Pushing Back: Inside This Issue
It was a week of waiting. Waiting for the results. What would they be?
Finally, the world learned. They learned that Lufthansa, Singapore Airlines, and Turkish Airlines collectively suffered hundreds of millions of dollars of third-quarter losses. But a major theme for all three was the relief they got from cargo. Turkish almost broke even at the operating level thanks to cargo. Same for cargo-heavy China Airlines in Taiwan. Cargo-heavy Korean Air? It managed another crisis-time operating profit.
Asia’s international passenger market remains largely dormant with borders still closed. Yet confidence is building with the scourge of Covid nearly eradicated from most of the region. With vaccinations already underway in China and nearing distribution elsewhere, Asian carriers can finally see light at the end of the tunnel. With more and more carriers pointing to travel restrictions as the key factor suppressing demand, their eventual lifting augurs well for a quick demand recovery. Will that translate to a quick profit recovery? That will partly depend on other factors like capacity, costs, and the degree to which corporations buy business class tickets again.
Europe’s airlines are hopeful that vaccines will come to the rescue just in time to save next summer’s peak season. With Covid under decent control during this past summer, carriers with shorthaul-dominant networks did relatively well. Ryanair even managed an operating profit. Covid has since spiraled out of control, however, and tighter travel restrictions once again have European airlines suffering this fall and bleak about the winter. England won’t even let its citizens travel abroad for leisure this month. But again, every time travel restrictions do disappear, the demand recovery is swift and sharp.
Covid cases are dropping, meanwhile, in South America, where it’s almost summer. That gives Gol confidence as it steadily rebuilds its schedule. The state of Sao Paulo plans mass inoculations soon using vaccines from China.
U.S. Covid cases, by contrast, are skyrocketing across the country. Reversing that trend will be job number one for the country’s new president.
“This pandemic will not be over in a few months. We cannot simply wait this crisis out. It will burden our business, our industry for years to come.”Lufthansa CEO Carsten Spohr
July-September 2020 (3 Months)
- Lufthansa: -$2,3b/-1.6b*; -48%
- Singapore Airlines: -$2.5b/-$891m*; -79%
- Korean Air: -$325m; 1%
- China Airlines: -$28m; -1%
- Turkish Airlines: -$132m; -4%
- Ryanair: -$262m/-$26m ;1%
- Wizz Air: -$281m/-$102m*; -11%
- Gol: -$314m/-$226n*; -78%
- Latam: -$574m; -110%
- Jazeera Airways: -$18m; -107%
*Net result in USD/*Net result excluding special items/ Operating margin
Skift Aviation Forum November 19
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- It wasn’t enough to make awful turn good. But it was enough to make appalling turn just mere awful. Cargo, always serious business for Lufthansa given its export-fueled home economy, produced $200m in operating profits last quarter, good for a positive 29% operating margin. That’s hardly sufficient to offset red ink everywhere else in the empire — Lufthansa mainline losses, Swiss losses, Austrian losses, Brussels losses, maintenance losses, catering losses… But it did bring groupwide suffering down to an operating margin of negative 47%. Cargo muscle also meant that while all other airlines are seeing total revenues drop in excess of their passenger capacity, Lufthansa’s groupwide revenue fell 74% while passenger ASKs shrank 78%.
It was a victory without celebration, because indeed, outside of cargo, the picture was bleak. Lufthansa mainline did far worse than either Air France or KLM in terms of Q3 operating margin (negative 150%). Results were not quite as rough at other subsidiary airlines. Swiss came in at negative 43%, for example. Eurowings, even with two decent months of shorthaul leisure revival in July and August, was at negative 61%. Airlines of course, are currently managing for cash not margins. And with that in mind, Lufthansa — and especially Swiss with its big-bellied B777-300ERs — are at times flying passenger planes with just cargo.
