U.S. airlines outlined deep cuts to their flight schedules as the coronavirus provokes an industry crisis that’s shaping up to be worse than the aftermath of the 9/11 terrorist attacks.
Delta Air Lines Inc. and American Airlines Group Inc. withdrew their profit forecasts and said they would reduce domestic and international flying. United Airlines Holdings Inc. said it was running stress tests for a potentially “dire scenario” in which revenue would plunge as much as 70% in April and May. That compares with a decline of about 40% in the two months after 9/11.
“We’re not planning for hope,” United President Scott Kirby said at a JPMorgan Chase & Co. conference that was held virtually. “We’re planning for extreme scenarios.”
The severity of the sudden slump prompted President Donald Trump to pledge help Tuesday, as the virus’s spread upends economies and prompts travelers to stay home. An airline trade group said last week that the industry will lose as much as $113 billion in sales because of the virus, while Jefferies anticipates the biggest annual drop in commercial air traffic since at least the 1970s.
While Trump didn’t mention the details of any assistance, his promise of aid was enough to spur an airline rally after two weeks of deep declines. American led the gains, surging 17% to $17.32 at 3:04 p.m. in New York after jumping as much as 20% for a record intraday gain. United advanced 15%.
A Standard & Poor’s index of major U.S. airlines posted the biggest intraday increase in nine years.
While investors bet on a measure of government relief, the airlines are bracing for a sharp drop in demand. At United, new U.S. bookings are down 25% based on trends in recent days, Kirby said. Factor in cancellations, and net domestic bookings fell 70%. Net bookings in the company’s European and Asian markets are even worse.
Kirby was careful to emphasize that the revenue declines United is preparing for in the coming months don’t amount to company forecasts. The actual performance probably won’t be as bad, he said. Still, United is ready to cut its schedule again after last month outlining reductions in flying in April.
Delta plans to cut domestic capacity as much as 15% and international flights by 25%, according to a company statement Tuesday. American said it would reduce U.S. service 7.5% in April and cut foreign flights by 10% for the peak summer season.
The picture overseas is also grim. Already this week, Qantas Airways Ltd. grounded most of its A380 jets, slashed management pay and cut about a quarter of international service for six months. Air France-KLM said its main Paris-based arm would cancel 3,600 flights this month. Finnair Oyj outlined plans to eliminate 2,400 short-distance services in April.
“The numbers are stark,” said Samuel Engel, head of the aviation group at consultant ICF. While airlines have experience with past disruptions, the magnitude of this one could lead to more significant consequences, he said.
“This is an industry with high fixed costs, and if you take away the revenue without taking away the costs, then something’s going to give,” he said.
Click here to read more.
SOURCE: Bloomberg, Richard Clough