Issue No. 773

United's Piles of Miles

Pushing Back: Inside This Issue

With each passing week, more and more Americans are returning to the air. But will the current sunbelt spike in Covid cases, affecting markets like Florida, Arizona, Texas, and southern California, derail the nascent leisure recovery? Or are enough people now simply unafraid of the virus? Would a second wave of infections this fall reverse the industry’s momentum?

Hoping to benefit from the revival while it lasts, JetBlue is bringing more of its planes and people back. Most interestingly, it’s disavowing the principle of sticking to its core network strengths, instead launching a scattershot of new routes that in normal times would elicit a ferocious competitive response. Its boldest move: Marching into Newark while United lies dormant, attacking even its prime-time California routes. Florida, unsurprisingly, also features prominently in JetBlue’s forceful reawakening.

A reawakening is underway within Europe too, as leisure carriers like Norwegian and TUI see encouraging restart opportunities. Wizz Air, for its part, continues to add new bases, including one in Russia. The goliath of central Europe meanwhile, Lufthansa, awaits a fateful shareholder vote on the bailout it’s supposed to get from Berlin — a bailout with heavy strings attached.

Latam will detach Argentina from its South American empire, closing its unit there. It will still fly to and from the land of Tango, just not within. Will Aeromexico be next to join Latam in bankruptcy? Another Latin bankruptcy victim, Avianca, announced a Q1 operating profit last week. But as usual, its operating profits were accompanied by heavy net losses.

Frontier’s losses were exceptionally heavy last quarter. Sun Country on the other hand, made money. On the other side of the earth, Virgin Australia is getting closer to new ownership. Will it be Bain? Or will it be Cyrus?


“We’re in the process of a recovery. No question about it.”

Delta CEO Ed Bastian, speaking on Bloomberg TV

Mondays With Skift Airline Weekly

On Mon., June 22, Editor Seth Miller answered the question: What is the passenger experience during a pandemic and what can airlines do to reassure passengers. Watch the archive version here.


January-March (3 Months)

  • Avianca: -$121m; 0%
  • Frontier: -$60m; -18%
  • Sun Country: $7m; 8%
  • VivaAerobus: -$17m/-$8m; -4%

*Net result in USD/*Net result excluding special items/ Operating margin

Weekly Skies

  • Drama, drama, drama. It’s never a dull moment at Colombia’s Avianca, hit by one crisis after another. Three years ago, it suffered a 51-day pilot strike. Not long after, a plan to merge with Avianca Brasil collapsed when Avianca Brasil, well, collapsed. Avianca Argentina collapsed too, further tarnishing the Avianca brand. A bitter boardroom battle was distracting. Overexpansion, overborrowing, and excessive aircraft ordering all proved problematic. Colombian market attacks by Latam, VivaColombia, and Copa’s Wingo didn’t help. Rolls-Royce engine problems on Dreamliners. A320 NEO delays. Losses in Peru. Currency volatility. South America’s never-ending macroeconomic headaches.

    Before long, restructuring was inevitable, never mind consistent operating profits. Strategically, Avianca would abandon growth, downsize its aircraft order book, close most of its Peruvian flying, divest non-core subsidiaries, densify A320s, retire E190s, open a new prop-flying regional unit, develop its loyalty and cargo businesses, rebrand its fares, focus on its Bogota hub, and form new partnerships, most importantly with United and Copa. Financially, it would undertake a bankruptcy-like restructuring without actually filing for bankruptcy, getting help from United in the process. Always a decently profitable company at the operating level, even during its most turbulent moments, Avianca, by early this year, seemed to have finally executed the difficult reforms and balance sheet cleanup necessary for more sustainable long-term profitability.

    But then, the Covid crisis. Suddenly, with revenues and government help all but nonexistent, Avianca could no longer survive without bankruptcy protection, which it entered on May 10. It was the carrier’s second filing, having gone through the process once before in 2003. To repeat, Avianca never had much problem earning decent operating margins last decade, supported by a strong market position within Colombia, alongside busy family-visit and tourist traffic in Central America. It was always its net results, and related balance sheet scars, that undermined success. Sure enough, it reported yet another operating profit/net loss combination last week, for the first quarter of 2020.

    The Covid crisis, remember, didn’t hit Latin America until the end of the quarter. And January happens to be a peak month for carriers like Avianca. It thus walked away with an operating margin just above break even for the first three months of the year, but also a $121m net loss. Revenues plummeted 18% y/y while operating costs dropped 17%. Fuel costs dropped 25%, on about 12% less ASK capacity, according to Cirium schedule data. Colombia accounted for a full 44% of total revenues, reflecting the carrier’s heavy downsizing in Peru. Bogota, specifically, was its only major airport which saw capacity expansion. Even Medellin, the carrier’s second busiest market, saw big contraction.

    The company, still run by the same management team led by CEO Anko van der Werff, is now engaged in the arduous task of restructuring and abandoning supplier and union contracts, with the full intent of emerging a healthier airline (few think it will go away). The market situation though, remains awful, with much of South and Central America’s airspace still largely closed, and economies in the region deeply distressed. Government aid, meanwhile, remains elusive.    

DOT Releases Numbers for Frontier, Sun Country

  • The U.S. DOT’s Bureau of Transportation Statistics published Q1 financial data for U.S. airlines last week, providing a first look at how Frontier performed. As a privately held airline, meaning none of its shares are traded on a public stock exchange, Frontier does not self-publish quarterly results or hold earnings calls.

    So how did it do? Exceptionally bad, the numbers show. From January through March, the Denver-based LCC suffered a negative 18% operating margin, worst among all U.S. carriers. Only American came close to such ugliness with a negative 16% drubbing. Clearly, operating costs were an issue, spiking 25% y/y on 26% more ASM capacity, according to Cirium schedule data. That’s a sign of aggressive expansion, which failed to produce any revenue growth when confronted with the Covid shock.

    Q1 revenues in fact declined 1%. During January alone, Frontier’s large Denver operation was largely stable y/y in terms of capacity. But seats from Las Vegas were doubled, and seats from Florida were up nearly 30%. After Southwest exited Newark last year, Frontier jumped in with lots of new flights. Boston was another addition. Philadelphia, Phoenix, Atlanta, and San Juan were key expansion markets. Even in the month of March, Frontier’s scheduled seats were up 30% y/y. To be clear, the ultra-LCC does tend to underperform during winters, despite its rather heavy Florida presence. Last year, its Q1 operating margin was just 6%, below the U.S. industry average. Summers are much better, thanks largely to Denver, still its busiest airport.

