Issue No. 759

The Crisis Deepens

Pushing Back: Inside This Issue

It’s man versus virus. An all-out war. And airlines are directly in the crossfire.

Events are changing fast but last week, the theatre of battle shifted from east to west, with Italy now the center of the pandemic, and China apparently recovering but still far from declaring victory. In the U.S., meanwhile, the Covid-19 virus is rapidly spreading. Reluctantly, countries everywhere are concluding that slowing the enemy’s advance requires a near-shutdown of entire economies, and a virtual halt to international air travel. What appeared a potentially short-lived, Asia-only crisis for airlines just weeks ago is now a worldwide struggle, worse than any the industry has ever faced, 9/11 included.

There is no airline not bleeding cash right now. And none — even those with herculean balance sheets like Delta — that would be able to survive an extended period under these conditions. The survival of the airline industry has thus become a question of public policy. Sure enough, governments around the world are now starting to provide some measure of financial relief for airlines. The pressure to do more will mount in the weeks ahead.

U.S. airlines gave a detailed look at their plight early last week. But by the end of the week, their words — and their proposed remedies — were already outdated. On Saturday, American was cutting two-thirds of its entire international schedule. Wow. Just wow.

Norwegian might be one of the first to succumb to the virus war. It’s on its knees begging for more government help. Norway, in another instance of the unthinkable becoming reality, is now closing all of its airports. Will the same happen elsewhere in Europe, or even in the U.S.?

Back in Asia, Hong Kong’s Cathay Pacific didn’t provide much information in its earnings report for the last half of 2019, other than to warn that the first half of 2020 will be rough. (That’s an understatement). There’s some evidence that Chinese airlines are getting grounded planes back in the air. Brazil’s Azul, which earned extraordinary profits in the last quarter of 2019, said demand within Brazil is still holding steady (as of Thursday, anyway). But international demand is cratering. Australia’s Qantas, India’s IndiGo, and Canada’s Transat were others ringing alarm bells.   

Alright, fasten your seatbelt. Time for another week in the war.

Skift Airline Weekly Webinar: Airlines in the Time of Covid-19

Join Skift Airline Weekly’s editors on Thurs., March 19 at 12 p.m. Eastern Daylight Time as we take a region-by-region look at how the Covid-19 pandemic is hitting the world’s airlines. We’ll look at how demand is drying up, what effects travel restrictions might have, how the drop in fuel prices isn’t helping as much as it should, and how airlines can weather this storm. Register here.

Verbulence

But what I would say, and I want to be very realistic, is that I do believe we'll have more bankruptcies and defaults in the airline business this year than we did last year.

AerCap CEO Aengus Kelly, speaking at the JPMorgan investor event

Earnings

October-December (three months)

  • Azul: $212m/$106m*; 24%
  • Pegasus: $4m; 6%

July-December (six months)

  • Cathay Pacific: $44m; 2%

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

Feature Story

The Covid-19 virus crisis is now a full-blown pandemic affecting all corners of the earth, not to mention all airlines of the earth. In China, the worst might be over as the number of new cases reportedly decline. In Europe…

Weekly Skies

Somehow, Hong Kong’s Cathay Pacific managed to earn a profit during the second half of 2019, despite ongoing cargo weakness and a severe demand shock caused by political unrest. It wasn’t a big profit; operating margin was less than 2%.…

Fleet

It wasn’t just airlines participating in last week’s JPMorgan conference. The aircraft leasing giant AerCap presented its thoughts on the current crisis, expressing confidence that the industry will bounce back. Speaking about China, it said the number of flights in…

State of the Unions

The long-simmering negotiations between Qantas and its pilot union has taken a new turn, due to the Covid-19 pandemic. Pilots were due to vote on a new deal, which the union had previously said was not satisfactory. The wrinkle is…

Landing Strip

Both the European Union and the FAA have relaxed use-it-or-lose-it slot rules at restricted airports. The EU has suspended its requirement that airlines use 80% of their slots until June, a move IATA lauded but said was not long enough.…

Routes and Networks

On Friday, American’s CEO and COO sent a letter to employees outlining another round of capacity cuts on top of those announced earlier in the week. Many of the new reductions involve continental Europe, in reaction to the Schengen Area…