A struggle for basic survival and for new money to burn.
By Nick Corbishley, for WOLF STREET:
The summer of 2020 may have been unexpectedly grim for Europe’s airlines, but winter could be worse. The slow recovery in passenger air traffic that began in early June is already over. At the high point of that recovery, in late August, air traffic was still down 51%. But by then, covid cases were once again surging in many countries, prompting the governments of other countries to reintroduce travel restrictions and impose quarantine measures.
In the first two weeks of September, air traffic was down 53% compared to the same period in 2019. Intra-Europe flow remains 50% down compared to 2019 while all other flows are down 70%. Passenger traffic has also started to fall from the dismally low levels in mid-August, with almost all major airports reporting a decrease: Madrid was down 16% from mid-August, Barcelona and Paris 14%, Athens 13%, Paris CDG 12%, Amsterdam 9%, London/Heathrow 7%, Frankfurt 6%, and Munich 5% from mid-August.
They are many reasons why this is happening. As the International Air Travel Association (IATA) says, “stop-start quarantines are having much the same effect as lockdowns”, dissuading potential travelers from boarding a plane. Many people are choosing not to fly anyway, often out of fear of catching the virus. According to the U.S. Center for Disease Control, as many as 11,000 people may have been infected with the coronavirus on flights. Weak consumer confidence, unemployment, and surging business closures are also taking their toll.
Another major problem for the industry is the collapse of the premium market (first and business class combined), which last year generated 30% of airlines’ international revenues. Many businesses right now will not send workers half way across the globe for a meeting that can be done remotely, at a tiny fraction of the cost and with none of the risk attached. Also, premium travel has lost some of its allure as many of its perks have been traded away for safety.
Commercial airlines’ big loss has been a big boon for private aviation companies, which offer comfort, flexibility, and most importantly isolation — for those who can afford it. The rapid recovery of private aviation in recent months clearly suggests that some customers are willing and able to splash out to be travel more safely. According to the Times of London, one operator, PrivateFly – which charges £10,000 for flights between France and the UK – saw its bookings triple in August.
Meanwhile, commercial airlines have had to ground a large part of their fleets. Revenues, cash flows and earnings have all been obliterated, while costs, particularly for maintenance, remain high. Most airlines are in a struggle for basic survival.
On Tuesday, a broad alliance of airlines and airport management companies exhorted governments to introduce airport COVID-19 tests for all departing international passengers, to replace the quarantines that continue to proliferate across the continent. But rapid antigen tests are unlikely to be a panacea since they are more likely to miss positive cases of the virus than laboratory-based tests; and there are other issues, such as the 14-day incubation period of the virus.
In the continued absence of cut-and-dry solutions, airlines are cutting back capacity even more. EUROCONTROL now expects the number of flights in Europe to be down 60% year over year by January, compared to its prior estimate of a 20% shortfall. In its revised air traffic scenarios, it projects total flights this year of around 6 million — 55% below 2019’s total and a 1 million-trip reduction from its April forecast, resulting in total revenue losses for the industry of around €140 billion.
“We’re going backwards now and it’s really worrying for the entire industry,” said Eamonn Brennan, Director General of EUROCONTROL. “There’s a lack of coordination between States on how to manage air travel despite good guidance from EASA and ECDC; there’s a lot of confusion and very little passenger confidence; and of course outbreaks of COVID-19 are picking up across Europe.”
Ryanair, the continent’s biggest airline by passengers, on Friday unveiled plans to cut a further 20% of its flights from its October capacity, meaning it will operate at roughly 40% of October 2019 levels. It is also considering leaving its capacity below 50% for the whole of the winter.
German travel operator TUI on Tuesday said it is weighing up balance sheet options amid further cuts to winter capacity and expectations of increased cash outflows. The company, whose shares have plunged 71% this year, has already launched a new restructuring program that will affect up to 8,000 jobs. It has cut winter capacity by a further 20%, on top of the 40% cut announced last month. To tide it over, TUI was given a €1.2-billion funding package from the German government in August.
