PARIS/LONDON/FRANKFURT (March 16): Airlines in Europe and the US cut flights, idled planes and drafted plans to eliminate jobs, while seeking government support to weather the most brutal downturn in the industry’s history caused by the coronavirus pandemic.
The UK’s carriers and airports will need as much as £7.5 billion in support, Virgin Atlantic Airways CEO Shai Weiss said in a letter to Prime Minister Boris Johnson, according to a person familiar with the matter.
In the US, American Airlines Group Inc, Delta Air Lines Inc, United Airlines Holdings Inc and Southwest Airlines Co have said they’re discussing potential aid from the government, without providing details.
Germany and France are weighing financial support to help get Deutsche Lufthansa AG and Air France-KLM through the crisis. The head of Norwegian Air Shuttle ASA acknowledged that the discount carrier is at the brink and pleaded for help. The Italian government is considering pumping €300 million into struggling Alitalia SpA and may take over the airline, people familiar with the matter told Bloomberg.
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The economic effects of the viral outbreak have slammed the airline industry as people scrap travel plans and countries place restrictions on passengers from nations with the highest levels of infection. President Donald 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.
On Sunday, 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 cafes, restaurants and many stores. The measures will include pulling high-speed train service and flights between cities, a further blow to Air France-KLM’s business.
“We need to limit long distance transport to a strict minimum,” Elisabeth Borne, the French minister who oversees transport, said at a press conference. Some terminals at Orly and Roissy-Charles de Gaulle airports will also be closed, she said.
Trump on Saturday added the UK and Ireland to the list of continental European countries facing temporary travel restrictions. Before they were included, travel curbs on Europe affected about 7,300 flights to the US, or more than 2 million one-way passenger tickets over the one-month period, according to Cirium, which tracks traffic. The UK and Ireland adds about 4,300 more flights to the total.
“It is a crisis of global proportions like no other we have known,” British Airways chief Alex Cruz said in an internal memo on Friday and seen by Bloomberg. It’s worse than the SARS outbreak in the early 2000s, 9/11 in 2001 and the financial meltdown of 2008-2009, he said.
Jobs will be lost as the airline idles planes, cuts back on flights and moves to protect it balance sheet, Cruz said. The airline, owned by IAG SA, has held talks with multiple banks on its urgent financing need, the Financial Times reported. The UK government is engaging with the airline sector’s leadership to support workers, businesses and passengers, a spokesman said Sunday.
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. Now the epicenter of the pandemic has moved to Europe, with countries locking down travel and confirmed cases topping 150,000 across the globe. Measures taken by states could cost the tourism industry 50 million jobs, according to the World Travel & Tourism Council.
In the US, where Trump declared a state of emergency on Friday, the situation has quickly turned grim for airlines. White House officials are discussing temporarily allowing cash-strapped carriers to keep some taxes and fees they collect from passengers, people familiar with the matter told Bloomberg News.
Germany’s Lufthansa is expected to seek a loan from the state-run Kreditanstalt fuer Wiederaufbau bank to weather the fallout, while as a last resort the government could also purchase a stake, according to a person familiar with the plan. The airline is also considering a temporary halt to most of its business and suspending its dividend. In a statement, Lufthansa acknowledged it’s seeking additional funds and will use aircraft financing to help with the effort. The company, with bases in Germany, Austria, Switzerland and Belgium, owns about 86% of its fleet.
“We have decided to talk to the governments of our home countries not just about reducing the burden on us, but also about active support as soon as that becomes necessary,” CEO Carsten Spohr told staff in a video message on Friday.
Jacob Schram, who leads Norwegian Air, said measures presented by the government in Oslo Friday were positive, but that more targeted support will be required, including an injection of liquidity. The carrier plans to park 40% of its long-haul fleet through May while laying off half of the workforce.
Both the French and Dutch governments vowed to provide support for Air France-KLM, in which France has a 14% stake and the Netherlands owns almost 13%. The airline said Friday it’s building up cash reserves and preparing an emergency plan to cut costs. Air France-KLM has drawn down €1.1 billion from a revolving credit facility, bringing available liquidity to €5.5 billion, a move it said is aimed at preserving financial flexibility.
Dutch Finance Minister Wopke Hoekstra said the Netherlands, together with France, intends to do everything it can to help the carrier weather the slump. The government would consider a shorter working hour arrangement that allows firms to pay employees less in times of extraordinary events, and liquidity support. The company will get government help if needed, French Finance Minister Bruno Le Maire said in an interview on RMC.
Air France-KLM CEO Ben Smith, addressing employees in a video, said the survival of the company is on the line.
“Right now we need to secure our future,” Smith said, asking to defer payments of aeronautical taxes and fees as well as some social charges.