Deutsche Lufthansa AG slashed capacity by as much as 50% in the most aggressive move yet by a major European airline to cope with the severe fall-off in travel triggered by the coronavirus.
The German airline group cited “drastic declines in bookings and numerous flight cancellations” in recent days, saying all of its traffic is now affected. The carrier’s board decided Friday to reduce capacity even more than it previously had planned, it said in a statement.
“This measure is intended to reduce the financial consequences of the slump in demand,” Lufthansa said. “It complements the planned savings measures in personnel, material costs and project budgets as well as other liquidity measures.”
Carriers across the globe are cutting back to cope with an oubreak that has rapidly curtailed worldwide air traffic as it spreads from China. Airline stocks in Europe and the U.S. have taken a major hit this week, as the companies scrambled to adjust schedules that had already been tweaked with the expectation the virus would be contained in Asia.
The International Air Transport Association estimated carriers may lose as much as $113 billion in ticket sales this year — an impact from the epidemic almost four times greater than it had forecast just two weeks earlier.
All told, Lufthansa shares have lost 23% in the past month, while British Airways parent IAG SA is down 31% and Air France-KLM tumbled 48%. Transatlantic discounter Norwegian Air Shuttle ASA, perennially under financial strain, is off more than two-thirds. In the U.S., United Airlines Holdings Inc. skidded 36%, while Delta Airlines Inc. and American Airlines Inc. have declined 21% and 51%, respectively.
Lufthansa acted after investors started to question its ability to withstand the downturn. The company’s 5-year credit default swaps, which bondholders buy to protect their holdings against a potential default, more than tripled in the last 10 trading days to the most expensive level in seven years.
Earlier this week, the German airline said it had idled capacity translating into about 150 of its aircraft. Grounding half of its about 770-strong fleet would be more than twice that. Lufthansa said it’s considering taking its entire fleet of 14 Airbus A380 super-jumbos out of service in Frankfurt and Munich.
In another sign of concern, two British Airways baggage handlers at London Heathrow tested positive for the disease, potentially spelling trouble for travel at Europe’s largest hub.
Lufthansa a week ago said it would extend capacity cuts beyond long-haul flights to and from China, initially the only routes affected, to also cover short-haul flights across Europe after the coronavirus spread to Italy, the group’s second-most-important foreign market.Like This Post