London Air Travel

London Air Travel

Welcome to London Air Travel’s Monday Briefing for the week beginning 6 April 2020.

As scheduled air travel all but grinds to halt, the UK Government is now enlisting airlines to operate charter flights to bring British nations back home.

The first charter flights from India were announced yesterday and registration for these flights is now open. Special charter flights will operate from Goa, Mumbai and New Delhi this week. More details are available from the British High Commission India.

Repatriation flights will also operate from Cape Town and Johannesburg this week.

In terms of scheduled airline operations:

Heathrow confirmed last week that it intends to temporarily close Terminals 3 and 4, with flights consolidated in Terminals 2 and 5. However, the airport is yet to confirm which airlines are moving where. Heathrow will also begin single runway operations from today.

International Airlines Group also confirmed that its airlines will continue to reduce capacity by 90% up until the end of May. Though, BA has not yet processed any substantial cancellations from 1 May 2020.

American Airlines has set out tentative plans to reinstate its network from London Heathrow, which is currently limited to Dallas / Fort Worth. American plans to resume flights to London Heathrow from Chicago O’Hare, Los Angeles, New York JFK, Philadelphia and Raleigh-Durham on 4 June 2020. Charlotte will resume on 7 July. Phoenix will resume on 7 October. American’s inaugural flight from Boston to London Heathrow is delayed until 25 October.

Virgin Atlantic & Virgin Australia Seek State Support

Virgin Atlantic and Virgin Australia, the last two Virgin branded airlines in existence, are both actively seeking state support.

Virgin Australia has formally asked the Australian Federal Government for support of AU$1.4 billion.

Virgin Atlantic is reported to be in talks for UK Government support of £500m which would include loans to cover operating expenses and credit guarantees to prevent credit card companies.

There are parallels in both requests in that there is a history of corporate and personal animosity between both Virgin airlines and their main incumbent competitors.

Virgin Australia’s request prompted a response from Qantas that should Virgin’s request be authorised (there are no signs yet that it will), Qantas should receive a proportionally larger bail out to “level the playing field”. Qantas CEO Alan Joyce has also given warning against state support for businesses that have been “badly managed”.

According to ABC Australia Credit Suisse has estimated that Virgin Australia could burn through its remaining cash reserves by the end of June.

The Sunday Times estimates that Virgin Atlantic is burning approximately £20 million of cash a week. IAG’s reported cash balance fell from €7.35 billion to €7.2 billion between 12 and 27 March.

There are appears to be no prospect of any of Virgin Australia’s shareholders which include Etihad and Singapore Airlines, contributing to a recapitalisation of the airline. In the UK there is an expectation that Virgin Atlantic’s shareholders, Delta and Virgin Group, should foot the bill.

At a UK Government press conference yesterday, Health Secretary Matt Hancock declined to answer a question from Jim Pickard of the Financial Times as to whether Virgin Atlantic should receive a bailout because its majority shareholder is not tax resident in the UK and has previously sued the National Health Service.

Whatever the economic and competitive merits of state support for Virgin Atlantic, “optics” and politics are unavoidable. The Treasury will, as it always does in Government, call the shots. Virgin Group will have to be seen to pay a price.

London Air Travel

Welcome to London Air Travel’s Monday Briefing for the week beginning 30 March 2020.

Cash Is King

With airlines now facing a minimum of six months’ disruption, their overwhelming priority is the preservation and raising of additional cash.

Some airlines have already taken steps to raise additional capital:

Norwegian has completed the first step to meet the criteria to obtain a loan guarantee of NOK300 million (~£23 million) from the Norwegian Government by securing a contribution of 10% from financial institutions. Up to NOK3 billion (~£230 million) is available to Norwegian in loan guarantees. However, the criterion for these is considerably more stringent.

Qantas has raised AU$1.05 billion (~£507 million) in additional liquidity, secured against 7 Boeing 787-9 aircraft.

Qatar Airways has warned that it only has enough cash to sustain operations for a “very short period” and “We will surely go to our government eventually.” (Reuters)

Singapore Airlines plans to raise S$5.3 billion (~£3 billion) in new equity from its shareholders and up to S$9.7 billion (~£9.7 billion) through Mandatory Convertible Bonds, which will be progressively raised in the coming months.

Tui has secured an €1.8 billion loan from the German Government.

Virgin Atlantic is reported to be close to formally asking the UK Government for a package of loans and guarantees in the sum of hundreds of millions pounds.

