general

The rapid spread of coronavirus has wiped almost a third - or $70b - off the world’s top 20 listed airlines and reshuffled global rankings, elevating Air China into third place behind US rivals, an analysis by Reuters shows. The airline sector has been hit hardest by the outbreak of coronavirus, with falling ticket demand and Italy in lockdown forcing carriers to cancel routes and slash costs to survive the mounting crisis. With the investor sell-off accelerating, United has lost its number three position in the global line-up to Air China. The US carrier’s market capitalization has halved to $11.6b, the lowest since 2003, since the start of the year, leaving it also lagging behind Ryanair. Air China has been relatively unscathed - its market cap was $15b on Tuesday, compared with $19b on Jan. 2.<br/>

The crisis engulfing the airline industry deepened Tuesday as carriers cancelled flights, withdrew earnings guidance and implemented austerity measures to cope with the travel slump caused by the coronavirus outbreak. Scott Kirby, president of United, said the carrier was bracing for revenues to fall as much as 70% in April and May. “We’re planning for the public concern around the virus to get worse before it gets better,” he said. In the US, American Airlines, Delta and United pulled their 2020 financial forecasts. Alan Joyce, CE of Qantas, said: “I think this will be a survival of the fittest,” as the Australian carrier outlined drastic cost-cutting measures that included cutting almost a quarter of international flights, asking staff to take unpaid leave and sacrificing his own salary for the next three months. “We know we can ride this out,” said Joyce. “Not all airlines around the world will.” Norwegian Air Shuttle, one of the most financially stretched carriers, said it would slash 3,000 flights over the next three months, equating to about 15% of its total capacity. Cracks have already begun showing in those nations worst affected by travel restrictions. Korean Air has warned it may not survive if the coronavirus outbreak is not brought under control quickly. The group has cut 80% of its international capacity because of the virus, compared with 18% in 1997-1998 during the Asian financial crisis. China’s main carriers have slashed routes and put pilots on unpaid leave. Some have had to refinance their fleets. <br/>

Leading US airlines Tuesday ditched 2020 forecasts and unveiled more sweeping capacity cuts and cost-saving measures in response to the spreading coronavirus, while United warned of a deep hit to the sector. United President Scott Kirby said he was preparing for a “dire scenario” under which revenue could fall as much as 70% in April and May and 20% in November and December. United has taken some of the most aggressive measures to date, saying on Tuesday it had raised $2b in new capital to bring liquidity to $8b and slashed its 2020 capital expenditure by more than a third to about $4.5b. “Let me blunt. Speaking for United, hope is not a strategy,” Kirby told investors, saying it could take 18 months for demand to recover. United is not taking jet deliveries for the time being and will not add capacity back to the market until it sees demand returning, he said. The airline expects to post a first-quarter loss due to the crisis, and Kirby and CEO Oscar Munoz are forgoing their base salaries until June 30. Delta said it had seen net bookings fall by as much as 25% to 30% and expected the situation to worsen further. “This clearly is not an economic event. This is a fear event, probably more akin to what we saw at 9/11 than necessarily what we saw in 2009,” Delta CE Ed Bastian said. Delta is cutting domestic capacity by 10% to 15% and international by 20% to 25% and freezing hiring across the company, offering voluntary leave options to staff and looking at early retirement of older aircraft. Southwest CEO Gary Kelly told employees he was taking a 10% pay cut in response to the crisis, which it said last week could wipe up to $300m from its Q1 operating revenue.<br/>

Australia’s travel, tourism and education industries are facing crippling losses linked to the spread of the coronavirus and the extension of travel bans to the most severely affected countries, particularly China.  Two of Australia’s biggest travel agencies, Helloworld Travel and Webjet, scrapped earnings guidance on Wednesday and unveiled cost-cutting measures, after new data from Sydney Airport showed a collapse in passenger traffic worse than that experienced after the September 11 terrorist attacks in 2001 or the Sars outbreak in 2002-2003.  International traffic fell 16.8% in February and by a quarter during the first nine days of March, according to Sydney Airport, Australia’s busiest.  Chinese passenger traffic — the largest category of international visitors to Australia — fell by 72% in February following a travel ban on non-residents travelling through from mainland China implemented on February 13. “Everyone in the aviation and tourism industry is hurting and we are in discussions with all of our partners about the best way to support each other,” said Geoff Culbert, Sydney Airport CE. Qantas and Virgin Australia have already scrapped their earnings guidance and implemented drastic cost cuts, including reducing flight capacity by up to a quarter on international routes. <br/>

