Life and death of the global aviation industry is limited to two months of wage cuts and layoffs

category:Finance
 Life and death of the global aviation industry is limited to two months of wage cuts and layoffs


Editor Shi zhiliang

The aviation industry is going through the worst crisis ever.

The new loss forecast far exceeds the most pessimistic outlook of three weeks ago. If the government doesnt help immediately, the whole industry will collapse.

u201dAlexandre de Juniac, President and chief executive of IATA, spoke at a video conference on the evening of March 24 Beijing time.

Alexander de Juniacs call is not sensational. The global aviation industry under the influence of the new crown epidemic is going through the worst days in history.

With the global spread of the new crown epidemic, countries continue to close the border, a large number of Airlines began to significantly reduce capacity, or even grounded. According to the statistics of civil aviation resource network, as of March 25, more than 20 airlines in the world have grounded all flights, including Emirates and Etihad, which are known as DHL.

Reducing capacity is the only way for airlines to help themselves. Cathay Pacific lost more than HK $2 billion in February 2020 alone, while its net profit for the whole of 2019 was only HK $1.691 billion.

Delta, which has been the worlds most profitable airline for many years, now has to tighten its belt as well - 50% pay cuts for all executives and nearly 15% of its 90000 employees have taken unpaid leave. Delta predicts that the turnover in March will drop by nearly $2 billion compared with last year, and will face a more severe decline in April.

In view of the poor liquidity of capital in the aviation industry, the International Air Transport Association estimates that most airlines liquidity funds can only support their two-month operating expenses.

The Asia Pacific Aviation Center, a think-tank, warns more directly that unless the government intervenes, most of the worlds airlines will go bankrupt by the end of May.

Alexander de Juniac said that there are about 2.7 million aviation jobs in the world. Each of these jobs supports another 24 jobs in the travel and tourism industry chain.

The U.S. Senate also approved a $2 trillion new stimulus plan in the early hours of March 25 local time. The stimulus package includes $200 billion for other domestic priority projects, including transportation. At the same time, it will provide an additional $25 billion in aid funds for the U.S. aviation industry and an additional $4 billion in aid funds for the air cargo logistics industry.

These policies are only temporary. If we want to save the aviation industry, we must take effective measures to control the epidemic. Only when there is no epidemic situation in the aviation industry can we truly breathe.

International Aviation Association issued a series of early warning: the loss soared by ten times

In February this year, the epidemic mainly affected China. IATA predicted that global airlines would lose 29 billion US dollars in revenue this year.

A month later, on March 5, the situation of global spread of the epidemic was clear. IATA warned that the revenue of airlines this year could be reduced by up to US $113 billion, four times of the original. On the same day, the 41 year old British airline freibey declared bankruptcy, and all flights of the largest regional airline in Europe were grounded.

Half a month later, on March 24, IATA revised the loss warning to $252 billion, more than 40% of the total expected passenger revenue for the year, due to the gradual closing of borders between countries and the introduction of flight bans.

This is a money burning industry. Even if there is no revenue from the aircraft, the cost of aircraft and venue rental is huge. Delta, for example, admits that the company is consuming cash flow at a rate of $50 million per day. In the case of a sharp decline in revenue, the cash flow of airlines is in jeopardy. Many airlines have publicly stated that if the epidemic lasts for a long time, the enterprise or bankruptcy.

More than a month ago, we celebrated the highest employee bonus in recent years, and today, when the new crown virus is rampant around the world, we are facing the most severe financial challenge ever.

The tragedy began with the US governments travel ban on European countries, which came into effect on March 13.

According to the third-party aviation data company OAG, Ba made $1.2 billion from this route alone in the year from April 2018 to March 2019. British Airways has more than 600 flights a month from Heathrow to Kennedy Airport, an average of 20 a day.

Just in February, British Airways was cheering for its transatlantic record. On February 8, with the help of Ciara storm in the Atlantic Ocean, Ba 112 flight from New York to London completed in only 4 hours and 56 minutes, becoming the fastest transatlantic flight in history.

With the spread of the European epidemic, the United States issued a travel ban on Europe. The three major European airlines subsequently released plans for capacity contraction ranging from 70% to 90%.

On March 16, IAG group, the parent company of British Airways, announced a 75% year-on-year contraction in capacity from April to may, while Euronext: AF also said it would reduce capacity by 70% to 90% in the next two months. On the same day, the shares of the two companies fell about 20%. Lufthansa followed suit, saying it would shrink its capacity by 90%.

According to IATA data, the total value of the US Schengen market in 2019 is up to 20.6 billion US dollars. The three markets that suffered the most were US Germany (US $4 billion), US France (US $3.5 billion) and US Italy (US $2.9 billion).

The situation of the three major American Airlines is similar. Delta announced that it will reduce its capacity by 70% in the coming months; American Airlines (NASDAQ: AAL) will reduce its capacity on international routes by 75% year-on-year; and United Airlines (NASDAQ: UAL) will reduce its capacity by 50% in April and may.

