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Airlines plunge as Italian coronavirus outbreak threatens longer crisis

An Easyjet plane takes off from Manchester Airport. Picture: Reuters

An Easyjet plane takes off from Manchester Airport. Picture: Reuters

Published Feb 24, 2020

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London/Paris - European budget airlines

bore the brunt of Monday's plunge in global stock markets as the

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arrival of the coronavirus in Italy pointed to a longer, deeper

crisis than many have banked on.

EasyJet dropped 16.4% and Ryanair 13.5% as

airlines were forced to reassess the fallout from the rapid

spread of the COVID-19 virus across Asia and beyond, with South

Korea, Italy and Iran now struggling to contain outbreaks.

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Although airlines have yet to suspend any Italian flights,

the new outbreaks raised the spectre of serious upheaval

extending into the lucrative summer tourism season on a day when

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European stocks suffered their biggest slump since mid-2016.

"Concerns are growing that COVID-19 continues to spread and

will impact demand to and from other European countries," Credit

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Suisse analysts said.

Ireland, meanwhile, advised citizens to avoid some

destinations in Italy, a major leisure market.

While budget airlines are most exposed to Italy, Credit

Suisse added that lower-margin legacy carriers are at risk from

a broader traffic slump if the contagion unnerves consumers.

In an email to frequent flyers on Monday, Singapore Airlines

highlighted the air filtration systems on its jets as well as

"enhanced cleaning" procedures between flights, including

"disinfectant fogging" and removal of headrest covers.

Among full-service European carriers, shares in Air

France-KLM, Lufthansa and British Airways

owner IAG all fell about 9%.

'FEAR AND UNCERTAINTY'

"The market reaction is a reflection of the fear and

uncertainty of the virus being in Europe and particularly in

Italy," said Stephen Furlong, transport analyst at Dublin-based

brokerage Davy.

Air France-KLM last week said the virus would wipe 150

million to 200 million euros ($163 million to $217 million) off

its earnings, assuming that flights suspended in January resume

in April - a scenario that now looks increasingly optimistic.

On the same day, the International Air Transport Association

(IATA) predicted that the impact would echo that of the 2003

SARS virus outbreak, with an estimated $28 billion hit this time.

"It could well be significantly more than that, given the

news over the weekend of cases in Iran and Italy," Phil Seymour,

chief executive of aviation consultancy IBA, said on Monday.

Some carriers that have suspended China services are likely

to add capacity on other routes in the hope that they will

benefit from displaced Asia leisure traffic, Seymour said.

Carriers including Delta Air Lines have already

begun to reassign larger planes to transatlantic flights and Air

France-KLM said it was considering redeployment options.

But there are inherent dangers, Seymour warned.

"If you increase capacity too much because you've

overestimated that demand shift, you just create a price war,"

he said.

The crisis could ultimately force more bankruptcies among

weaker carriers, which would benefit a fragmented European

sector in need of consolidation, Davy's Furlong said.

In the nearer term, however, it has darkened the industry's

profit outlook just when market fundamentals had appeared to be

improving.

"It looked like supply was going to be behind demand heading

into this summer," Furlong said. "This could rebalance that."

($1 = 0.9223 euros)

Reuters

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