Boeing and Airbus, which until recently couldn’t make planes fast enough to satisfy airlines, are suddenly contending with the opposite risk: churning out jets with no buyers. Demand for new aircraft is drying up as customers wary of the coronavirus shun air travel, ending the longest boom in aviation history. That 16-year surge began as airlines emerged from another infectious disease crisis, the one related to Severe Acute Respiratory Syndrome, or SARS. Now the new virus points to leaner times. In less than a month, the tumult has clipped about $175b in market value from the US aerospace industry, a critical source of American exports. And the future looks just as grim. Passenger revenues could drop as much as $113b this year if the virus spreads extensively, according to the IATA. "I personally think it will get worse before it gets better,” said Domhnal Slattery, chief executive officer of Avolon, the aircraft leasing company. Boeing and Airbus, which were rolling in cash while airlines went on a $1.15t buying binge stretching back to 2008, are now intently focused on preserving capital and avoiding making “white tails.” That’s the industry term for buyer-less aircraft. Even well heeled carriers such as Delta and United are carefully assessing plans to add new jetliners. The collapse in long-range flying threatens another critical source of cash for Boeing: deliveries of its 787 Dreamliners, which can carry passengers from Sydney to Chicago without refueling.<br/>

Brussels has reacted to the coronavirus epidemic by suspending the EU’s use-it-or-lose it rules on airport landing slots, freeing airlines to halt “ghost flights” in which planes have been taking off without any passengers. The aviation sector has been badly hit by the crisis after a collapse in customer demand and the requirement under EU rules that they use 80% of their allocated slots or risk losing them to a competitor. The UK and its airlines remain tied to the EU rulebook until the end of 2020. Virgin Atlantic is among the carriers flying planes that are “almost empty” to keep takeoff and landing slots. The EC president, Ursula von der Leyen, said she feared the situation for the aviation industry would only worsen in coming days and weeks. "The coronavirus outbreak has a major impact on the European and international aviation industry. We see that the situation is deteriorating on a daily basis, and traffic is expected to decline further. And this is why the commission will put forward very rapidly legislation regarding the so-called airport slots,” she said. “We want to make it easier for airlines to keep their airport slot, even if they do not operate flights in those slots, because of the declining traffic.”<br/>

China has rolled out a raft of measures – from financial support to infrastructure investments – for the country’s aviation industry, which has been hit by the coronavirus outbreak. In total, the Civil Aviation Administration of China (CAAC) announced 16 measures, all of which are aimed at “promoting the stable development” of the sector. It did not disclose how much these measures, taken together, are expected to cost. In terms of financial support, the CAAC will provide subsidies to Chinese carriers, and provide additional funding support for international services. During this period, the CAAC is also waiving the civil aviation development funds that airlines have to pay. The CAAC will also reduce the airport parking and air control fees for all carriers. For Class 1 and 2 airports, take-off and landing charges will be cut by 10%, with parking fees waived. The fee reductions have already been put in place since 23 January, the CAAC notes, and will remain in force until further notice.<br/>

Air freight rates are skyrocketing after the grounding of many passenger flights in Asia has left shippers scrambling to book limited spots on cargo planes as Chinese industrial production restarts, according to industry insiders. About half of the air cargo carried worldwide normally flies in the belly of passenger jets rather than in dedicated freighters. But deep flight cuts in response to the coronavirus outbreak have made the market more dependent on freight haulers. Freight forwarder Agility Logistics said on its website that China's air cargo capacity was down 39% in February relative to last year because of the passenger flight cuts. Shippers wishing to rush products out of China by air face sticker shock, said Refael Elbaz, CE of Israel-based Unicargo, which specialises in freight forwarding for Amazon.com sellers. "The price is three times higher – at least - because there is just no capacity," Elbaz said. Freight Investor Services said in an update to clients on Monday that cargo pricing on China-to-US routes had reached "abnormal highs" and that intra-Asia traffic was up by 22% over the previous week. TAC Index data shows China-US cargo rates have tripled over the last two weeks to more than $3.50 a kilogram. The price surge will benefit freight haulers and help cargo-heavy Asian airlines like Cathay Pacific, Korean Air and Japan's ANA offset some of the steep revenue losses from halting many of their passenger flights.<br/>