Summary

• Facing the Covid-19 crisis, Virgin Atlantic filed for bankruptcy after a month old announcement of securing £1.2 billion in funding.
• Despite higher cost and lower income, airlines need to invest in safety measures to check the spread of coronavirus infections.
• Experts suggest airlines to adopt means for minimising the effects, transforming themselves, and come out stronger.

The outbreak of coronavirus has impacted the aviation sector the most with over 90 per cent fall in air traffic, especially during the lockdown period. Given the unprecedented crisis that the industry is facing, it is important to reflect upon several factors like Covid-19 containment measures, government support, consumer confidence, strategies adopted by the airlines, and other economic conditions to evaluate when and how the sector will recover. Amid these correlated scenarios and the economy opening up steadily after three months of lockdown, on 4 August 2020, Virgin Atlantic filed for bankruptcy. This and other reports on job losses from across the industry, brings our focus back on stock performance of some of the airlines.

Virgin Atlantic filed for bankruptcy

Amid the ongoing fight against the coronavirus-led pandemic, on 4 August 2020, Virgin Atlantic, filed for bankruptcy after announcement made nearly a month back about raising funds worth £1.2 billion from shareholders and creditors to help survive for at least one and a half years. In another development, Virgin Atlantic informed that its restructuring plan was already given to the UK court and the airline will have a meeting of its creditors on 25 August 2020 where they will vote on the company’s plans.

Since the outbreak of the coronavirus, this is the second bankruptcy from the Virgin Group. In April 2020, Virgin Australia went into administration as it owned $6.8 billion to around 12,000 creditors. Virgin Atlantic flies only long-haul international routes and is owned by Richard Branson’s Virgin Group (51 per cent) and US airline Delta (49 per cent). The airline also has a tour operator segment called Virgin Atlantic Holidays, besides operating Virgin Atlantic Cargo. Facing the pandemic crisis, it closed its Gatwick base and cut more than 3,500 jobs. Branson faced criticism in the recent past after requesting the government to provide a bailout package.

Other airlines that filed for bankruptcy

Let us revisit the situation that led other airlines to file for bankruptcy.

Flybe: The regional airline from Britain was facing tough financial issues even before the pandemic hit its business prospects. Despite support from the UK government and Virgin Atlantic, Flybe suspended all its operations and staff lost their jobs as it went into voluntary administration in March 2020.

Virgin Australia: In April 2020, Australia’s second-largest airline went into voluntary administration. In its efforts to compete with Qantas, the company struggled to provide full-service and increased its fleet. This strategy brought significant losses and when the coronavirus outbreak grounded its flights, the company saw a steep decline in its revenue.

A quick glance at the industry scenario

In June 2020, the International Air Transport Association (IATA), trade body for the global airlines industry pointed out that 2020 will be remembered as the worst year in the history of the aviation industry. With lifting of travel restrictions, July was a very crucial month. As every airline competed to increase their share, oversupply, and low demand, the prices were under tremendous pressure. Airlines also need to bear the cost of safety measures such as additional cleaning and social distancing to check the spread of coronavirus, amid higher cost and lower income.

IATA predicted that 3.4 billion people will fly in 2021, a number significantly less than 4.5 billion recorded for 2019. The trade body stressed that as people do not feel comfortable to fly when there is a risk of catching infection; they will still avoid traveling soon after the pandemic will be under control. End of furlough scheme will see more job losses. Many experts highlight that a general economic recovery during 2021 and an overall rise in employment levels could lead to the growth of airline industry.

Also Read:

Aviation Sector Eyeing Revival Once Out of the Coronavirus Catastrophe

Covid Impact: Aviation Industry Workers Undergoing Massive Job Losses

Covid-19 Impact: Economic Downturn of the Aviation Industry

Stock performance of some key companies in the aviation space

Given the challenges and some tough steps already taken, experts suggest airlines to adopt means for minimising the effects, transforming themselves, and come out stronger. Below we present the stock performance of some airlines.

International Airlines Group: (LON:IAG) It is one of the world's largest airline company that combines leading airlines (Aer Lingus, British Airways, Iberia, LEVEL, and Vueling) in the UK, Spain and Ireland to operate a fleet of over 570 aircraft. These aircrafts fly to around 279 destinations carrying approximately 118 million passengers every year. The shares of the Spain registered company are traded on the London Stock Exchange (FTSE 100) and Spanish Stock Exchanges.

