Home Business Airlines move to cut capacity, Turkish airline suspends operation in Nigeria to rein in costs as coronavirus effect intensifies

Airlines move to cut capacity, Turkish airline suspends operation in Nigeria to rein in costs as coronavirus effect intensifies

by Business News Report

Airlines around the world moved to cut capacity and rein in costs, in response to the mass cancellations and empty planes caused by the coronavirus that has infected more than 116,000 people around the world. Several air carriers said that they are acting to boost liquidity and conserve cash, with some agreeing to new borrowing facilities. Meanwhile as precautionary measure to check the spread of Coronavirus, Turkish Airlines has announced the cancellation of all its flights to its destinations in Nigeria as it also cut back its operations to other international destinations. The airline, which brought in the index coronavirus case, the Italian to Nigeria in a statement, said the cancellation of flights to its three destinations in Nigeria was due to the Coronavirus situation all over the world. The statement said the cancellations would start for flights originally scheduled to arrive Lagos on March 17, 23 and 29th, and flights for Abuja scheduled for March 13, 16th, 20th, 25th, 27th and April 1, 2020. Flights to Port Harcourt would not operate on March 11th, 13th 18th, 25th and 25th.

The statement however did not say when the airline would resume flights again into the country, although it is projected that virus devastation would begin to diminish by end of April.

With the latest announcement by Turkish Airlines, it is likely that airlines’ losses could mount beyond the International Air Transport Association (IATA) forecast that airlines would make a loss of over $113 billion as a result of the deadly virus. Many international carriers are also taking drastic measures to limit the spread of the deadly Coronavirus by cancelling flights and modifying their routes. Some of the airlines cancelling and cutting down operations include American Airlines, Austrian Airlines, British Airways, Delta Airlines, Air Seoul, Oman Air, Air Mauritius, JejuAir Co Ltd, Qatar Airways, RwandAir, Scoot (Singapore Airlines), Saudia (Saudi Arabia’s state airline) and Kenya Airways, amongst others. Last week, Emirates Airlines had reportedly asked its employees to embark on unpaid leave for up to a month due to the rapidly spreading coronavirus disease. The airline had also cancelled flights to Iran, Bahrain and to most of China because of the virus, as countries around the world continue to place strict restrictions on the entry of foreigners.

Moody’s Investors Service dialled down its outlook for the industry to negative from stable, saying that “the uncertainty and the speed of the outbreak will pressure airlines’ operating profits and cash generation for at least the first half of 2020.” Delta said it’s deferring $500 million of capital spending, delaying $500 million of pension funding and suspending share buybacks. “Liquidity is strong and expected to be at least $5 billion at the end of the March quarter,” the company said. “In addition, Delta has approximately $20 billion of unencumbered assets, including $12 billion in aircraft.” United Airlines Holdings Inc. withdrew its financial guidance for the first quarter but admitted it expects to book a loss. As recently as Jan. 21, when it reported fourth-quarter earnings, the airline was expecting per-share earnings of 75 cents to $1.25.

Southwest Airlines Co. Chief Executive Gary Kelly has agreed to a 10% pay cut, according to the Wall Street Journal. Southwest signaled it had identified a “severe recession” in the sector. “Given the weak travel demand, we are seriously considering reductions to our scheduled flying in the short term, and we will continue to monitor demand for necessary reductions thereafter,” Michelle Agnew, manager for media relations at Southwest, told MarketWatch. Airline stocks have been hit hard as companies cancel nonessential travel and consumers steer clear of regions and countries that have had high numbers of cases of the virus-borne COVID-19 illness, which broke out in Wuhan, China, late last year. The virus has spread to 114 countries and created clusters of infection in Iran, South Korea and Italy. A decree put into place in Northern Italy this week has been extended to the entire country as the number of cases and deaths have soared in Italy. People there are now only allowed to travel for work or family emergencies. The S&P 500 airline subindex has fallen 30% in 2020, as investors have fretted about the history of large losses that has plagued the sector each time demand is abruptly halted. After the Sept. 11, 2001, terrorist attacks, for example, Congress was forced to approve a $15 billion bailout package for the industry.

Moody’s estimated an operating margin of less than 5% for 2020 for the aggregate of the airlines it rates, down from its pre-coronavirus expectation of about 9%. “Major unknowns,” such as uncertainty about the virus’s active period, its eventual geographic spread and the scale of infections in a given country or region, complicate efforts to arrive at financial-impact projections, the debt ratings agency said. A “sharp decline in passenger demand” is expected to last through at least the second quarter. And while airlines will benefit from lower crude-oil prices, the extent of those savings will depend on how each company has hedged its fuel purchases. Any savings are unlikely to be enough to offset revenue declines, Moody’s said. Moody’s is operating on the assumption that, based in part on the recovery from the 2003 SARS outbreak, the virus is likely a first-half 2020 problem and traffic should be close to pre-virus levels by the end of 2020. “However, if the outbreak persists beyond the first half and/or the eventual recovery in the second half of the year is weaker than expected, the financial effect and credit risk for the airline sector would be greater,” the debt ratings agency said.

Australian carrier Qantas Airways Ltd.  has grounded half of its A380 fleet, cut overall capacity by 23% for the next six months, canceled a share-buyback program, and asked staff to take unpaid leave and dumped management bonuses late Monday. A raft of other international airlines followed suit on Tuesday, including Air France-KLM  and Ryanair Holdings PLC alongside the major U.S. carriers. Air France released February traffic data, showing revenue passenger miles down 0.7% from a year ago, capacity up 2.3% and a load factor of 84.4%, which “looks pretty awesome considering that Virgin Atlantic has admitted that it is flying almost empty planes across the Atlantic in order to keep its Heathrow slots,” said Robert Stallard, analyst at Vertical Research Partners.

Norwegian Air Shuttle ASA said it’s canceling 3,000 flights between mid-March and mid-June, cutting about 15% of total capacity for the period, due to coronavirus. The company is also taking other measures, including laying off workers, as a result of reduced demand due to the outbreak.

“We encourage authorities to immediately implement measures to imminently reduce the financial burden on airlines in order to protect crucial infrastructure and jobs,” said Jacob Schram, chief executive of the airline, in a statement. Airline shares were mostly higher Tuesday, swept up in a broader market rebound from Monday’s carnage. The NYSE Arca Airline was up 4.2%, but remains down 34% in the year to date, while the S&P 500 has fallen 12% and the Dow Jones Industrial Average has fallen 14%. 

*Additional reports from MarketWatch

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