Australian international flights will also be reduced to zero. As the Australian government has banned non citizens and non permanent residents from entering the country since March 20, and has proposed to stop all outbound travel, Australian Airlines (ASX: QaN) will help overseas citizens return to China within March, and then cancel all international flights in April and may. Qantass domestic capacity has also been cut to 40%.

IATA predicts that the strict travel ban is expected to be lifted in three months, but due to the global economic recession, the recovery speed of travel demand will be slowed down, making it difficult to have a V-shaped rebound similar to that after SARS. In 2020, passenger travel volume is expected to decrease by 38% year on year compared with the previous year, of which Europe is the worst, with a decline rate of 46%.

Pay cuts, layoffs and aircraft sales

Many airlines around the world have to cut jobs, cut salaries, delay paying dividends and other ways to try to keep operating cash flow.

Alexander de Juniac says global airlines need $200 billion in liquidity to survive.

Executives take the lead in cutting salaries. Qantas executives pay has been changed from a 30% cut to no pay, a measure that will continue until the end of the financial year and annual bonuses have been cancelled. Delta executives cut their pay by 50% and all board members gave up their pay for the next six months.

Layoffs and unpaid leave are the most common methods used by airlines. On March 15, Nordic airlines, headquartered in Stockholm, Sweden, announced about 10000 job cuts, accounting for 90% of its workforce.

The landlords have no surplus. Mr Gao said Ba could no longer afford the size of its staff and had to cut staff. The specific number of redundancies has not been determined and is currently under negotiation with the trade union.

13000 of deltas 90000 employees have voluntarily taken unpaid leave, which ed Bastian calls the most timely contribution every employee can make to the company at present. Two thirds of Qantas employees are temporarily suspended.

In addition, a number of airlines have decided to postpone the issuance of previously announced shareholder dividends, with delays ranging from several months.

On the one hand, we should save money, on the other hand, we should open source. Korean Airlines, whose international flight capacity has declined by nearly 90% since March 13, began to use airliners to carry cargo. Zhao Yuantai, President of Korean Airlines, said the move could not only meet the demand for freight, but also reduce the cost of aircraft parking. The company had previously warned that Korean air could go bankrupt if the outbreak continued for a long time.

Cathay Pacific will sell six Boeing 777-300ER aircraft and related equipment to BOC aviation leasing (02588. HK) and promise to lease them back. The total cost of the transaction was $703.8 million (4.967 billion yuan), which was used to supplement working capital.

Air Chinas self rescue operation has been underway for some time. In order to alleviate the pressure of cash flow, Shenzhen Airlines and Xiamen Airlines issued ultra short term financing bonds. Taking the opportunity of resumption of work and production, many airlines launched resumption of work charter and resumption of study charter business.

However, its very difficult for airlines to save themselves, Lian Peikun, director of Research Department of UBS Securities, told Caijing. Because aviation is an industry with high investment and low cash flow, aircraft procurement and fixed costs are very high. If the company wants to maintain cash income in the short term, it can only do charter flights or businesses unrelated to the main aviation industry, such as catering and logistics. But this is not a good way. It depends on government policies and capital injection of large companies.

IATA has warned that most airlines will run out of cash in two months, and that if the government does not help, it is inevitable that airlines will go bankrupt.

How does the government help? Alexandre de Juniac put forward three suggestions: first, provide direct financial support to airlines to make up for the decrease of revenue and deal with the liquidity crisis faced by airlines due to travel restrictions; second, the government or central bank provides loans, loan guarantees and corporate bond market support to airlines or commercial banks unwilling to provide loans for the current civil aviation industry; third, reduce Tax exemption.

At present, both American Airlines and British airlines are seeking large amount of government assistance. Discussions are ongoing, and there is no clear plan. The Australian government has introduced tax exemption and other policy support.

United CEO Oscar Munoz flew to Washington to meet with lawmakers and senior government officials.

At the same time, Boeing seeks $60 billion in U.S. government assistance for itself and the aviation industry, including government guaranteed loans, cash subsidies, tax relief, etc. Boeing has warned that 70% of its revenue usually goes to 17000 cooperative suppliers, and that without government assistance, the entire U.S. aviation industry could collapse.

President trump said the government would help the airline industry if needed.

Ed Bastian is optimistic about getting government support. But he also said frankly, the form and value of aid are unpredictable. We cant wait for government aid and put the companys future at risk.

Recently, foreign media reported that the British government is considering acquiring the equity of the airline, because the government is worried that the existing economic assistance alone will not be enough to save the airline. Downing Street 10 and British Airways did not respond to requests for comment from Caijing.

On March 18, the Australian government announced that it would reduce taxes of about $715 million for domestic airlines. The government will refund and cancel aviation fuel tax, aviation service fee and domestic and regional aviation safety fee to the airline company, which will reach about $160 million.

