Wednesday 29 April 2020

Can't see how airlines survive in 2020...

So (congrats Boris!) I saw snuck out this week by the Prime Minister was finally a review of how people enter the UK. Now the virus is under control, there ismore of a need to stop people from abroad coming to re-infect us all.

As such, the guidance will be 2 weeks quarantine for all visitors to the UK. We can assume other countries will do the same.

Also I travel for business a lot, this year until March I was on a plane every week without fail to somewhere or other. Since then not so much. At the office we are planning to not do any travel in 2020. And even in 2021 maybe no non-essetnial travel like conferences etc. so a steep drop in spend.

Few of us will be willing to take foreign holidays with 28 days of quarantine in total around the edges of it - unless your planning a few months in Australia who would even think about this.

Finally, with the UK being hard hit many countries will not want UK covid-ridden tourists anyway for a long time and visa restrictions may are likely. We may find we are not very popular with the locals if we were to go anyway.

All this is a perfect storm for our airlines, no business travel and no tourist travel for six to twelve months. No way the industry can survive in the shape it is now, maybe with drastic cost-cutting, no new planes, giving up all leases, giving up airport slots and reducing staff to only enough to run a skeleton service. The only good news is fuel will be at record lows and in normal times this is huge part of their costs.

Meanwhile some Countries less affected will be able to suport their airlines who will 'fly' into the market and pick up the slots and share when the time comes for a real renewal.

It is a right mess and along with a few other sectors I can't see how share prices are sustained where they are today when you see what is coming in the next few quarters.

Am I too pessimistic...what have I missed?


Swiss Bob said...

Likewise, and ditto for other sectors.

Matt said...

The economy is screwed. A few sectors will be less affected (usual defensive one like food, drink & vices, power etc) and IT/telecoms could be added to this. A lot of their customers will be broke (hospitality/pubs/restaurants, travel, estate agents etc) so even they won't be completely immune.

david morris said...

We are in the unenviable position - even after a 1000 point selloff - of having very high share prices in an economy that has little/no growth potential. The high share prices are the product of billions injected into financial asset prices. If the reopening after lockdown spreads the virus and produces a second wave that overwhelms the health care system on a broader basis, the economy could be shutdown again. If it's kept open, it could be disrupted by widespread illness or more likely a reluctance to accept exposure to the virus. On the other hand, if the virus has run its course, or the threat was exaggerated, the existing stifling debt burden still remains.

The danger is that a sick economy will be blamed on the closedown, not on the debt burden. Reopening the economy will not make the debt burden disappear.

Solution(s) ? - Not presently visible

Anonymous said...

With airlines, it depends, a lot of countries like tourism, so I'm sure things can be arranged.

I can see "Corona Resorts" in places like Spain. You land, you go through a sealed off part of the airport, go into a special bus, get shuttled over to an isolated, all-inclusive, armed-guards-on-the-outside-enforcing-isolation resort.

But, until we get a verified vaccine, regular trips will be off.

Raedwald said...

Concur. Assets remain grossly over-valued - a consequence of QE. If HMT has its boots on, it will prevaricate on bailouts for listed corps until they have burned through cash reserves and the weakest have gone to the wall. Taxpayer's future payments should only be used to maintain assets of national importance, which should be bought at basement prices. Preserving the wealth of current owners and investors is not an economic priority. As Mr D has pointed out, the assets will remain.

As for debt, well, there are only three ways to get rid of it; pay it off, inflate it away or write it off. I suspect we will see some combination of all three.

dearieme said...

Aye, Raedwald has it. Buy only what we taxpayers must, and that at a bargain price.

Thud said...

Gilead reporting good results on their treatment today, Pfizer a company always quite conservative in their forecasts announcing yesterday a vaccine in autumn, if not these than perhaps others given that nothing has ever made the worlds researchers work towards one goal before, I'm optimistic (there are smart capable people out there) we will be up and running with a decent level of safety within 8-9 months.

Bob Fleming said...

Obviously any assumptive argument is based on guesswork, logical to some improbable to others.

As we are aware the stock market is a leading indicator and is pricing in a V shaped recovery rather than an L or U shaped recovery, which money, like never before being thrown at the problem and a vast amount of jobs lost being in the GIG economy which can just as easily be regained we may yet see a V shaped recovery.

As for the airlines again they are not being priced to go bust. British Airways (IAG) took the drastic step of putting plans in place to make redundant 12,000 employees. BA has historically had problems with militant unions and one could argue management have seen this as an opportunity to slim down the workforce and rehire when things pick up on a different wage and benefit structure.

We are already seeing a gradual relaxing of the lockdown across most of the world, IAGs business s long-haul, what can replace this overnight, nothing! Some may say Zoom but to replace 2000 years of human interaction and nature overnight is not only difficult but unlikely, so if you need to get anywhere you have to fly. As for Easyjet - short haul european/stag and naughty weekends. The average age of the passenger is under 25, short memories and thick skin. Will concerns stop a group of 10 lads flying to Amsterdam?

Lastly quarantine & travel 1) i can foresee travel with facemasks 2) a document, akin to yellow fever, that you are uninfected, its forecast that a test will be available giving results in 30 mins, which could easily be taken in the airport if needed

Timbo614 said...

In my mostly retired state I still work for one Nordic airline that today laid off 2000 people.
It doesn't leave them many flight staff - only 26 pilots from my reading. 26 pilots do not fly many planes.
This is terribly sad for that small country, it is such a nice basically honest place to work for and with.
Guessing who isn't hard.

E-K said...

This is just 4 months into an 18 month issue.


I do hope a vaccine is found soon but my guess is we're just going to have to live with this in the end.

Surely China owes the West ? What are they doing and buying up while we're on our knees ?

