IATA warns Covid-19 will cost $63bn-$113bn in revenue this year, as regional airline Flybe collapses, and experts fear others will followLatest: IATA hikes estimates for coronavirus lossesMore firms will collapse, experts fearPassengers stuck at Exeter...2,000 staff hitIntroduction: Flybe has gone into administrationHow have you been affected? 10.24am GMT IATA are urging governments to help airlines ‘stay afloat’ - an admission that others could follow Flybe into administration.Alexandre de Juniac, Iata’s director general, says: “The turn of events as a result of Covid-19 is almost without precedent. In little over two months, the industry’s prospects in much of the world have taken a dramatic turn for the worse.“Many airlines are cutting capacity and taking emergency measures to reduce costs. Governments must take note. Airlines are doing their best to stay afloat as they perform the vital task of linking the world’s economies. As governments look to stimulus measures, the airline industry will need consideration for relief on taxes, charges and slot allocation. These are extraordinary times.” Related: Airlines could lose up to $113bn on back of coronavirus, says Iata 10.22am GMT If IATA’s worst-case scenario comes to pass, then the airline industry is going to be in serious trouble.Here’s some reaction:FlyBe won’t be the last.... many airline stocks already down a third since outbreak - iata anticipating revenue losses of between $63billion and $113bn because of coronavirus https://t.co/k3Y1Ew7IqQCrikey - IATA sees global losses ranging between $63 billion to $113 bn for airline industry in 2020. In late Feb it estimated 29 billion. Says losses facing airlines haven't been this bad since the height of the global financial crisis a decade ago.#IATA updates estimations for #coronavirus impact on airlines and expects now between $63 billion and $113 billion in a second scenario if COVID-19 is not contained and spreads wider. Continue reading...
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Airline analysts and executives predict it will take up to 5 years for the industry to recover, but airlines as big as American may not survive. Read their bleak forecasts here. (AAL, DAL, UAL, LUV, BA)
Airlines are without question among the industries hardest hit by the COVID-19 pandemic. With virtually zero...Airlines are without question among the industries hardest hit by the COVID-19 pandemic. With virtually zero travel demand during the worst of the crisis, airline executives and rank-and-file workers, analysts, and shareholders are anxiously trying to predict when the travel business will return to normal. Analysts and airline executives offered a wide range of predictions during the early months of the outbreak, but over recent weeks seem to have reached a consensus through a variety of models: For airlines that survive, it will likely take two to three years, possibly as many as five, before business returns to pre-pandemic levels. Visit Business Insider's homepage for more stories. The airline industry is limping into the third month of what insiders have called the biggest crisis in its history. Travel demand began to fall off in the Asia region in mid- to late-January, and broadly in the rest of the world by mid-March. As it became evident by late-March that this would be a prolonged crisis, squashing any hope for the type of rapid decline-rapid recovery seen after the 2003 SARS outbreak, experts began to forecast a recovery that would likely extend beyond 2020. Now, as analysts begin to reach a consensus on when the industry may bounce back, the outlook remains bleak. Earlier this month, a research report from airline analyst Joseph DeNardi at Stifel indicated air travel demand would likely not return to normal until mid-2021 at the earliest, noting that such a return was a best-case scenario, and that a more bearish course appears to be emerging. At the time, the estimate seemed conservative. Now, however, analysts and experts including DeNardi are reaching a consensus that it will take at least two full years for travel demand to return to 2019 levels, and possibly as long as five. The evolving outlook on the airline industry has been as swift as the outbreak itself. Ken Herbert of Canaccord Genuity wrote in late January that the virus posed a "substantial" risk to global air travel and the aerospace sector, while Tourism Economics warned of a $10 billion hit to the US travel industry if visits from China fell substantially. In the three months since, the outbreak has swept across the globe and decimated the entire global airline sector. What initially looked like a potentially quick rebound — Canaccord's Herbert predicted a V-shaped recovery, using other outbreaks like SARS as a framework — is now widely believed to be slow, and difficult. The initial reports worked under the assumption that, like past outbreaks such as SARS and MERS, COVID-19 would be a mainly regional crisis, possibly with flare-ups in other areas, but primarily affecting Asian markets. During fourth-quarter 2019 earnings calls, which took place in January, airline analysts and executives hardly mentioned the coronavirus outbreak aside from consideration of service to China and Hong Kong. Now, as the virus has brought much of the world to a standstill, the focus has shifted. A long, slow march Over the past several weeks, travel demand has tanked. "It certainly feels like we're at the bottom," American Airlines CEO Doug Parker said during a television