting that by summer of 2021, passenger levels will start to rise rapidly on short-haul and long-haul flights.

On Sunday, Emirates announced that it has laid off a number of employees because of the impact of Covid-19 on the business.

Commenting on the job losses, Clark said that the airline had initially hoped business would pick up again by the end of May but had not seen signs of things improving. He said that the level of income from increased air freight operations was “not sufficient to meet the costs”.

“We’ve had to consider what the sizing of the airline is going to be. [Jobs] are one of the casualties of the operation at the moment.

“We can’t just keep our employees doing nothing for so long so we’re going to have to let some of them go unfortunately.”

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