As bookings plunge, cancellations are rising. For October, Lufthansa seat reservations stand at less than 10% of year-ago levels.
The UK-based and partly Qatari-owned International Airlines Group (IAG), whose holdings include British Airways (BA), Iberia and Vueling, is facing a similarly bleak winter. It’s already cut capacity for the Fall to 60% below 2019 levels.
“Last week we flew 187,000 passengers. The same week in the previous year we flew almost a million,” said BA chief executive Alex Cruz last week. “We remain worried about the virus in the winter season. People are still afraid of traveling.”
To shore up its finances, IAG is seeking to raise €2.75 billion of fresh capital in the capital markets. It makes a refreshing change from the tactic favored by Air France-KLM and Lufthansa — hitting up their respective national governments for €10.4 billion and €9 billion of bailout funds, respectively. It may not be enough to get the company through this kind of winter, but it’s a start.
As of the close on Wednesday in London, IAG’s stock has plunged 61% this year. Before the rights offering was announced earlier in September, shares traded at 78 pence. With the announcement of the rights offering, shares nearly doubled the next day to 134 pence, but have since given up half of those gains, and today closed at 100.6 pence. By Nick Corbishley, for WOLF STREET.
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So… how many of them will actually die for real instead of becoming zombies for a few years and get pilled on debt?
A patronizing job national airline…all of them.
A start up…not so much.
Well, that and the near zero chance of getting your cash money back from the airline for a cancelation or change. If you are lucky, you might get a credit that expires in the not too distant future, after fees.
So I make all my reservations late and last minute.
And that means about 50% never get made at all.
“They are many reasons why this is happening. As the International Air Travel Association (IATA) says, “stop-start quarantines are having much the same effect as lockdowns”…
In March/April prior to a flight cancelation, It appeared that a voucher for a June flight to Dublin was the best option from Aer Lingus. (bought by IAG a few years ago.)
They pushed the voucher option, and announced the cancelation of the flight later after the majority had signed up for vouchers for a potential later flight. At the beginning of the pandemic the voucher was for up till one year, and later it was for 5 years,
At the time it was not apparent how the whole pandemic would play out. Part of the voucher conditions is that participants would not be able to get a refund if signing up for the voucher.
The whole process was not transparent: When inquiring about getting your money back, only first class and business could get refunds as has always been their typical policy. Aer Lingus had no possible refund policy for regular class. However, they never discussed their policy if the flight were to be canceled until they actual canceled much later closer to the flight’s original departure date. It is only then that regular class passengers were made aware of their policy change in late May.
It was near impossible to get ahold of a representative, or even find information online, Their is no question in my mind that they purposely did not try to make it easy, and willfully pushed the voucher knowing that the flight would likely be canceled. They were probably not alone. At least AIG is large enough that they might survive. However they could scuttle the smaller airline, and confiscate the funds from the regular class customers. It was a very frustrating experience.
With all the start and stop Covid restrictions going on and subject to change at a moments notice, it is hard to plan any vacation.
Yeah, the worst case scenario is that you on vacation and quarantine procedures that will apply to you upon return get announced. Could some state or country announce and enact such a policy on short notice? I wouldn’t doubt it, for some they might even lose their job or income in such a scenario.
The lack of consistency and no public voice or consent in anything happening have been taken very far to the extremes.
This has happened to vacationers from the UK travelling to some countries recently. The UK government added their holiday destination to a list of countries you have to self isolate for fourteen days upon your return with little notice. It’s then a mass exodus from the destination before the cut off date.
I’ve always felt that Airlines are a luxury in Europe especially if you live in the continent. Not talking about long distance international travel to Asia/America, but just travel within the continent in general. I did a road trip in Europe years ago, and almost everytime, it’s just so much better to travel by train. The time spent going to the airport, passing through security, etc is better spent reading while taking trains.
Here in Melbourne we don’t have a train from the airport to the city. So the only way to get there is by taxi, bus, or car.