    Fortuitously, other airlines report a relatively brisk traffic recovery in mountain states like Colorado, and in beach markets like Florida and Phoenix. Frontier seems to sense opportunity, announcing 18 new summer routes a few weeks ago. Some are markets it flew before while others are brand new. Just last week, it announced some new flying from Cincinnati. Its seat counts for July are down a relatively modest 37% y/y. August seats are down just 20%, though subject to change if demand doesn’t materialize. Miami and Fort Myers in Florida are two markets of note where it’s adding lots of seats. Frontier was an early adopter of screening passengers for their body temperature. To spur demand, it’s offering triple miles for all June bookings (for travel through mid- September). More embarrassingly, it briefly tried charging for blocked middle seats, generating a media firestorm.
  • Sun Country, whose figures were also revealed for the first time by the DOT data, was in the opposite situation as Frontier, reporting a surprisingly strong Q1 result. Believe it or not, Sun Country made money last quarter despite the pandemic’s impact in March. The only other airline for which that was true was Allegiant. Sun Country’s 8% operating margin, however, was still drastically down from its phenomenal Q1 figure of 24% last year. That made it America’s most profitable airline for 2019’s first quarter, though ultimately, its 12% full-year figure for 2019 was identical to that of Frontier. Cirium data show Sun Country’s Q1 ASM capacity was up 4% y/y. But its operating costs rose 10%. Revenues, unfortunately, shrank 8%.

    As a Minneapolis-based airline flying vacationers to the sun, it’s no wonder why Sun Country is now a Q1 profit machine. More challenging are other parts of the year, when it relies quite a bit on charter flying. That’s been hit hard by the pandemic. But fortuitously, the carrier prioritized cargo growth before the shock, signing a deal to fly packages for Amazon. That’s proving a big plus right now. It’s also surely happy to not have any aircraft orders outstanding. If the recovery in leisure traffic continues, it might even be tempted to grab some used planes from what’s now a deeply-distressed market.
  • Back in Latin America, Mexico’s VivaAerobus did not, unlike its rival Volaris, manage a Q1 operating profit. Instead, it posed a negative 4% operating margin, even though the Covid crisis only hit the country late in the quarter. It was, however, a much better Q1 for Viva this year than last year. In 2019, it posted heavy Q1 losses, though it ended the full year with a decent 7% operating margin. Overcapacity was a persistent theme in the pre-Covid Mexican airline market, as the country’s three LCCs received a steady stream of new A320/21 NEOs.

    Viva’s fortunes looked brighter in early 2020 though, as Aeromexico grappled with its lost MAX capacity, and as Interjet struggled to survive. Hence the 21% y/y increase in its revenues last quarter, albeit on 27% more ASK capacity. Operating costs rose by just 9% as fuel costs fell 8%. Mexico’s peso, helpfully, remained more or less stable y/y, depreciating significantly only after the pandemic hit Mexico in late March. The virus is now spreading rapidly in the country, threatening travel demand.

    Taking a relatively relaxed approach to containment, Mexico’s government has already opened its beach resorts to international visitors. But will they come? The U.S., most importantly, is still advising its citizens to avoid all non-essential international travel. Viva’s initial stage of recovery thus depends on domestic travel. It’s also strengthening its cargo capabilities by converting 10 of its A320s into freighters. It’s doing more charter flying. It’s offering free flights this month to all health care professionals. And remember, free flight giveaways can lead to big money for Viva, given that 49% of its revenues come from ancillaries. Many of its passengers are visiting families, a segment that should hold up well during the recovery phase. Multiple rounds of borrowing from private-sector lenders gives it a comfortable cash cushion, notwithstanding Mexico’s unwillingness to provide much airline industry aid.

    A top goal for Viva is to avoid layoffs. Consolidation would help in that regard, with Interjet the most likely carrier to disappear. Aeromexico now says it might be headed for bankruptcy (see Covid Crisis section below). Viva itself, for the record, ended Q1 with 37 planes (roughly half of them NEOs) and a 21% share of Mexico’s domestic traffic.
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  • IndiGo’s chief Rono Dutta, once a top United executive, spoke with the Economic Times about managing India’s largest domestic airline during a global pandemic. There are a few positives, like cheap fuel, the momentary disappearance of airport congestion, and opportunities to cut costs in other areas. Since allowed to restart flights earlier this month, IndiGo’s demand has been steadily rising, as have load factors and yields. “We have been very encouraged by what we have seen in the first few weeks of travel resumption,” Dutta said.

    IndiGo was initially able to operate just one-fifth of its normal capacity at the start of the month, when Delhi removed a restriction on flying. Capacity has steadily increased through the month, and Dutta hopes to reach 50% of normal capacity next month, and 80% by April 2021 (the start of its next fiscal year). He also hopes to restart international flights before long.

    Speaking of which, international flying was a big bright spot for IndiGo before the crisis, earning higher profit margins than domestic flying last year. China in particular produced strong returns (it served Guangzhou and Chengdu, not to mention Hong Kong), and the LCC would have expanded to China had the existing India-China air service treaty allowed (Side note: India and China are currently engaged in deadly mountain border skirmishes).

    IndiGo is separately bullish longterm on winning back international traffic that for years passed through Gulf hubs. These hubs, i.e. Dubai, Abu Dhabi, and Doha, were overbuilt, Dutta believes, and thus fragile. He gives the example of a passenger that once flew from Kozhikode to Chicago via Dubai. That passenger will in the future be more inclined to fly the route via Mumbai instead. One of IndiGo’s goals pre-crisis was indeed developing Mumbai as a more robust international hub, especially after Jet Airways collapsed. It even at one point considered buying Air India to get its airport slots, Dreamliners, and overseas route rights.

    Dutta also mentions the stress Gulf carriers are feeling with widebody values getting “massacred.” This, he said, will favor narrowbody carriers in the international arena. Last year, sure enough, IndiGo included A321 XLRs in another giant NEO order it placed with Airbus. For now, the focus is just returning to profitability, which Dutta says won’t happen anytime in the next 14 months. But it can at least cover its variable costs, namely fuel costs, crew costs, and airport costs. On that basis alone, excluding fixed costs, IndiGo’s flights are currently earning good margins and generating cash. Fixed costs though, including monthly lease and debt payments plus overhead, are about 40% of total costs. “So flying 30%-40%-50% of the capacity, there is no way we can cover that and make a profit.”

