AUS
NZ
UK
CA
USA
IND
The current economic downturn caused by the coronavirus pandemic is unlike most other slowdowns the world has seen. Particularly, demand for services has decreased substantially in certain industries – like hospitality, travel and aviation while it has skyrocketed in others like healthcare and telecommunications. Getting through this crisis, for both people and businesses is going to require resilience, innovation, strong cash position and long-term orientation.
At this time, having a good liquidity largely helps businesses. Likewise, it is also important for companies seeking funds to have a good credit rating as the lenders/banks feel hesitant to give money to risky customers. With the prevailing uncertainty and businesses facing major setback, various credit rating agencies, measuring the quantitative and qualitative risks of different companies, are lowering credit ratings so as to help investors to make wiser decisions.
Also, Read: S&P being Optimistic on how are Banks Placed Amidst Covid Pandemic
Considering these few aspects, let’s see how Flight Centre Travel Group, Virgin Australia Holdings and Qantas Airways are dealing through the stormy economic and financial landscape.
Flight Centre Travel Group Limited (ASX: FLT)
Flight Centre Travel Group Ltd operates as a retail travel agency with nearly 1200 outlets throughout Australia and across the world in New Zealand, Hong Kong, South Africa, Canada and the UK. Flight Centre, Travel Associates and Student Flights are three of the Company’s agencies and brands.
Covid-19 Response Plan: Recently, on 26 March 2020, Flight Centre Travel Group released its immediate plan to deal with the current challenges being presented by the Covid-19 outbreak.
The Group has begun a three-pronged plan to prepare ahead of downturn in demand that could last long as a result of the harsh and foreseeably unending restrictions that all governments have imposed on domestic and international travel around the world to curb the virus spread.
Such restrictions have come into place for the first time in human history causing airline companies to ground their fleets and heavily lower flight schedules, which has reduced travel along with reducing the scope of work performed by FLT’s employees.
These recent tragic developments very well reflect in the FLT’s total transaction value (TTV) tracking at 20-30% of normal levels globally for March 2020.However, prior to this Covid-19 emergence, the Group was on track to deliver record 2020 fiscal year (FY20) sales as it generated $ 12.4 billion TTV in first half, up 11.2% on pcp. The Group further delivered monthly records in January and February 2020.
Nevertheless, FLLT is working to deal with rapidly changing environment and formulated plans to reduce cost globally, Where possible, preserve cash, and access additional liquidity in the short-term. Amidst the hustle and bustle, FLT is working to ensure a robust balance sheet and liquidity position.
Voluntary Suspension Requested:Further to its notification on 23 March 2020, in accordance with FLT’s request for a voluntary suspension of its shares with immediate effect to enable Flight Centre Travel in continuation to evaluate the effect of the COVID-19 on its business, the Company on 30 March 2020 updated the market on its request for an extension of the voluntary suspension of FLT’s shares.
FLT stock last traded on 19 March 2020 at $9.910.
Virgin Australia Holdings Limited (ASX: VAH)
Australian-based Virgin Australia Holdings Limited is afull-service airline providing domestic and international operations.
Lower Credit Rating for Virgin Australia by Fitch: In a recent announcement, Virgin Australia Group informed the stakeholders that its Fitch Long-Term Foreign-Currency Issuer Default Rating (IDR) Ratings has been downgraded its to 'B-' from 'B+' while it has also been placed on Rating Watch Negative (RWN) subsequent to a sharp decline in demand in the aviation sector caused by the Covid-19 havoc which has further removed one notch of shareholder support included in the rating. The company expects that the RWN would put increased liquidity pressures over the coming months and it would be resolved as Fitch further examines development of the outbreak and VAH's liquidity.
At the same, Virgin Australia has also specified that a relief fund has been provided by the Australian government to the aviation sector. The government has also promised to refund airlines' airport charges from 1 February 2020 onwards for 12 months. This refund amount is initially expected to be around ~ $ 720 million, while a payment of around $ 190 million would be extended to the airlines in the short term. Despite this announcement, the companies are worried that with the grounding of fleets, the expected support package could end up being much lower than announced.
At the same time, S&P Global Ratings has also lowered its ratings on Virgin Australia to reflect the view that the company's cash outflow and liquidity pressures have intensified with Virgin Australia's decision to temporarily ground 125 aircraft, reduce domestic capacity by 90%, as well as suspend international flights and Tigerair Australia as a response to heightened government-led COVID-19-related restrictions. The airline will also defer certain supplier payments too, as per S&P. However, S&P Global Ratings also mentioned that their analysis does not incorporate any extraordinary support from the Australian government.
VAH responded to Media Report: As per VAH’s release on 31 March 2020, it acknowledged the report by The Australian and confirmed that it will continue to delve into an array of options to sail through the coronavirus crisis, along with the request of financial aid from the government of Australia in the order $1.4 billion as part of a wider industry support package to get ready for an extended crisis period. However, it is a preliminary proposal and is dependent on an agreement by the Virgin Australia Holdings Board and the government of the country and might or might not consist of the conversion to equity in specific situations.
On 31 March 2020, VAH was trading at $0.096, zooming up by 20% (at AEDT 2:01 PM).
Qantas Airways Limited (ASX: QAN)
Qantas Airways transports passengers through 2 airlines including Qantas (full-service carrier) and Jetstar (low cost carrier), whilst operating services inlcudinginternational, domestic and regional. For generating diverse revenue streams and adding value for customers and investors, the Company also operates Qantas Frequent Flyer and Qantas Freight.
Update On Additional Liquidity: Qantas Group announced on 25 March 2020 that it has executed a new round of debt funding whereby $ 1.05 billion (Term: 10 years; Interest Rate: 2.75%) have been secured in additional liquidity to maintain its strong position while swaying through the Coronavirus havoc. With the addition of debt facility, the Group cash balance now stands at $2.95 billion along with $1 billion undrawn facility still available.
Despite the addition of new facility, Qantas Airways’ net debt position is still towards the lower end of its target range, which is $ 5.1 billion, and there are no major debt maturing until June 2021 for the Group. To prepare amidst the uncertainty, Qantas Airways has also mentioned that the Group is executing a number of steps to reduce activity levels as well as costs due to a dramatic revenue impact being felt amidst Covid-19 outbreak and major travel restrictions on its Jetstar and Qantas passenger services.
QAN stock was trading on 31 March 2020 at $ 3.320, up3.75% (at AEDT 2:03 PM).
Travel and airline industry seem to be worst affected by the associated travel restrictions amidst home isolation and social distancing advisories all across the world. The sectors are being closely scrutinised amidst revenue crunch, grounded fleets, firing and hiring freeze and government aid to deal with mounting liquidity constraints. However, investors need to adopt a wait and watch strategy to access the recovery/dip in this space.