interview on April 15. "Our revenues are down 90% on a year-over-year basis. And they've been that way now for a few weeks. So, the real question is how long do you stay at the bottom? And when do we begin to recover?" Analysts across the board agree that even if the recovery begins soon, it will be prolonged. "We are growing increasingly convinced that industry recovery to 2019 levels of output will be a multi-year affair," analyst Jamie Baker of JPMorgan wrote in early April, "resulting in the material shedding of aircraft and headcount along the way." "Airline bookings remain at unprecedented lows," Bank of America analyst Andrew Didora wrote in an April 26 research note. "Based on what has transpired in China, volumes could stay at these levels for a few weeks before beginning to recover. Then, we think the recovery could be slow." "We assume a 2-3 year period for demand to return to 2019 levels," Joseph DeNardi of Stifel wrote in an April 21 note, observing that the reduced supply resulting from airlines temporarily grounding fleets would help make up for a "historically slower return to normal." During the CNBC interview, American's Parker noted there were perhaps early signs of an impending recovery, noting that the airline had seen a slight uptick in bookings for more than 90 days out, as well as some corporate interest in travel for the fourth quarter. But Parker (and a spokesperson for the airline, in a follow-up discussion with Business Insider) acknowledged that even if a recovery begins in the coming months, it will take a while before the industry returns to 2019 levels of revenue and demand. Boeing CEO David Calhoun agreed, making headlines earlier this week when he said, "it will take two to three years for travel to return to 2019 levels and an additional few years beyond that for the industry's long-term growth trend to return." Calhoun also noted that reduced travel demand means a reduced need for new airplanes. Helane Becker of Cowen thinks a turnaround could take even longer. "We expect it to take 2 to 5 years to recover to 2019 levels," she wrote in a lengthy April 13 report titled A Winding Road to Recovery, adding: "our working assumption is 2021 revenues will be back to 2016 levels." "April and May will be the worst months for the airlines as social distancing and sheltering in place continue," she wrote. "June and July seem to be a targeting timeline for return to work for much of the US economy." "Unfortunately, return to work might not mean immediate return to the air," she added. "It is highly likely that any recovery won't start until the fourth quarter at the earliest, and then continue slowly through 2021 and into 2022." Southwest Airlines CEO Gary Kelly agreed with the longer-term assessment. On the airline's first quarter earnings call this week, he said that based on past recessions, he expects business travel to take about five years to return to pre-outbreak trends, possibly even longer. "Based on history, in a recessionary environment, it is a long recovery period for businesses. And it's intuitive to me on why that would be," Kelly said. "This one feels like it could be worse." A mixed recovery for business and leisure travel Analysts and industry leaders are also beginning to agree that leisure travel may recover faster, even if business travel begins its recovery sooner. "We may see an initial surge in business travel, but nothing we would view as sustainable," Becker wrote. "There is significant liability for companies that push their employees to travel too quickly. Leisure travel, which traditionally comes back first, is likely to be slow to return as well." "We believe business travel is likely to return ahead of leisure travel," she added, "but given the amount of teleconferencing, the use of Zoom, Skype, WebEx, GoToMeeting and other ways people are staying in touch and conducting meetings, this suggests that while business travel will return, it also will return at a slower pace than prior recoveries." According to an April 19 note from Bank of America's Didora, leisure bookings declined at a slower rate than corporate, but have reached roughly the same low level. Regardless, the industry's financial outlook is likely to remain grim for a while. "For purposes of modeling, we assume the phenomenon of negative net bookings (refunds exceeding sales) continues well into the third quarter," JPMorgan's Baker wrote on April 22. The airline landscape may look very different post-recovery Over the past several years, the airline industry — both globally and in the US — has been on a rapid and steady expansion, adding capacity, new planes, and new routes. Almost overnight, that expansion screeched to a halt, and that reversal could continue, even after the pandemic is contained. "[W]e believe the airlines will end 2020 at least 20% smaller than they ended 2019 and probably closer to 30% smaller," Cowen's Becker wrote. The downsizing would see airlines cut costs wherever possible, but the two major savings areas will be labor and aircraft. According to Becker, mainline US airlines employ about 473,000 people. Airlines for America, an industry trade and lobbying organization, puts that number at 750,000 people, when regional carriers are included. Despite payroll assistance from the federal government, which helps airlines cover employee salaries and prohibits layoffs before October, 2020, Becker wrote that she expects to see the mainline carriers eliminate 95,000-105,000 jobs by the end of this