Airline industry crisis deepens as coronavirus kills demand
The crisis for airlines deepened on Thursday as Lufthansa (LHAG.DE), which has grounded most of its fleet, warned the industry may not survive coronavirus pandemic without government aid to offset nosediving demand.
Airline industry executives around the globe have called for state support now that passenger operations are collapsing at an unprecedented rate and governments curb travel drastically.
“We expect demand to fall even more before it gets better,” American Airlines President Robert Isom told employees in a letter on Thursday, warning that “with minimal operations, we need a smaller staff.”
The United States is expected to advise Americans abroad to return home or prepare to shelter in place, an official said.
U.S. airlines are seeking $50 billion in government aid to help them get through the crisis, and U.S. President Donald Trump backed the idea of the government taking equity stakes as part of corporate rescue packages.
In a dire note, Vertical Research Partners analyzed what it called the “no-longer-so-extreme scenario” of passenger revenues declining to zero by the end of the first quarter and staying there for the whole year.
That would imply full-year operating cash outflow at around $40 billion, including $20 billion in customer refunds.
The United Nation’s International Civil Aviation Organization called on governments to ensure cargo operations are not disrupted to maintain the availability of critical medicine and equipment such as ventilators and masks that will help fight the virus.
Global airlines group IATA has forecast the industry will need up to $200 billion of state support, piling pressure on governments facing demands from all quarters and a rapid worsening in public finances as economies slump.
“The spread of the coronavirus has placed the entire global economy and our company as well in an unprecedented state of emergency,” Carsten Spohr, chief executive of Germany’s Lufthansa, said in a statement. “At present, no one can foresee the consequences.”
Lufthansa, which has idled 700 of its 763 aircraft, has already held talks with the German government on providing liquidity, including through special loans from state development bank KfW.
“The longer this crisis lasts, the more likely it is that the future of aviation cannot be guaranteed without state aid,” said Spohr.
Lufthansa is among airlines talking with planemakers Airbus (AIR.PA) and Boeing (BA.N) about whether to take delivery of aircraft and on payments.
“We had planned this year to receive a new plane every 10 days – now we don’t need any,” Spohr told reporters.
He predicted the industry would emerge into “a different world” after the crisis, saying the need for airline partnerships would only become more pressing.
In Australia, Qantas said it would cut all international flights and two-thirds of its 30,000 workers would need to take paid or unpaid leave. The Australian government is banning the arrival of non-citizens and non-residents starting Friday.
The largest U.S. airlines are all drastically reducing flights, parking hundreds of jets, cutting corporate pay and other costs, and encouraging employees to take voluntary unpaid leaves of absences or early retirements.
While appealing for government aid, they have rebuffed criticism that they rewarded shareholders with too many dividends and stock buybacks in better times, leaving it with less cash to manage the crisis.
“Unfortunately, this is no ordinary rainy day,” American Airlines senior vice president global government affairs Nate Gatten told staff in a memo. “These are extraordinary circumstances, and additional support is necessary to protect jobs and ensure that the flying public can continue to rely on our industry after the crisis ends.”
Several governments have started to act.
Government sources in India says the government was planning a rescue package of up to $1.6 billion to aid carriers battered by coronavirus.
India’s SpiceJet (SPJT.NS) said on Thursday it was suspending the majority of its international operations from March 21 to April 30, while rival IndiGo (INGL.NS) asked staff to take a pay cut of up to 20%.
Taiwan’s Transport ministry said it was inviting its airlines to submit capital requirements and financial plans with the view to giving them assistance, such as rolling over loans and providing operating funds.
New Zealand outlined the first tranche of a NZ$600 million ($344 million) aviation relief package, as it announced plans to shut its borders to non-citizens and non-residents.