Lufthansa thinks it can start generating cash from total operations once demand is sufficient enough to run about 50% of its normal passenger capacity. This quarter, it will only fly 25% maximum, which implies ongoing cash burn. Cash won’t run out, however, not after receiving billions in aid from the governments of Germany, Switzerland, Austria, and Belgium. Lufthansa has announced some of the deepest downsizing plans of any major airline. It aims to shed 150 planes and the equivalent of almost 30k jobs. It’s already said goodbye to about 14k, with union negotiations ongoing. Management secured short-term concessions from pilots and flight attendants but not yet ground workers, who for a time walked away from talks. CEO Carsten Spohr, speaking during the carrier’s earnings call, sounded clearly frustrated with certain labor leaders, arguing they’re not taking the crisis seriously enough. The broad offer: Accept pay cuts in exchange for preserving jobs. Separately, the company cut 20% of its management staff.
In the end, Lufthansa knows it needs to become smaller, less complex, and more efficient. It’s also an airline, be sure to note, that depends heavily on longhaul premium corporate traffic. As an aside, Spohr pointed out that first class seats — as distinct from business class seats — are nowadays typically bought by wealthy Europeans on leisure trips. So that demand might recovery rather quickly. But Lufthansa really needs that corporate demand in business class to return, which it will in due course, Spohr believes. He cites corporate Europe’s big backlog of deferred travel. The airline is also working with United on reopening some transatlantic routes with Covid testing. It’s likewise working with United on preventing overcapacity across the Atlantic, something the two can legally do given their antitrust immunity. Lufthansa has similar arrangements with Air Canada, All Nippon, Air China, and Singapore Airlines.
In some ways, Frankfurt isn’t the best place to have a hub right now. For one, it’s not a leisure market. Secondly, Lufthansa doesn’t get on very well with the airport’s owner, Fraport. But it is a good place to connect passengers coming and going to all kinds of places across the world. That’s a key advantage, Spohr believes, because more passengers need to connect as nonstops disappear. “It is a mathematical certainty in our industry,” he says, “that less demand leads to more bundling over hubs.” As an example, he cites the Frankfurt-Venice route. After both Ryanair and Norwegian axed their Stockholm-Venice flights, Lufthansa’s Frankfurt-Venice flights suddenly saw an uptick in passengers connecting to and from Stockholm. On these flights currently, only connections from Berlin are more numerous.
In other developments, Lufthansa is proceeding with plans to house low-cost longhaul flights in a new unit. It has no intention of selling assets including planes at fire sale prices. It expects to be one of the few cargo airlines in the world capable of transporting vaccines that require cooled temperatures. Summing up what the rest of the industry has come to conclude: Shorthaul will recover before longhaul, leisure will recover before business.
On a final note, Lufthansa probably deserves some criticism for its fleet management over the years. It invested in many of the wrong types of widebody planes, from A340s to A380s to B747-8s. Is it making the same mistake with its B777-9 orders? Too early to say. But in fairness, decisions to buy B787s and A350s, and B777-300ERs for Swiss specifically, put the group on a path toward addressing its past mistakes.
- Singapore Airlines likewise thanks its lucky stars for having a major cargo operation. Without a domestic passenger market in tiny Singapore, the airline reported a bloody negative 79% operating margin for the calendar third quarter. But think how bad this would have been without cargo, given a 99% y/y decline in passenger traffic. There was no momentary summer shorthaul bump like there was in Europe. Singapore’s cargo business, more specifically, saw revenues increase 28% y/y in the six months to September, contributing a large majority of the entire group’s total revenues, which were down 80% in the quarter. Operating costs were down 63% on 92% less passenger ASK capacity.
Slowly, Singapore Airlines is restoring passenger service to various points across the globe, doing so when there’s enough cargo demand to cover the variable costs. This week, in fact, it’s restoring ultra-longhaul nonstops to New York, this time using JFK airport rather than Newark. Back within Asia, Singapore naturally looks upon neighboring countries like China, Japan, and Vietnam with some envy, given their large domestic markets. That said, safely reopening borders is one of the highest priorities for Singapore’s government, recognizing the economic importance of its airline industry. As it happens, much of the Asia-Pacific rim — China, Japan, Korea, Singapore, Thailand, Vietnam, Australia, New Zealand — is largely Covid free now (on Nov. 6, these eight countries had a combined total of about 1k new cases, compared to 133k in the U.S. and more than 300k across Europe and Russia).
