‘Stressed airlines to collapse’ amid travel restrictions

Travel restrictions by US, New Zealand and Australian governments will hit hard according to a respected commentator.

An airline employee wearing a face mask walks in front of closed airline counters at Tokyo's Haneda Airport. Picture: Philip Fong/ AFP.

The drastic escalation of travel restrictions by the US, New Zealand and Australian governments could send most major airlines to the wall by the end of May.

Respected aviation industry commentator Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, made the call based on extensive flight cuts being made by the airlines and lack of co-operation between countries.

He said the only thing that could save most airlines from “catastrophe” now, was co-ordinated government and industry action.

“Forward bookings are far outweighed by cancellations and each time there is a new government recommendation it is to discourage flying,” Mr Harbison said.

“Demand is drying up in ways that are completely unprecedented. Normality is not yet on the horizon.”

His warning came as airlines faced another round of network and capacity cuts, triggered by blanket restrictions on overseas arrivals in Australia and New Zealand, with all required to self-isolate for 14 days.

Qantas is today expected to announce a reduction to flights and capacity of up to 80 per cent across its international and domestic network, after CEO Alan Joyce warned staff there were “major hardships ahead that would impact the entire group”.

“There is little indication demand will return in the short term,” Mr Joyce said in an email to employees.

“These events are unprecedented and are having a profound impact on airlines worldwide.”

Air New Zealand announced it would slash 85 per cent of its international flying schedule, leaving just enough capacity to carry Kiwis home.

CEO Greg Foran said the airline would operate as a smaller carrier for the time being, and redundancies were necessary.

Virgin Australia was also reassessing its flying schedule with a new route from Brisbane to Tokyo looking very uncertain.

Adding to its woes, credit rating agency S&P Global downgraded Virgin Australia from B+ to B- and placed the airline on “credit watch negative”.

“Global industry conditions complicate the prospect of shareholder support should Virgin Australia experience financial stress,” said a report by analysts Joel Yap and Craig Parker.

“S&P believes it now appears less likely than previously that Virgin Australia will receive any extraordinary support from shareholder airlines (Etihad, Singapore, Nanshan and HNA Group).”

In the US, United Airlines announced a 50 per cent cut to its flying schedule, and warned employees the entire industry was in peril.

“When medical experts say that our health and safety depends on people staying home and practising social distancing it’s nearly impossible to run a business whose shared purpose is ‘connecting the world’,” said a message to United’s 100,000 workers from CEO Oscar Munoz and president J. Scott Kirby.

American Airlines carved 75 per cent of capacity out of its international network and Delta axed all flights to continental Europe, as part of a 40 per cent reduction in flying.

Mr Harbison said the biggest problem with travel restrictions being introduced by governments was the lack of co-ordination with industry and other countries.

“Each nation is adopting the solution that appears best suited to it, right or wrong, without consideration of its neighbours or trading partners,” he said.

Airlines that would weather the crisis were likely to have government assistance, such as the Chinese and Gulf carriers, he said.

US airlines would use their lobbying power to access government subsidies but the picture was much less rosy for many others.

Shares in travel related companies endured another day of declines on the ASX with Sydney Airport plunging 17.7 per cent to $4.78, a five-year low.

Despite the decrease, market analyst Credit Suisse upgraded the airport’s outlook to neutral based on its strong balance sheet “even with a 50 per cent passenger decline”.

Qantas shares sank to $2.83 shortly after the ASX opened on Monday, before climbing back to $3.02 at the close, down 5 per cent for the day.

Virgin Australia finished at 6.9c, down from Friday’s close of 7.9c.