    Travel restrictions even for movement within India remain severe, making a near-term return to profitability unlikely. But the crisis could cause more carriers to disappear, with Go Air said to be facing severe financial difficulties. Would IndiGo consider buying a rival airline? No, Dutta says firmly.
  • The South China Morning Post points out that in Europe, British Airways, easyJet, Virgin Atlantic, Ryanair, SAS, and Lufthansa are seeking to cut a combined total of 53,650 employees. In Asia, on the other hand, carriers have been more inclined to opt for pay cuts and unpaid leave, often supported financially by governments. It names Japan Airlines, All Nippon, Korean Air, and Taiwan’s Big Two carriers, China Airlines and EVA Air — all have thus far avoided giant layoffs.
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  • As rough as it is right now to be an airline, it’s worse being an aircraft manufacturer. It seems like every airline is cancelling or deferring orders as industry demand sharply contracts, with no visibility on when it might return. The latest example is easyJet, which is again adjusting its order book. It’s now deferring delivery on another 24 NEOs, following up on a deferral announcement in April. The 24 units will now arrive between fiscal years 2025-2027, joining eight others that were pushed back from 2020-2022. The LCC also secured additional cancellation and deferral rights, and an extension on its deadline to decide on exercising some options. It still, however, said it remains committed to a longterm strategy of replacing its older A320s with NEOs.

    EasyJet’s rival Ryanair, meanwhile, is ready to buy more planes if the price is right, while entertaining the possibility of upsizing some MAX orders to the largest version, the MAX 10.
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Landing Strip

  • France’s Vinci, which runs airports in Europe, Asia, and the Americas, started off its latest earnings presentation with a review of the year that was. It was a record year for the company, in terms of traffic and revenue. Its assets, including London Gatwick, performed above expectations.

    And then the pandemic struck. Traffic has fallen to virtually zero at many of its facilities, and the company’s leadership said it couldn’t predict anything for the balance of this year, as too much uncertainty remains not only of the pandemic’s trajectory but how governments will ease travel restrictions and when passengers will feel confident to travel. Alas, virus uncertainty, government uncertainty, economic uncertainty, and traveler confidence uncertainty.

    That said, Vinci is looking beyond the pandemic to the future and believes that future will be green. Thus, it’s planning to step up its sustainability efforts with the aim of achieving carbon neutrality. Vinci’s large portfolio of airports, besides London Gatwick, includes all major facilities in Portugal, plus Osaka Kansai, Lyon, Belfast, and Belgrade, to name but some of the larger ones.
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  • Latam and Azul, two rivals in the domestic Brazilian market, are now cooperating. Pressured by the new realities of pandemic-era flying, they’ll soon start codesharing on 50 non-overlapping domestic routes, and possibly more in the future. Passengers will also have the option of earning miles in either airline’s loyalty program. Normally, such an arrangement between two rivals — in a market with just three major players — would surely arouse the scorn of competition watchdogs. But the crisis changes the equation, with carriers just trying to do what they can to stay alive.

    Gol, asked for its reaction, told Panrotas that it wasn’t bothered by the new Latam-Azul partnership. It feels it has the Brazilian market well covered, aided by a partnership with the regional carrier VoePass. But might Latam, already in bankruptcy, wind up merging with Azul, which is flirting with bankruptcy? Azul for its part ruled out the possibility. Latam Brasil’s chief seemed somewhat more open to the idea in an interview with CNN but later refuted any such intention.
  • Until now, U.S. airlines had no coordinated policies on facial coverings or masks on board. That changed last week when Airlines for America (A4A) issued new guidelines for its member airlines that require passengers to wear masks inflight. After A4A issued its advisory, United, Delta, and American, among others, quickly said passengers not wearing masks could be denied boarding. This touched off a small furor on social media, featuring pictures and videos of unmasked passengers arguing with gate agents and flight attendants. These incidents appear to be in the minority.

    But one thing that airline labor groups have worried about is that there is no federal regulation requiring passengers to wear masks. “These guidelines don’t carry the force of law,” a union representative told Skift Airline Weekly. That puts airline employees in the uncomfortable position of having to argue with difficult passengers and deciding whether to divert a flight if a passenger fails to comply with policy, the representative said. Airlines have said they may revoke noncompliant passengers’ future flying rights, depending on the severity of the incident.
  • What is a “wellness ambassador?” Funny you should ask. Etihad has designated staff as what it calls, yes, “wellness ambassadors” to help passengers understand what the airline is doing to sanitize aircraft and to ensure that travel is safe and to answer passengers’ questions about flying during a pandemic. Concerned passengers can contact these ambassadors through Etihad’s website, and a few will be deployed to roam Abu Dhabi airport to help passengers navigate the changes wrought by Covid. When Etihad resumes more international flying, it will deploy its wellness ambassadors on selected flights.
  • Finnair and Sabre have resumed working together on distribution, the two companies announced last week. Finnair tickets and itineraries will be available to travel agents worldwide through Sabre’s GDS. “Travel agents continue to play a key role in the travel industry value chain and together with Sabre, we will work to deliver the benefits of NDC technology,” said Finnair Chief Commercial Officer Ole Orver. NDC, remember, is an IATA-championed drive to modernize airline distribution and merchandising, incorporating tactics pioneered by tech giants like Amazon.  
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Routes and Networks

  • For airline network planners everywhere in the world, the current focus is revival, that is, restarting flights when demand merits and — just as importantly — when government travel restrictions allow. Occasionally during the past weeks, Europe’s Wizz Air and Ryanair have announced some brand-new routes. But in most instances, when airlines have something to say about their route networks these days, it’s to announce when they’ll be resuming this or that route they previously flew.

    Norwegian, for example, flying just a handful of domestic Norway routes during the crisis, said last week it would revive some U.K. routes (from London Gatwick and Edinburgh) to Oslo and Copenhagen next month, citing a buildup in demand. It will resume some Scandinavian flights to European markets like Spain and Greece as well. This will justify bringing back another 12 B737s, to go along with the eight currently flying. Happily, more workers will return as well.
  • O.K, so Norwegian is bringing back some flights. Other airlines are doing the same. But a JetBlue announcement last week was something altogether different. The LCC unveiled a slew of brand-new domestic routes, many of them direct attacks on rival hubs. Most strikingly, the airline will bring its Mint-equipped A321s to Newark, connecting the airport with Los Angeles and San Francisco starting next month. As it happens, these are two of United’s most important routes.

