The British government is planning to lend support to the aviation sector in the best possible manner during this unprecedented hour of crisis. The British Prime Minister has shown his keenness on reviving the prospect of the sector, but as of now there has been no support package for the aviation sector. Boris Johnson has asked the airlines to utilise the loan support from schemes announced for the businesses earlier and said that he is in regular touch with the airline operators. The British Prime Minister has further said that every sector in the UK will be taken up seriously.
The aviation sector, which forms an important part of the economy, is in a precarious condition, deeply hit by the coronavirus outbreak, it is one of the sectors which would possibly take a comparatively longer time to recover. It all depends on the aviation sector’s access to liquidity and support from the governments. Earlier, the chancellor, Rishi Sunak has asked the airlines to raise capital from existing investors and then seek help from the state. Any prospect of special assistance financially by the British government for aviation seems to be put on hold by the Finance Ministry. The Travel & Leisure industry has been severely hit with the coronavirus crisis. As people are time and again advised upon social distancing and staying at home, the London City Airport reportedly has suspended all its private and commercial flights.
Meanwhile, the BALPA (British Airline Pilots Association), has stated that unique measures for individual airlines are being worked upon and was hopeful that the government would probably intervene if required for supporting the aviation industry. The government, however, will analyse each airline operator, how crucial they are to the UK transport system and would extend support accordingly.
The United Kingdom, with one of the largest air transport systems in the world, has a significant contribution to the global aviation sector. UK connects to more than 370 international destinations across the world. The Aviation sector has a significant share in the UK’s economy and also underpins several other sectors such as international trade (import & export of goods), tourism and global business. The aviation sector in the UK is liberalised to a certain extent and has seen significant growth, and improved connectivity due to its extensive network. The aviation and aerospace sectors together provide numerous employment opportunities in the UK, either directly or related one.
The ongoing outbreak, along with oil prices going south, has exacerbated negativity among the investors worldwide with reference to markets. The novel coronavirus has already caused the meltdown of global markets, particularly sectors such as jet makers, travel, entertainment & leisure, are affected the most.
As most of the countries have imposed a lockdown, people have stopped travelling, which has led to serious beating in the travel stocks across the globe. Furthermore, the airlines have reduced orders of newer aircrafts the world’s most prominent jet manufacturers Boeing and Airbus are likely to suffer severely. These companies have suspended their manufacturing operations like most of the other automotive manufacturers in this hour of global turmoil. Moreover, the finished goods are additionally going to weigh the company with storage and carrying costs and dent future revenues.
The rapid spread of the pandemic over the past few weeks has worsened the situation for international trade and caused the global catastrophe. According to the World Health Organisation (WHO), as on 26th March 2020, 416,686 people have been found positive, and 18,589 died with the pandemic now spread over 195 countries. The UK has recorded 422 deaths so far with 8,081 confirmed cases including Prince Charles.
With demand for air travel coming to a standstill, the UK airlines have almost no revenue coming in, forcing them to put thousands of jobs along with the future of the sector at risk and ground their planes. Here, we are discussing two prominent airlines of the UK aviation sector: Easyjet Plc and International Consolidated Airlines Group.
EasyJet Plc (LON: EZJ) is a low-cost European point-to-point airline company. According to its first- quarter trading update (Q1 FY20) period ended 31st December 2019, the company’s total revenue grew by 9.9 per cent to GBP 1,425 million in contrast to the first quarter of the fiscal year 2019. The total airline revenue per seat has increased by 8.8 per cent at constant currency to GBP 58.63 in Q1 FY20 as compared to GBP 53.89 in Q1 FY19. The FTSE 100 listed entity has delivered a decent financial performance during the first quarter of the financial year 2020.
The company has warned about the grounding of its majority of the fleet. With negligible customer demand and the unprecedented level of travel restrictions being imposed by government, the company has made significant cancellations. However, in order to repatriate customers, the company would continue to operate rescue flights for shorter periods.
In order to mitigate the impact of COVID-19, the company has planned to cut down significant levels of variable costs by grounding its aircraft. The company has cash balances of nearly £1.6 billion and a revolving credit facility of $500 million along with a healthy balance sheet. With the current level of uncertainty amid the Covid-19 pandemic, the company has said that it would not be able to provide financial guidance for the fiscal year 2020. The company has further stated that to ensure the health and safety of its employees and customers, EasyJet continues to adhere to the guidelines provided by the World Health Organisation and work closely with the concerned authorities.
Share Price Performance - EasyJet Plc
EasyJet Plc shares were trading at GBX 645.60 at the time of writing before the market close (at 11:27 AM GMT) on 26th March 2020. Stock's 52 weeks High is GBX 1,570.00 and Low is GBX 410.00. The company’s beta stood at 1.4, making it slightly more volatile in comparison to the benchmark index. The gross annual dividend yield of the company was 7.57 per cent. The company’s market capitalisation was hovering around £2,585.03 million.
International Consolidated Airlines Group SA
London based airline group, International Consolidated Airlines Group SA (LON: IAG) has 550 plus aircraft, travelling to more than 260 destinations every year with a customer base of more than 110 million. The FTSE 100 listed company’s revenue grew by 5.1 per cent to €25,506 million in FY19 as compared to €24,258 million in FY18. On year on year basis, the company’s profit before tax, including exceptional items was down by 40.8 per cent to €1,715 million in FY19.
With the rapid spread of virus and travel restrictions imposed by the associated governments, it has put a negative impact on global air traffic demand. The company is taking a prudent approach to improve its cash flow and reduce its operating expenses. The company has liquid assets of EUR 7.35 billion as at 12th March 2020.
Share Price Performance - International Consolidated Airlines Group SA
International Consolidated Airlines Group shares were trading at GBX 233.90 at the time of writing before the market close (at 11:45 AM GMT) on 26th March 2020. Stock's 52 weeks High is GBX 694.00 and Low is GBX 192.80. The company’s beta stood at 1.6, making it more volatile in comparison to the benchmark index. The gross annual dividend yield of the company was 13.57 per cent. The company’s market capitalisation was hovering around £4,567.96million.
In the European markets, the London’s broader equity benchmark index FTSE 100 traded 83.90 points or 1.48% lower at 5,604.30 on 26 March 2020, before the market close.
Stock price comparative chart of EasyJet Plc and International Consolidated Airlines Group SA with the FTSE 100 index.
(Source: Thomson Reuters)