Coronavirus could see some airlines go bankrupt, but stimulus should help Qantas and Virgin

A man in hazmat gear sprays disinfectant on the cabin of a plane
By  Nassim Khadem As the week rolled on and more countries had locked down their borders to stem the rapid rise of coronavirus, predictions grew about entire industries — and economies — coming to a halt.

Key points:

  • The Centre for Aviation says by the end of May, most airlines around the world could be bankrupt
  • Industry experts say the Federal Government stimulus measures aimed at airlines will help
  • But some industry players want the Government to revisit foreign ownership rules
Sydney-based aviation consultant Peter Harbison, who is chairman of the Centre for Aviation, was among those making headline-catching calls.
By the end of May-2020, most airlines in the world would be bankrupt, he said, calling for "coordinated government and industry action" to avoid a catastrophe.
"The likely prospect is that we emerge from this crisis — whenever that might be — with 20 or 30 airlines worldwide," Mr Harbison told ABC News.
"The airlines that do survive are the ones that governments prop up."
The Morrison Government has now announced $715 million of measures specifically aimed at airlines, including waiving certain fees and charges paid by the major carriers.
For Qantas chief executive Alan Joyce, who in a recent note to staff described coronavirus as the "single biggest shock that global aviation has ever experienced", it is welcome relief.
Airlines across the world, including Qantas and Virgin, have been suspending routes and telling their workers to take unpaid leave.
On Tuesday, Qantas and Jetstar announced international capacity would be cut by about 90 per cent, and domestic capacity by about 60 per cent, until at least the end of May.
This would result in grounding about 150 aircraft and comes on top of the airline's previously announced changes to services.
Qantas's 30,000 employees will be managed with a mix of paid and unpaid leave.
Virgin Australia has also slashed more flights in response to falling demand for travel.
Last week, the company announced it would cut capacity by 7.7 per cent over the rest of the year, with international flights hit the hardest.
The airline has also stopped bonuses, lowered its marketing spend and cut chairman and board director fees.

Call for foreign ownership rules to be relaxed

Aviation industry experts had said that without government intervention, the airline sector would have faced a bigger threat than it did during previous international catastrophes including the 9/11 terrorist attacks, SARS and the global financial crisis.
Australians are now so fearful about the spread of coronavirus — which, according to the WHO, has to date caused 170,000 infections and more than 6,500 deaths around the world — that demand for air travel isn't expected to recover, possibly for some months.
Mr Harbison predicts that Qantas and Virgin will go on, since the Morrison Government has moved to protect these iconic brands that employ tens of thousands of workers.
But Mr Harbison said while Qantas is in a better financial position than many airlines in the world — with $1.9 billion in cash, plus a further $1 billion in undrawn credit facilities — "it's losing a lot of money right now".
For him, while stimulus helps, the long-term solution is to relax foreign ownership rules.
Currently, the Qantas Sale Act 1992 limits aggregate foreign ownership in an Australian international airline (including Qantas) to 49 per cent.
Mr Harbison says when airlines are restricted from merging across national boundaries, the winners are offshore government-owned airlines.
He points to the major Chinese airlines, US airlines that have enormous lobbying might to demand even bigger subsidies and national European airlines as some of the likely survivors.
But Transport Workers Union national secretary Michael Kaine said it was not the time to be making fundamental structural changes, such as relaxing foreign ownership rules.
"You don't do that in response to a specific external threat," he said.

Recovery could take months as Aussies stop travel

In the past month, the share prices of travel-related businesses, including Qantas and Virgin, have tanked.
On Tuesday, Qantas shares closed down another 5.3 per cent at $2.86, bringing its total losses to 60 per cent since the year began.
Ratings agency Moody's had earlier this month suggested that assuming that residents choose to holiday domestically, Australian and New Zealand carriers may suffer less than European airlines.
"While the length and depth of the outbreak are still highly uncertain … Qantas has both the commitment and flexibility to protect liquidity and limit leverage," it said.
Aviation consultant Neil Hansford thinks with or without government intervention, Qantas will be just fine.
It's Virgin Australia that will struggle, he says, if domestic demand continues to fall alongside the international declines.
"Whatever the method, the Australian Government don't want to let Virgin fail in the way Ansett failed, because it's just too many jobs," Mr Hansford said.
But even with the help announced, he said Virgin Australia could still be in a vulnerable position.
"What can you do for an airline when people don't want to travel?" he asked.
"We've scared the bejesus out of the whole nation, and no one wants to do anything."
"Until you can get the community to travel, throwing money at airlines is just like sitting in the gutter ripping up $10 notes."
Mr Kaine had called for the Federal Government to immediately step in and protect jobs.
He said apart from airline ground staff, there were "thousands and thousands of workers" in related businesses such as cleaning, catering and security that needed assistance.
Despite uncertainty surrounding coronavirus, he said: "The one thing all the experts agree on is it will end.
"It's unclear as to what the public reaction will be in the medium and long term," Mr Kaine said.
"Whether it takes three or six months [to recover], it will occur."
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March 17, 2020
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