DJK said...

CU: Not too pessimistic. I can't see air travel --- or certainly the previously projected growth in air travel --- coming back any time soon. And this has plenty of knock on effects: Heathrow new runway, Boeing/Airbus, etc. Airbus are said to be bleeding cash and looking at big redundancies. RR's business model of relying on real-time support to commercial airline uses of its engines is in trouble. Boeing, of course, was already in big trouble with the 737-Max.

Even with home working, no tourism, social distancing, etc. some sort of economic activity will take place. It will just be different to what it was before, so I'm not that pessimistic. People screaming that we must end the shutdown to save the economy are clearly deluded: that pre-C19 economy can't be saved. But something will emerge in its place.

Peter MacFarlane said...

" People screaming that we must end the shutdown to save the economy are clearly deluded: that pre-C19 economy can't be saved."

Indeed, but if we don't end the shutdown very soon we will have NOTHING. 1930's prosperity if we're lucky, medieval if we're not. It is not worth such an utter disaster in order for granny to die next year instead of this, but I fear massive risk-aversion plus glutinous sentimentality about "our wonderful NHS" will push the government in that direction.

@Thud: don't hold your breath for a vaccine: we've been trying for decades to make one for the common cold, with no results whatever; and for ordinary flu we have vaccines that have to be re-created every year and sometimes work but quite often don't. And both of those are coronaviruses too.

DJK said...

The economy will return when people feel safe to venture out, and that will happen when the number of new cases is small and contained by test and track. There's really not much point in ending the lockdown early as it won't get people out to spend money.

Even then, it will be a different economy. Some sort of economic activity will happen, we're just not sure what.

Jan said...

I guess that plan for the third runway at Heathrow has gone to the back of the filing cabinet.........

E-K said...
This comment has been removed by the author.
E-K said...

I'm not 'screaming' about returning to a pre CV19 economy.

I'm screaming (and I admit that I am) about us returning to one that is malnourished and queuing up at the factory gates for a job (even if there were any factories.)

No-one said "let granny die" my brother and I are doing a better job of keeping old people alive than many care homes. Selective lock down - limited access.

We are quarantining 99% of the population who are at low risk for 1% who are at high risk - and 90% of that 1% are in the final years of their lives and often extended already by a highly funded and highly successful NHS (contrary to the BBC narrative that it is starved of cash.)

Then there is the prospect of injecting the 99% of healthy low-risk people with a rushed through vaccine for the sake of the 1%.

We are asking so much of the young. Too much. An unethical amount in my view.

This is a war in many senses of the word. Even if it wasn't deliberate China is showing us no contrition and is using the crisis to take property and territory .

In war lives and freedoms are lost - just this time it isn't young men facing the machine guns, thank god.

This is not the Black Death but you'd think it was the way we are behaving. We won't be in an economic condition to face the real big one out of China.

My council faces bankruptcy next month.

There won't be an NHS of anything like the size and scope we have now. The 1% will be dead by the next cold winter.

There is no way we will be afford an obesity epidemic nor to be able to keep people alive with the conditions we take for granted today.

E-K said...

PS, The CCP has been threatening Australia and the EU for criticising them for their part in this.

Anonymous said...

One thing that might have been missed:

Australia, New Zealand and other remote countries may well succeed entirely in eradicating Covid very soon and keeping it out. With life returning to normal.

Combine that with a second spike / social distancing relaxation - failure.

And the trend could move towards a total eradication strategy - starting - region by region (high friction to travel widely, health workers isolated from general population, local shops for local people etc.)

If this happens and succeeds then life could be back to normal much more quickly with Covid free corridors appearing between declared eradicated regions.


YDG said...

RE: Anonymous @ 4:03pm

That approach could work for a few favoured places like maybe Iceland and New Zealand, but even for them it will require strict control of who and what enters the country eg mandatory 14 day quarantine and fairly brutal measures to prevent illegal entry.

For most countries it will just be impossible. Covid 19 will soon be endemic in Africa - if it isn't already - and as the EU has shown persistently, effective border control for EU member countries is forbidden. So the likes of Spain, Italy and maybe Greece will receive a constant stream of (re)-infection that they will not be permitted to block.

Outside of the geographically blessed, "Eradicated regions" will only ever be temporary, until we have a sufficiently effective vaccine.

Anonymous said...

The question is how is this spreading given the current level of lockdown?
If the lockdown is working then the spread must be in a small number of high transmission centers. Why can't these be isolated from the rest of the population and the rest of the population be compartmentalized with restrictions lifted within compartments?
I realise this wouldn't work in cities but it certainly could work in towns and areas outside.

APL said...

Aircraft have always been a crucible of festering disease.

I caught the worst respiratory tract condition about twenty years ago in a flight to Scandinavia, I'd just sat down and the guy in the seat behind sneezed so violently that all the globules and flem came into my seat in front between the headrests.

About four days later I went down with the most vicious influenza whatever.

I'd still fly, this COVID is a scam and even at my age I'd risk it today. The other half on the other hand, is absolutely hysterical with fear.

The government response has been an utter disaster.

APL said...

Anon: "The question is how is this spreading given the current level of lockdown?"

The vector out of the hospitals is the medical staff.

If the government had been serious about restricting the transmission it would have locked down the care homes and hospitals.

Medical staff should have been in quarantine at the hospitals, been given regular tests and once they've been shown to have seroconverted only then, been released back to their normal routine.

The whole thing has been an utter SNAFU from start to finish.

Jan said...

Aircraft have always been a crucible of festering disease.

Yes. As far as I know the air is circulated round the cabin. It made me laugh when I heard Easyjet said they would take out the middle seats as it won't make any difference if the air is circulated. Same for trains/ buses/offices if you can't open the windows.