I communicate with airline executives every day, and I will continue to do so in the future to ensure that they are supported enough, said Michael mccormac, Deputy Prime Minister of Australia

Foreign airlines can also benefit from the Chinese governments financial support for the civil aviation industry

The loss is not fatal. The decline of passenger flow is the most fatal. The number of passengers carried by Air China, China Eastern Airlines and China Southern Airlines decreased in February, 82.9%, 87.48% and 86.44% respectively.

The huge drop in passenger flow means a sharp decrease in cash income. Airlines have higher requirements for cash liquidity. Once the flow is cut off, airlines may go bankrupt.

Alexander de Juniac has called for airlines to take a break with just $200 billion in liquidity support. If the government doesnt help immediately, the whole industry will collapse.

Chinas government, which suffered the first outbreak of the new crown, became the first to provide real gold and silver. CAAC, together with several ministries and commissions, announced five 16 day policies to support the development of Chinas civil aviation industry, some of which also benefit foreign airlines.

According to the CAAC, during the implementation of epidemic prevention and control, the central government will provide financial support for international regular passenger flights and major transport missions deployed in accordance with the joint defense and control mechanism of the State Council; make full use of the current subsidy policies to support general aviation enterprises carrying out epidemic prevention and control missions.

Among them, the subsidy for international scheduled passenger flights is not small. According to the policy, CAAC and the Ministry of finance will reward international flights that do not stop or resume during the epidemic. The reward standard is divided into two levels: 0.0176 yuan per flight kilometer and 0.0528 yuan per single flight kilometer.

Take Shanghai Pudong - London Heathrow as an example. According to information released by IATA, the direct flight distance between Shanghai Pudong International Airport and London Heathrow airport is 9204 km.

The airline uses A330 wide body aircraft with a capacity of about 300 passengers to fly. If there are two or more airlines on this route, the airline will receive a reward of about 100000 yuan. If a single airline carries out the flight, the airline will be awarded about 300000 yuan.

The policy also stipulates that the funds of foreign airlines shall be included in the department budget of CAAC and transferred by CAAC. This means that foreign airlines can also get Chinese gift bags.

In addition to giving airlines a certain amount of cash subsidy, the Chinese government also helps airlines to cut costs. According to CAAC, it is exempt from the civil aviation development fund that airlines should pay.

In 2019, the revenue of civil aviation development fund is 47.8 billion yuan, which is divided into passengers and airlines. The exemption of Civil Aviation Development Fund for airlines will reduce the burden of Companies in the whole industry by 10 billion.

In the actual operation process, the cost is also greatly reduced. According to the regulations of CAAC, there is no charge for aeronautical business and ground service in accordance with the deployment of joint defense and joint control mechanism of the State Council, and no charge for approach command and route by air traffic control units.

Reduce the airport and air traffic control fee standards of domestic, Hong Kong, Macao and Taiwan regions and foreign airlines, reduce the base price of takeoff and landing fees of class I and class II airports by 10%, free of parking fees, and reduce the air route fees (excluding overflight flights) by 10%.

The benchmark price of aviation kerosene for domestic airlines domestic flights will be reduced by 8%. CAAC also encourages information, Bureau affiliated enterprises and institutions to appropriately reduce the current charging standards.

After controlling the epidemic situation, the aviation market can be put into operation

No matter how many policies are put forward, airlines can only get a chance to breathe, but if they want to survive, they can only rely on flight recovery.

With the outbreak under control in China, the civil aviation market has shown signs of recovery since March.

In February, the average cancellation rate of flights in China was 71.14%, of which the cancellation rate on February 13 was 83.97%, and the average number of flights executed was 3305.

While the number of flights is picking up, the number of passengers is also picking up. According to the Ministry of transport, in mid March, the number of daily departing passengers rose to 450000-500000.

Lan Xiang, vice president of qunar.com, told Caijing that after the Spring Festival, the travel of civil aviation passengers generally showed a trend of gradual increase in the number of passengers on weekdays and reaching a peak on Friday, with a cyclical pattern.

Since March 2020, the civil aviation industry has gradually returned to the rule of high work day attendance and low weekend attendance.

At present, the return to work passenger flow has basically ended. The cities with the largest increase in outbound passengers are Guangzhou, Shenzhen, Shanghai and Hangzhou, which are economically developed areas.

At the same time, according to the data of qunar.com, the routes with the most increment are Guangzhou Chengdu, Guangzhou Hangzhou and Guangzhou Shanghai public business trunk lines. In the week of March 16, post-90s passengers increased the most among the outbound passengers from beishangguangshen. The proportion of post-80s travelers in Guangzhou and Shenzhen has increased, and they obviously have the attributes of public business.

The recovery of civil aviation market generally starts from the flow of business groups, but the current growth is not enough to show that the civil aviation market has entered a stable upward channel. Lanxiang believes that the comprehensive recovery of the domestic civil aviation passenger transport market still needs to wait for clear signals such as the resumption of navigation at Hubei airport and the lifting of domestic passenger isolation measures at all places, so as to usher in the normal flow of passengers.

(Intern Zhao Zhile also contributed to this paper)