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.

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.

Airlines that do not have a full line of grounded flights are also slashing capacity. Cathay Pacific (00293. HK) and Lufthansa (de: lhag) each cut their capacity by 96% and 95%, Korean (KSE: 003490) by 85%, and delta (NYSE: DAL) by 70%.

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.

With the voice still on, the 41 year old British budget airline, Flybe, went bankrupt. The bankruptcy of an airline not only affects itself, but also hits the global industrial chain.

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.

Alex Cruz, chairman and CEO of British Airways (lon: icag, IAG), said in an internal letter that the aviation industry is facing a major crisis of global scale, with a greater degree of crisis than SARS and 9 / 11.

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.

In addition, Australia, Brazil, New Zealand, Norway, Qatar and other countries have also launched corresponding policies.

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 one and a half months, with the spread of the epidemic expanding, the International Air Transport Association (IATA) increased its early warning of global airline losses by nearly 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.

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 transatlantic route with high flight frequency and more business passengers has always been a rich source of revenue for airlines, among which the London New York route is one of the most profitable routes in the world.

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%.

The number of international flights has been greatly reduced, and what makes the three major American Airlines worse is that all domestic flights may be cancelled in the future. On March 25, foreign media reported that due to the spread of the new coronavirus, both the White House and airlines are considering the suspension of almost all domestic flights.

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.

For highly indebted airlines, cash flow comes first. According to wind data, the average debt to equity ratio of the U.S. aviation industry is more than 100%. Among them, United Airlines 177%, Delta Airlines 117%, Southwest Airlines 40.7%.

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 means of 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.

Seeking governments assistance is the life-saving straw for airlines to survive

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.

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.

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.

Virgin Atlantic has sought a package of economic aid from the UK government in the middle of the month, totaling 7.5 billion pounds (64.4 billion yuan). Novel coronavirus pneumonia (RishiSunak) said that the British finance minister Rish Sunak said he would discuss with the transport minister a package of support policies for aviation enterprises and airports to help the airline industry get through the crisis brought by the new crown pneumonia epidemic.

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.

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

The Swedish and Danish governments also gave blood to Nordic airlines, which are very important for Scandinavian travel.. On March 17, the two governments announced that they would provide a credit guarantee worth SEK 3 billion for the company, which cut 90% of its staff, to ensure that it can get loans from commercial banks.

Chinas civil aviation industry suffered heavy losses in February. Zhang Qing, an inspector of the planning department of CAAC, said that in February, the industry suffered a total loss of 24.59 billion yuan. Among them, the airline lost 20.96 billion yuan, the largest loss in a single month.

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.

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.

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.

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.

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

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

According to the data of Feiyou science and technology, the average cancellation rate of flights in China from March 1 to March 23 is 51.77%, among which the highest cancellation rate is 55.65% on March 7, with an average implementation of 5084 flights.

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.

According to data from qunar.com, the number of segments issued from March 9 to 13 increased by nearly 40% compared with March 2 to 6, of which the number of segments booked 5-7 days in advance increased by 38% month on month, and the number of segments booked more than 7 days in advance increased by 75%.

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.

Chinas business route barometer - the Beijing Shanghai route has increased since March. Since March, Beijing and Shanghai have carried out at least 30 flights a day, with a maximum of 42, according to Feiyou technology. Although it is no better than the previous 122 classes, it has improved a lot compared with the situation of more than ten classes in February.

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 normal passenger flow.

(Intern Zhao Zhile also contributed to this paper)