Fragile airline sector struggles to beat coronavirus

Airline bookings were already in free fall when Donald Trump announced a travel ban on arrivals from Europe due to the coronavirus pandemic. Several carriers are now demanding state aid and preparing mass layoffs.

The true scale of the crisis facing global airlines due to the spread of the new coronavirus can be seen by the number of grounded planes at airports. If that’s not proof enough, try their share prices. Germany’s flag carrier Lufthansa has lost 41% of its value since the middle of last month, shares in British Airways owner IAG are down by almost half, while Air France-KLM is now worth 56% less. IAG said Monday it would slash the group’s flight capacity by 75% during April and May owing to the virus outbreak.

Having already seen a sharp drop in demand since the COVID-19 outbreak first emerged in December in China, airlines are now struggling to keep up with fast-changing travel restrictions. Last week US President Donald Trump banned arrivals from 26 mostly-European Union countries, leading to a further collapse in bookings. Since then, dozens of other countries have locked down their residents and banned new flight arrivals.

Airline industry research house OAG calculated that nearly 2 million seats were hit by Trump’s announcement alone. While Delta and United Airlines were the most affected US carriers, it warned that Lufthansa would be most impacted in Europe.

“Many trans-Atlantic services are operated in joint venture agreements between partners,” John Grant, senior aviation analyst at OAG, told DW, adding that he hoped “the pain, in some way, would be shared” between the two continents.

Airlines set for bailouts

Lufthansa, the world’s third most profitable airline after Delta and American, said on Friday it might need to tap the €550 billion ($610 billion) aid package announced by the German government. Last week, the German airline cut its usual 70 flights to the US to just four. It had previously announced the grounding of two-thirds of its global fleet as a result of the huge slump in demand.

OAG’s Grant said Lufthansa, along with BA and Air France-KLM, usually relies on an “extremely profitable” trans-Atlantic market that provides “high volumes of business-class traffic.” Amid the worsening spread in Europe and the US, the Cologne-headquartered carrier has described the COVID-19 outbreak as more severe for its financial health than the 9/11 attacks.

In a further warning, Lufthansa said in a statement it would suspend its 2019 dividend payment, adding that in the previous week, new bookings for its airline group — which includes Swiss, Austrian Airlines, Eurowings and Brussels Airlines — were down 50% on a week earlier. It also reported “a significant increase in the number of flight cancellations.”

Lufthansa’s peers are fairing worse. United Airlines President Scott Kirby said net bookings for Europe and Asia had plummeted 100%, while domestic bookings were down 70%. British Airways, which breathed a sigh of relief when Trump’s travel ban didn’t initially include the UK and Ireland — a decision reversed just two days later — warned staff last week the airline was “under immense pressure” and had begun urgent talks with lenders for fresh financing.

French daily Les Echos on Saturday reported that the Paris government was considering a bailout of Air France-KLM. The report was quickly denied by ministers. Travel firm TUI has, meanwhile, effectively shut down its operations and will also seek German state aid, business daily Handelsblatt reported on Monday.

Job losses on the cards

Several airlines have already announced far-reaching job cuts. Norwegian said it would lay off half of its 11,000 staff. KLM says its cull could affect 2,000 employees. Scandinavian Airlines (SAS), meanwhile, says 90% of its workers will likely go. Other carriers are expected to demand staff take unpaid leave or — like Lufthansa — cut workers’ hours, adding to the human misery in an industry already hit by fierce competition.

Airports, too, are struggling with the dramatic collapse in air travel. Germany’s aviation hub, Frankfurt International Airport, has seen a 45% drop in traffic over the past week. Airport operator Fraport says it is preparing for a 60% decline.

Draconian measures imposed by several European, Middle East, South American and African nations are likely to be felt more strongly by their national carriers and regional low-cost airlines. As the Madrid government readied a nationwide lockdown at the weekend, budget airline Jet2 turned around its planes from Britain to Spain while in mid-air.

One or two ‘green shoots’

China, which a few weeks ago was the epicenter of the outbreak, is now trying to stop foreigners bringing the novel coronavirus back to the country. All international arrivals to the capital Beijing will now automatically be sent to quarantine centers, which could spark a new wave of cancellations just as airlines start to reinstate some flights.

“China has added back over 3 million seats to their domestic network of which most are still empty. But it is a green shoot of recovery,” OAG’s Grant told DW.

Hong Kong carrier Cathay Pacific, an early casualty of the coronavirus outbreak in China, is also adding some US flights back, as it hopes to be swamped with bookings from students and citizens seeking to escape a worsening health crisis in North America.

All the same, Cathay on Monday warned of a substantial loss in the first half of its financial year. It was forced to ground half its fleet when coronavirus first emerged. Bookings had already taken a beating from 6 months of anti-government protests against Beijing’s interference in the territory’s affairs.

Grant noted that international flight capacity in Asia continues to fall, especially as “Japan and South Korea are essentially stopping all flight as some lingering trade disputes are flaring up around the COVID-19 event.”

Hopes expressed by airlines that some sense of normalcy will return in time for the busy summer tourism season appear to be at odds with most health experts, who think the coronavirus pandemic could last much longer.

Source: dw.com