Corporate Cash Flow Squeeze: Protecting the Lifeblood

The growing pile of refund complaints from airline passengers and Disney slashing costs left and right

Just as many American consumers are cash-strapped and are seeking ways to preserve cash so are businesses—mom and pop shops all the way up to mega corps. Cash flow is the lifeblood of any business, and without it, it cannot endure regardless of whether the economy is in a recessionary or expansionary period. So, in what ways are businesses hanging on to as much cash as they can right now? 

The airline industry is unquestionably one of those sectors that is hurting the most, and customers are finding that receiving a refund for trips cancelled months ago is becoming increasingly difficult. According to Airlines Reporting Corp., U.S. travel agencies have already issued more than $1 billion for cash refunds, but that doesn’t count refunds issued directly by airlines. However, instead of offering cash refunds, many airlines opt for vouchers for customers requesting a refund. And in times like this, many airlines have been changing the terms for which passengers would be eligible for refunds and vouchers, forcing many customers to jump through hoops to receive refunds or making it virtually impossible to receive their cash back. 

In addition to airlines like Colombia’s Avianca, Chile’s Latam, and the UK’s Virgin Atlantic filing for bankruptcy, others like Israel’s El Al have suspended operations and froze tickets for cancelled flights, indicating that passengers will be able to use them in the future. Prior to the pandemic, United Airlines offered refunds to customers who had tickets for cancelled flights if no alternative flight was available within two hours. United then changed it to six hours, which would have denied refunds to possibly millions of customers. In June, they reverted to the two-hour policy, after receiving some pressure from the U.S. Transportation Department, and allowed customers who were forced to accept vouchers to receive refunds.

Vouchers also come with their own thorny terms. With American Airlines, vouchers grant one credit per passenger in the original purchase, meaning that for group purchases where one person pays for it, he’d only receive a credit for his own ticket and not the rest. Frontier Airlines has a 90-day expiration for its vouchers, and in this prolonged period of uncertainty and limited travel, many of those vouchers have already expired. All of this goes to show the desperation that many airlines are experiencing to save themselves from being crippled even further. 

Aside from these dubious methods of preserving cash, other companies, big and small, are being forced to put other costs on the chopping block. Disney’s new CEO, Bob Chapek, has been doing exactly that as the company pushes forward into streaming and as some of their other businesses such as theme parks, resorts, and cruises are currently being pummeled. Disney had announced they’d be closing more than 20 foreign TV channels, shutting down the Broadway production of “Frozen,” closed down many English-language schools in China, and scaled back a $1 billion resort-technology project. Earlier this year, Disney had furloughed approximately 100,000 employees when the lockdown began, and last quarter, revenue fell 42% because in addition to money drying up in parks, resorts, and cruises, advertising sales fell for networks like ESPN and ABC. While Chapek’s push to move Disney’s core business into streaming is undeniable, and therefore may have had an influence in some of these recent decisions, the pandemic is definitely a major driver in the company’s effort to preserve cash. 

The squeeze corporations are feeling is unyielding, but companies who are able to preserve their cash flows for the remainder of this crisis and onward, whether we label their methods as dubious or not, are the ones who will survive. 

RELATED CATEGORIES: Coronavirus, Daily Briefing, Recession