Last week in a letter to airlines, no doubt written in the knowledge it would enter the public domain, the Government said it would not introduce sector specific measures to support the aviation industry. This does not preclude Government support. However, airlines are expected to pursue all available means from lenders and shareholders first.

In the case of Virgin Atlantic, this inevitably places focus on Sir Richard Branson. Additional support from Delta, a 49% shareholder is unlikely, given it has reached its maximum shareholding and it and other US airlines are receiving direct financial support from the US Government.

Operational Updates

Airport Coordination Ltd, which oversees the allocation of slots at London airports, has granted an extended waiver of “use it lose it” rules until the end of October 2020. It had, just two weeks ago, granted a waiver until 30 June 2020. This was originally due to be reviewed in May.

The Civil Aviation Authority has published traffic data for domestic and international routes for February 2020. Unsurprisingly, traffic on routes between Heathrow and mainland China fell by 70-100%. Traffic between Heathrow and Hong Kong fell by 40%.

Gatwick Airport is to close the North Terminal from Wednesday 1 April 2020. All remaining flights will operate from the South Terminal. The airport’s sole runway will also only be operational for scheduled flights between 14:00 and 22:00. Virgin Atlantic has already transferred what few flights remain operating to London Heathrow.

London City Airport has closed for scheduled flights until the end of April earliest. BA has temporarily transferred its route to the Isle of Man (operated by Loganair) to London Heathrow.

Finnair has confirmed it will continue to operate a skeleton schedule until 30 June at the earliest. This will include two flights a day between London Heathrow and Helsinki, operated with an Airbus 319 aircraft. Finnair’s sole intercontinental route will be Tokyo Haneda. Full details are available from Finnair.

KLM will, until 3 May, serve 25 intercontinental destinations and 32 destinations in Europe with 69 return flights a week. This represents a capacity cut of around 90%. Most intercontinental destinations will have 2-3 flights a week, with only New York JFK being served with a daily flight.

London Air Travel

Welcome to London Air Travel’s Monday Briefing for the week beginning 23 March 2020.

“We have no incoming bookings any more, hardly any.”

Carsten Sphor, Chief Executive, Lufthansa

At the time of a global crisis, it’s easy to catastrophise. Many in the immediate aftermath of 11 September 2001 thought aviation would never recover. However, the situation with Coronavirus is moving so quickly that the plans of airlines just seven days ago now seem hopelessly optimistic.

On both sides of the Atlantic, Governments are contemplating state support for airlines.

In the US, airlines have acted in concert and issued a plea for support of up to $60 billion. This includes payroll grants and loan guarantees. At the time of “going to press” a bill is unsurprisingly caught up in political wrangling between Democrat & Republican politicians.

In the UK, there is no consensus amongst the industry on what the Government should do.

The Government has appointed Rothschild to look at measures to support the industry. Some measures reportedly include a moratorium on EC261 compensation, waiving Air Traffic Control charges and temporarily suspending Air Passenger Duty.

Some reports have suggested that measures such as loan guarantees will not be enough and the Government will have to take an equity stake in UK airlines.

Last week, Virgin Atlantic issued an outright request for Government credit facilities of up to £7.5 billion for the industry. Virgin is clearly nervous that credit card providers will hold back funds as they have done to Flybe and Norwegian.

Yesterday, Sir Richard Branson also committed $250m of funds to his Virgin businesses which have all been impacted by Coronavirus (Virgin).

IAG has been keen to emphasise its resilience with cash of €7.35 billion and undrawn facilities of €1.9 billion. This may sound like a lot of money but UBS estimated last week that IAG could burn through €1.15 billion of cash a month.

A “senior IAG source” also briefed BBC News last week that there are better uses of taxpayer funds than a bailout for Virgin Atlantic.

(It’s also worth recalling there is a lot of history between Sir Richard Branson and Willie Walsh from the last financial crisis. When BA was reeling from the collapse of Lehman Brothers, in very public fashion due its status as a listed company, Sir Richard raised the question of the need for state support of BA. This triggered a fall in BA’s share price, and Sir Richard said of BA that “we should wait for its demise.”)

There are of course inherent conflicts in the Government taking equity stakes in different UK airlines where it would effectively have competing financial investments.

IAG has long been against Government investment in airlines and is likely to only accept an equity stake as an absolute last resort. The UK Government would only have interest in investing in BA. Ditto for the Spanish Government and Iberia. IAG has always wanted full control of all its airlines and is unlikely to be willing to cede minority interests in any of its subsidiaries, not least when there’s the potential for political interference.