Airlines in the Asia-Pacific region, which have already been pummelled by the COVID-19 coronavirus that has sickened hundreds of thousands and killed more than 4,000 people, are increasing their capacity cuts, grounding planes, and using smaller planes on some routes to save money. The International Air Transport Association (IATA) has warned that airlines around the globe could lose between US$63 billion to US$113 billion in revenues as a result of the virus and its effects on the aviation industry. Airlines in Asia-Pacific could lose almost US$30 billion alone.
The airline data company OAG said China will see some 8.6 million scheduled seats operated this week of which 8.3 million or 97 percent are domestic seats. The country’s current weekly capacity is running at just over 52 percent compared to the week of 20 January and international capacity is at 14 percent of the levels reported eight weeks ago.
“With Chinese capacity well reported, we have taken a look at the market excluding all Chinese airlines to determine the impact on capacity across these carriers,” OAG said. “In the last week, Asiana Airlines, Korean Air, Japan Air Lines and Peach Aviation have all made significant reductions in capacity with Korean Air in particular (-62 percent) having dramatically adjusted their production. Cathay Pacific, for many a flagship regional carrier has now moved from the 45th largest airline in the world eight weeks ago to 116th with some 440,000 fewer seats being operated this week.”
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Qantas cuts capacity further and grounds some A380s
Australia’s Qantas Group on Tuesday (10 March) said it will add to cuts it already has implemented, reducing capacity by almost a 25 percent for the next six months. The latest cuts follow the spread of the coronavirus into Europe and North America over the past two weeks as well as its continued spread through Asia, which has resulted in a sudden and significant drop in forward travel demand, Qantas said in a statement.
“These additional changes will bring the total international capacity reduction for Qantas and Jetstar from 5 percent to 23 percent versus the same time last year and extend these cuts until mid-September 2020,” Qantas said. “The biggest reductions remain focussed on Asia (now down 31 percent compared with the same period last year). Capacity reductions to the United States (down 19 percent), the UK (down 17 percent) and trans-Tasman (down 10 percent) will also be made in line with forward booking trends.”
Qantas said it will use smaller aircraft and reduce the frequency of flights to maintain overall connectivity and its access to slot rights. The group also said it will ground eight of its A380s while two others are already grounded and undergoing heavy maintenance, leaving the group with only two remaining A380s flying.
The start of Qantas’ new Brisbane-Chicago route will be delayed from 15 April to mid-September, the group said, adding that its Jetstar unit will make “significant cuts” to its international network, including suspending flights to Bangkok and reducing flights from Australia to Vietnam and Japan by almost half. Jetstar’s daily Gold Coast to Seoul flight was suspended earlier.
Qantas said the virus has made it impossible to provide financial guidance for the rest of the year and it was working to cut costs and conserve cash. The group said it has low debt levels and a long debt maturity profile, A$1.9 billion in cash plus a further A$1 billion in undrawn facilities and A$4.9 billion in unencumbered assets. The group said it will cancel its plan to buy back shares that it announced in February, which will preserve A$150 million in cash.
The company also said it was cutting all annual management bonuses, the chairman will take no fees, the CEO will forego his salary, group executive management will take a 30 percent pay cut and all Qantas and Jetstar employees are being asked to take paid or unpaid leave.
Qantas Group CEO Alan Joyce, said: “In the past fortnight we’ve seen a sharp drop in bookings on our international network as the global coronavirus spread continues. We expect lower demand to continue for the next several months, so rather than taking a piecemeal approach we’re cutting capacity out to mid-September. This improves our ability to reduce costs as well as giving more certainty to the market, customers and our people…When revenue falls you need to cut costs, and reducing the amount of flying we do is the best way for us to do that. Less flying means less work for our people, but we know coronavirus will pass and we want to avoid job losses wherever possible. We’re asking our people to use their paid leave and, if they can, consider taking some unpaid leave given we’re flying a lot less.”
Korean Air warns of survival threat
News reports from South Korea said Korean Air Lines said the coronavirus outbreak could threaten its survival after more than half of the world restricted passengers entering from South Korea. Woo Kee-hong, Korean Air’s president, said more than 80 percent of the airline’s international capacity had been cut as a result of travel restrictions globally, compared with an 18 percent cut made during the 1997-1998 Asian financial crisis. “We can easily imagine the severity of the crisis we are facing in comparison. And what is more daunting is that the situation can get worse at any time and we cannot even predict how long it will last,” he said in a memo to employees, according to media reports.
Woo said Korean Air had grounded about 100 of 145 its passenger aircraft, deferred investments, cut down on operational expenses and was encouraging employees to take voluntary leave. “But if the situation continues for a longer period, we may reach the threshold where we cannot guarantee the company’s survival,” he said in the memo.
Japan joined a number of countries to impose curbs on travelers from South Korea on Thursday, adding to the woes of Korean airlines, which have been among the hit hardest by flight cancellations worldwide.
Cathay Pacific makes further cuts
Hong Kong flag carrier Cathay Pacific will suspend flights between Hong Kong and Japan as a result of travel restrictions between the two destinations, the airline said in a travel alert on its website. All flights between Hong Kong and Fukuoka, Nagoya, Sapporo, and Tokyo Haneda will be suspended starting from 9 March until 28 March this year. From 13 March until 28 March, all Cathay flights between Hong Kong and Tokyo Narita and Osaka Kansai, as well as between Taipei and Tokyo Narita and Osaka Kansai, will also be suspended.
The travel restriction refers to Japan’s announcement last week that it will impose a 14-day quarantine period on all travellers from China and suspend visa-free arrangements for Hong Kong passport holders starting 9 March. The quarantine policy also applies to travellers from South Korea.
Cathay had earlier issued a profit warning and said that it had cut passenger capacity by 40 percent for February and March. The airline said cuts to flight capacity were “likely” in April as well. Cathay Pacific said it “may” fly only freight to Japan, and no passengers, if it retains some services. “Although we do expect our passenger belly cargo operations to be impacted, we are currently evaluating how to continue serving our cargo customers to and from Japan,” Cathay said. The airline, at any one time, has 120 planes sitting on the tarmac, which account for about half its total fleet, due to the capacity cuts.