year. "United and American have said they could be 15-20% smaller in 2021 than they would have otherwise," Stifel's DiNardi wrote. He also noted that during past recessions, using the 2008 crisis as an example, airlines emerged with more disciplined growth strategies and more deliberate expansions as they focused on profitability. That suggests that the recovery years could see fewer new, interesting, or leisure-focused direct flights launched as airlines focus on more proven measures. "We believe a return to capacity discipline and lower capex spending could drive a period of strong performance for the group coming out of the pandemic," DeNardi said. Airlines are likely to retire older aircraft or place them into long-term storage to cut costs. "Aircraft over 20 years old are unlikely to ever fly again in passenger revenue service," Becker wrote. "They are the first aircraft to go into storage and will be the last to come out." She added that American Airlines has already begun reevaluating its fleet by retiring the 757, 767, E190, and some A330 planes, as well as some older 737NGs. The move would eliminate at least three types of plane from the airline's fleet, helping it save money in the long term. The major US airlines are likely to retire a total of 800-1,000 aircraft during the crisis, Becker wrote, which would inherently come with job cuts. US airlines employ an average of 97 people per aircraft, she said. The specter of airline bankruptcies and consolidation looms large over this crisis In March, the aviation consultancy CAPA said that by the end of May, "most airlines in the world will be bankrupt" without coordinated government and industry intervention. Several have already occurred, including the UK's FlyBe, which ceased operations, and Virgin Australia, which entered voluntary administration — a form of bankruptcy restructuring. Several regional airlines in the US — Trans States, Compass Airlines, and RavnAir — have also folded. The risk of a larger-scale consolidation in the industry is likely, several analysts have said. "As the mainline airlines cut capacity and eliminate routes, we expect them to eliminate or scale back service to smaller cities. As they do that, it is likely to put pressure on the regional airlines," Cowen's Becker wrote. "We expect regional airline consolidation first, as we are already seeing, followed by consolidation among medium-sized airlines." "Among the larger airlines, we would not be surprised to see the ultra-low cost airlines consider merging to get through the downturn," she added. According to JPMorgan's Jamie Baker, however, it's possible that major carriers could also be vulnerable. In an April 6 research note, Baker focused primarily on American, though suggested that the analysis could apply to other airlines. American is not necessarily "mortally wounded," Baker wrote that the risk of a bankruptcy is, arguably for the first time in the crisis, becoming more pronounced, given the fact that the airline will likely need to significantly downsize its staff and its aircraft fleet. There are "five, and basically only five, reasons why airlines file for bankruptcy," the report said: Labor costs above what the airline can afford, and an inability to negotiate a way to lower the expenses; Pension costs, which can be shifted under the federal Pension Benefit Guaranty Corporation to reduce outbound cash flow; Fleets filled with older, no-longer-needed or wanted aircraft given a resizing or restructuring, or a significant debt load on newer planes; High cost "other" debt, or just too much debt, such as what the airline could emerge from the current crisis with; and Dangerously low levels of liquidity. Given those historical reasons for past bankruptcies, the report says, it's theoretically possible that a bankruptcy would be the most effective play for the airlines following the crisis. The report cautions that this is only one possible scenario: "We don't think management is rushing to file for bankruptcy. We also don't think it's inevitable." Over at Cowen, while raising the possibility of bankruptcies, Becker wrote that even with new debt, she thinks the major US airlines will be able to avoid considering bankruptcies at least through the end of the year, by which time demand may be recovering. "Ultimately, we find the airlines have sufficient liquidity to survive through at least July," she wrote. "At this point, we do not have bankruptcy concerns for any of the US airlines we cover for the remainder of 2020, assuming each opts for and receives Phase III stimulus grants."SEE ALSO: Coronavirus demolished air travel around the globe. These 14 charts show how empty the skies are right now. Join the conversation about this story » NOW WATCH: Tax Day is now July 15 — this is what it's like to do your own taxes for the very first time
Michael O’Leary says business model will be in tatters if he is forced to leave middle...Michael O’Leary says business model will be in tatters if he is forced to leave middle seats emptyRyanair planes won’t return to the skies if the airline is forced to leave the middle seat empty to comply with “idiotic” in-flight social distancing rules, its chief executive, Michael O’Leary, has said.The boss of the no-frills carrier, which has thrived by packing its flights as full as possible with passengers lured by low prices, has previously said that blocking out the space in between aisle seats is “nonsense” that would have no beneficial effect. Continue reading...
