The global aviation industry has been crippled by the spread of coronavirus. Tough government restrictions, combined with consumer reluctance to travel, mean many airlines have suspended a majority of flights for the foreseeable future.
Analysis by the International Air Transport Association (IATA) estimates that passenger revenues could plummet by US$252 billion this year, down 44% on 2019. The IATA has called for government relief to save the industry, saying "the airline industry faces its gravest crisis. Without immediate government relief measures, there will not be an industry left standing."
In Australia, the federal government unveiled a $715 million aviation industry rescue package last week. The government has waived a range of fees including aviation fuel excise, airservices charges on domestic airline operations, and security charges. The measures were backdated to 1 February which is estimated to have resulted in a reimbursement of $159 million for charges already paid by domestic airlines.
The government has now banned all international travel, and domestic travel is severely restricted. A number of states have closed their borders telling travellers they will be met by police at the airport.
Amongst the upheaval, we take a look at how the Australian airlines are faring.
Qantas Airways Limited (ASX: QAN)
Shares in Qantas have fallen more than 50% from their February high of $6.67 and are now trading at just $3.25. Last week the airline stood down two thirds of its staff in an effort to preserve jobs in the longer term.
Flights suspended
Both Qantas and Jetstar are suspending scheduled international flights from late March. Previously the airline had cut international flights by 90%, however following updated travel advice flights were suspended completely until the end of May. Some international flights are continuing until late March to assist with repatriation.
Domestic flights were cut by 60%, with a focus on reducing frequency. Some route suspensions are also occurring and new route launches have been postponed. More than 150 aircraft have been temporarily grounded, including all A380s, 747s, and B787–9s.
Qantas' fleet of freighters will continue to be fully utilised. Some domestic aircraft will also be used for freight only flights to replace lost capacity from regularly scheduled services.
Employees stood down
Qantas and Jetstar have stood down the majority of their employees until at least the end of May. These employees are able to draw on annual and long service leave. Measures including leave at half pay and early access to long service leave have been introduced. Employees with low leave balances can access up to 4 weeks leave in advance of earning it. But inevitably, periods of leave without pay for some employees will occur.
Senior group management and executives have reduced their salaries by 100% until at least the end of this financial year. The chair and CEO are also taking no pay, and annual management bonuses have been cancelled.
CEO Alan Joyce said, "our wages bill is more than $4 billion a year. With the huge drop in revenue we are facing, we have to make difficult decisions to guarantee the future of the national carrier."
Dividend deferred
Payment of the airline's interim dividend of 13.5 cents per share has been deferred until 1 September from 9 April. Qantas also cancelled its off-market share buyback in order to preserve cash. Joyce said, "our strong balance sheet means we've entered this crisis in better shape than most and we're taking action to make sure we can ride this out."
Debt funding
This week Qantas completed a new round of debt funding to strengthen its position as it manages the coronavirus outbreak. The airline raised $1.05 billion, which has been secured against its unencumbered aircraft. The loan has a 10-year term and an interest rate of 2.75%.
The funding increases Qantas' cash balance to $2.95 billion with an additional $1 billion undrawn facility remaining available. Qantas has net debt of $5.1 billion with no major debt maturities until June 2021.
Virgin Australia Holdings Ltd (ASX: VAH)
Virgin shares have fallen nearly 50% from their February high of 14 cents and are now trading at 8.3 cents. On Wednesday, the airline announced further capacity reductions and stood down 80% of its staff.
Capacity cut
Group domestic capacity has been reduced by 90% and 125 aircraft temporarily grounded. Tigerair Australia ceased flying immediately.
Services to 19 destinations have been temporarily suspended, with just 17 destinations remaining connected. Ten percent of domestic capacity will be retained for transportation of essential services, critical freight, and logistics.
Virgin CEO and managing director Paul Scurrah said, "from the end of this week we will begin repositioning and grounding more than 125 aircraft, suspending almost all domestic and international flying until at least the middle of June."
Virgin had previously announced that all international flights would be suspended from 30 March to 14 June. It has closed all of its lounges across the network. The airline said it would work with government to maintain domestic routes for the transportation of essential services, critical freight, and logistics operations.
Scurrah said, "there has never been a travel environment in Australia as restricted as the one we see today. We are now facing the biggest grounding of aircraft in this country's history."
Staff stood down
Virgin has temporarily stood down approximately 8,000 of the company's 10,000 person workforce until at least the end of May. Employees will be able to access accrued leave entitlements, but for many leave without pay will be inevitable.
Consultation will be commenced on a proposal to close Virgin's New Zealand cabin crew and pilot base, as well as its Tigerair Australia Melbourne pilot base. This is intended to safeguard Virgin's domestic and short-haul international businesses through the coronavirus pandemic.
Scurrah commented:
We plan to return Tigerair Australia and Virgin Australia to the skies as soon as it is viable to do so, however I am mindful that how we operate today may look very different when we get to the other side of this crisis. My focus has been on guiding this company through the crisis, and at the same time ensure the business is set on a sustainable path when the recovery eventually comes.