Asia’s success against the disease means countries there can feel safer trialing bilateral travel bubbles, replacing quarantines with Covid testing. Singapore and Hong Kong have put one in place, triggering immediate signs of strong demand. This will likely lead to more such arrangements. Singapore Airlines says it will be ready to bring back planes when warranted.
In the meantime, with levels of cash burn still high, the airline is looking to replenish earlier government bailout money with new capital — it’s looking at the sale-leaseback market, the debt market, and the convertible stock market. It also agreed to defer some Airbus deliveries and hopes to soon conclude deferral talks with Boeing. Unfortunately for Singapore, it had to close its longhaul LCC joint venture, NokScoot. It lost its investment in Virgin Australia when the latter restructured in bankruptcy. Its Indian joint venture Vistara, on the other hand, is proceeding with intercontinental expansion. Just before the crisis, Singapore announced plans for a JV with Japan’s All Nippon, adding to JVs with Lufthansa and Air Zealand.
Soon, Silk Air will start transitioning its B737s to mainline, part of a plan devised pre-crisis to extinguish the Silk brand. Scoot, the group’s LCC, is gradually reinstating routes like Melbourne. Management, meanwhile, is looking to develop other sources of revenue using its loyalty plan, corporate training potential, and logistics capabilities. The group did feel the need to cut thousands of jobs as the crisis dragged on longer than expected. But it’s now seeing some reasons for optimism as Asia nears full defeat of Covid, vaccines beckon, and borders reopen. Last month, Singapore Airlines began another three-year transformation plan to prepare it for new post-Covid realities.
- For Korean Air, cargo wasn’t merely a shield against the slings and arrows of the crisis. It was a fortress. During Q3, its cargo revenues skyrocketed 59% y/y, accounting for two thirds of total company revenues. A year ago, cargo was 19% of revenues. With an export-based economy, a fleet of widebody planes, and thriving customers like Samsung, Apple, and Amazon, it’s no wonder why Korean Air’s fate is to be great at freight.
And no wonder why it was able to again earn an operating profit, if just barely. Q3 operating margin was roughly half of 1%, though net results were firmly in the red due to heavy interest payments. In last year’s Q3, Korean earned just a 4% operating margin. With passenger revenues down 87%, total revenues declined 53%. Operating costs fell 51% and passenger ASK capacity dropped 77%. Demand on the passenger side is starting to tick up a bit this fall, especially as international markets within Asia slowly reopen. Korean is earning some money flying charters for top corporate clients.
Interestingly, a much larger portion of its crisis-time passenger business is coming from North America, likely due to student and family-visit traffic. Many major U.S. cities have large ethnic Korean communities, one of them being Atlanta, home of Korean Air’s close partner Delta. The two airlines are working together to appropriately plan capacity in the North America-East Asia market. Demand to Europe, conversely, was much less significant this summer — this market tends to be more leisure oriented. Domestic demand was more active, but demand to spots elsewhere in Asia were largely closed to tourists due to tight travel restrictions.
Korean is of course a major business airline too, with lots of premium seats. That’s a drag right now, along with its overly complex fleet that includes unwanted jumbos like A380s and B747-8s. The carrier is now preparing to take advantage of any travel bubbles that might emerge, referring to arrangements in which people can travel between two countries again without having to quarantine. The quarantines for foreigners entering Korea, by the way, are much stricter than they are in the U.S. and Europe, involving mandatory confinement in government-run facilities.
