Issue No. 756

Gulf Growth 2.0

Pushing Back: Inside This Issue

It was New Year’s Day when reports first began surfacing of a mysterious SARS-like virus spreading in the Chinese city of Wuhan. Nearly two months later, public health officials are still struggling to contain the outbreak, deploying tactics that have largely frozen the entire Chinese economy. Air travel, unsurprisingly, is dramatically down, hitting not just Chinese or even just Asian airlines, but all carriers with heavy Asian exposure. Air France/KLM and Qantas both gave financial damage assessments that reach into the hundreds of millions of dollars. IATA sees the Covid-19 virus shock erasing nearly $30b from industry revenues this year. It also foresees a y/y decline in traffic, for the first time since the 2009 global recession.      

How much worse will the crisis get? The impact is now spreading to markets outside Asia, including Europe where Venice just cancelled its Carnival celebrations. Korea, like Italy, is also seeing a jump in Covid-19 cases. The odds are increasing, meanwhile, that the outbreak will take a meaningful toll on the global economy.  

In earnings news last week, Air France/KLM’s Q4 numbers dampened hopes of a quick rise in margins following new labor accords and many new turnaround initiatives. Air Canada’s figures, similarly, failed to erase doubts about the company’s ability to earn decent margins during winters. Qantas, reporting for the six months to December, again did well thanks to robust domestic profitability. Elsewhere, Gol did phenomenally well and SpiceJet did well relative to all the capacity it added. TAP Air Portugal’s losses, combined with management-government friction, could lead to the airline’s sale — Lufthansa and United are reportedly sniffing around. 

Verbulence

I think the way the TWU has been behaving is outrageous and disgraceful. With the challenges that we have with the tourism industry in Australia today, with the bushfires and with coronavirus, for them to take this disruptive action is a complete disgrace.

Qantas CEO Alan Joyce, attacking unions for engaging in labor unrest 

Earnings

October-December 2019 (3 months)

Net result in USD; operating margin
*Net profit excluding special items (all operating figures exclude special items)

  • Air France/KLM: $173m; 1%
  • Air Canada: $117m/$136m*; 3%
  • Gol: $106m; 26%
  • SpiceJet: $10m; 1%

July-December 2019 (6 months)

  • Qantas: $305m; 10%
  • TAP Air Portugal: $16m; 7%

Weekly Skies

Air France/KLM’s latest business plan, presented to investors in November, is now in full swing. The goal: To earn profit margins that look more like its European rival IAG. From 2011 to 2014, the Franco-Dutch carrier amassed net losses excluding…

Sky Money

IATA’s economics team in Geneva produced estimates of how much revenue Asia’s airlines will lose as a result of the raging Covid-19 crisis. Its best guess for all of 2020 is about $28b, most of it incurred by Chinese carriers.…

Media

Looks like IndiGo won’t be flying widebodies after all. An Economic Times report states the carrier will instead fly to London and Tokyo with narrowbody A321 XLRs, even if that means waiting a few years before they’re delivered. IndiGo, aside…

Fleet

Green Africa doesn’t want to wait for its new A220-300s to arrive from the Airbus factory next year. So it’s leasing three of them, enabling the startup to launch before the end of this year. Green Africa will try to…

Landing Strip

The Metropolitan Washington Airports Authority said 2019 passenger traffic at Dulles (IAD) and Reagan National (DCA) grew by 3% to 49m passengers, compared with 2018. Much of the growth was fueled by IAD, which served 25m passengers last year, up…

Routes and Networks

With demand conditions weakening amid the Covid-19 shock, Qantas is proactively removing capacity from across its network. Naturally, Asia is the focus of its cuts, with mainline international flying (in ASK terms) reduced by 16% until at least the end…