    Not stopping there, JetBlue will fly from United’s Newark fortress to San Diego, Phoenix, Las Vegas, Austin, Charleston, Jacksonville, and Sarasota before the end of this summer. So not to make Delta and American feel free of its wrath, JetBlue will fly from New York JFK to Detroit, Minneapolis, and Dallas DFW, three business-heavy routes it’s never flown before.

    It almost goes without saying that Florida will get lots of new routes, but not just from JetBlue’s core markets like New York LaGuardia. It’s also starting four Florida routes (and another to Puerto Rico) from American’s Philadelphia hub. Also in the mix are new Florida routes from Chicago O’Hare, Pittsburgh, San Francisco, Seattle, Portland PDX, Cleveland, Providence, and Washington DCA.

    To be perfectly clear, JetBlue isn’t expecting to generate huge profits on these new routes, nor any profit for that matter. But they’re places where it sees reviving leisure demand sufficient to generate positive cash flow (in other words, more than cover variable costs like fuel). And that’s better than having planes sit on the ground. By flying more of its planes, furthermore, it can retain more of its employees. But the carrier makes clear that the new routes are opportunistic short-term maneuvers, with “market demand to determine how long a particular route continues to operate.” It might readily exit some of the Newark routes, for example, when enough demand returns to rebuild its normal route network. Many of its business-oriented routes from Boston, as it happens, are not yet ready to return. Same for many international markets in the Caribbean, Mexico, and upper South America.

    As for those Mint routes, JetBlue is simply betting that the New York-area-California market will see some return of premium leisure demand, for lie-flat seats that would otherwise lie fallow in an industry still devoid of any high-yield business traffic. It might also be trying to take advantage of United’s relatively conservative approach to reviving its schedules. All told, JetBlue will be operating more than half of its normal summer schedule, which includes its newly announced routes, plus the reopening of some closed cities and revival of some seasonal flying.

    For JetBlue to be a healthy airline again though, five key markets must return to some semblance of normal: the Florida market, the Caribbean market, the Boston business market, and the transcon market. Next year, it still aims to enter the transatlantic market, targeting London.

And Wizz Bets on Eastern Europe

  • Wizz Air continues to announce new routes and bases. In Romania, a critical market, it’s opening yet another base (its seventh in the country) at the airport serving Bacau. Two A320s will be stationed there in late October, at which point travel restrictions within greater Europe will hopefully be a thing of the past. Of the 12 new Bacau routes it will launch, seven are to airports in Italy.

    That aside, Wizz will undertake what’s it calling a “massive” expansion from Serbia’s capital Belgrade. Rather than basing two A320s there, it will switch to three A321s. Not waiting until the fall, the expansion will take place next month, featuring nine new routes, three of them in Germany. The LCC is reopening old bases all the while, including one in the Ukrainian capital Kyiv last week.
  • Perhaps most interestingly (apologies for burying the lede!), Wizz will open its first Russian base in September. A single A320 will be based in St. Petersburg, where Russia’s government was pushing an open skies policy pre-crisis. From Peter the Great’s old capital, Wizz will fly to Salzburg (Austria), Oslo (Norway), Copenhagen (Denmark), Stockholm Skavsta (Sweden), and Malta. It first began flying to St. Petersburg from other bases in 2017, about four years after debuting flights to Moscow’s Vnukovo airport. Last year, it began Budapest flights to Kazan as well. Major industry shocks have a way of changing trends, and Russia’s traditional hostility to open skies and foreign low-cost competition could potentially melt away in the post-Covid era.
  • China and the U.S. stepped back from the brink and started allowing commercial flights between the two countries. Remember, the U.S. had moved to ban flights from China after China’s civil aviation regulator effectively blocked Delta and United from resuming service. Now, the U.S. Transportation Department said its counterpart in China has made progress on the issue, and Chinese carriers will be allowed to return.

    Flights remain limited, however. Chinese carriers will be allowed to operate four weekly roundtrips. Both sides said they will allow more service on a reciprocal basis. A deeper longer-term question though, is whether U.S.-China air service demand will ever become what it once was, given the growing hostility and changing economic relationship between the two countries. Boeing is a good example: It hasn’t sold any planes to China in a long time.
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Covid Crisis 2020

  • Among IATA’s latest asks of governments: Extend waivers on airport slot usage rules through the upcoming winter season. European airports, in particular, typically practice an 80-20 rule, by which airlines lose access to their takeoff and landing slots if they don’t use them at least 80% of the time. Officials suspended that rule for the summer half, which runs between late March and late October. This way, airlines don’t have to operate wasteful empty flights at a time of negligible demand just to preserve their slots. Will they grant a reprieve for the winter too, as IATA hopes? For more clarity on the extent of the current demand shock, IATA said that RPK traffic dropped about 20% after 9/11, about 12% after SARS, and 95% in April of this year. That’s why airlines need the help from governments they’re getting, though in some regions not enough.

    The current crisis, meanwhile, is hitting all geographies, without any sanctuary. During the financial crisis a decade ago, remember, certain markets held up well, including leisure markets like Florida and Hawaii. Starting around 2010, oil markets were places carriers could seek refuge. The closest thing emerging as an early refuge this time around, it seems, is Florida again, and other U.S. domestic leisure markets like national park gateways (but not Hawaii this time, because it remains closed to visitors). Some leisure routes within Europe and within individual Asia-Pacific countries like China, Korea, Vietnam, Austrlaia, and New Zealand are offering some opportunities for relief as well, to carriers qualified to fly there.   
  • Emphasizing the great uncertainty pervading the airline industry, IATA points to a new survey that shows only 45% of travelers say they plan to fly in the next one to two months. An earlier survey showed 65% answered in the affirmative. It could be that early on, people thought the outbreak would be contained by now. In any case, 95% currently say they’ll travel sometime within a year after the pandemic ends, though half of this group will wait at least six months.

