U.S. Airlines Say They Can Absorb Impact of Coronavirus on Travel

The coronavirus has pummeled airways within the United States, particularly in latest weeks, however the trade is ready to endure the blows.

That’s what a parade of chief executives from the main carriers stated Tuesday at an online-investor convention convened by J.P. Morgan, whilst they introduced deep cuts to flights, spending, hiring and their very own salaries.

The strikes are meant to preserve money in response to an outbreak that has drawn comparisons to the worst disasters confronting the trade in latest a long time, together with the worldwide monetary disaster and the Sept. 11 terrorist assaults. This time, nevertheless, they and trade analysts say the airways might have realized their lesson.

“This is what they’ve prepared for,” stated Helane Becker, managing director and senior airline analyst at Cowen. “Every C.E.O. that’s running an airline today was involved in the airline industry in some capacity in 2001 and 2008.”

A essential distinction between this disaster and people of the previous is how rapidly the trade has responded, Ms. Becker stated.

Domestic bookings started to weaken considerably solely within the final two weeks, however since then the main airways have suspended their earnings forecasts, introduced deep cuts to service, eradicated most change charges, frozen hiring and put large spending plans on maintain.

“Our overarching goal during this time is cash preservation,” Ed Bastian, the chief government of Delta Air Lines, stated on the convention in New York.

After a steep decline in web new bookings, Delta said it would slash service by about 15 percent, with the largest cuts focused abroad. It said domestic service, which accounts for nearly three-fourths of its revenue, would be reduced between 10 and 15 percent.

American Airlines said Tuesday that it would reduce international service during the peak summer season by about 10 percent, including more than half of its trans-Pacific flights. The airline also said it would slim down domestic service by about 7.5 percent in April.

United Airlines announced comparable cuts last week and said in a Tuesday securities filing that its chief executive, Oscar Munoz, and its president, Scott Kirby, would forgo their base salaries at least through June. Gary Kelly, the chief executive of Southwest Airlines, told employees on Monday that he was taking a 10 percent pay cut.

In the last three or four days, United has seen a 100 percent decline in net bookings to Asia and Europe, based on a combination of new bookings and cancellations, Mr. Kirby said on Tuesday. Domestically, net bookings are down about 70 percent.

He and his team are planning for a worst case in which demand declines deeper and longer than it did after the Sept. 11 attacks, even though the company does not expect that to happen, he said.

“Even under this level of industry stress, we’ll survive this crisis without impairing our long-term financial prospects,” Mr. Kirby said.

Except for Mr. Kelly, the chief executives all spoke at the conference, where they addressed anxious investors, but it was a vague comment from President Trump on Tuesday that seemed to bolster airline stocks, which recovered some of their recent losses.

Speaking to reporters at midday, Mr. Trump said the federal government was ready to support the cruise and airline industries, adding, “We are helping them through this patch.”

American’s shares, which had lost half their value in the past month, ended the day with a gain of 15 percent. United, Delta and Southwest shares also rose.

Government assistance may be appreciated, but the chief executives insisted that it wasn’t needed.

“Had something as significant as this coronavirus occurred any time before 2013, we would have already seen multiple restructuring firms hired along with a frantic, concerted effort from our industry for government assistance,” said Doug Parker, American’s chief executive, a sentiment echoed by United’s president. “Instead, while in Washington, D.C., last week, not one C.E.O. asked for government financial relief.”

The International Air Transport Association, an industry group, said last week that the coronavirus could wipe out between $63 billion and $113 billion in worldwide airline revenue this year. But the airline executives speaking Tuesday said their companies were financially prepared to withstand the flagging demand for flights.

Mr. Parker said American had more than $7.3 billion in liquid assets — more, he said, than any other airline in the world — and about $10 billion in unencumbered assets, including aircraft. Delta said it expected liquidity of at least $5 billion by the end of the first quarter and had $20 billion in unencumbered assets. Mr. Kirby of United said his airline had $8 billion in liquidity, including $2 billion in new financing it raised on Monday.

“The group had started the year in pretty good to very good balance-sheet shape,” Stephen Trent, an airline analyst with Citigroup, said, though he added that American began 2020 with a lot of debt.

United, American and Delta all said they had halted buybacks of their stock after a big spree in recent years. Last year, those airlines and Southwest spent a collective $6.8 billion on share repurchases, up from $5.7 billion in 2018. (The high was $11.5 billion in 2016.)

United made its decision in late February, after the virus spread to Italy. The airline had its board’s approval to repurchase around $3 billion in shares under a program approved last July, and has been an enthusiastic buyer of its own stock.

In the last five years, United has spent $8.6 billion on buybacks. Delta, which announced its halt on Tuesday, has spent $10.1 billion on buybacks over the same period, while American has spent $11.9 billion. Southwest, which has not said whether it is suspending its program, has spent $8.5 billion buying back shares over the past five years.

Several airlines said they were offering employees voluntary leave, parking or redeploying aircraft and taking other measures to reduce costs.

Delta also said it stood to benefit from a steep decline in fuel costs, estimating that it would save $2 billion over the year. American said it expected to save about $3 billion for the same reason.

Jason Karaian contributed reporting.

Source link Nytimes.com

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