As for competition, Korean is watching developments at its weaker rival Asiana, which was unable to close a pre-crisis deal it had for new investment. Intriguingly, a Korea Times report raises the prospect of Asiana outsourcing its longhaul flying to Korean Air. Another discussed option is allowing the two rivals to merge, with Asiana turning itself into the combined group’s shorthaul low-cost carrier. If nothing else, these scenarios speak to the dire state of affairs at Asiana.
Back in the cargo realm, things will get more interesting. The peak Christmas season is coming. Shipments of information technology, car parts, and e-commerce in general are booming. Capacity remains severely constrained with so many widebodies grounded. Medical equipment demand is surging again with Covid’s explosive growth in Europe and the U.S. And Korean Air will be a major player in transporting Covid vaccines around the world.
- Cargo played a similar role at Taiwan’s China Airlines (CAL), which didn’t quite earn a Q3 operating margin but came close. Its margin was negative 1%, with cargo accounting for almost all of the company’s revenue. During Q2, remember, CAL did earn an operating profit, and a rather large one at that — its Q2 operating margin was positive 10%. The passenger business was still largely dormant in Q3, with ASKs down 90% y/y. Total revenues fell 38% and operating costs were down 35%.
Taiwan is a prime example of a place that’s handled the public health crisis extraordinarily well, perhaps better than anywhere else. And while its economy took a hit from the measures it had to use — border closures for example — GDP is on the rise again. The economy grew by 3% y/y last quarter, boosted by strong demand for its electronics and information technology exports. Taiwan is also benefiting from the trend of multinational companies trying to diversify more of their business away from mainland China. The island, though, remains a key flashpoint in growing tensions between Washington and Beijing.
Within Taiwan, domestic travel is active, but it’s a small part of CAL’s business, served with its Mandarin Airlines subsidiary. The company also owns a shorthaul international LCC called Tiger Airways Taiwan, which will get an injection of new capital from CAL, Flight Global reports. Tiger flies throughout East Asia but gets most of its revenue from Japan.
Back in the buzzing cargo realm, demand did ease some last quarter, which helps explain CAL’s margin drop-off from Q2. But with the Christmas peak coming, Q4 should be strong. CAL operates an armada of 18 all-cargo B747-400s, with B777 freighters on the way. One cargo challenge, though, is the Taiwan’s dollar’s appreciation, which makes the island’s exports more expensive across the world. CAL’s rival EVA Air, by the way, hasn’t yet reported for Q3.
- Cargo was likewise an especially potent weapon for Turkish Airlines, whose 60% revenue increase from the segment placed the company within a whisker of earning Q3 operating profits. In the end, its operating margin was just negative 3%, a figure most carriers would die for right now. For Turkish, aiming to be one of the world’s largest cargo airlines, having a geographically central hub like Istanbul helps. That’s proving less advantageous for connecting passengers at the moment, with much of the airline’s Q3 traffic on point-to-point shorthaul routes. But with uncertain prospects for Gulf carriers, and other hubs potentially losing more service, Istanbul with its new airport is well poised to reemerge as a crossroads of global aviation.
For Turkish last quarter, even though passenger revenues declined 77% y/y on 69% less ASK capacity, total revenues dropped only 62% thanks to that aforementioned 60% increase in cargo revenues. Cargo, indeed, accounted for 44% of total group revenues. Turkey does have a fairly large domestic market, boosted by foreigners connecting to internal flights via Istanbul. That market had some life to it this summer, when tourists from Europe came in ample numbers. Turkey, like Mexico (but unlike Thailand), opened its borders to all visitors, hoping to alleviate its economically critical tourist sector. The carrier’s domestic capacity was in fact down just 34% in the quarter. Turkish has a large family-visit and migrant worker segment too, particularly relevant on routes to Germany. Anadolujet, the group’s low-cost carrier, began flying internationally to Western Europe just before the crisis and actually earned a small profit on its international routes this summer.
