British carrier Flybe went bust recently. The first of the Corona victims in the aviation industry though, as with its human equivalents, it had other pre-existing conditions and the crisis was simply the final straw. The ongoing upheaval, which began with reduced flights to and from China 6 weeks ago, has taken on dramatic dimensions, the latest nail in the coffin being the USA bans – first on Schengen countries and, beginning Monday (16MAR20), also on the UK and Ireland.
Countries are closing their borders, going into quarantine, adopting serious measures in an effort to “flatten the curve” – to slow down the spread of the virus so that already over-worked national health systems can cope with the new challenge. Mounting anxiety prior to this had already led to passengers cancelling or rebooking flights, or even simply not showing up. So, planes have been flying near empty, or even completely empty simply to adhere to the “use it or lose it” slot rule (CFG reports on this in a separate article), and all of them have had to adjust and reduce their flight schedules on a day-by-day basis, almost.
Cost-cutting and staff reductions
The news these days, is full of different airlines taking more and more drastic measures. On 14MAR20, LOT announced that it will stop flying altogether for the next 10 days, with the possibility that this stand-still might be extended. Earlier this week, Austrian Airlines stated that all 7,000 staff would soon be going on short-time work. El Al announced planned 1,000 staff reductions along with a list of cost-cutting measures. Norwegian Air is temporarily suspending half its workforce as it cancels 4,000 flights. Finnair is currently in temporary termination talks with some of its staff. KLM announced yesterday, that it would be cutting around 1,500-2,000 of its 35,000-strong workforce and reducing is flights by 30%, though CEO Peter Elbers said in his video address that "With all the uncertainty and a growing number of countries closing their air space, I don't know whether the scenario of a 30 per cent or 40 per cent decline (in flights) might not be too optimistic." Korean Air, which by Monday last, had already seen 80% of its flight schedule reduced, warned that it might not survive the crisis. Like Cathay Pacific, it has grounded over two-thirds of its passenger fleet.
Among the low-cost carriers, Ryanair announced to its staff that they would perhaps have to take unpaid leave from 16MAR20 because of the cancelled flights and schedule changes. Wizzair has already let go of some headquarter staff in response to the crisis, and trying to reschedule payments for aircraft, amongst other cost measure. easyJet has been working on cost-cutting measures since the end of FEB20.
“The Survival of British Airways”
Alex Cruz, British Airways’ CEO, sent an internal communication to staff on 13MAR20, titled "The Survival of British Airways," underlining that this was a “crisis of global proportions.” He said that the company was having to ground flights “like never before” and warned of pending staff reductions: "We can no longer sustain our current level of employment and jobs would be lost - perhaps for a short term, perhaps longer term." How large the reduction will be is currently no known, though union talks are already underway.
Over at Virgin Atlantic, the Chief Executive Shai Weiss will take a 20% pay cut during APR-JUL20, whilst the executive team will have a 15% temporary wage cut. “Virgin Atlantic has faced previous adversity and challenges over the years and through these sensible steps we will ensure that we are in a stronger position once the impact of COVID-19 stabilizes,” a press statement reads.
The Corona Cost to the Crane
Lufthansa recently took the decision to ground its A380 fleet, and talk was that the around 150 passenger aircraft currently not needed due to the major flight schedule restrictions (probably more since the U.S. restrictions), were being parked in the as yet unused Berlin-Brandenburg Airport due to (finally) open in OCT20. (This airport opening may well be further postponed again given the current situation).
It announced 13MAR20, that it would be reducing its flight schedule by up to 70% compared to the original plan. There have been considerations that it would perhaps temporarily cease flight operations altogether similar to LOT. Its press statement included measures to reduce material and project costs, implementing reduced working hours, and negotiating the postponement of planned investments, though warning that despite of all this, results would be significantly lower in 2020. It also announced that it would be suspending dividend payments for 2019 in an effort preserve liquidity.
Additionally, a Lufthansa spokesperson admitted in that Lufthansa boss, Carsten Spohr is in talks with Angela Merkel to discuss also possible government support. “Over the coming days at least two-thirds of our almost 800-strong fleet will remain grounded – this includes 150 long-distance aircraft. Our airlines are currently getting more cancellations than bookings.” Though he points out that the Lufthansa Group is better set up financially than some of its competitors to weather this crisis a little longer, he does not rule out the possibility that flight operations and certain hubs might temporarily close.
Passenger flights becoming temporary cargo flights
Similar to Cathay Pacific’s move recently, where it is using some of its surplus passenger planes as temporary cargo flights, Lufthansa is also considering similar moves. Its cargo subsidiary is in full operation, keeping hold of the MD-11s it had been planning to phase out earlier this year than planned originally (CargoForwarder Global, 12MAR20).
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