Canadian airline stocks sink on virus news
Washington’s ban on travellers from Europe could spell end to weak carriers
Canadian airline stocks nosedived after the U.S. announced it will curtail travel from Europe beginning Friday — a measure expected to have an “enormous” economic impact on the global air travel industry already under extreme pressure from the novel coronavirus pandemic.
Air Canada’s stock fell nine per cent to $24.90 on the Toronto Stock Exchange.
Transat A.T.’S stock dropped 17 per cent to $10.59.
Air Canada’s stock is down about 50 per cent since the beginning of January as the COVID-19 outbreak has rattled investors and caused upheaval in global airline and tourism industries.
Air Canada did not return a request for comment on the travel ban, its stock price or how the developments could affect staffing.
Trump’s travel ban is on non-u.s. citizens or non-permanent residents that have been in 26 European countries in the Schengen area within the past 14 days.
Analysts believe this will result in mass flight cancellations between the U.S. and Europe.
Before Trump announced the travel ban, the International Air
Transport Association estimated the virus outbreak could erase up to US$113 billion in revenue from air passenger services in a worstcase scenario.
But now the IATA expects even further revenue loss due to the “severe” restrictions placed by the U.S. along with Israel, Kuwait and Spain.
“This will create enormous cashflow pressures for airlines,” IATA chief executive Alexandre de Juniac said in a statement Thursday, adding that British airline Flybe has already gone out of business.
“This latest blow could push others in the same direction.”
The volume of travel between the U.S. and Europe was worth $20.6 billion in 2019, when approximately 46 million passengers travelled on 200,000 flights, according to the IATA.
That’s about 125,000 passengers on 550 flights per day.
The IATA, which represents 290 airlines comprising 82 per cent of global air traffic, called on governments to look at “all possible means” to help the airline industry.
“Extending lines of credit, reducing infrastructure costs, lightening the tax burden are all measures that governments will need to explore,” de Juniac said.
“Air transport is vital, but without a lifeline from governments we will have a sectoral financial crisis piled on top of the public health emergency.”
Even though the airline industry is taking a hard hit, perhaps harder than to the overall economy, Airtrav Inc. president Robert Kokonis is optimistic the industry will bounce back quickly based on previous recoveries after SARS and 9-11.
“In the aviation business, we are at the leading edge of an economic slowdown or economic recovery,” Kokonis said. “It’s going to be tough initially, but we’ve got a very strong Canadian aviation sector.”
That’s not true of airlines around the world, he noted. Flybe is already out of business and on Thursday, Norwegian Air suspended thousands of flights and temporarily laid off half of its staff.
“Weaker players may get squeezed out,” Kokonis said, adding that could be good for domestic airlines if they can pick up travellers from bankrupt airlines.
“That creates a healthier going-forward landscape for the remaining players.”
Canadian airport authorities have enough liquidity to weather a severe outbreak for a short period of time, although a long-term disruption could require emergency government funding, ratings agency DBRS Morningstar said in a statement Thursday.
There’s already talk of the feds stepping in to help the airline industry, but the details have yet to be determined as they focus first on aid for the health care system. Prime Minister Justin Trudeau, now under self-quarantine, spoke with the CEOS of Air Canada and Westjet Airlines Ltd. earlier this week.
Citi analyst Jonathan Raviv estimates about 2.4 per cent of the 22,000 aircraft in service around the world are used for flights between the U.S. and the 26 countries covered by Trump’s travel ban, with the most affected routes from Germany, France, Netherlands and Italy. The IATA estimates the U.S.- Germany market at $4 billion, the U.s.-france market at $3.5 billion and the U.s.-italy market at $2.9 billion. Citi predicts a 30-day suspension will shave 0.2 per cent off global aircraft capacity growth in 2020.
That’s on top of a 13-per-cent capacity reduction from, to or within China, where air traffic has already plummeted since late January thanks to internal travel restrictions and global airlines, including Air Canada, suspending flights to the region.
Goldman Sachs analyst Noah Poponak estimated Thursday that global air traffic will drop seven per cent this year.
Financial Post
Without a lifeline from governments we will have a sectoral financial crisis piled on top of the public health emergency.