By Alistair MacDonald and William Boston
As coronavirus continues its spread outside of China, the global
airline industry is recalibrating its response to a threat that
could be its worst since the financial crisis a decade ago.
Deutsche Lufthansa AG, Germany's flagship airline, said
Wednesday it would start slashing costs in anticipation of a coming
hit to revenues and profits from canceled flights to China, where
the virus first emerged. Among other measures, it is offering its
staff voluntary, unpaid leave.
Several big Asian carriers have done the same in recent days, in
some cases resorting to more extreme measures. Cathay Pacific
Airways Ltd., Hong Kong's flag carrier, has asked all its staff to
take three weeks of unpaid leave. Singapore Airlines Ltd. joined
other Asian carriers on Wednesday in unveiling its own plan to
begin trimming costs amid the downturn.
Lufthansa's cost-cutting punctuates how grounded flights,
canceled bookings and a new reticence to fly -- even among
typically hardy business travelers -- are affecting the global
industry outside Asia, too. On Wednesday, Nestlé SA said it had
asked hundreds of thousands of its employees world-wide to postpone
all overseas business travel for the next three weeks. It is urging
workers to forgo domestic travel, too, if a phone call or
videoconference would do the trick.
While much of the pain for airlines comes from canceled flights
to and from China, European airlines are also now dealing with a
falloff in tourism and the prospect of canceled sports, commercial
and cultural events amid a growing outbreak in Italy. A major rugby
match between Italy and Ireland in Dublin and a high-profile
international furniture fair in Milan were both canceled in recent
days because of the epidemic.
"What we are now seeing is a state of panic over coronavirus,"
said Phil Seymour, chief executive of the International Bureau of
Aviation, an industry consultant. Mr. Seymour estimates the hit to
revenues at airlines, airports and other related industries could
be as high as $100 billion to a sector that was estimated to earn
around $30 billion in profits before the virus struck.
While the effects could turn out to be a temporary blip in terms
of the drop off in passenger numbers, previous disruptions that
might have seemed short term -- such as the 9/11 terrorist attacks
and the financial crisis -- have resulted in some carriers going
bankrupt, he said.
Sabre Corp., which provides the reservations systems of many
airlines and hotels, said global travel-booking levels so far in
the first quarter are down in the "midteens" from a year ago, with
cancellations focused in Asia-Pacific but spreading through the
Middle East, Europe and North America. "We've seen increased
cancellations in the European market," said Sean Menke, Sabre's
British Airways, owned by International Consolidated Airlines
Group SA, is offering passengers the opportunity to rebook their
flights to northern Italy, where infections are now higher than
anywhere outside Asia.
Shares of European airlines continued to lose ground Wednesday.
Budget carrier Ryanair Holdings PLC, Europe's biggest airline, fell
1.8%. Lufthansa was also down 1.8%. Shares in the five airline
companies in the Stoxx Europe 600 Travel and Leisure Index have
fallen more than 10% this week. Shares in U.K.-based easyJet PLC,
another discount carrier, are down 20.3% this week.
Lufthansa said it would begin cutting expenses in administration
and would cancel some projects in the pipeline. A spokesman for the
company said no jobs were on the line yet, but Lufthansa is
reviewing options for part-time work and offering employees unpaid
leave effective immediately.
"In the administrative areas, the core brand Lufthansa will
reduce its project volume by 10% and the budget for material costs
by 20%," it said. The company is also canceling scheduled training
for attendant and station personnel scheduled from April 2020.
Separately, Singapore Airlines said it has implemented a general
recruitment freeze for all ground positions in response to the
downturn triggered by the virus.
Airlines world-wide have already canceled more than 200,000
flights to, from and within China as the threat of a hit to their
revenues grows more serious amid a continued rise in coronavirus
U.S. carriers have stopped flying to mainland China and Hong
Kong, too, and they have started to review their operations in
other areas where the virus has spread. Delta Air Lines Inc.,
United Airlines Holdings Inc. and American Airlines Group Inc. are
waiving fees to change scheduled travel to South Korea's Incheon
International Airport in Seoul. Delta is waiving fees to change
flights to Bologna, Milan and Venice, Italy.
Delta on Wednesday said it would also cut back on flying between
the U.S. and South Korea. It is suspending service there from
Minneapolis/St. Paul and reducing the number of weekly flights
between Seoul and Atlanta, Detroit and Seattle. The airline is also
delaying the launch of a new flight between Seoul and Manila.
A drop in fuel prices is helping to blunt the virus's financial
impact on American carriers. Some U.S. airlines have said they will
look for ways to put their bigger jets to work serving domestic
markets when demand is high, such as during a spring break. Others
are accelerating maintenance works.
Alison Sidel contributed to this article.
Write to Alistair MacDonald at firstname.lastname@example.org and
William Boston at email@example.com
(END) Dow Jones Newswires
February 26, 2020 15:11 ET (20:11 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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