The world welcomed good news from Pfizer and their German partner BioNTech earlier this week in the fight against the coronavirus. The pair reported Monday their vaccine against COVID-19 achieved an efficacy rate above 90 per cent at 7 days after the second dose. This means that protection will be achieved 28 days after initiation of the vaccination, which consists of a 2-dose schedule. Dr Albert Bourla, Pfizer Chairman and CEO said, “Today is a great day for science and humanity. The first set of results from our Phase 3 COVID-19 vaccine trial provides the initial evidence of our vaccine’s ability to prevent COVID-19." The vaccine is the first to be tested in the US to generate late-stage data. The companies said an early analysis of the results showed that persons who received 2 injections of the vaccine 3 weeks apart experienced more than 90 per cent fewer cases of symptomatic COVID-19 than those who received a placebo.
Based upon current projections, the companies expect to globally produce up to 50 million vaccine doses in 2020 and up to 1.3 billion doses in 2021. While there are still unanswered questions on whether the vaccine prevents severe cases or if it will prevent people from carrying the virus that causes COVID-19, executives running airlines, hotel chains and cruise lines have all pinned their hopes on a vaccine to save their industries. That may yet be possible, but major damage has already been done. In this post, we’ll take a look at the year-to-date financial effect the virus has taken on the largest global airlines and in a future post, we’ll specifically study how this has effected their fleets.
No-one’s surprised by the fact the airline industry’s been hammered by the dramatic drop in passenger traffic resulting from the COVID-19 pandemic but the industry losses recently reported have been astounding. According to StockApps, a UK-based investment newsletter, the world’s largest public airline companies (based on sales) lost a staggering $110 billion in revenue since the start of 2020. The carriers include, Delta Air Lines, American Airlines, the Lufthansa Group, United Airlines and the International Airline Group (known as IAG, it’s the parent company of British Airways, Aer Lingus, Iberia and Vueling Airlines). The newsletter stated that US airlines have taken the biggest hit in losses with Delta, the largest by sales volume, reporting the most significant loss of any US carrier this year at $22.4 billion. “Delta’s net loss was $5.4 billion in the third quarter compared with a profit of $1.5 billion in the year-earlier period,” the newsletter reported.
American Airlines, the second-largest on the list and the leading carrier by flown passenger miles, lost $21 billion in revenue since the beginning of the year. Statistics show they reported the most significant loss in the second quarter of 2020 with revenues plunging by 86.4 per cent year-over-year to $1.6 billion compared with $11.9 billion in the same period a year earlier. Third-quarter revenue was down 73 per cent from 2019 to $3.1 billion. American is expected to end the pandemic with more than $47.5 billion in debt, leases and pension liabilities, far more than their next-closest competitor. To top it off, they underperformed the industry financially to begin with so unsecured American Airlines debt is a risky bet over the coming years. All things considered however, they’re not likely to fail this year, thanks to the more than $4.7 billion they’re eligible to draw upon from current US Treasury loans on offer to major carriers. To further boost liquidity amid falling sales, American just announced a stock offering of 38.5 million shares of common stock which, at current market price levels, would raise less than $500 million.
The Lufthansa Group is the third-largest global airline based on sales and the largest in Europe. It includes Lufthansa German Airlines, SWISS, Austrian Airlines, Brussels Airlines and Eurowings. The pandemic‘s had a considerable impact on their earnings and their operations. In the first 9 months of this year, they lost $6.5 billion as compared with a profit of $1.2 billion during the same period in 2019. Revenues dropped sharply in the first 3 quarters from $33 billion last year to approximately $13 billion in 2020. At the end of September, they still had $11.8 billion in cash at their disposal. Going forward, only activities that are deemed necessary for operations, legally required or related to necessary restructuring will take place. Earlier announced restructuring activities included a fleet reduction of more than 100 aircraft, cessation of the Germanwings subsidiary, 20 per cent cuts to leadership positions and a 1,000 headcount reduction in administrative staff.
United Airlines, the fourth-largest global carrier by sales volume, reported a $20.4 billion loss in the first 3 quarters of 2020, a 63 per cent decrease year-over-year. With a 70 per cent decline in capacity in 2020, the carrier’s third quarter results revealed a massive $8.8 billion revenue drop on top of the $10 billion loss they incurred between March and June. Yahoo Finance data also showed United Airlines suffered the most significant drop in market cap among the 3 leading airlines in the US. The combined value of the company’s shares plunged by about 57 per cent year-over-year to around $9.5 billion. United’s total available liquidity at the end of September though was approximately $19.4 billion. Despite that seemingly huge number, sustainability forced them to furlough 13,000 team members in early October. The airline has restructured and significantly reduced its management and administrative functions. cuts that are considered to be largely permanent, even if and when demand might return.
British Airways owner International Airline Group announced a total operating loss for the third quarter of $2.2 billion. This figure includes exceptional items relating to fuel hedges and restructuring costs at BA and Aer Lingus where staff members have already been cut by 10,000. IAG said it‘s also reduced operating costs by 54 per cent from original forecasts to $242.1 million per week during the July through September period,. This move may be key to the airline’s survival during a winter with very low travel. New CEO Luis Gallego, who replaced Willie Walsh in September, is sticking to his predecessor’s policy of cutting employee and supplier costs to survive the deepening travel slump. In the IAG quarterly results statement, Gallego said, “The Group has made significant progress on restructuring and we continue to reduce our cost base.” The company also used its quarterly results statement to call on governments to adopt pre-departure COVID-19 testing to allow travel during a second wave of infections that is forcing European governments to lock down once again.
It’s been a devastating year for the airlines, far worse than the effects of the 9/11 terrorist attacks and the 2008 financial recession combined. No doubt the carriers are praying for the vaccine’s success but the pandemic is far from over and the good news from Pfizer doesn’t change that fact. It’s important for all of us to heed the advice of health experts while we keep our fingers crossed.
Until next time…stay safe.
Well researched and informative - not sure I would be investing in airlines stocks anytime soon, even with a successful vaccine... Keeping my fingers, arms, legs and eyes crossed!!!
Staggering losses. It’s almost inconceivable to appreciate how much devastation that’s done to the industry. Let’s hope for a successful vaccine solution.