Another good news story is Russia, whose sun-starved tourist are returning to Turkish beach resorts like Antalya. Turkey, importantly, was also on the U.K. safe list for most of the summer, so that Britons could travel there without having to quarantine on return. That’s unfortunately not the case now. The U.K. (or England anyway) is actually banning all non-essential travel for the month of November. Other European countries too, have tightened outbound travel restrictions to cope with the current Covid wave, heralding tough times for Turkish this winter.
Winters, though, are always tough for Turkish, at least on the passenger side. One nice thing about having so much cargo to carry is that you can justify flying a fairly robust flight schedule, which keeps unit costs in check, crews and planes active, and assets ready for the upturn when it comes. Turkish like other airlines has deferred some aircraft deliveries and cut worker pay, in its case by 40%. It hasn’t yet resorted to mass layoffs though. When travel restrictions eventually ease, demand should return, and not just on shorthaul European routes. It notes how restrictions are a chief impediment to family-visit demand between North America and the key markets India, Israel, and Iran. It’s sixth-freedom markets like these in mind that prompted Turkish — before the crisis — to plan new service to Newark and Vancouver. Both incidentally, are large markets for India traffic.
China is another market where Turkish badly wanted to expand pre-crisis, adding Xian late last year but otherwise stymied by restricted access. Currently, China will only allow inbound international flights with load factors 75% or less.
Turkish will need longhaul business class demand to return eventually, especially to support routes with very long stage lengths. It says business class tickets are typically five times as expensive as economy tickets. Currently, they’re only about twice as expensive. Turkey, by the way, expects 90m airline passengers in 2021, up from an estimated 54m this year but still down from 158m in 2019. It sees 2022’s figure reaching 132m.
- Ryanair isn’t accustomed to losing money. But it’s all too familiar with besting its rivals, often by a lot. During the July-to-September quarter — one in which Ryanair routinely earns monstrously large operating margins (33% last year and 34% the year before that) — net losses excluding special items amounted to $26m, a pittance given the dire industry circumstances. Even better, its operating margin was positive. Just 1%, but a loud 1% amid the anguish of 2020. The airline flew just around half of its normal capacity during the quarter but managed to fill 72% of its seats. Revenues dropped a lot more than half — the y/y decline was 66%.
But while yields are down, management insisted it wasn’t — nor isn’t this winter — offering a flood of extremely discounted fares. The reason, simply put, is that most people these days are booking close to departure, and many close-in buyers are price-insensitive. They’re traveling for urgent work reasons, for example, or on the health care front lines in the battle against Covid. Ultra-cheap fares are more for leisure travelers willing to book far in advance. It was hoping to fly more this winter but the resurgence in Covid cases throughout Europe, and the associated travel quarantines, make that unwarranted. So it will fly just 40% of its normal capacity this winter, subject to change. November bookings are weak. Christmas looks “reasonable” for now. And beyond that is anyone’s guess.
Ryanair does sound hopeful, however, that next year’s peak summer season will see a sharp revival in leisure demand, assuming there’s widespread vaccinations by then. As IAG described a week earlier, Ryanair said U.K. demand to the Canary Islands increased far beyond expectations after they were removed from the quarantine list. And unlike some rivals, notably tour operators like TUI, Ryanair was quickly able to respond with more capacity.
The demand, in other words, is undoubtedly there. The obstacle is the travel restrictions and lockdowns, which the airline bitterly criticizes. It calls them inconsistent, ineffective, “unimplementable,” and too broad in scope geographically. In his always colorful way, CEO Michael O’Leary exclaimed: “It’s easier to get out of North Korea at the moment than it is off the island of Ireland.” Pre-departure testing for the virus would be better, he argues.
In any case, if salvation by vaccine does arrive in time for next summer, the airline would likely have its B737 MAXs finally in service. In fact, it hopes to have more than 30 flying by next summer. And it seems set to order more. Rivals, it says, are slashing capacity and aircraft orders so drastically that they’ll be far worse positioned to take advantage of the coming upswing. It cites Air France/KLM’s 20% capacity cut, Alitalia’s “massive” shorthaul retrenchment, easyJet’s abandonment of growth through 2025, IAG’s delivery deferrals, Lufthansa’s 150 aircraft retirements, and Norwegian’s decision to cancel its entire Boeing order.
