Covid-19 Impact: British Airways Going Through Structural Changes

Summary

• The ongoing pandemic scenario has affected the global airline industry the most.
• The chief executive of British Airlines (BA), Álex Cruz said the airline company will not be the same again. He added that the people were afraid of travelling, and the weekly changes in the quarantine list is also creating havoc.
• The airline was operating at only 25 to 30 per cent of its overall schedule.
• The week ending 14 September 2020 witnessed only 187,000 passengers flying on BA.

The global airline industry has been on a rough patch with several airline companies closing down their businesses around the world due to financial distress caused by the coronavirus pandemic. Prior to this, the pre-Brexit headwinds across Europe and the US-China trade war situation have also had a significant negative impact on the world economic outlook leading to a drop in air travel demand. Rising aviation fuel prices over time have also been shrinking the margins of aviation companies.

Recently, Álex Cruz, chief executive, BA had addressed the UK parliament’s transport select committee. He said that the global aviation industry might not be same again as a result of the Covid-19 pandemic. He also told that the industry is undergoing a permanent structural change as it is experiencing the worst financial crisis in the history of global aviation industry.

He emphasised that there is no data to support the idea that the aviation industry is undergoing a temporary change. The airline industry seems to have completely changed forever. Cruz expressed concern over the fact that people were afraid of travelling, and the weekly changes in the quarantine list were creating havoc on the flying plans of British aviation companies. The company is taking every possible measure to make sure that it can actually make it through the coming winter season. The return of passengers in the short-term appears far from reach, told Cruz.

Related Read: EasyJet and IAG Stocks Soften with Slump in Demand on New Quarantine Measures

Structural Changes and Job Losses

Cruz told the transport select committee that BA was still fighting for survival, defending the job losses and pay cuts. The airline was operating only 25 to 30 per cent of its regular schedule, seeing only 187,000 passengers flying in the week ending 14 September 2020 in comparison with that of 1 million during the corresponding period in the previous year 2019.

Redundancy had reached about 7,200 by 14 September 2020, while others have been taken back on lower wages. Cruz said he had himself taken a one-third pay cut to his salary of £805,000.

The airline had earlier proposed a maximum of 13,000 job cuts, but Cruz now forecasted the total job losses to be below 10,000. Low demand from passengers meant lesser number of flights, and fewer flights in turn implied a lower staff required correspondingly.

In a report published in June 2020, the Commons transport select committee had accused BA of taking advantage of the pandemic, by laying off approximately 12,000 staff and putting the remaining 30,000 on inferior contracts. The MPs who were a part of the committee had said that the behaviour of BA and its parent company (IAG Group plc) towards their staff was a national disgrace.

On being questioned regarding the controversial treatment of BA staff, Cruz expressed his regret on the way many loyal and hardworking employees had to leave their jobs.

However, Cruz did not agree to the suggestion by MPs to retain the pilots and crew members. He added that there is data confirming a long recovery process during which structural changes will continuously take place across the global aviation industry, as required by the dynamic market forces. The changes proposed by Cruz were solely a consequence of the pandemic, he reiterated.

Ill-Effects of the Pandemic

In the month of July, BA had decided to permanently retire its Boeing 747s. This decision came after the international air travel business suffered due to the Covid-19 pandemic.

For BA, the Covid-19 crisis has been the worst which it had ever faced, far exceeding the effects of the financial crisis of 2008. The company had made losses worth £700 million in Q1 2020 (Q1 2009: loss of £309 million). It took four years for the passenger numbers to recover back then during the financial crisis, with negative impact still remaining in the revenues of BA’s business-class.

Also Read: British Airways Pushes for Coronavirus Airport Testing

Let us now take a closer look at the stock performances of IAG, EZJ, and RYA.

Stock Performance of IAG

International Consolidated Airlines Group PLC (LON:IAG) stocks were trading at GBX 119.85 on 18 September 2020 at 8:47 AM, down by 6.91 per cent from its previous close of GBX 129.45. The 52 weeks low/high price range was reported to be GBX 129.45/671.00. It had a market capitalisation (Mcap) of £2,571.24 million. The company recorded a negative return on price which was 79.65 per cent on YTD (Year to Date) basis.

As mentioned by Cruz, the weekly changes in the quarantine list is resulting in demand in the number of passengers, other UK airline companies are also facing difficulty due to the same reason.

After the additional quarantine measures were issued by the British Government last week, EasyJet, another passenger airlines company in the UK, said that it would be cutting down on its total number of flights. The announcement of further quarantine measures by the government had knocked down consumer’s confidence and reduced demand for travel.

The airline company had expanded its flight schedule to 1,000 flights per day after demand rose over a month ago in August 2020. EazyJet expected to fly slightly less than the 40 per cent of its planned capacity in Q4 2020.

Stock Performance of EZJ

EasyJet PLC (LON:EZJ) stocks traded at GBX 557.80 on 18 September 2020 at 8:51 AM, down by 6.09 per cent from its previous close of GBX 594.20. The 52-week low/high price range was reported to be GBX 475.00/1,552.00. It had a market capitalisation (Mcap) of £2,714.01 million. The company recorded a negative return on price which was 58.45 per cent on YTD (Year to Date) basis.

Talking about yet another British airline, in the month of August 2020, when the government had introduced new quarantine restrictions, Ryanair had planned to cancel one-fifth of its flights which were scheduled for September and October 2020, driven by a drop in bookings due to increase in Covid-19 cases across Europe.

Stock Performance of RYA

Ryanair Holdings PLC (LON:RYA) stocks traded at GBX 12.32 on 18 September 2020 at 8:54 AM, down by 2.03 per cent from its previous close of GBX 12.57. The 52-week low/high price range was reported to be GBX 8.14/16.10. It had a market capitalisation (Mcap) of £12,735.18 million. The company recorded a negative return on price which was 15.78 per cent on YTD (Year to Date) basis.