    IATA separately points out that passengers are booking flights much later than usual. Normally, just 18% of bookings come in between zero and three days before departure. This May, the figure was 41%. It means airlines have no idea what to expect for the fall and winter holidays, devoid of any meaningful quantity of forward bookings. Few bookings also mean less cash coming in.
  • IATA also talked a lot about Covid-19 testing last week. It doesn’t object to the idea, when applicable to travelers from high-risk countries and regions. But governments should assure that testing 1) delivers results promptly and accurately, 2) can be conducted at scale and cost-effectively, and 3) doesn’t create economic or logistical barriers to travel. The worst option, IATA says, is imposing 14-day quarantines on arriving passengers. Ideally, it adds, tests should be conducted at the departing airport, not the arriving airport.
  • Turning its attention to Europe, IATA sounded a dismal note last week by warning that economic deterioration is expected to worsen as the full effects of the Covid pandemic play out. The group said GDP forecasts for the U.K., Spain, Germany, Italy, and France are worse for June than they were in April. Passenger traffic in those five countries also is expected to decline precipitously for the month, y/y. Collectively, European airlines are expected to lose $23b this year, and 6m aviation jobs could be at risk, IATA said. The association stressed the need for all European governments to act together to coordinate the restoration of air connectivity. And it once again called for more state aid for the region’s airlines.

Latin America

  • Finally, it’s time to pull the plug. Between 2011 and 2020, La Nacion reports, Latam’s Argentine unit amassed losses in the realm of $325m. During that same period, state-owned Aerolineas Argentinas received taxpayer subsidies amounting to $4.8b. Last year alone, the report goes on, Latam Argentina lost $133m. So Latam will close the unit, exiting all domestic routes and reassigning other units to fly Argentine international routes. The carrier stressed that domestic routes within Argentina account for less than 2% of groupwide capacity. And they simply became untenable amid Covid-related demand deterioration and a failure to convince unions to surrender concessions.

    The market was always an uphill battle, with Aerolineas feasting on subsidies, frequent labor unrest, and at least as frequent economic distress. In 2019, LCCs like JetSmart, Flybondi, and even Norwegian began sprouting in Argentina. But all the while, the country experienced another currency crisis. The market shares some characteristics with Italy, also home to a wretched home carrier but filled with pockets of lucrative business traffic. Latam is betting it can still capture this traffic via its hubs in São Paulo, Santiago, and Lima.

    Separately, at a shareholder meeting held online last week, bankrupt Latam said it expects to fly only about 9% of its normal ASKs this month, operating just in Brazil and Chile — operations in Peru, Colombia, Ecuador, and Argentina are still completely grounded. Overall flying should reach 18% of normal in July and 50% by December.   
  • Is Aeromexico next? The carrier said it too was considering a bankruptcy filing, which would put the airline in the same company as Latam, Avianca, and Ecuador’s TAMEAzul and Gol are not far from having to file themselves. Mexico’s largest airline faces many of the same headwinds as its regional rivals, likewise bereft of government support. A recent deal with its independent loyalty plan partner bought some time.

    But to stay out of the courts, it will need concessions from unions, lenders, and other stakeholders. Failing that, Aeromexico would need to file, potentially wiping out Delta’s 49% ownership stake. Delta also stands to lose its stake in Latam, and perhaps Virgin Atlantic, if it too enters administration.

    Don’t forget by the way, that Mexico’s Interjet is also facing severe financial difficulties and could go bankrupt as well.

North America

  • Air Canada’s CFO Michael Rousseau spoke at an online investor event organized by National Bank, making it clear that lack of government aid could hinder its ability to compete with global rivals as the recovery unfolds. U.S., European, and East Asian carriers, most notably, have received hundreds of billions of U.S. dollars in assistance. Air Canada was able to raise lots of money from the private sector, by issuing convertible debt for example. It continues to scout opportunities for additional funds, anticipating a recovery that could last for up to three years.

    Rousseau, in fact, is closely watching how United is using its loyalty plan as collateral to raise money. Another option is a Canadian government borrowing facility, but the interest rates are pretty high and the airline would have to surrender warrants convertible to shares. With a smallish domestic market, Air Canada is much more dependent on international travel than its U.S. peers. As such, it’s strongly urging Ottawa to open its borders to foreign visitors, who now must quarantine for 14-days upon entry. Even some provinces within Canada have restrictions on visitors from other parts of the country. Only if and when travel patterns return to some semblance of normal will Air Canada be able to start recalling its 20k workers currently on furlough.

    Domestic bookings, to be clear, are increasing. And Rousseau hopes to see a bit of European leisure traffic this summer if travel restrictions ease. But note that all transatlantic flying going forward will be mainline, because the carrier’s low-cost unit Rouge retired all of its widebody B767s. Or then again, if Air Canada does wind up buying Transat, there will be no shortage of lowish-cost longhaul flying in the group.

    In the meantime, A319s, and E190s are also gone. On the other hand, Air Canada remains bullish on the A220s arriving this year, and the B737 MAXs which might return to service this year as well.

    Separately, the airline is working with its regional partners Jazz and Sky on areas to cut costs. An Aeroplan relaunch remains on track for later this year. A final thought from Rousseau: He himself hates virtual meetings and thinks he’s not the only one eager to get back to face-to-face meetings with clients.
  • Delta, holding a virtual shareholders meeting, said company finances are stabilizing, though more money is still going out than coming in. The airline will add more flying this summer while doing so in a highly disciplined way, CEO Ed Bastian explained. Speaking separately on Bloomberg TV, Bastian pointed to Labor Day as a key point in time, because that’s the time of year when business travel typically restarts after the summer. Month-to-date load factor for June, he said, is running in the mid-40% range, and growing as the month progresses. Keep in mind though that Delta is still capping its load factors at 60%. It will decide later this year on when to ease the cap.
  • You can never have too much cash. Or that’s the thinking right now, even when adding more cash means adding more debt. American, the most indebted U.S. carrier, is looking to borrow another $2b through the issuance of junk bonds, Bloomberg reports. By junk, it simply means that the securities carry an elevated risk of default. American, remember, used its frequent flier plan as collateral for a loan it’s getting from Washington. What collateral will it use for this latest $2b dash for cash?  
  • Southwest’s latest market assessment shows demand revival is happening faster than expected. A few weeks ago, it expected June revenues to be down 80-85% y/y, on 45-55% less capacity, with load factors between 35-45%. Now it sees June revenues falling only between 70-75%, on 40-50% less capacity, and with loads between 40-50%.

    Looking ahead to July, Southwest sees revenues likely to decline 65-70%, on 2-35% less capacity, with loads between 45-55%. Keep in mind that it’s still blocking middle seats for customers not travelling with family members or other companions. The demand that’s returning, it said, is primarily leisure-oriented.