They have talking about building one for ages and ages, but it never gets off the drawing boards and then the so called plans alawys have some intermediate stop along the way at some station before the city.
And before the virus crisis getting to the airport via public transport was total nonsense…..
To get to the airport from where I live by train to catch the early fights is a nightmare. The early trains don’t go the station where you catch the bus to the airport. By early, that staion doesn’t open until something like 7:00am. You have to get off the train and then walk to the nearest tram stop or catch a taxi (if the is one around), or walk to the airport bus terminal carrying or pulling your bags.
Of course, if you do take the train, you have to hope and pray that there isn’t one of the famous malfunctions that shuts down the trains or delays them for hours.
Getting to the airport from the city on the bus is generally pretty good in the mornings as the traffic flow is heavy the other way.
Getting home after your trip and all of this probably doesn’t matter time wise.
Last trip to and from Japan was pathetic. Had a ride to the city and caught the bus to the airport. Flight delayed (Never, ever had a Qantas flight depart or arrive on time!!)
Got to Japan and no problems.
On the trip back home, the flight was delayed, but luckily we wasted the time in the Qantas business class lounge and no, the lounge isn’t very good comapred to JAL or Singapore Airlines.
Narita Airport has a flight curfew and aftter waiting almost 5 hours for the flight we took off just before the curfew or we would have been staying in Japan another night.
Back in Oz everything went smooth at the airport with immigration and customs and we managed to get a bus that was leaving right away. No problems on the bus in.
Got to the station to find out that we missed the train by about a minute and being the weekend had to wait twenty minutes for the next train which became 25 and then 30 and 35 minutes.
Finally, on the train and we ran into the ticket inspectors (on a weekend and basically empty train!!), but no problems.
And then miracle of miracles the train stopped between stations for at least 20 or so minutes………..and of course no updates for the enitre time.
So what should have been a quick flight from Japan and back home ended up a miserable experience.
If you drive to the airport in the mornings, you have to do it early enough to avoid the rush hour into the city which again can suffer from huge traffic jams and delays. Once past the CBD and out towards the airport, the traffic isn’t that bad.
Short term parking cost at the nearest pickup parking lot is about $A12 an hour. And you have to pay the tolls on the roads out to the airport which is about A$10 each way.
Bus fares from the CBD to the airport are about $A20 each way.
So yeah, adding up the travel time from your house to the airport, checkin and security and waiting time plus the usual delays and the total trip time can double easily.
When I was 22 years old I “won” a ski trip to Lake Tahoe. This included airfare from LAX to Reno. Lift tickets, hotel accommodations and rental car from Reno to Lake Tahoe. The plane trip included a stop in San Francisco (and a 4 hour layover, plus additional delays). In the end I realized that had I driven it would have been a little faster.
But at 22 years old… the price was right!
Part of the fun of skiing was just how uncomfortable everything else about it was…like trudging off to a bathroom facility in all that gear. (A modicum of good alcohol concealed in the handy flask could help to ease the pain.) Of course, picking the wrong day to show up at Alpine Meadows might have made things a bit worse…Avalanche!!
Think positively LEE you could live in a third world country, sac.
He soon will be.
Or live in the USA…
Well some parts of Melbourne look just like a third world country……………….
When we moved here I used to take the train to work and I’d guess that the mix on the train was probably 80% white/20% other.
On one of the last trips to work before I chucked it all in I counted 5 white people in the entire train carriage………….
(Speaking of trains, when I lived in Japan one night I was visiting a friend who lived near Toyota city and he dropped me off at the station. When I got on the train it was full of GAIJIN – not one Japanese in the entire carriage…………turned around and found a different one to sit in – felt weird. I knew then it was about time to leave Japan!!!)
Of course our train line goes through some of the areas that have had lots of immigrants moving into.
If you take other lines such as the Sandringham line which goes through some of the really, really expensive areas, the mix is quite different.
And before the virus hit if you took a walk down Swanston Street towards the State Library on a weekday afternoon you’d swear that you were in China.
