It's official, the EU is on lockdown as of noon (Central European Standard Time) as the World Health Organization has declared a global pandemic of COVID-19 and Europe as its new epicenter. This literally means no one enters nor gets to leave the Union for at least 20 days in an effort to contain the spread as flattening the curve is the world's best bet against the coronavirus which contaminated 179,400 people in at least 140 countries, taking more than 7,000 lives.
For now, among the most severely hit countries are Italy and Spain. As French President Emmanuel Macron declared on Monday evening, we are at war with an invisible enemy. And besides Europe's citizens mentally suffering in isolation that will last for several weeks, the airline industry is living its worst nightmare as flights are canceled and demand is dropping severely in several months ahead. And it's extending far beyond Europe as Trump's decision to set curbs on European flights capped a tumultuous week and is expected to upend a trans-Atlantic market that's usually the world's most lucrative.
The Italian government is considering pumping $333 million into an already struggling Alitalia SpA which was already in an urgent need for restructuring. The troubled airline is burning cash at a rate of around $334 million a year so the coronavirus might just be the last drop. Additionally, the government might even take over the airline, according to Bloomberg. The head of Norwegian Air Shuttle ASA (OTC: NWARF) admitted the discount carrier is on the brink of a fall out as he pleaded for help.
Lufthansa AG Deutsche Lufthansa AG (OTC: DLAKY)
Already last week before the lockdowns took place, in order to avoid layoffs due to the slashing demand and capacity by as much as 50%, the airline announced to Bloomberg it will resort to the option of short time work, known as "Kurzarbeit," when the government offsets wages lost when companies are forced to temporarily halt activities.
The government has loosened rules for short-term work compensation to make it easier for those companies which are heavily affected by the virus to apply. Lufthansa is expected to seek a loan from Germany's state-run bank to weather the fallout from the virus, after it already cut forecasts and suspended its dividend.
Air France-KLM's (OTC: AFLYY) business already took quite a hit on Sunday when the French government said it would gradually reduce domestic air, rail and bus operations to limit non-essential travel in the nation that has already shut down everything but the ‘necessary' stores such as food shops and pharmacies. But now it's even worse as all is stopped as of Tuesday, there's no way in or a way out. But Air France can at least count on the help of two governments, as France owns 14% and the Netherlands has a stake of a bit less than 13%.
On Friday, the company already announced it is building up cash reserves and preparing an emergency plan to cut costs. It has drawn down 1.1 billion euros ($1.2 billion) from a revolving credit facility, bringing available liquidity to 5.5 billion euros, a move it said is aimed at preserving its financial flexibility. In addition to supporting its liquidity, the government is also helping with a shorter working hour arrangement that allows firms to pay employees less in times of such Black Swan events.
Until today before the PM addressed the public, the UK did not have such drastic measures such as Europe. But it was still severely hit as Bloomberg reported that British Airways owned by IAG SA (OTC: ICAGY) chief Alex Cruz called it a crisis of global proportions like no other the industry has known and even worse than the SARS outbreak in the early 2000s, 9/11 in 2001 and the financial meltdown of 2008-2009. The Financial Times reported that BA has held talks with multiple banks regarding urgent financing. The U.K. government is also making efforts to support workers, businesses and passengers,
A Grim Outlook
The stock is going down at an abnormal speed as IAG SA and Air France-KLM already reached a lowest point in more than the last three years, while Norwegian Air Shuttle ASA reached its 15-year bottom. And things are only to get worse as the pandemic continues. Jobs will be lost as the airlines idle planes, cut back on flights and move to protect their balance sheet. The International Air Transport Association estimated that they may lose as much as $113 billion in ticket sales this year.
The virus first swept through Asia, decimating air traffic and leading to a Chinese government decision to take charge of the parent of Hainan Airlines and a similar scenario seems to be in the cards for European airlines but the whole world will be affected by this pandemic. According to the World Travel & Tourism Council, measures taken by states could cost the tourism industry 50 million jobs. There's no doubt that the survival of many airline companies is on the line and of the travel industry as a whole considering that the COVID-19 pandemic is at its initial stage and we are to fight this battle for quite a few months ahead along with fighting the fears that yet another recession is upon us. The key challenge for the coming days and weeks to come is to bring the epidemic under control as soon as possible as otherwise we risk it inflicting a lasting damage on the economy.
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