All Big European Airlines Cut At Least 75% Of Capacity

FRANKFURT—Air France-KLM, EasyJet, International Airlines Group and Ryanair all said Mar. 16 that they will cut most of their flights in the coming days as travel restrictions push demand for air transport close to zero.

The developments come as the European Commission is proposing a 30-day ban on all non-essential travel into and out of the European Union; member states still have to approve the plan before its implementation.

Meanwhile in a joint statement the three global airline alliances—Oneworld, Skyteam and Star Alliance—urged governments “to evaluate all possible means to assist the airline industry during this unprecedented period” of the COVID-19 coronavirus spread.

“We have seen a substantial decline in bookings across our airlines and global network over the past few weeks and we expect demand to remain weak until well into the summer,” IAG CEO Willie Walsh said.

“We are therefore making significant reductions to our flying schedules. We will continue to monitor demand levels and we have the flexibility to make further cuts if necessary. We are also taking actions to reduce operating expenses and improve cash flow at each of our airlines. IAG is resilient with a strong balance sheet and substantial cash liquidity.”

IAG has taken the unusual decision of halting a planned management transition from Willie Walsh, who was due to retire this month, to the current Iberia CEO Luis Gallego. Instead, Walsh will continue to lead the group for several more months while Gallego will stay at Iberia for now.

“As we respond to COVID-19, Willie, Luis and the board of IAG have decided that management stability across the group should be a priority in the near term,” IAG Chairman Antonio Vazquez said. “We are grateful that Willie has agreed to delay his retirement for a short period at this challenging time.”

The group—comprising Aer Lingus, British Airways, Iberia, Level and Vueling—plans to reduce capacity by “at least 75%” in April and May and is prepared to cut more if needed. However, the company added that it has “strong liquidity” of €9.3 billion ($10.3 billion) giving it some time to deal with the fall-off in revenues and a potentially slow recovery.

EasyJet said planned network cuts may lead to a “grounding of the majority of the EasyJet fleet.” Where possible, EasyJet will operate “rescue flights” for short periods “in order to repatriate customers.”

The LCC also pointed at its strong balance sheet and confirmed it is in “ongoing discussions with liquidity providers.” EasyJet warned that whether European aviation will survive “will depend significantly on European airlines maintaining access to liquidity, including that enabled by governments across Europe.”

Ryanair, too, said it will ground most of its fleet over the next seven to ten days and cut around 80% of its capacity. 

Lufthansa Group said earlier it will cut around 70% of its network, while subsidiary Austrian Airlines will be grounded entirely as Austria implements a far-reaching lockdown of the country, closing its borders to most travellers and quarantining those that still want to travel.

Air France-KLM will cut its capacity by between 70-90% in the next few days, grounding its entire Airbus A380 and Boeing 747 fleet and warning it would not meet its 2020 financial targets following the dramatic drop in demand for air travel. 

The Franco-Dutch group said the capacity reduction was set to last for two months and it would monitor the situation on a daily basis, adjusting its schedule as necessary. 

The grounding of A380s and 747s follows similar moves by other airlines around the world hit hard by the COVID-19 crisis, including China Southern, Korean Air and Qantas. Air France has nine A380s, all due to leave its fleet by 2022, while KLM has 10 747-400s, of which five are cargo combi variants. 

Air France-KLM also forecasted a “sharply deteriorated financial trajectory” compared with the outlook it presented at its annual results Feb. 20, when it had projected capital expenditure of €3.6 billion, a net debt/EBITDA ratio of around 1.5 and unit costs to stay flat or fall 1% at constant currency and fuel prices.

Air France and KLM will be talking to employee representatives about partial activity measures to make up for the decline in activity, the group said. The group and its subsidiaries recorded more than €6 billion in cash and cash equivalent as of Mar. 12. 

“In this extremely difficult context, the Air France-KLM group has welcomed the statements made by the French and Dutch governments, which have each indicated that they were studying all possible means to support the group,” Air France-KLM said. 

France’s economy minister Bruno Le Maire told BFM TV Mar. 13: “We will help all the companies in which the state has a stake: Air France, Renault…” The French state holds 14.3% of Air France-KLM.

Oneworld, SkyTeam and Star Alliance urged regulators worldwide to follow the example of the European Commission and suspend slot rules, which allows airlines to make cuts freely without losing access to constrained airport as traffic picks up.

“During such times of difficulty and uncertainty, it is important that the airline industry works even closer with stakeholders to mitigate adverse impacts from the virus and collaborate in areas within our control,” Oneworld CEO Rob Gurney said.

“Governments must implement the measures they consider necessary to contain the spread of COVID-19, and must be prepared for the widescale economic implications that will result from those measures.”

But Bernstein Research analyst Daniel Roeska pointed out that airlines have not acted fast enough over the past few days: “It is highly likely in our view that EU airlines will have to follow the example of Chinese airlines, cut schedules by at least 70% to 80%, defer all capex, cut dividends and distributions, and all other contracts that would require cash to be paid out now. So far, many airlines have been too timid in their response and we would urge to take bolder action.”