With a comparatively stronger balance sheet while entering the crisis, IAG cancelled its dividend for flexibility reasons. Apart from €7 billion in cash, the company’s overall liquidity is estimated at €10 billion. It has reduced its monthly cash burn to around €200 million. Despite these numbers, IAG is undergoing restructuring process as it sees next four years to be tough for the airline sector. British Airways has announced that up to 12,000 employees or around half of the total staff currently furloughed face risk of losing their jobs.

On 5 August 2020, at 10.54 AM, the company’s stock (LON:IAG) was trading at £189.50 up 8.04 per cent from previous day’s close at 175. 40. The 52 week low high range was recorded as 163.85 and 671.00. With a market capitalization (Mcap) of £ 3,483.94 million, the stock provided a negative return on price, which was minus 72.43 per cent on a year to date (YTD) basis. The total volume of shares traded at the time of reporting was recorded at 9,957,892.

EasyJet plc (LON:EZJ): Headquartered at London Luton Airport, EasyJet plc is a low-cost British airline. It has both domestic and international operations on more than 1,000 routes across 30 countries via its affiliate airlines consisting of EasyJet UK, EasyJet Switzerland, and EasyJet Europe. In June 2020, it sold 15 per cent of the business to raise £419 million through a placing priced at 703 pence, which provided the company with a cash of £2.8 billion. Having a net debt position of £467 million, EasyJet does not need to refinance anything till 2022, a time period when the airline industry expects to be at a better position.

On 5 August 2020, at 12.32 AM, the company’s stock (LON:EZJ) was trading at €588.40 up 6.67 per cent from its previous day’s close of 551.60. The 52 week low high range was recorded as 475.00 and 1,552.00. With a market capitalization (Mcap) of £ 2,519.43 million, the stock provided a negative return on price, which was minus 61.43 per cent on a year to date (YTD) basis. The total volume of shares traded at the time of reporting was recorded at 2,618,816.

Lufthansa (LON:0H4A): It is a German airline and its network airlines are Lufthansa German, SWISS and Austrian Airlines, besides the low-cost Eurowings brand.

Lufthansa received €9 billion from the German government by selling 20 per cent of its business. The company’s existing liquidity is of approximately €4.3 billion but is reported to lose around €800 million per month and has restructuring plans in place. Among cost cutting measures, Lufthansa has put a hold on new projects, maintenance activities that are not required, besides stopping investment and suspension of dividend payouts. While delivery of new aircraft being put off for a later date, there are plans on becoming a leaner business with job cuts.

On 5 August 2020, at 12.26 AM, the company’s stock (LON:0H4A) was trading at €8.11, up 5.99 per cent from the previous day’s close. The 52-week low high range was recorded as 7.17 and 17.77. The total volume of shares traded at the time of reporting was recorded at 403,735.

Ryanair (LON:RYA): It operates low-cost and short-haul flights within Europe. The company’s balance sheet is known to be strong and manages its costs with its no-frills services. Till date it has not taken any government support but is working on price and cost related strategies to compete in coming times. The airline does not pay dividend rather makes special payouts when the bank balance is supportive. Such payouts seem unlikely in near future which is full of crisis. Ryanair plans to lay emphasis on preserving cash, generate additional cash, and pay off debts in next one year.

On 5 August 2020, at 12.49 AM, the company’s stock (LON:RYA) was trading at €11.45 up 2.78 per cent from its previous day’s close of 11.15. The 52 week low high range was recorded as 8.14 and 16.10. With a market capitalisation (Mcap) of £10,948.55 million, the stock provided a negative return on price, which was minus 25.33 per cent on a year to date (YTD) basis. The total volume of shares traded at the time of reporting was recorded at 882,268.

Conclusion

The airlines have started flying after the government lifted restrictions on air travel. The travel guidelines on safety to check the spread of infections, recent spike in the Covid-19 cases, revision in quarantine norms, and lack of testing facilities at the airports restrict the fliers to take up air travel. It is a challenge for the airlines to build the customer confidence, invest in necessary safety guidelines, and still run the business to generate profit. Given all these, it would be interesting to keep a close watch on the airline stocks in coming times.