The Latest by Region

North America

• United became the first U.S. carrier to announce rapid-result Covid testing for passengers flying from SFO to Hawaii. The tests, which United said it worked with Hawaii to develop, are a way to get around the state’s strict 14-day quarantine for inbound passengers. Passengers flying to Hawaii can get a test at San Francisco SFO, with results returned in 15 minutes. Or they can take a home test up to 72 hours before departure and either mail the swab in or drop it off at the airport. The tests aren’t cheap, reportedly $250 for the airport test and $80 for the home test.
  
  Epidemiologists have questioned the efficacy of rapid testing to screen passengers, because tests may return false negatives, especially if the exposure occurred more recently than a day or two before departure.
  
  
  Shortly after United announced its program, Hawaiian said it also will use rapid-result Covid tests to screen passengers. Hawaiian’s tests are offered through a partner, Worksite Labs, and cost $90 for the a test with results within 36 hours, and $150 for day-of tests. Passengers have to do the home test within 36 hours of departure. Hawaiian’s program will be available at SFO and Los Angeles LAX.
  
  Correction: This post has been updated to reflect that Hawaiian is not offering at-home tests but is offering tests through a partner, Worksite Labs.

• American finalized plans to take advantage of a federal loan program that Congress established in the CARES Act legislation passed this spring. The amount of the loan will exceed $5b and potentially top $7b. The interest is low but comes with some strings attached. For one, the government gets to seize control of the airline’s lucrative loyalty plan in the event of a default. Washington also gets warrants potentially convertible to an ownership stake. American, furthermore, must also abide by rules prohibiting stock buybacks and dividends while limiting executive compensation.
  
  Delta and Southwest, both with better credit than American, concluded the government’s terms were too onerous relative to what was available in the market. United though, said it will likely take the government loan. Ditto for some smaller U.S. carriers. American separately completed another bond issuance of more than $1b, further highlighting the widespread availability of capital during the Covid crisis.
  
  According to Airfinance Journal, airlines around the world have raised $176b in new capital this year (through August). This includes government aid (loans and grants), commercial loans, bond borrowing, equity sales, and aircraft sale-leaseback deals.  

Europe

• The crisis, it seems, just keeps getting worse. After some summertime stir, Lufthansa is now warning that the outlook for international travel has significantly deteriorated in recent weeks. Bookings are on the decline in September, it added, following some “slight” gains in the peak holiday months of July and August. So forget about returning to half of last year’s capacity levels by next quarter. Instead, the airline now expects to fly just 20% of 30% of the prior year’s Q4 ASKs.
  
  By the middle of this decade, furthermore, Lufthansa will shrink its fleet by 150 planes, not 100 as previously envisioned. The eight A380s it previously intended to keep in service will now go to longterm storage. Same for 10 A340-600s. Other A340-600s will be permanently decommissioned.
  
  Remember the surplus of 22k full-time jobs that Lufthansa mentioned? Well now it thinks that estimate too low. Management job cuts are underway. It’s reducing the office space it’s using. But the airline still intends to reach cash breakeven from operations sometime in 2021. Lufthansa, keep in mind, offered the most premium seats of any European airline pre-pandemic, relying heavily on worldwide corporate business travel from Germany, Switzerland, and elsewhere.   

• It’s a specialist in leisure travel, which is the best place to be right now if you’re running an airline. But times are still rough for Europe’s TUI, which is struggling to manage through a frequently changing set of government travel restrictions and quarantine rules. It did attract 1.4m customers from the time it restarted flights in mid-June through the end of August. Flights were fewer but full — load factors were 85%.
  
  Unfortunately, fall brings much uncertainty, with demand dropping not only due to normal seasonal patterns but also a spike in Covid cases throughout Europe. This means additional travel restrictions, and in turn more trip cancellations and another bump in refund requests. TUI is cutting its winter capacity more than it originally hoped it would have to. Signals for summer 2021 look pretty good, with lots of customers using travel credits to book trips.
  
  But it’s too early to draw any conclusions about trends so far in advance. Turkey seems to be one relative bright spot, with Britain’s Jet2 adding a bunch of new flying there. TUI, meanwhile, might soon get its B737 MAXs back in the air — it’s a large MAX customer.

