Pushing Back: Inside This Issue
Buckle up, everyone. It’s time for third-quarter earnings season, starting with Delta on Tuesday. The dominant theme across the industry, of course, will be the Covid crisis, and its ongoing decimation of travel demand. Seven months into the crisis — longer if you start from its origins in China — international demand is still largely a big zero. America’s domestic recovery leveled off at a fraction of normal. Internal demand within Europe is sadly trending similarly. The domestic skies are getting busy again in China, Vietnam, and a few other East Asian countries. Same for Russia, and to a lesser extent Brazil. Even where traffic is recovering, however, airlines aren’t earning nearly enough to arrest heavy losses. Not with sharply lower fares. And not without any contribution from international.
Hardly surprisingly, then, that IATA’s doom-laden warnings are only getting doomier and gloomier. It’s now concerned with the industry’s expected cash drain this winter. Promising new treatments for Covid might help. So might Covid testing. Vaccines will surely help in time. But maybe not fast enough to save carriers with weaker balance sheets, especially as government aid programs expire.
EasyJet, despite a strong balance sheet and ample cash, wants more government help. So does Southwest, which absent an extension of federal payroll support, is asking unions for concessions. It’s separately adding new routes and destinations with the goal of generating more leisure and family-visit traffic. Back in Europe, things are getting interesting in Norway as Wizz Air adds domestic routes, Norwegian pleads for more survival aid, and a new startup prepares to enter. AirAsia X is in a last-ditch survival effort, as AirAsia itself retreats from Japan and reassesses things in India. India’s SpiceJet is going to London. And Japan Airlines is launching its new low-cost carrier Zip Air.
Happy Q3 earnings season everyone!
Verbulence
“The crisis is deeper and longer than any of us could have imagined. And the initial support programs are running out. Today we must ring the alarm bell again.”
IATA Director General Alexandre de Juniac, calling on governments to provide more relief.
Earnings
April-June 2020 (3 Months)
- Air Astana: -$40m ; -352%
*Net result in USD/*Net result excluding special items/ Operating margin
Airline Weekly Lounge Live
The pandemic has the hotel and airline industries reeling. But how has the pandemic been different for both, and how are their prospects for recovery different? Skift Hospitality Reporter Cameron Sperance joins us for our weekly livestream, at 12 p.m. EDT, Monday, October 12. Registration is free for subscribers.
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Correction/Clarification
On the earnings board atop last week’s issue, we incorrectly stated TAP Air Portugal’s loss figures for the first half of 2020. The figures we showed ($439m net, or $189m excluding special items) were actually for just the first quarter of the year. The correct first half figures, as accurately shown in the Weekly Skies section, were a $647m net loss, or $431m excluding items. Operating margin for the half was negative 66%.
Weekly Skies
- Air Astana’s latest financial statements show a $40m net loss for the April-to-June quarter, with an operating margin at negative 352%. Not that the margin figure is all that meaningful, other than to highlight a situation of severely depressed revenues, against a stickier cost base that’s not dropping quite so fast. Q2 revenues in fact declined 94% y/y, while operating costs were down 71%. During last year’s Q2, the airline earned a positive 8% operating margin. It earned a 9% margin for all of 2019.
Air Astana is the national airline of Kazakhstan, a country which like neighboring Russia has a highly oil-dependent economy. That served it well during the oil boom of the first half of the 2010s. But when the boom fizzled in the second half of the decade, times were tougher. Air Astana is 51% owned by its government. The rest is owned by British defense firm BAE Systems. Its hub Nur-Sultan, formerly called Astana, is by whatever name well-positioned for east-west travel connecting Europe with Asia. But Almaty is a bigger business market, and operations are split sub-optimally across the two cities.
Last year, the carrier launched a wholly owned low-cost unit called Fly Arystan using A320s. When the pandemic hit, Air Astana grounded most of its fleet but maintained flights for oil service workers and repatriation charters. It operated some cargo flights too, continuing nearly 30% of Q2 revenues. Passenger capacity was down 88% y/y in the quarter; capacity in the second half of the year should be down more like 40%.
Helpfully, Air Astana’s largest market by revenues pre-crisis was the Kazakh domestic market. Its other major markets include Russia, Europe, Asia, and the Middle East. Before the crisis, it started receiving A321 NEO LRs and E2 E195s, with an eye toward nearly doubling its fleet to 60 planes by 2026.