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In a shocking announcement on 28th April 2020, British Airways stated that it would be slashing nearly 30 per cent of its 42,000 employees as the coronavirus outbreak is going to harm the weakened aviation industry further. International Consolidated Airlines Group Plc, which is the parent company of the Airplane manufacturer, warned that it would take several years to return to the passenger numbers of 2019, and announced that it would be laying off approximately 12,000 employees.
This decision was announced just a few days after the company had put a few of its employees on the government’s furlough scheme but soon realised that the airline industry is going through a major turmoil, and even if the companies are allowed to operate shortly, the level of operations won’t be normal anytime soon and hence, in the times of such volatility and facing the kind of liquidity crunch that the company and the entire airline industry is going through, it wouldn’t have been feasible for the company to pay the wages of all of its employees. British Airway's job cuts will sound alarm bells in the Treasury, as it means that the coronavirus pandemic is likely to leave a deep scarring impact on parts of the UK economy and business scenario, long after the restrictions because of the lockdown gets lifted.
Just last month, executives of some of the biggest airline companies in the United Kingdom had written to the Chancellor to consider a bailout package for the industry as the losses had been mounting amid the coronavirus crisis, but the Chancellor wrote back saying that a bailout would only be considered as a last resort after all other capital financing arrangements have been sought by these companies as bailing out with taxpayer money in the current situation could lead to the point of no return for the economy.
The decision to cut jobs comes just weeks after BA reached a trade union agreement to curb costs that led to just over 22,000 employees being furloughed. Earlier this month, British Airways’ parent company IAG announced plans to ground about 90 per cent of its fleet in April and May and cancelled its planned 2019 final dividend of €337 million due to the pandemic. In its preliminary results on Tuesday, 28th April 2020, IAG said that due to the substantial decline in passenger traffic, it projected its operating loss in the second quarter to be "significantly higher" than in the first quart.
IAG Stock Price Performance
(Source: Thomson Reuters) Daily Chart as on 29 – April - 2020, before the closing of the London Stock Exchange Market
As on 29th April 2020, 09:00 A.M Greenwich Mean Time, by the time of writing this report, the International Consolidated Airlines Group SA stock was trading at a price of GBX 209.20 per stock on the London Stock Exchange market, a decline in the value of 3.99 per cent or GBX 8.70 per stock, as opposed to the price of the stock on the previous trading day, which had been reported to be at GBX 217.90 per share. The company’s stock was trading 8.51 per cent above the 52-week low price of GBX 192.80 that was set on March 19, 2020 and approximately 69.42 per cent below the 52 Week High Price of GBX 684.00, which was set on January 17, 2020. International Consolidated Airlines Group SA's market capitalisation was estimated to be GBP 4.33 billion at the time of writing.
International Consolidated Airlines Group SA's share has been reported to have lost around 61.68 per cent in value in the last twelve months since April 29, 2019, when the company’s stock was trading at a price of GBX 546.00 per share at the time of the closing of the London Stock Exchange market. In the last six months since October 29, 2019, when the company's stock was trading at a price of GBX 523.60 per share, the price has lost around 60.05 per cent in value. International Consolidated Airlines Group SA's share though reportedly increased from the share price of GBX 202.30 per share set by the organisation on March 30, 2020 by about 3.41 per cent over the last one month.
At the time of writing, the beta of the firm's stock was recorded at a value of 1.67, pointing towards the fact that the company’s price movement is more volatile relative to the change in the value of the comparative benchmark index.
What does the future hold for the airline industry post Covid-19?
Previously, after the 9/11 terrorist attacks and the 2010 Icelandic volcano eruption, the airline industry had faced several crises and situations that potentially threatened its existence. But these situations have now been dwarfed in contrast with the current economic impact that these airline companies are facing. All of the world’s biggest airline industry is currently grounded. Even though in some parts globally, there are still certain flight routes operational, especially now in China, where a recovery phase is on and domestic travelling has been permitted, it is expected that the number for annual passengers in 2019, would not even be close in 2020. The long-term trend of ever-increasing numbers of air passengers has been brought to a sudden dramatic halt in the current period. The threat is quite visible at the airports all around the world, with absolutely no people at some of the busiest airports in the world, for example, at London’s Heathrow Airport, the planes are parked at any space that they were able to find. There is no activity on airports, and it is not even expected that major activity would return soon.
Unlike the predominantly local reaction to the disease outbreak, the aviation industry also sees a wide range of measures and practices that are almost exclusively adapted and applied at the national level. That means some airlines will do better, thanks to well-chosen national policies, while others will flounder. This is because the global industry remains strongly organised on a two-pronged basis, outside Europe's multilateral single air market. Even in Europe, the Single Air market effectively functions internally as one country, although outward, individual European countries tend to deal bilaterally with other countries.