Airlines have been hit hard by the coronavirus pandemic, in many cases grounding their entire fleets,...Airlines have been hit hard by the coronavirus pandemic, in many cases grounding their entire fleets, furloughing thousands of staff, and issuing dire warnings about their future. Some budget airlines in Europe have already collapsed. Even after the pandemic ends, changes in the market could drive up the famously low ticket prices that opened up the continent, or force airlines to change the way they fly. But airlines' best call may ultimately be to tempt back travellers through cheap flights — if they can afford it. Visit Business Insider's homepage for more stories. As governments around the world close their borders and advise against travel, demand for air travel has plummeted, causing airlines to ground their entire fleets. Airlines have left planes sitting idle on runways, and furloughed hundreds of thousands of staff. The head of the International Air Transport Association, an organization representing the world's airlines, said "the air transport industry is in its deepest crisis ever." The pandemic has left virtually all of the world's airlines at risk of bankruptcy. Some have already collapsed. One analyst said that, even in the best-case scenario, pre-outbreak levels of demand will not return until at least mid-2021. And when that demand does return, the industry will not be the same as before. There's uncertainty about which airlines will survive, how many people will want to fly after a pandemic, and the what kind of new precautions airlines may take in future. John Strickland, an independent air transport consultant, told Business Insider that one thing is for sure: "Aviation is going to be smaller." And among the things at risk are Europe's famously cheap flights, which regularly let people fly for the equivalent of just a few dollars, and for some underpin their entire way of life. Liberal aviation restrictions, plus an abundance of airlines competing with each other — far more than in the US — resulted in what are often very low prices. With Ryanair, outside of peak times, flights across Europe rarely cost more than €100 ($109), and its sales sees flights for as little as €9.99, €5, or even €0.01, for flights. "Those markets have grown enormously because many people who couldn't afford to travel before have done so whether it is for visiting friends and family going on holiday," Strickland said. The result is not only uber-cheap flights, but the knock-on effects of tourism booms and people moving to work all over the continent. Among the largest are Irish airline Ryanair and UK airline EasyJet, the biggest and fourth-biggest airlines in the world respectively by their number of routes. Both are hurting from the crisis — and any collapses, or changes to their models, would have huge impacts on the way people fly. The biggest low-cost airlines are under immense pressure The Irish Times reported that Ryanair is now operating fewer than 20 flights a day, less than 1% of their usual daily average of 2,500. And EasyJet is not offering any flights. It has grounded its entire fleet of planes and is furloughed its 4,000 cabin crew based in the UK. The airline has deferred 24 of the planes it had ordered from Airbus, after Sir Stelios Haji-Ioannou, the airline's founder, said the airline would run out of money in August unless it scrapped the entire £4.5 billion order for 107 planes, which said were now "useless." The company has since secured a £600 million loan from the UK Treasury and said it will bring its cash reserves to £2.3 billion this week. Haji-Ioannou, who is now a major shareholder, had threatened to "personally sue those scoundrels" if the company took the loan and still went ahead with the order for 107 planes. Ryanair is among Europe's best-placed airlines to ride out the crisis Analysts have noted that Ryanair has €4 billion of cash on hand — enough for 18 months. This makes it one of Europe's best-placed airlines. Strickland said that Ryanair has a "phenomenal amount of money" and is "not loaded down with debt" from its plane purchases. He credits this to the airline's "aggressive approach" to being low-cost — an approach that made it famous both for one-cent flights sales and unpopular money-saving policies like passengers only being able to bring a tiny bag on board without paying more. Ryanair at one stage even proposed charging passengers to use the bathroom, and has explored "standing" seats to it could fit more passengers on planes. "Some people look at Ryanair's margins of profitability and would think it's excessive," Strickland said. "I've seen so many failures and so much weakness that I defend an airline like Ryanair and its need to have that money in the bank." Dr. David Warnock-Smith, an air transport adviser and head of aviation at the UK's Buckinghamshire New University, told Business Insider that "only very few, maybe a handful of carriers worldwide, have substantial cash reserves." Strickland credited Ryanair's reserves to the way that it, like many low-cost airlines "will really negotiate toughly on every cost, particularly airport charges" to bring costs to a minimum. And the airline has thrived after previous industry shocks, like the September 11 attacks in New York, when it used the opportunity to buy more planes from Boeing. But savings could potentially make it harder to get the financial relief that governments are exploring to keep airlines afloat. Warnock-Smith said that asking for government support when you have substantial cash reserves is "tricky." "The longer this outbreak goes on, the worse it will be for those that have actually made substantial cash