With the coronavirus pandemic wrecking air-travel demand, the not-so-long-ago high-flying airlines have been brought to their knees across the globe. This is because passenger revenues, the largest component of their top line, took a gigantic hit from shriveled air-travel demand.
Due to the spread of the coronavirus by geometric progression, blanket travel bans are imposed by governments across the globe. With several countries placed under lockdown, most people are debarred from taking trips in a bid to stay safe and avoid contracting the highly contagious disease from a fellow passenger.
IATA’s February Traffic Report: Reflection of a Sorry State
Per the International Air Transport Association (IATA), passenger traffic across the globe in February registered the steepest year-over-year decline in two decades. Notably, demand (measured in total revenue passenger kilometers or RPKs) dropped 14.1% in the month on a year-over-year basis, signaling the sharpest monthly decrease since the dreaded 9/11 terror attacks on the United States back in 2001.
With carriers across the globe cutting capacity to compensate the extremely low-demand scenario, overall capacity (available seat kilometers or ASKs) fell 8.7% in the second month of this year. With traffic decreasing at a faster rate than capacity reduction in the month, load factor (% of seats filled by passengers) contracted 4.8 percentage points to 75.9%.
In international passenger markets, demand deteriorated 10.1% in February on a year-over-year basis. With respect to international passenger demand, the level hit the nadir since the SARS outbreak in 2003. Demand for domestic travel dwindled 20.9% in the month mainly due to weakness in China’s domestic traffic. This was because in February, China bore the worst brunt of the deadly coronavirus disease.
Traffic Picture Likely to be Bleaker Ahead
We expect the global traffic performance to have touched rock bottom in March given that the COVID-19 outbreak was declared a pandemic by WHO in the month. With air-travel demand collapsing, the Zacks Airline industry plummeted 52.4% in March.
In fact, with the health hazard showing no signs of waning, air-travel demand is likely to remain stressed atleast in the near term. Anticipating such a gloomy scene going forward, the Zacks Rank #3 (Hold) Delta Air Lines DAL warned that revenues in second-quarter 2020 (Apr-Jun period) are likely to be down 90% year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other U.S.-based carriers like American Airlines AAL and United Airlines UAL cancelled most of their flights due to the shrinkage in air-travel demand as the pandemic continues to spread its tentacles across the globe, claiming multiple lives and infecting the global populace at large. The situation is exemplified by the European carrier Ryanair Holdings’ RYAAY anticipation that its fleet will remain mostly grounded through at least April and May.To combat the coronavirus-induced threat, Latin American carriers Avianca Holdings AVH and Copa Holdings CPA temporarily closed all passenger operations.
IATA’s Director General and CEO Alexandre de Juniac rightly termed the current impasse as the “biggest crisis that the industry has ever faced”. Due to the widespread flight cancellations, IATA projected airlines to burn up to $61 billion of their cash reserves during the second quarter of 2020.Passenger demand is likely to plunge71% in the Apr-Jun period. In fact, due to this suppressed demand, IATA anticipates airline passenger revenues, the largest component of their top line, to be dented by $252 billion in 2020.
In fact, per OAG, provider of airline data and insight, airlines may have to wait until 2022 or 2023 to attract passengers at the level initially expected for the current year. Notably, JetBlue Airways’ JBLU CEO Robin Hayes had warned last month that "the writing is on the wall" that travel demand cannot be restored anytime soon. Come what may, we expect investor focus to remain on this topical issue. To this end, we advise industry watchers to watch this space for more updates on the coronavirus overhang on air-travel and the airline industry’s response to this standoff.
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JetBlue Airways Corporation (JBLU) : Free Stock Analysis Report
Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
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Avianca Holdings S.A. (AVH) : Free Stock Analysis Report
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