U.S. airlines ditch 2020 forecasts, slash flights and costs on virus hit By Reuters

© Reuters. An American Airlines airplane sits on the tarmac at LAX in Los Angeles

By Rachit Vats and Tracy Rucinski

(Reuters) – Leading U.S. airlines unveiled on Tuesday more sweeping capacity cuts and cost-saving measures in response to a sharp decline in demand over the spreading coronavirus, including a $2 billion capital raising by United (O:).

Delta (N:) and American (O:) ditched their 2020 forecasts as the fast-spreading epidemic clouds outlooks, while United warned of first-quarter loss.

The sector has been hard-hit as tourists cancel trips and businesses across the globe clamp down on anything other than essential travel, sparking a string of steps by airlines to tackle the impact of the outbreak ahead of the summer season.

U.S. airline executives speaking at an industry event on Tuesday said they stood prepared to do more.

“This clearly is not an economic event. This is a fear event, probably more akin to what we saw at 9/11 than necessarily what we saw in 2009,” Delta Chief Executive Officer Ed Bastian told an industry conference.

Delta said it was cutting domestic capacity by 10% to 15% and international by 20% to 25% and freezing hiring across the company, offering voluntary leave options to staff and looking at early retirement of older aircraft.

It said it had seen net bookings fall by as much as 25% to 30% and expected the situation to worsen further.

United, which had already announced capacity cuts and suspended 2020 forecasts, said it had raised an extra $2 billion in financing to help it in the downturn, bringing total liquidity to $8 billion.

Chicago-based United also slashed its 2020 capital expenditure by more than a third to about $4.5 billion, a move that will likely lead to aircraft delivery deferrals, and said CEO Oscar Munoz and President Scott Kirby are forgoing their base salaries through at least June 30.

Also speaking at the industry conference, American Chief Executive Doug Parker said the airline was “well-positioned” to weather the crisis, with $7.3 billion in available capital.

American is cutting domestic capacity by 7.5% in April and international by 10% for the upcoming summer season and said it was reducing pilot training classes and eyeing other cost savings.

It noted that a fall in fuel prices is expected to save $3 billion in 2020 costs. Oil sank around a fifth in value on Monday.

United and American have also suspended share buybacks.

While U.S. airlines have strong balance sheets, significantly lower debt levels and sizeable cash reserves versus prior crises, no one can predict the depth of the virus.

Airlines shares () enjoyed a 3.4% rebound on Tuesday after recent heavy declines.

In a message to employees on Monday, Southwest (N:) CEO Gary Kelly said he was taking a 10% pay cut in response to a “severe recession” for the airlines industry.

In an effort to encourage bookings, the largest U.S. airlines are allowing passengers to re-book tickets through April 30 without paying fees to change flights. Southwest already has a no change-fee policy.

Budget carrier Spirit Airlines (N:) also suspended its 2020 forecasts on Tuesday and said it was trimming its April capacity and eyeing more cuts in May.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Be the first to comment

Leave a Reply

Your email address will not be published.