When we first moved here if you wanted to buy Asian food in our area you’d have to go to a suburb called Springvale which had a large concentration of Asian food stores, vegetable, meat, and seafood shops.
The better half wanted to go there alone and there was no way I would let her go by herself. Back then it was the kind of place that people would sell dope in the grocery store parking lots just a few doors down from the police station. She didn’t believe me so we sat in the parkng lot one afternoon and watched the drug deals go down.
(That was when I worked for the cops……….. and the most common name in the crime data base back then was Nguyen and not Smith, Jones, or Williams!! We still had the Asian Crime Squad back then until the PC Police had it disbanded.)
So a little while after I left my employment with them they had a big push to cleanup Springvale. All they did was move the crap to the next suburb where a different ethnic group took over the ‘business’………..
And as far as being third world in terms of politics, we have our own ‘Dictator Dan’ running the State.
Maybe all the airline employees can learn to write code like everyone else, and then make video games. And the hotel employees, restaurant workers, tour guides, and….. since tech is doing so darn good. Oh, I forgot about today’s Market plunge.
Tik Tok -Tick Tock.
I don’t have any answers other than some of the rich who did so well are going to have to share or face retribution while we move on to something different. This is called collapse and it’s just starting.
Define rich.
Define share.
When the income tax first started in 1913, it was sold as a 1% tax on the rich.
Well, somebody had to pay for the increase in infrastructure in 1913. Why not tax those who profit from it the most?
Keep in mind the internet you are using was developed by government.
Paulo,
You better believe everyone facing massive layoffs should become a coder. After the coal miners, the airplane employers, everybody who works in factories, and many others learn to code. There will be plentiful jobs for all. Easily in the tens of millions.
It makes a refreshing change from the tactic favored by Air France-KLM and Lufthansa — hitting up their respective national governments for €10.4 billion and €9 billion of bailout funds…
These guys are pikers. In America, we always ask for more
Per Reuters: “The stimulus, passed late last month, largely incorporated the assistance that the industry had sought, including the $25 billion in payroll support and another $25 billion in loans for passenger airlines and more than $10 billion in grants and loans for cargo airlines and aviation contractors…”
In the US we are about a week away from laying off 100K airline workers. That’s a lot of real estate that is going to be put on the market in hubs all over the US. I can’t see how RE prices can stay up. Especially, when congress has shown they don’t are about the 99%.
Can’t wait to see them repo jumbo jets. There’s already a bunch of them parked idle in the desert in California.
Landed at DFW (Dallas) airport last week and lots of jets were parked on side of runway idle.
The foreclosure moratorium on federally backed mortgages ends at the end of the year. I’m not sure what’s gonna happen, but I know that it’s gonna be extended in one form or another, given that rate on forbearance+delinquent mortgages is ~15%.
They can extend the forbearance but they still need to fund the servicers who pay the taxes and insurance or the homes go on the auction block for unpaid taxes. The local govts are already broke, the small businesses are closed, and people are still not working.
What about the expected ‘income stream’ for those investors, holding these securitized loans ( on homes, auto, student loans CC+)?
Sunny,
A few weeks ago I heard non preforming tranches of CMBS were being packaged into VIEs(variable interest entities). From this I will assume, they will wrap the crap loans into new and improved
crap loan investments.
There is a lot of money being handed out and right now that is mostly being born by savers, but soon somebody is going to have to start doing with paychecks or government transfer payments and that is when it’s going to get interesting. You can’t eat your seed corn forever.
Can’t some enterprising young people park a jumbo jet on a piece of land and turn it into a . . . whatever. I was gonna say a bead and breakfast, but those won’t be safe for awhile. Or some sort of rave venue, but that’s not safe either. Ok, how about saw off the roof and make some sort of pot growing farm out of the damned thing. Or maybe a funky cat house in Nevada. Maybe invent an new indoor soccer sport inside one? Or a paint ball range. I’m just riffing here . . . someone . . . throw me a bone!