Ryanair’s MAXs will be key to future cost control efforts. But so will cheaper airport deals, labor concessions, the restructuring of its Lauda Air business, fewer air traffic control delays, and so on. In the meantime, Ryanair is closing some bases, including several in Ireland, and opening a new one at Paris Beauvais. O’Leary continues his verbal assault on state aid to rivals, while also worrying about the potential implications of a no-deal Brexit.
One big question now concerns January and February, a slow travel month but the strongest months of the year for cash inflow, given all the spring bookings people usually make at that time. On a lighter note, the good-humored airline spent last week gently mocking President Trump — soon to be former President Trump — on social media (Ireland is particularly excited about President-elect Joe Biden, the descendent of Irish immigrants).
- If someone told you last summer that this summer, both Ryanair and Wizz Air would post losses, you might have said something like: “What, is there going to be a devastating disease that nearly destroys the entire global airline industry?” Well, here we are. And instead of the disease receding, Covid’s menace is worsening, throughout Europe anyway.
During the peak summer months of July and August though, Wizz joined Ryanair in seeing enough of a demand revival to post much better than industry average margins. Unlike Ryanair, Wizz didn’t earn an operating profit for the quarter. But its operating margin was an only mildly bad negative 11%. In August, the LCC was back to operating 80% of its year-ago capacity levels. And even after having to pare back in September due to seasonal weakness and new travel restrictions, total ASKs for all of calendar Q3 declined only 28% y/y. Revenues dropped 61% and operating costs fell 36%.
Wizz says it has enough cash to stay in business for two years even if it didn’t operate a single flight. Cash burn if completely grounded would be about $80m a month. Of course, the situation is not quite that dire. But Europe’s second Covid wave, and the renewed travel restrictions it’s triggered, is of course a major demand suppressant. Wizz, in fact sees travel restrictions as the number-one factor influencing the pace of its recovery. Demand collapses overnight when new restrictions are imposed, management explains, and surges immediately after restrictions are lifted.
But opportunities nevertheless abound. For one, Wizz is entering the Norwegian and Italian domestic markets. It’s opened 13 new bases since the start of the crisis, including one at London Gatwick where it badly wants more slots (frustratingly still unavailable while governments temporarily allow incumbent carriers to preserve the slots they have even if they’re not using them). Some other new Wizz bases include Oslo, Milan Malpensa, and St. Petersburg, Russia. It’s separately ready to launch its new Wizz Air Abu Dhabi joint venture as soon as travel restrictions there ease.
More generally, it feels advantaged by the fact that some 80% of its passengers are traveling to see family and friends. Its passenger base also skews young. And airports throughout the continent are eager to do longterm deals for more air service. No wonder why Wizz is a rare airline right now that’s not mass cancelling or deferring airplane orders. It continues to receive A321 NEOs, positioning it to thrive once demand does return. It only wishes governments would better coordinate their travel restrictions.
- IATA’s just-published traffic report for September shows a 55% y/y decline in RPK traffic in the Brazilian domestic market. By comparison, the domestic U.S. market is down 65%. Only in Mexico is airline demand recovering more swiftly in the Americas. So while not China- or Russia-like in its recovery, Brazil is reviving enough to put the LCC Gol on a steady path to stabilization.
It’s not there yet financially, posting a negative 78% Q3 operating margin. The carrier’s ASK capacity was still down 70% y/y during the quarter. But flights are departing about 80% full, and revenues didn’t drop much more than capacity — they declined 74%. Operating costs are stickier, falling only 44%. That said, Gol made major strides in variabalizing two critical components of its cost base: Labor and fleet. With new labor and lessor agreements, it now can save more money when it doesn’t fly. It also means Gol can afford to extend leases on planes currently grounded or lightly utilized, so that they’re ready to go when demand returns. It highlights the similar flexibility it has with MAX deliveries on order with Boeing, which counts Gol as a vital customer.