    But uncertainty remains high, so management is planning for multiple scenarios. Running out of cash is most definitely not a concern, not after raising a mammoth $17b in new financing since the start of the year, including new borrowing, new stock issuance, government payroll aid, and aircraft sale-leaseback deals. It currently has liquidity of nearly $14b, which would last it roughly two years. It previously felt it had enough liquidity for 20 months, but that was based on revenue forecasts that proved too bearish. It’s now down to burning about $20m a day. It expects to pay roughly $1.30 a gallon for fuel this quarter, which is up from previous estimates following an increase in market prices. About 12 cents of that price is for hedge premiums.
  • Throughput at Transportation Security Administration (TSA) checkpoints in the U.S. continued to climb, with average daily passengers now between 400k-500k. This is still 80% off last year’s levels, particularly for the summer, but far above the 87k recorded on April 14, the low point of the Covid-19 travel shock. With more airlines adding flights and more state governments easing restrictions, forecasts now say the U.S. could see 1m daily passengers by the end of the year. Of course, these forecasts could change if coronavirus infections increase and states go back into lockdowns.
  • The U.S. Travel Association warned that spending on travel is expected to be 45% lower this year compared with last. Breaking that down, domestic U.S. travel spending is expected to fall 40%, and spending on international trips is expected to be 75% lower. Domestic trips on all modes of transportation are expected to be 30% down y/y, plunging to the lowest level since 1991. The industry needs further support, U.S. Travel says. The association is calling on Congress to extend federal support for employees to include destination marketing organizations, and to provide tax incentives to help the tourism industry restart safely. The group also is asking Congress to protect businesses from Covid-related lawsuits and to provide federal support for pandemic risk insurance.


  • Europe’s leisure travel giant TUI restarted flying last week, commencing with two fully booked flights from Germany to Majorca. Faro in Portugal is its second tourist spot to reopen. In July, it will offer a variety of destinations in Spain, Greece, Cyprus, Italy, Croatia, Bulgaria, Portugal, Austria, Germany, and Switzerland, with more coming as travel restrictions ease. It’s mostly carrying tourists from Germany, Switzerland, the Netherlands, and Belgium for now, with flights from the U.K. and the Nordic region still suspended until later this summer. Summer holiday bookings are definitely picking up, notably from Germany and Belgium. Same for winter bookings, even from the U.K. Bookings for next summer look “promising.”   
  • The pressure to reopen borders is especially great for European countries dependent on inbound tourism, like Greece, Italy, and Portugal. No wonder why all three were among the first to welcome visitors from other parts of Europe. Spain, meanwhile, said it would open up, sans quarantine, even to the U.K., where infections rates remain relatively high. The U.K.-Spain market is one of the world’s biggest in terms of air traffic volumes.
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Feature Story

United, seeking more just-in-case cash, taps Mileage Plus to reassure lenders

Like an overcautious squirrel gathering nuts for the long winter, U.S. airlines continue to stockpile more and more cash… just in case. Just in case the current traffic recovery stalls. Just in case international travel restrictions remain in place for many more months. Just in case the economy gets even worse. Just in case it’s years before corporations start buying premium seats again. Just in case there’s a much-feared second wave of Covid-19 in the fall.  

Last week, United announced the industry’s biggest borrowing binge yet: A plan to raise another $5b from investors, on top of the $2.8b it borrowed from banks this spring, and another $1.5b it needs to repay Washington as part of the latter’s payroll support program. The airline, in April, also issued $1.1b in new shares. What’s most interesting about United’s latest mustering of more capital, however, is not how much it wants to borrow. It’s the collateral it’s using.

In a first for U.S. airlines, United is turning to its loyalty plan to reassure prospective investors. If the airline fails to repay, worry not. Lenders would then have access to the valuable assets of Mileage Plus. That should be a lot more reassuring, United assumes, than the basket of aging planes it offered as collateral in a $2.3b attempted bond sale that flopped last month.

In marketing the new offer, United unveiled a treasure trove of details about Mileage Plus, the first time any U.S. airline has opened up about the finances of its loyalty plan. Not that it was any secret that these plans are giant profit contributors. But now the world knows just how giant.

Mileage Plus, United disclosed, currently has more than 100m members, generating $5.3b in cash sales last year (12% of the company’s total revenue). More impressively still, the program produced more than a quarter of the airline’s total 2019 operating profit (excluding depreciation and amortization). Its operating margin excluding depreciation and amortization was a lofty 34%. Membership has grown about 9% annually since 2017. Revenue from members, which account for more than half of the airline’s total flying revenues, has grown 10% annually. In the past three years, revenue from non-members has grown at just half that rate. Premier status members, meanwhile, spend 14 times more than non-premier members. Premier status members with a United-branded credit card spend 25 times more.

Of the $5b-plus in cash Mileage Plus generated last year, 29% was an inter-company transfer from United, registered when members earn miles by flying the airline, or flying with a partner airline. When this happens, United “buys” the miles from Mileage Plus for a penny per mile, plus some formula-determined margin. Members can also buy miles directly from Mileage Plus, which is also included in the 29% figure. More interesting though, is the other 71% of cash Mileage Plus generates by selling miles to third parties. Chief among them is JP Morgan Chase, which offers popular credit card products in a joint agreement with United and Visa.

The three companies recently updated and extended their contract, which was previously not as lucrative for United as the co-branded credit deals that American and Delta had with their partners. The new United-Chase-Visa arrangement now runs through 2029, requiring monthly purchases of miles, at a margin of at least 20%. As a general rule, United charges third parties two cents a mile. When a customer redeems miles for a seat on a flight, another inter-company accounting transaction occurs: Mileage Plus buys the seat from United, paying one cent a mile. The plan’s core profit is thus the difference between the two cents a mile it’s getting from third parties, and the one cent a mile it’s transferring to the airline.

But doesn’t United stand to lose money if someone redeems miles for a seat that a paying traveler might have otherwise paid for? Airlines call this displacement. What about people who redeem miles that would otherwise readily pay money for that same seat? This is called dilution. Fortunately, carriers have sophisticated revenue management software to mitigate these risks, carefully controlling how many award seats are available, and requiring more mileage for seats deemed more valuable. The broader point of these programs, of course, is fostering customer loyalty, so that people who spend the most money with the airline receive the most benefits. That means more miles, yes, but often more importantly, it means perks like seat upgrades, airport lounge access, and so on.

