More problems for our three listed carriers yesterday.
Qantas and Jetstar have announced another round of cuts – the largest so far – to resize the operational side of the airline and allow it to ride through the COVID-19 crisis.
The cuts are much larger than the first two rounds of capacity reductions, especially to international routes.
Total international capacity will be cut by 90% from the end of March to at least the end of May, up from a 23% reduction announced last week.
Domestic capacity will be cut by 60% until at least the end of May – up from 5%.
This represents the grounding of about 150 aircraft, including almost all the group’s wide-body fleet.
Qantas said this reflected a rapid decline in travel demand due to government containment measures, corporate travel bans and a general pullback from everyday activities across the community.
Previously announced cuts in place from the end of May to mid-September remain in place and are likely to be increased, depending on demand.
Qantas shares bounced yesterday on the news in the rise in the wider market, but then fell in the afternoon, losing more than 5% to $2.86.
Virgin Australia shares lost another 9% yesterday after Monday’s 20% slide (on a very low base of less than 7 cents a share) after credit agency Standard & Poor’s downgraded the rating of its debt to B- from B+ and said the company outlook was “negative”.
“[T]he company’s operating environment may be deteriorating at a faster pace than Virgin Australia can implement initiatives to protect cash generation and balance sheet health,” S&P said in a statement yesterday.
“Virgin Australia, together with other industry players, have signalled their intention to reduce capacity in the face of weaker demand conditions.
“Virgin Australia’s fleet remains the youngest in the Australian domestic market, which we believe provides it some scope to reduce new aircraft deliveries. Further, we consider that management is taking appropriate steps to restructure its cost base in the face of the deteriorating operating environment.
“That said, we do not believe Australia’s duopoly-like domestic market structure has the ability to fully protect against the material exogenous shock currently underway,” S&P said in the statement.
The shares fell to 6.3 cents. There were also reports yesterday that the domestic aviation sector might need help from the government.
Regional airline, REX Airways has gone into a trading halt.
The company’s stock price last traded at 83 cents, the lowest price since January 2017.
The company is 24.25% held by Singaporean entrepreneurs Kim Lim and Thian Lee.
