Covid-19 Impact: Economic Downturn of the Aviation Industry

To support the cash reserves during the unprecedented times of Covid-19, EasyJet launched GBP 450 million rights issue. The issue is said to comprise of 15% of its share capital. The company has also taken a loan of GBP 600 million from the Government's emergency coronavirus fund.

EasyJet resumed its operations after 11 long weeks of shutdown, beginning June 15, 2020 by starting flights from London Gatwick to Glasgow.

EasyJet is a British airline company, serving for the last 23 years with its operations in 30 different countries. It has been in the news for planning to cut jobs of 4,500 employees which constitutes 30% of its workforce. It had employed 15,000 workers at the beginning of the year 2020. Its staff is currently furloughed under the Government's Job Retention Scheme until October.

On June 24, 2020, EasyJet PLC released its half-yearly report ending on March 31, 2020, showing an improvement of 30% in loss before tax. The passengers count decreased by 7.4 % to 38.6 million due to the impact of Covid-19. The lockdown led to a 7.6% decline in the capacity due to the flights being cancelled in March. Though the total group revenue of the company increased in the first half of the year by 1.6% to £2,382 million (H1 2019: £2,343 million), the post-Covid scenario is yet to be disclosed by the company.

EasyJet PLC (LON:EZJ) was trading at GBX 698.00 on June 25, 2020, at 10:15 AM, down by 5.68 per cent from its previous close of GBX 740.00. The company's 52 weeks high/low range was reported at GBX 475.00 / 1,552.00. It was having a market capitalization (Mcap) of GBP 2,939.34 million. The stocks delivered a negative price return of 48.25% on YTD (Year to Date) basis.

The British Aviation Industry

The British aviation industry is amongst the worst affected sectors by the crisis arising due to the Covid-19 pandemic, disrupting its operations almost completely.

The aviation industry has been one of the important sectors of the UK economy, contributing GBP 92 billion to the Gross Domestic Product (GDP), hence the government is also trying to ensure speedy its recovery through various measures.

At the beginning of 2020, factors such as the introduction of low-fare aircraft, replacement of obsolete commercial aircraft and initiation of new travel trends had been contributing substantially to the market growth of the industry. However, the Covid 19 crisis has led to sluggish demand from the customers' end.

Out all the segments of the airline sector, passenger airline segment is the most affected. UK airlines have been forced to ground hundreds of aircraft and are allowed to run with minimal capacity in order to limit the financial impacts of the pandemic.

Airport revenues have also been affected since they are directly associated with air traffic. Cancellation of flights has led to lowering of airport traffic which in turn has resulted in low revenue generation. With no change in the airport maintenance cost, low revenues have been a matter of grave concern for the airport authorities.

Precautionary Measures being adopted by the Airlines

To protect of the passengers and the crew members from contracting the disease, the airline companies are already adopting essential precautionary measures such as deep cleaning of aircraft, quarantining the aircrew if found suspected with coronavirus, contactless temperature monitoring of the passengers, compulsory wearing of surgical masks, air filtration in cabins, cleaning cabin and accessories and hygiene measures at airports.

Wherever possible, they are also keep in mind the appropriate social distancing measures. For instance, EasyJet has planned to leave the middle seats empty to abide by the rules of social distancing.

Government Support Measures being sought by the Aviation Industry

The UK aerospace sector has 111k direct employees, 3.8k apprentices, GBP 35.9 billion turnover and GBP 34.2 billion exports according to the statistics of 2019.

In order to safeguard the employees' interests, the government has been undertaking specific steps like the furlough scheme. At the same time, the Airport Operation Association (AOA), Airlines UK and ADS group have called upon the government to extend the business rate relief measures, extend the Job Retention Scheme, announce new financial support schemes and work internationally to ensure a coordinated approach, for the betterment of the industry.

Let's have a look at some of the listed companies of the UK aviation industry and how have they been affected by the pandemic.

Wizz Air Holdings PLC (LON:WIZZ)

Wizz PLC is the youngest airline company with only five years of existence in the market. It operates in the Central and Eastern European region with its 122 aircraft fleet. Wizz PLC experienced a downfall of 1,675,643 passengers in April from that of March 2020 due to effect of the corona pandemic across the globe.

Wizz Air Holdings PLC (LON:WIZZ) was trading at GBX 3,210.00 on June 25, 2020, at 11:48 AM, down by 0.06 per cent from its previous close of GBX 3,212.00. The company's 52 weeks high/low range was reported at GBX 2,006.00 / 4,496.00. It was having a market capitalization (Mcap) of GBP 2,743.90 million. The stock delivered a negative price return of 19.50% on YTD (Year to Date) basis.

International Consolidated Airlines Group SA (LON:IAG)

IAG saw a reduction in the passenger capacity by 94% in the month of March and expects a downfall in the second quarter, which could be worse than the first quarter. There is an uncertainty on the resumption of their services but is probable to restart by July. The total revenue of the group also decreased by 13.4% in Q1 2020 to € 4,585 million (Q1 2019: € 5,295).

International Consolidated Airlines Groups SA (LON:IAG) stock was trading at GBX 228.00 on June 25, 2020, at 11:52 AM, down by 1.04 per cent from its previous close of GBX 230.40. The company's 52 weeks high/low range was reported at GBX 168.20 / 671.00. It was having a market capitalization (Mcap) of GBP 4,576.13 million. The stock delivered a negative price return of 63.79% on YTD (Year to Date) basis.

Ryanair Holdings PLC (LON:RYA)

Raynair group operated only 107 scheduled flights in the month of May due to the impact of the epidemic and saw a fall in the air traffic by 99.5% to 0.7 million passengers as compared to 14.1 million during the same period in 2019.

Ryanair Holdings PLC (LON:RYA) stock was trading at EUR 10.53 on June 25, 2020, at 11:58 AM, down by 1.86 per cent from its previous close of EUR 10.73. The company's 52 weeks high/low range was reported at 8.14 / 16.10. It was having a market capitalization (Mcap) of GBP 10,586.96 million. The stock delivered a negative price return of 28.11% on YTD (Year to Date) basis.