Issue No. 760
'State of Emergency'
Pushing Back: Inside This Issue
It’s another week in the war against Covid-19, a once-in-a-century viral pandemic. Like everyone else on planet Earth, airlines are still in a phase of deeply uncomfortable uncertainty, especially about how long the war might last. A few weeks? A few months? A few quarters? More than a year?
There’s still uncertainty, too, about how governments will act to soften the economic pain. As the insurer of last resort against economic calamity, many are devising policies to replace lost income for workers and provide emergency cash to companies — airlines chief among them — that are suddenly sucked dry of their normal revenue stream. The private sector is in flames, and the government sector is the only one with the hoses.
As government lobbying becomes their number-one priority, airlines are internally focused on two key survival tactics: Cost cutting and cash grabbing. Just as we’re all adopting new terms like “social distancing” and “flattening the curve,” airlines have a new term of their own describing the essence of their cost cutting efforts: “variabalizing the cost base.” Lufthansa mentioned it. Qantas mentioned it. And so have many others.
What does it mean? Essentially, doing as much as possible to ensure that when flying is reduced by a certain percentage, costs are reduced to as close to that percentage as possible. Under the traditional principles of airline economics, that’s extremely difficult to achieve because much of an airline’s costs are fixed — they must be paid whether flights are operating or not. But in times as desperate as these, obligations (to workers, lenders, suppliers, airports, governments, etc.) are often suspended or renegotiated. Successfully variabalizing its cost base has Qantas for one, thinking it can ride the storm out, even if it lasts for another year. U.S. carriers say they need government aid to survive more than another few months. As of this writing, a relief package from Washington seemed imminent. Will it satisfy airline demands?
This company, this industry, and maybe soon, the global economy, is in a state of emergency.Lufthansa CEO Carsten Spohr
October-December (3 months)
- Lufthansa: $194m/$295m*; 3%
- Aegean: $2m; 1%
- VietJet: $35m; 10%
January-December 2019 (12 months)
- airBaltic: -$9m; $2m; 6%
Net result in USD; operating margin
*Net profit excluding special items (all operating figures exclude special items)
Webinar Replay and Q&A
You can watch a replay of the webinar, "Airlines and Covid-19," here.
We are going to provide an extended Q&A session, which will be longer and more in depth than previously planned. With that in mind, we’d love to hear your questions. Please submit them here until Monday, March 23 at 12 p.m. EDT, and we’ll make sure to prioritize them for our recording, which will be distributed on Tuesday, March 24.