Aviation Sector Eyeing Revival Once Out of the Coronavirus Catastrophe

The outbreak of the deadly coronavirus has already caused a catastrophe in the capital markets; more specifically, travel stocks have plummeted significantly. People have been advised to maintain social distancing and to stay at homes. With the lockdown enforced in most of the countries, domestic travel along with international travel has been hit severely.

The rapid spread of the deadly pandemic has worsened the situation of global trade over the past few months. According to the World Health Organisation (WHO), 2,034,802 people have been found infected with the contagious virus out of which 135,163 died across 213 countries as on 17^th April 2020.

Financial relief

IATA (International Air Transport Association) is seeking revival of the aviation sector and looks forward to reopening of skies. IATA has asked the government for liquidity injection for supporting both cargo and passenger airlines amid the coronavirus crisis for reduced revenues and liquidity.

In addition, it has asked to provide extra funding for the sector, IATA has also sought flexibility from the governments and central banks for accessing Loans and corporate bonds, which is a vital source of fundraising for airlines. The supreme authority seeks relief in taxation along with flexibility in loan repayment terms for the fiscal year 2020.

Also, as the skies are closed, it is important to note the steep plunge in greenhouse gases emissions and its impact on the environment. Before the catastrophe caused by the deadly virus, the carbon emissions from aviation had been rising consistently and increased by 200 per cent in two decades (between 1990 and 2019). Therefore, the government must include special provisions for the environment in the relief packages rolled out for the airline industry.

Present scenario

According to IATA, the overall revenue of the industry is likely to decrease by 50 per cent in the fiscal year 2020 as compared to the fiscal year 2019. The aviation sector in the United Kingdom called for liquidity injections, loans, and tax reliefs by the British government and asked for its intervention. On the contrary, the government asked the airline operators to raise funds from existing investors and refuted any immediate scope for the bailout of the airline industry by announcing any special package.

Worldwide scenario

The aviation sector seeks capital infusion from their respective governments around the world. The governments along with the central banks across the world are expected to make special provisions for the airline sector in their fiscal stimulus packages, as the aviation sector has a significant contribution in the world economy and is responsible for millions of jobs creation. Therefore, this sector seeks special attention from the decision-makers of various countries. The aviation industry also needs to be praised for keeping vital supply chains up and running even in this hour of unprecedented crisis.

The ongoing Covid-19 pandemic outbreak has wreaked havoc on the global aviation sector by causing lockdown and travel restrictions along with bringing the world to an unseen halt. The airline operators, along with the jet makers, have been worst hit by the global pandemic.

According to the International Air Transport Association, the airline industry is likely to witness a decrease of 55 per cent or $314 billion in airline passenger revenues this year in comparison to 2019 amid the ongoing Covid-19 pandemic outbreak. This decrease in passenger revenues could be attributed to imposed lockdown across the world and both domestic & international travel being restricted for more than a quarter now. The world is believed to be on the brink of recession, the peak of this catastrophe due to the COVID-19 crisis is expected to arrive in the second quarter of 2020. The situation could aggravate further if travel restrictions are not eased.

The airline manufacturers are facing similar challenges as the airline operators have reduced or cancelled their orders for newer aircraft. The situation is further worsening as the finished products shall hurt the manufacturers with storage and carrying costs. The airline industry believes that things will remain the same for quite some time now, even after lockdowns are lifted and travel restrictions are eased. The aviation sector has prioritised the safety of its employees first amid the global pandemic.

The way forward

However, individual airlines such as EasyJet are coming up with innovative strategies to get back to air once the skies reopen. EasyJet reportedly winter bookings way more than past year, which included rebooked flights by the customers cancelled during the virus outbreak.

As the governments across the world have been emphasising on social distancing. Easyjet Plc plans to implement social distancing in its flight seating arrangement by keeping the middle seats empty once coronavirus travel restrictions are eased. The company expects a weaker demand when flights resume, and hence it would be easier for the flight management to implement the plan in the initial phase. The company’s is assuming that the airline will have a lesser load in the initial phase; hence middle seat can be kept vacant. In addition, the airline is looking forward to deep sanitisation programmes on the aircraft.

However, the airline believes that this might not be the safest way to protect its passengers and would also prove to be costly for the airline. The airline has provided its customers with an option of claiming refund and rescheduling their flights without any charges or receiving credit. It has stated that it is not easy to foresee when things would get normal, but the airline is working on data models for various scenarios, further adding that no airline will survive if similar situation persists.

The company expects a minor loss in the first half of 2020. The company expects a headline loss before tax in the range of £185 million to £205 million in the first half of 2020. The company has introduced cost-cutting measures and halted all ancillary functions to reduce its administrative budget. The airline has furloughed 650 representatives under government schemes across Europe out of the total 14,000 employees base. The company has stated that it has enough liquidity to survive this year even if the skies remain closed as per the trading update released on 16th April 2020.

EasyJet would consider reducing costs by £4.5 billion. Amid the global meltdown, the Bank of England and Treasury have the company with £600 million loan. The company is likely to raise another £407 million from the creditors to ensure liquidity.

• EasyJet Plc (LON:EZJ) at the time of writing on 17^th April 2020 (12:56 PM GMT) was trading at GBX 643.40, up by GBX 55.00 points or 9.35% from its previous day’s closing of GBX 588.40.

Disclaimer

The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.