- Most reporting airlines have already issued their calendar Q2 statements. India’s SpiceJet will belatedly do so this week. Also this week, U.S. government data will show figures for Frontier and Sun Country. Greece’s Aegean will report at the end of this month.
Last week, Thailand’s Nok Air, which filed for bankruptcy in late July, disclosed its Q2 financial statements, which showed a $25m net loss. Curiously, it simultaneously showed an $8m operating profit, but with “other income” accounting for half its total revenue. What’s that? In its latest annual report, it defines “other income” as mostly revenues from interest income, exchange rate profits, refunds of insurance and maintenance, and profits from the sale and lease back of aircraft. It’s stuff, in other words, that doesn’t reflect operations. Exclude it, and operating margin for the quarter was really negative 66%.
Nok did generate some activity as its domestic flying was active. The airline consistently posted heavy loss margins in the years leading up to the crisis. It was initially backed by Thai Airways, which later lost interest, and which today holds just a 16% stake. That stake, of course, is in jeopardy of disappearing as Nok restructures in bankruptcy. Its priorities for restructuring are debt relief, most importantly, and finding a viable business model. It sees potential in expanding international flying when feasible. It will seek more distribution channels. It wants to deepen relationships with travel agencies both in and out of Thailand. NokScoot, a loss-making longhaul joint venture with Singapore Airlines, was dissolved.
- Canada’s Transat, which last week reported losses for its May-to-July quarter, barely even flew during the period. It relaunched flights on July 23rd after four months of inactivity. Canada’s government, to the great frustration of Air Transat and other Canadian carriers, has done stunningly little to help the travel sector, making it an outlier among rich-world countries. They worry this will create an uneven playing field with U.S. and European rivals, most of whom received lavish state support.
In any case, Air Transat is back in the air, and getting a modest amount of demand on domestic routes, and family-visit routes to places like France and Portugal. With the winter now coming, bookings to Mexico and the Caribbean are showing some faint signs of life. But still, family-visit demand is stronger than leisure right now. Canada’s travel restrictions are extremely strict, with mandatory quarantines present even within the country among different provinces. Most people traveling internationally are people with dual nationalities or foreign residency permits.
When will travel restrictions ease? Nobody knows, but Transat doesn’t expect a true revival in demand until they do. Two-thirds of the company’s staff are currently on temporary layoff (helped by government wage subsidies). Some 40% face permanent dismissal if things don’t change quickly. Travel policies are actually not the only area in which Ottawa holds great sway over Transat’s future. Competition regulators there are reviewing Air Canada’s proposed takeover deal. E.U. regulators are doing the same, and their decision must come before Dec. 27. After that Air Canada would be free to walk away.
As it waits, Air Transat is doing its best to understand new demand patterns, noting for example that many of the people traveling right now are younger, booking late, and visiting family members or friends. Load factors are running in the 50% range, aboard six active A321 NEOs. The NEOs, importantly, will assume greater prominence in the airline’s fleet going forward. Transat isn’t quite sure when leisure demand will return to pre-crisis levels. But the segment doesn’t face the longterm structural demand changes that currently haunt the business segment. For that it’s thankful.