INTERNATIONAL - Airlines around the world sank deeper into crisis on Tuesday as the worsening coronavirus epidemic and Italy’s lockdown hammered passenger numbers, forced the cancellation of thousands of flights and led to the delaying of plane orders.
Some carriers face calamity, with Korean Air Lines (003490.KS) warning the virus outbreak could threaten its survival after it scrapped more than 80% of its international capacity, grounding 100 of its 145 passenger aircraft.
“The situation can get worse at any time and we cannot even predict how long it will last,” Woo Kee-hong, the president of South Korea’s biggest airline said in a memo to staff that summed up the turmoil facing the industry.
“But if the situation continues for a longer period, we may reach the threshold where we cannot guarantee the company’s survival.”
Australia’s Qantas Airways (QAN.AX) said it would also cut its international capacity, by nearly 25% over the next six months, and delay an order for Airbus (AIR.PA) A350 planes due to a plunge in demand that industry chiefs estimate could hit airlines’ revenue by up to $113 billion this year.
Qantas said it could no longer provide guidance on the financial impact of the coronavirus, which it had estimated on Feb. 20 could hit underlying earnings (EBIT) by up to about $98 million this financial year. Its CEO and chairman will take no salary, managers will receive no bonuses and all staff are being encouraged to take paid or unpaid leave.
ITALIAN LOCKDOWN
The unprecedented lockdown of the whole of Italy, which is convulsed by Europe’s worst coronavirus outbreak, has heaped fresh disaster on global airlines.
Norwegian Air, IAG-owned British Airways, Ryanair easyJet, Wizz Air and El Al Israel Airlines were among carriers to axe flights to and from the country, where there have been more than 9,000 virus infections and over 460 deaths.
Aviation analyst Mark Simpson, at Goodbody, said another major concern for the travel industry was whether the coronavirus epidemic would worsen markedly in European holiday hub Spain, which has reported more than 1,200 cases.
“A similar outbreak in Spain would pull IAG into the fold, the holiday groups like TUI and DART (Jet2),” he said. “IAG would be much more exposed due to its ownership of Vueling, Iberia and the soon to be completed Air Europa.”
Air France (AIRF.PA) said it expected to make a total of 3,600 flight cancellations in March, including cutting 25% of its European capacity.
NEAR-EMPTY PLANES
The global airline industry has been among the sectors hardest hit by the coronavirus outbreak. It has lost almost a third of its value - $70 billion - this year, according to Reuters calculations based on the 20 top global carriers.
The Italian cancellations added to an already difficult financial situation at Norwegian Air, which last week scrapped its 2020 outlook and has lost 70% of its market value this year.
The CEO of Britain’s Virgin Atlantic, Shai Weiss, meanwhile told the BBC that the airline was being “forced to fly almost empty planes” in order to keep its valuable airport slots.
Industry pressure is mounting on European authorities to waive a rule requiring airlines to run 80% of scheduled services or else forfeit unused take-off and landing slots, amid concern it is inducing some carriers to run empty “ghost flights”.
Should Korean Air fall, it would not be the first airline engulfed by the fallout of the outbreak; Britain’s Flybe collapsed last week as bookings faltered, and a further shakeout in the industry is seen as likely, industry experts have warned.
Conglomerate HNA Group, which owns or holds stakes in a number of Chinese carriers, including Hainan Airlines (600221.SS), said it was in a “state of war” in its efforts to tackle the financial fallout of the outbreak.
Airlines in China, where the new coronavirus originated, have cancelled tens of thousands of flights since the start of the outbreak, though have started resuming them as the spread of the virus has slowed on the mainland.