Generating billions in mileage sales to third parties, fostering loyalty… no wonder these plans are so valuable. They’re all the more so, in fact, in the age of big data, supplying the personal information to enable more customized and personalized sales and service. The risk of course, is if United ultimately can’t repay the $5b. It would then lose this incredibly valuable asset. In times of distress, airlines like Air Canada, Virgin Australia, and several carriers in Latin America felt it necessary to sell ownership stakes in their loyalty plan. All wished they never did, and ultimately repurchased full control. The point is, losing full control of a loyalty plan is something no airline ever wants to experience.

But United is betting that the risks of not having enough liquidity are greater. It will certainly have a lot of the latter, expecting roughly $17b in available cash or cash-like assets by the end of next quarter. That includes the $5b it hopes to get through this latest Mileage Plus-secured borrowing, plus another $4.5b it can borrow from Washington if needed. It also has an undrawn $2b bank credit line. It would take a lot more than even Covid-19, in other words, to put United at risk of another bankruptcy in the near-term.

But will it ultimately be able to repay roughly $9b worth of newly borrowed money over the coming decade? Interest rates are helpfully low. And for now, demand for air travel is recovering faster than expected. United said last week that domestic demand is steadily improving, with even some unspecified international routes showing signs of life. Ticket cancellation rates are down about 70% from their April highs. Since the end of May, net bookings (new bookings minus cancellations), have been positive. Load factor was just 16% in April and 35% in May. June should see an increase to about 50%. July’s figure should rise to 55%. Even in July though, passenger ticket revenues will likely be down as much as 88% y/y, on about 75% less ASM capacity. Other U.S. airlines are reviving capacity much faster, even excluding international routes.

United’s cargo revenues though, are up sharply y/y, supporting the international flying it’s still doing. Including cargo, total revenues for all of Q2 will be down about 88% y/y, keeping in mind that this includes the awful month of April. Mileage Plus is itself continuing to sell miles, expecting $300m to $350m in revenue net of redemptions this quarter. In fact, during April and May, the program’s cash flow improved y/y thanks to a sharp drop off in members redeeming miles for seats. In addition, as members cancelled trips they booked with miles, United transferred back cash to Mileage Plus. It’s just bookkeeping, yes. But in the event of a default, lenders would be able to seize that cash. Dangling another enticement, United noted that during the 2008-09 recession, the airline’s revenue declined 19% while Mileage Plus revenue only declined 2%.

United’s overall cash burn, meanwhile, should drop to about $30m a day in the third quarter. Like the rest of the industry, it’s slashing operating costs and capital costs. And it’s preparing for the critical day Oct. 1, when government funding for payroll expires. With everyone expecting corporate demand, premium demand, and intercontinental demand to still be largely dormant by then, all airlines are in the process of heavy downsizing. United, unfortunately, depends more on these three market segments than any of its peers. Even before the crisis, CEO Scott Kirby felt his airline was underweighted in domestic markets, the result of excessive cutting during its years in bankruptcy (late 2002 to early 2006). Last week, Reuters reported that United is now sweetening its offer to front-line workers who elect to leave the company voluntarily. To avoid involuntary job cuts this fall, it needs “a lot more people to sign up.”

Speaking via video with the Global Business Travel Association (GBTA), Kirby said the airline is acting conservatively with respect to restarting flights, suggesting rivals might be taking too much risk in restoring service prematurely. United, he said, can restart flights within 30 to 60 days when demand truly merits. He spoke, incidentally, before JetBlue’s declaration of war on United’s Newark hub (see Routes section). Kirby sees a second wave of Covid as a risk for airlines this fall. Only when there’s a vaccine will the industry return to 100% normalcy. He himself will start hitting the skies this week, meeting with employees at airports, and so on. 

In a separate interview with Cranky Flier’s Brett Snyder, United’s network and alliance chief Patrick Quayle spoke of heavy pent-up demand visible in forward bookings. United is keeping planes and crews active and ready to return on short notice. And while the airline needs to rethink its network to reflect new realities, its hubs in America’s largest cities (i.e. New York, Chicago, San Francisco, Los Angeles, Houston, Washington) remain a major strength.

But what’s the future of its large Asian franchise? How about London, Tokyo, and Frankfurt, its three largest overseas markets? Unlike Delta and to a lesser extent American, United helpfully doesn’t hold ownership stakes in its partners, other than modest positions in South America’s Avianca and Azul. Back home, it’s the smallest of the Big Three in Florida, where demand is already returning. It is possible of course, that the corporate intercontinental premium demand that United depends on returns sooner than expected. It’s not too far-fetched to envision the second half of 2021 characterized by robust global demand growth, fueled by vaccine protection, massive government economic stimulus, cheap fuel, and raging pent-up demand. United is certainly not betting on that. On the contrary, it’s insuring itself against things getting even worse than they are now. Hence the latest round of heavy borrowing, this time backed by the company’s crown jewel: Mileage Plus. Just in case.