Recently I was talking to a friend of the family who had reserved a space in a big downtown hotel for a wedding to be held next summer. I replied that I sure hope their deposit was safe as the economic situation for hotels for the next year will be tough. They replied with a smile , “that hotel is in good shape because they have contracts with the airlines.” I figured at that point I would just shut up and smile.
Went from this post almost straight to this tweet, I suspect it’s very typical across Europe. Interesting to see younger people even less keen to travel than older.
https://twitter.com/NextIrishGE/status/1308547754201939968
I spent a couple of years in Germany and travelled by train mostly. Very efficient and a good way to go as distances are not that great between countries. Much less of a hassle compared to air travel.
I was surprised how much cheaper it is to fly than to take a train within Europe. Often more than 60 – 70 % cheaper. I think back in the 80s the pre EU governments subsidized rail to a greater extent than they do now.
There’s tips and tricks to getting cheaper train tickets in Europe. Sometimes if you buy a ticket for a longer ride, you’ll get a cheaper price. For example: say you want to go to a city A midway between Munich and Berlin. Strangely enough, sometimes buying the Munich Berlin ticket would be cheaper than buying the ticket from Munich to city A. You do have to make sure that the train would make a stop at city A though. I experienced that a lot of times when I was traveling in Europe. In airlines parlance, they call it the hidden city travel.
True. Trains are for the rich.
The way we are going all travel will be for the rich, maybe thats the plan
Travel will be for the rich in California. Between Jerry Brown’s High Speed boondoggle, public pensions and Newsom’s outlawing petrol powered vehicles we won’t have enough money to pay our taxes let alone go anywhere.
Here’s my math. If you take the plane, you have to be at the airport 2 hours early, and then let’s say it’s 1 hour of flying and another one hour getting from the destination airport to the city center.
Even if a train trip takes 5 hours, it’s still worth it because because it will drop you downtown, and you get to rest all the way if you want to.
The first time I took the Amtrak was out of DC’s Union Station around the GFC. As I’m getting to the station, I’m expecting the full TSA style check in process, given that it was DC. It blew my mind that they took your ticket AFTER you boarded the train…
I have traveled Amtrak for decades. Several trips a year. Mostly in California but also in the Southwest. It started out as a very liberating experience. Reading and relaxing, leaving the stress of driving, and yes, once upon a time you could meet some interesting people in the dining section or upper viewing deck. But during the last decade I felt as if I and every other passenger had slipped into the underclass. Not sure if it’s because with age one gets more picky, if the service and the clientele had gone downhill, or if we train trippers have indeed become member of the underclass. Maybe a combo of all three. Last trip, and my final trip, I had to exercise extreme vigilance not to be drawn into a violent altercation, one in which the employees ran away and hid from.
However, Amtrak has always been, in terrorist lingo, a “soft target” I’m amazed there has not yet been a tragedy. They’ve even shown it in films, from which I think a lot of these evil people get their ideas.
‘One operator, PrivateFly – which charges £10,000 for flights between France and the UK – saw its bookings triple in August.’
At first I thought that was a trans-Atlantic quote.
Across the Channel??…Jeeesus.
That should pull every helo in creation into that market. They will need permits of course but not airport slots.
It’s the volume increase that amazes. There is always some ultra- expensive charter biz, but if it’s tripled…
No doubt prices would fall but Victoria to Van Isle by chopper is 300 or so. So the flights are London / Paris not just 25 miles across the Channel…?
Unrelated but funny. Now Cramer’s hot tip is…Pepsi!
It’s not the next big thing but he likes the dividend.
Some will take his new bearish stance on tech as a tech buy- signal, but the clock that doesn’t run is right twice a day.
£10,000 is not the cost of flight.
It the price of freedom.
That’s right. Only the Ruling Class is free. Why is that ?
Just in time for Airbus’s new hydrogen-powered passenger plane. Sarcasm detected.
What happened to MC01? I haven’t seen him post recently, and he would typically have much to add to this type of article.
Have you been in touch with him, Wolf?