reserves. Because there's absolutely no chance they will get any support until they are on death's door." The collapse of some airlines could make tickets more expensive The crisis could result in more expensive flights, or changes to the way flights are run. Andrew Charlton, an independent aviation analyst, told Business Insider that reduced economic activity and flight demand could cause the collapse of many airlines — potentially creating a landscape in Europe that more closely resembles the US. In the US, he said, the top four airlines control more than 80% of the market as of 2018. But in Europe, the top four control 40%. "I think what's going to happen is that we get a significantly smaller number of airlines, and those airlines will start to behave a little bit more like the airlines in the United States behave. In other words: with fewer airlines, fares go up." This would mean fewer airlines to meet demand, so those that remain could decide to, or might have to, increase fares. But higher fares could put people off flying when airlines need travellers the most. Warnock-Smith said Europe's prices got so cheap because there are so many airlines: "Supply is higher than demand, which has led to a surplus of seats, and that's put downward pressure on fares." He said if airlines collapse, and then demand for flights picks up again, "we might see higher fares because, because demand will outweigh the supply." But he said that would only be likely for a "temporary period." Some European budget airlines have already collapsed. UK airline Flybe cited the virus when it collapsed in March, and Lufthansa shut its budget airline Germanwings in April as it restructured, warning that it will take "years until the worldwide demand for air travel returns to pre-crisis levels." And flying could change with airlines that survive Low-cost airlines could end up making changes to some of their unpopular cost-saving policies, or double down on them. In the case of Ryanair, Strickland said: "I think the one thing that you can safely guarantee is that they will do whatever they think makes them profitable." He said that some carriers could return to the market with a smaller offering of flights, even if the reduced offering is temporary. Some airlines might expand to capitalize on weakness in their rivals or new openings in the market. Strickland said entire routes could be left up for grabs, pushing airlines into new spaces. It could even push some airlines to branch into areas they have never entered, like Ryanair into long-haul flights. "[Ryanair CEO] Michael O'Leary has time and time again denied that he ever wants to do that. But gosh, if at the moment, given how everything else has changed, there's no reason why that might not change as well. We just don't know." The most vulnerable airlines could be driven to ultra-low fares to entice travellers, even if that is not sustainable, Strickland said. "Some airlines, which frankly have bad business models or bad locations or whatever ... are going to do stupid things." He said a "fundamental flaw" in aviation economics could occur, whereby "a good, successful airline can put a ticket out at a particular price in the market and then an irresponsible, financially struggling, bankrupt airline can put out a ridiculous fare." And extended social distancing requirements may mean people have to stay further apart on planes. "If there are going to be those kind of restrictions, what would that mean for flights?" Strickland asked. "Would that mean that airlines are going to have to fly, let's say half full, or always have a middle seat free as you would typically have in a business class?" "That would arguably force you to put prices up — but if you put prices up then you get less people going anyway." One Wall Street analyst has already recommended that the middle seats of planes be removed. But Warnock-Smith said spacing out passengers would be a huge financial risk for airlines. Airlines also have to hope that people will want to fly Airlines will need people to actually want to fly — and for countries to want visitors when the outbreak ends. Strickland said that Ryanair and EasyJet can typically tempt people with cheap prices during any uncertainty: "They've got so many wonderful places. They know people are going to take advantage." "But at the moment there's much wider uncertainties: We don't know how much demand there will be." He estimated that demand will be "substantially" lower. Reasons may include people having less money being of a wider economic collapse, and lingering fears of flying from the pandemic. Warnock-Smith said that people are likely to take fewer non-compulsory trips. "I think initially there'll be sort of a lack of confidence and then over time that will pick up again, just like after September the 11th." Many popular low-cost destinations, like Spain, France, and Italy, are among the worst-hit. "We don't know what state these markets will be in," Strickland said, either in wanting visitors or visitors wanting to go there. They key could be in keeping the cheap flights that won over customers in the first place. Strickland said that airlines' response to other crises, like the September 11 attacks or the 2008 financial crisis, was to set prices that incentivize flyers. "I keep using Ryanair as an example, but it's certainly the best one," he said. "They've offered prices at almost nothing," he said, "to kickstart the market and get people back to flying." But the question remains as to whether Ryanair, or any other airline, will be in a position to do it.Join the conversation about this story » NOW WATCH: Why Tesla's Model 3 received top crash-test safety ratings