UK, Ireland Airlines Take Drastic Steps In Response To Coronavirus-Related Woes

Airlines in the U.K. and Ireland have enacted a number of drastic measures to deal with the continuing fallout from the coronavirus epidemic.

International Airlines Group, which owns British Airways and Aer Lingus, said it will ground aircraft on an enormous scale, reduce capacity and cut costs in response to plunging demand and travel restrictions.

Noting that the spread of coronavirus and related travel bans were “having a significant and increasingly negative impact” on almost all its routes, IAG said it will reduce capacity by at least 75% in April and May, compared to the same period in 2019.

IAG further said it will ground “surplus aircraft,” reduce and defer capital spending, cut nonessential and non-cyber-related IT expenditures, freeze recruitment and discretionary spending, implement voluntary leave options, temporarily suspend employment contracts and reduce working hours.

“We have seen a substantial decline in bookings across our airlines and global network over the past few weeks and we expect demand to remain weak until well into the summer,” said Willie Walsh, IAG’s chief executive. “We are therefore making significant reductions to our flying schedules. We will continue to monitor demand levels and we have the flexibility to make further cuts if necessary. We are also taking actions to reduce operating expenses and improve cash flow at each of our airlines.”

IAG had already suspended flights to China and Italy.

Walsh also warned that 2021 capacity will likely be lower than currently planned, and that the virus crisis will accelerate the permanent retirement of dozens of aircraft including British Airways’ 747s.

“Given the continued uncertainty on the potential impact and duration of COVID-19, it is still not possible to give accurate profit guidance for the full year 2020,” the airline cautioned.

But Walsh also asserted that the airline is “resilient” with a strong balance sheet and substantial cash liquidity.” IAG assured that it had total liquidity of 9.3 billion euros ($10.4 billion).

“IAG has substantial resources to weather the storm,” said Bernstein analyst Daniel Roeska.

Walsh further said he will postpone his planned retirement for a few months in order to provide IAG some stability during this difficult period.

British low-cost carrier EasyJet said it may ground the “majority” of its aircraft fleet on a rolling basis.

EasyJet said it will take "every action" to reduce costs and has already shelved 100 of its 344 aircraft.

EasyJet noted it had about 1.6 billion pounds ($1.96 billion) of cash as well as an undrawn $500 million revolving credit facility.

Irish budget airline Ryanair said it expected the "majority" of its European fleet to be grounded "over the next seven to 10 days."

The Dublin-based carrier also said that by April and May its seat capacity would be cut by up to 80%, and "a full grounding of the fleet cannot be ruled out."

Ryanair has a fleet of more than 450 aircraft.

Ryanair also said it will take "immediate action" to improve its cash flow and reduce costs, including the freezing of recruitment and making "significant reductions" to working hours and payments.

“We have seen a substantial decline in bookings over the last two weeks, and we expect this will continue for the foreseeable future,” Ryanair added. “We will continue to monitor demand, as well as government flight restrictions, and we will continue to make further cuts to schedules as necessary.”

But Ryanair insisted it has “strong liquidity,” with strong cash and cash equivalents of over €4 billion [$4.45 billion] as of Mar. 12.

Ryanair’s CEO Michael O’Leary said the airline is doing everything it can to meet the challenges posed by the virus outbreak, despite “extraordinary and unprecedented travel restrictions to be imposed by national governments, in many cases with minimal or zero notice.”

Ryanair, O’Leary added will “with appropriate and timely action, survive through a prolonged period of reduced or even zero flight schedules, so that we are adequately prepared for the return to normality.”

Virgin Atlantic said it plans to cut 80% of flights due to coronavirus by Mar. 26. About 75% of its fleet will be grounded by that date, and this figure will rise to 85% in April.

Virgin also asked its staff to take eight weeks of unpaid leave over the next three months, but assured there will be no job losses. The airline will also offer voluntary redundancies and sabbaticals of between six to 12 months.

The airline's CEO Shai Weiss will take a 20% pay cut until the end of 2020.

EasyJet and Virgin Atlantic have both asked the British government to bail out the aviation industry.

"The aviation industry is facing unprecedented pressure. We are appealing to the [U.K.] government for clear, decisive and unwavering support,” Virgin said. "Our industry needs emergency credit facilities to a value of [up to $9.2 billion] to bolster confidence and to prevent credit card processors from withholding customer payments.”

EasyJet's CEO Johan Lundgren said: "European aviation faces a precarious future and it is clear that coordinated government backing will be required to ensure the industry survives and is able to continue to operate when the crisis is over."

EasyJet said it wanted governments to offer financing to alleviate short-term liquidity crunches, and eliminate passenger taxes, among other measures.

However, Walsh of IAG said he has not requested aid from the government.

"I think individual airlines have been approaching governments looking for state aid, we have not done so," he said. "Governments would expect airlines to look at self-help before they would call on governments to provide state aid.”

U.K. Transport Secretary Grant Shapps said he is researching various options to help the aviation industry and that he will hold an "aviation summit" this week.

"We've been looking at different ways to assist but it's noticeable that the requests actually vary about what's required at this stage," he said. "It's very serious, there's no other way to describe it, I mean this is an international crisis.”

Shapps conceded that airlines could go bankrupt "if nothing were done.”