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Around the World

A look at the world’s airlines, including end-of-week equity prices

Around the World: June 22, 2020

Airline NameChange From Last WeekChange From Last YearComments
American-4%-50%Partner Qatar Airways starting to rebuild its U.S. network; maintained service to AA hubs DFW and ORD throughout crisis
Delta-3%-47%Refunded $2b to customers since the start of this year; still hoping to avoid furloughs
United-7%-58%Just over half of its active Mileage Plus members live in cities other than a United hub city; 13% live in New York metro; 7% in San Fran
Southwest-4%-33%Flight schedules published through early January 2021; still has 140 planes grounded including all 34 of its MAXs
Alaska-6%-40%San Francisco airport delaying some terminal upgrade work; terminal one expansion project to open in 2023
JetBlue-7%-40%Florida imposed quarantine rule on New York-area fliers this spring; New York now considering quarantine for Florida arrivals
Hawaiian-3%-40%Current pilot contract doesn’t become amendable until July 2022; new 5-year flight attendant contract signed in April
Spirit0%-61%Providing $250k in flights to civic organizations promoting human and civil rights
Frontier(not publicly traded)Announced more new Florida flying last week, covering various airports including Miami
Allegiant-3%-22%Offering to notify pax in advance if their flights are booked more than 65%; options to change flights if so
SkyWest-3%-44%Senate’s increase in national park funding could benefit many of the western places it flies
Air Canada-5%-53%CFO Rousseau, talking at National Bank investor event, expresses uncertainty about potential impact of second wave of virus in the fall
WestJet(not publicly traded)Adding back 22 suspended routes next month; will soon have flights to 5 U.S. cities (NY, LA, Atlanta, Las Vegas, Orlando)
Aeromexico-5%-63%During Q1, Mexico’s airline traffic decreased 2% y/y nationwide
Volaris15%-31%Stock price jumps in reaction to heightened risk of Aeromexico bankruptcy
LATAM-16%-81%Has 37m members in its Latam Pass loyalty program; its new partner Azul has 12m loyalty plan members (Gol’s Smiles program has 16m)
Gol-1%-44%Financial auditors warning it might not last as a “going concern,” in other words at risk of bankruptcy
Azul-1%-52%Bolivia provides modest financial support (a few million dollars) to rescue failing national airline Boliviana (BOA)
Copa-8%-50%U.S. DOT levies $450k fine for illegally flying U.S.-Venezuela passengers over Panama
Avianca14%-85%Among the seven members of its unsecured creditor committee: Boeing, SMBC Leasing, Avianca pilot union
Emirates(not publicly traded)Continues to add new routes, and by extension, more connecting itineraries
Qatar(not publicly traded)Doesn’t intend to take any new Boeing or Airbus planes this year or next; doesn’t want MAXs anymore, period (Sky News)
Etihad(not publicly traded)Carriers rushing to add back flights to countries with early reopenings; Etihad last week restarted B787 flights to Athens as Greece welcomes tourists
Air Arabia-3%8%FlyDubai planning to restart regularly scheduled pax service soon; will make an announcement shortly
Turkish Airlines-2%-4%June 14 marked milestone at Istanbul’s new airport: newly opened third runway allowed for three Turkish Air planes to take off simultaneously
Kenya Airways-3%-28%Lufthansa could put its Brussels Airlines unit, which specializes in African routes, into bankruptcy (La Libre)
South Africa Air.(not publicly traded)Rival Comair, also in business rescue (i.e. bankruptcy) presents turnaround plan to shareholders
Ethiopian Airlines(not publicly traded)Revenue losses since crisis began now up to about $1b, CEO Tewolde Gebramariam estimates
IndiGo2%-35%CEO Rono Dutta tells Economic Times that corporate travelers are increasingly booking private charters, which are profitable for IndiGo
Air India(not publicly traded)In April this year, all Indian airports handled just 62k pax, down 99.8% from the 27m they welcomed in April 2019
SpiceJet-1%-61%Times of India runs story about Vistara’s trip to Seattle to pick up a B787; Boeing sent corporate jet to transport executives
Lufthansa-3%-32%Fateful shareholder meeting this week; company warning that gov’t bailout might not get approval; could lead to bankruptcy filing
Air France/KLM-5%-40%Turnaround plan, coming soon, could involve 8k-to-10k job cuts, reports suggest
BA/Iberia (IAG)-1%-40%Spain’s airlines practically begging government to aid tourist sector; Air Europa warns it’s fast running out of money
SAS2%-28%Swedish government pledges to support airline with new equity; Denmark inclined toward similar support
Alitalia(not publicly traded)One key decision to make as it prepares to relaunch with massive gov’t aid: Who will be its CEO?
Finnair-11%-86%Icelandair aiming to finalize out-of-court restructuring by month’s end, with concessions from unions, Boeing, lessors, lenders, etc.; flight attendants a holdout
Virgin Atlantic(not publicly traded)London Heathrow airport urging government to establish “air bridges” to low-risk countries
easyJet-1%-11%IAG putting the Austrian unit of its Level subsidiary into bankruptcy; Level’s longhaul business not affected
Ryanair4%16%Remember when it said early on in the crisis that traffic would be back to normal by now? Was a bit overoptimistic
Norwegian-7%-92%Demand coming back sooner than expected, allowing for the restart of planes, recall of workers; but more flying requires more capital
Wizz Air6%-2%CEO Jozsef Varadi, on Monocle podcast, says airports “begging” for its capacity
Aegean3%-49%Polish government says bankruptcy for national airline LOT a “last resort”
Aeroflot-7%-17%Reuters reports that government planning to inject new money into airline in exchange for more shares
S7(not publicly traded)Russian central bank cuts interest rates to try and stimulate oil-dependent economy
Japan Airlines-4%-39%Says at shareholders meeting that it’s looking to raise nearly $5b in new funds; sees 20% of domestic demand recovering in June; 40% in first half of July
All Nippon-1%-26%Japan lifted restrictions on domestic travel last week; airlines hoping to see demand rise in response
Korean Air-2%-38%HDC conglomerate still clamoring to renegotiate deal to buy 31% of Asiana Airlines
Cathay Pacific-4%-31%South China Morning Post says HNA-backed Hong Kong Airlines kept alive by mainland Chinese banks; Cathay ally Air China a rumored buyer
Air China-3%-38%Airlines cancelling flights in response to China’s latest Covid outbreak in Beijing, Cirium analsys shows; slowing recovery momentum
China Eastern0%-32%Government efforts to build free trade zone in Hainan could reflect desire to replicate Hong Kong’s financial clout
China Southern-1%-31%China says latest Covid outbreak in Beijing traced to Europe; did a roundtrip
Singapore Airlines-4%-57%Singapore Changi airport delaying plans for development of fifth terminal and third runway
Malaysia Airlines(not publicly traded)IATA seeing “quite strong increases” in some Asian domestic markets; encouraging air travel corridors, bridges and bubbles
AirAsia-8%-67%Hoping its pass products offering unlimited travel will help spur domestic travel recovery
Thai Airways-6%-62%Thailand considering fiscal stimulus that would provide money to citizens for use on domestic travel
VietJet-3%-11%Moving forward with plan to buy Jetstar Pacific stake currently owned by Qantas
Cebu Pacific-14%-53%Outsourced ground handler announces big layoffs; Cebu itself shrinking its workforce too
Qantas-3%-20%Retired its last B747; started flying the type in 1971; A380s will stick around
Virgin Australia0%-49%Australian antitrust regulator pledges to monitor domestic fares to ensure against predatory pricing by Qantas
Air New Zealand-7%-44%Advises investors to expect roughly $75m loss ex items for its fiscal year that ends this month; red ink obviously concentrated post-Covid
Brent Crude Oil8%-34%JPMorgan makes case that oil prices could spike due to supply cuts and underinvestment

Some stocks traded on multiple exchanges; not intended for trading purposes.

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