Latin America

• For all the airlines that entered bankruptcy, one of the most important early tasks is securing new funding to maintain operations while restructuring contracts, cutting costs, building a new business plan, and so on. Why would anyone lend money to a company that couldn’t repay its previous lenders? Because the company is allowed by U.S. bankruptcy law to offer debtor-in-possession terms, whereby new lenders jump to the front of the line for future repayment.
  
  As it happens, there’s a lot of capital looking for good returns these days. So even bankrupt airlines are having little trouble attracting billions in new funds. Latam, after a hiccup, secured court approval for $2.45b in DIP financing. Avianca, meanwhile, will also raise more than $2b from a collection of new and existing lenders that includes United. Avianca is using its LifeMiles loyalty program as collateral. But the carrier’s restructuring hasn’t been without controversy. There’s been public pushback on financial support that Colombia’s government has provided.
  
  In addition, according to Reuters, executives are under fire for receiving large bonus payments. Avianca is finally flying within Colombia again after a long period of dormancy. International flying is set to resume this week.

• In Brazil, Gol used a JPMorgan event to update investors on the state of its recovery. Demand within Brazil has actually shown a steady if gradual recovery since May, with domestic traffic volumes now at about 30% of pre-crisis levels. Gol, unlike U.S. and European carriers that have revised their Q4 capacity guidance downward, still expects to operate 80% of its normal domestic schedule by year end.
  
  In the second week of September, said CFO Richard Lark, the airline sold about $3m worth of tickets a day. Load factors are approaching the 80% mark. Lark stressed the experience Gol has had in managing through difficult market shocks, including the global financial crisis in 2008 and the Brazilian economic recession a few years later. Its low-cost business model helps, he insists. So does its standardized fleet, high rates of aircraft utilization, appeal to corporate travelers, and so on.
  
  Gol is now building its cargo and maintenance capabilities. And it remains confident in the B737 MAX, hoping to have 15 in the air by the end of 2021.

• Flights in Argentina could resume next month, ending one of the world’s strictest and longest air-travel bans. Although this is good news and will restore connectivity in the country and breathe life into its grounded airlines, it comes at a price: A new 35% tax on all international airline tickets, effective immediately.
  
  The government essentially shut down the national airspace on March 20, banning all non-emergency passenger flights in an effort to halt the coronavirus. Although it has been spared the horrors faced by neighboring Brazil, World Health Organization data show that Covid cases and deaths continue to climb in Argentina. The government has said it will ease the flight ban and other restrictions next month but will reimpose them if cases climb more steeply after the re-opening. Argentina already has steep levies on international airline tickets, including departure and other fees on top of taxes.
  
  The new 35% will put a dampener on demand and slow any economic recovery in the country, IATA said. Even before the government announced the new tax, IATA estimated that air travel demand will be 67% lower this year than last, and revenues will be off by $3.3b. This will imperil more than 19k airline jobs and could reduce airlines’ contributions to the economy by almost $2b, IATA said.
  
  The government has not made clear if the new tax revenues will stay in the aviation industry. In the U.S. and many other countries, ticket taxes are used to fund security, air traffic control, and airport and aviation infrastructure improvements. But in many countries, the taxes go to the general fund and are used to patch holes in the budget. This long has been a problem in Latin America. Governments in South America see airline travel as the preserve of the rich and use the industry as a “cash cow,” diverting revenues from airline taxes to projects unrelated to aviation, Peter Cerda, IATA regional vice president for the Americas, said on the Airline Weekly Lounge podcast last month.
  
  This thinking hasn’t changed, despite the recent (pre-pandemic) proliferation of low-cost carriers in the region. The effect of these high taxes has been that air travel in much of South America is not as common as it is elsewhere. Much of South America is mountainous, difficult to traverse with road and rail, but high taxes and lack of government support to encourage air travel has prevented airlines in the region from reaching their potential market size, Cerda said.

Sub-Saharan Africa

• Sustaining South African Airways remains a huge problem for South Africa’s government. It’s under tremendous pressure to keep the carrier flying. But doing so could require more than $600m in new funding, at a time of severe budgetary stress. SAA stumbled into bankruptcy several months before the Covid crisis even began, with chronic problems unrelated to the current demand shock.
  
  One path of salvation could involve Ethiopian Airlines, which appears willing to invest money in SAA. But, according to Bloomberg, it wants management control.