Such labor and fleet flexibility, it argues, is a distinctive competitive advantage. At the close of Q3, it had 71 prior-generation B737s actively flying, out of a total 129. MAXs should return soon. This quarter, in which Brazil enters its summer season, Gol should have about 92 planes back in the skies. Q4 revenues should be back to about 60% of last year’s levels, moving to a forecasted 66% in Q1. Forecasts are of course challenging during a pandemic but getting a bit easier thanks to a consistent and steady build in demand. Family-visit travel, in fact, is pretty much fully back to normal levels, management says. Leisure travel is recovering nicely too, with more to come based on ever growing numbers of trip searches on Gol’s website. In response, it’s adding more capacity to northeastern beach spots like Fortaleza while opening what it refers to as a hub in Salvador. More of its traffic is getting funneled through hubs as many nonstop routes remain closed.
But there’s one big piece of Gol’s customer base that’s still missing: Corporate travelers, who in typical times account for 30% of all passengers but half of all revenues. Executives stress that they’ve reduced and variabalized costs enough to manage through the current situation in which 80% of all traffic is leisure and family visit. They even compare Gol to Volaris, the Mexican ultra-LCC faring better than most with a combination of ultra-low-costs and steadily recovering leisure and family visit demand.
Gol does of course maintain some costs associated with being a corporate-friendly airline (airport lounges for example). But it also foresees a day, probably mid next year, when corporate fliers return but the fruits of crisis-era cost cutting remain. It estimates a 20%-to-25% unit-cost advantage versus rivals, which could grow. Next quarter, it hopes to start reopening international routes. It looks forward to reaping the rewards from its new partnership with American, which has a larger presence in Brazil than Gol’s old partner, Delta.
There is of course Brazil’s troubled economy and depreciated currency to navigate. “We haven’t gotten a dime from the Brazilian government” as far as state aid. On the other hand, Covid cases, though many, aren’t rising in Brazil like they are in the U.S. and Europe. And Sao Paulo’s state government has plans to vaccinate all 46m of its residents by February.
- Gol’s larger rival Latam, as part of its bankruptcy obligations, published its income statement for the month of September. It showed a net loss of $259m, with a negative 175% operating margin. Pieced together with data from July and August, the figures also reveal a negative 110% operating margin for the entire third quarter. Latam is no longer holding conference calls to discuss its quarterly results. But it’s disclosed a number of key developments since its Chapter 11 filing in May.
One is a new codeshare and loyalty partnership with Azul in Brazil, something unthinkable before the crisis, when the market was producing outsized profits thanks to the demise of Avianca Brasil. Latam is also developing a north-south joint venture with Delta. It’s closing down Latam Argentina, a longtime source of labor headaches and macroeconomic distress. It hired JetBlue’s former revenue chief Marty St. George. It secured DIP financing to ensure enough funds to operate while restructuring. And of course, it’s slashing costs by walking away from various contractual obligations, to aircraft lessors, unions, and so on.
- Kuwait’s Jazeera Airways, normally a profitable low-cost carrier, recorded a negative 107% operating margin for the third quarter of the annus horribilis 2020. Revenues dropped 83% y/y. Operating costs dropped only 50%. Jazeera, remember, owns and operates a terminal at Kuwait’s airport, which for obvious reasons incurred losses last quarter. Anyone entering the country must present a negative PCR Covid test result within 96 hours of arrival and must quarantine for 14 days. Jazeera hopes proposals to relax the rules are adopted — they include reducing the quarantine time for visitors from low-risk countries.
In the meantime, the LCC, having restarted a few scheduled flights in August, is running charters, carrying some cargo, facilitating some transit passengers (between London and the Indian subcontinent, for example), and opening some new routes to open tourist destinations like Trabzon in Turkey. It opened a new Muscat route last week. Next year, Jazeera still expects to receive four A320 NEOs.