By Hyunjoo Jin, Jamie Freed and Tracy Rucinski
SEOUL/SYDNEY (Reuters) – 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 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.”
Leading U.S. airlines Delta and American ditched 2020 forecasts and unveiled more sweeping capacity cuts and cost-saving measures, while United announced a $2 billion capital raising and warned of a deep hit to the sector.
“Let me blunt. Speaking for United, hope is not a strategy,” United President Scott Kirby said at an investor conference. He said it could take 18 months before demand recovers, with public concern about the virus potentially worsening before improving.
United also slashed its 2020 capital expenditure in a move that will defer aircraft deliveries, a potential issue for planemakers Boeing Co and Airbus SE.
Australia’s Qantas Airways delayed an order for A350 planes, suspended forecasts and slashed capacity due to a plunge in demand that industry chiefs estimate could hit airlines’ revenue by up to $113 billion this 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. United has announced similar steps.
Delta, which is also freezing hiring and offering voluntary unpaid leaves, said it had seen net bookings fall by as much as 25% to 30% and expected the situation to deteriorate further. United said its dire scenario planning sees revenues falling 70% in April and May.
“This clearly is not an economic event,” Delta CEO Ed Bastian said on Tuesday. “This is a fear event, probably more akin to what we saw at 9/11.”
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.
Easyjet, Norwegian Air, IAG-owned British Airways, 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.
Ryanair said on Tuesday it was cutting its passenger forecast for the year ending March by three million as a direct result of suspending almost all flights to and from its most important market for the next month.
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 said it expected to make a total of 3,600 flight cancellations in March, including cutting 25% of its European capacity.
GHOST FLIGHTS
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 listed global carriers.
The Italian cancellations added to an already difficult financial situation at Norwegian Air, which has lost 70% of its market value this year and scrapped its 2020 outlook.
It said on Tuesday it would cut around 3,000 flights between mid-March and mid-June and temporarily lay off a “significant share” of its workforce.
In an effort to give the industry some breathing space, EU chief Ursula von der Leyen said the bloc would suspend a rule requiring airlines to run most of their scheduled services or else forfeit valuable airport landing slots. This will do away with “ghost flights” where airlines fly almost empty planes simply to keep slots, she added.
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 sector shakeout is expected, industry experts have warned.
Conglomerate HNA Group, which owns or holds stakes in a number of Chinese carriers, including Hainan Airlines, 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 canceled tens of thousands of flights since the start of the outbreak, though they have started to resume them.
(GRAPHIC: Global airlines by market cap – https://fingfx.thomsonreuters.com/gfx/mkt/13/3164/3129/airlines.png)
(Reporting by Hyunjoo Jin in Seoul and Jamie Freed in Sydney and Tracy Rucinski in Chicago; Additional reporting by Terje Solsvik in Oslo, Laurence Frost in Paris, Rachit Vats in Bengaluru, Stella Qiu and Brenda Goh in Beijing, Angel Krasimirov, Tova Cohen in Tel Aviv, Sarah Young, Kate Holton and Josephine Mason in London, anmd Christian Kraemer in Berlin; Writing by Pravin Char; Editing by Mark Potter and Nick Zieminski)
