Airlines across the country are bracing for a massive drop in bookings after Ottawa urged Canadians to stop all non-essential international travel, deepening a crisis for the global aviation business brought on by the novel coronavirus pandemic.
The Canadian government issued the recommendation Friday as it steps up efforts to contain the COVID-19 pandemic. The government is also working on limiting international flights to a smaller number of airports and looking at measures related to travellers’ country of origin.
“This is going to have a dramatic, dramatic impact like we’ve never seen before,” said Rick Erickson, an airline-industry analyst based in Calgary. “We could see a profound drop in travel and the airlines will have no option but to cut their capacity. And that is going to mean parked aircraft and layoffs.”
Ottawa responded Friday to the concerns of the airline industry: “The Government of Canada is aware of the significant effect of COVID-19 on Canadian air carriers,” Hans Parmar, a spokesman for Innovation, Science and Economic Development Canada, said in an e-mail to The Globe and Mail. "Measures are being explored and any next steps will be communicated in due course.”
Travel across the world is being thrown into chaos by the rapid spread of the coronavirus, which originated in China’s Wuhan city and has infected more than 137,000 people and killed more than 5,000, according to the World Health Organization.
Airlines are cutting flights and slashing costs amid a nearly unprecedented drop in demand as companies, governments and academic institutions ban their employees from travelling. Some carriers have asked for state aid.
Chief executive Alex Cruz told BA’s staff in a message titled “the survival of British Airways” that the coronavirus was causing a crisis “of global proportions like no other we have known.” He said it was more serious than the 2009 financial crisis, the severe acute respiratory syndrome outbreak in 2003 or even the Sept. 11 terrorist attacks in 2001.
The pandemic is putting up to 50 million jobs in the global travel and tourism sector at risk, with travel likely to slump by a quarter this year, the World Travel and Tourism Council said on Friday.
Air Canada and WestJet, together with leisure airline Transat and foreign-based rivals, ferry thousands of passengers in and out of Canada every day. Some 67 million people got on or off planes for international flights at Canadian airports in 2018, according to Statistics Canada.
International flights, including to the United States, made up about 62 per cent of Air Canada’s $17.2-billion of passenger revenue last year. The most recent figures for WestJet, before it was taken private by Onex Corp., show that revenues from its transborder and international flights totalled about 38 per cent of its $1.4-billion in revenue for the first nine months of 2019.
Air Canada spokesman Peter Fitzpatrick said Friday: “We continue to monitor and assess the situation and we are responding accordingly.” He added that the airline had a coronavirus webpage devoted to information for customers to confirm schedule changes and goodwill policies for bookings. WestJet did not immediately respond to requests for comment Friday.
The risk for airlines extends beyond the immediacy of losing bookings, Mr. Erickson said. They could also lose staff as their employees look for other work to pay their bills, making it difficult to ramp back up when things get back to normal.
On Thursday, Transat said its bookings are down by more than half compared with last year and pleaded for government help to avoid having to lay-off workers. The company is also asking federal regulators to speed up its review of a planned takeover by Air Canada.
“We don’t know how deep this is going to go, how long this is going to last,” Transat chief operating officer Annick Guérard told reporters. “The more time goes on, the more aviation companies across the world become more vulnerable.”
Air Canada last month reported healthy performance for 2019, including operating income of $1.65-billion on $17.2-billion of revenue in 2019, with net income of $1.48-billion. Its unrestricted liquidity – meaning cash, cash equivalents, short and long-term investments and undrawn lines of credit – stood at a record $7.3-billion at year’s end.
The company also forecast a small increase in 2020 over last year’s earnings before interest, taxes, depreciation and amortization of $3.6-billion.
But its assumptions at that time included modest economic growth for Canada this year, an average 74-cents-a-litre price for jet fuel in 2020 and a return of full service to China and Hong Kong by the third quarter. Those assumptions have now likely come undone, but Canadian carriers have much stronger balance sheets than some of their international competitors.
“We’re going to survive in this country for sure,” Robert Kokonis, president and managing partner of AirTrav, a Toronto-based aviation consultancy. “These types of crisis events tend to squeeze out the marginal players that were already weak, which ends up making the landscape a little healthier once we start to recover.”
With reports from Reuters
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Nicolas Van Praet
Sean Silcoff