Airlines around the world moved to cut capacity and rein in costs on Tuesday, in response to the mass cancellations and empty planes caused by the coronavirus that has infected more than 116,000 people around the world.
Several air carriers said Tuesday that they are acting to boost liquidity and conserve cash, with some agreeing to new borrowing facilities.
Moody’s Investors Service on Tuesday dialed down its outlook for the industry to negative from stable, saying that “the uncertainty and the speed of the outbreak will pressure airlines’ operating profits and cash generation for at least the first half of 2020.”
Delta /zigman2/quotes/200327741/composite DAL -5.04% said it’s deferring $500 million of capital spending, delaying $500 million of pension funding and suspending share buybacks.
“Liquidity is strong and expected to be at least $5 billion at the end of the March quarter,” the company said. “In addition, Delta has approximately $20 billion of unencumbered assets, including $12 billion in aircraft.”
United Airlines Holdings Inc. /zigman2/quotes/205037281/composite UAL -7.25% withdrew its financial guidance for the first quarter but admitted it expects to book a loss. As recently as Jan. 21, when it reported fourth-quarter earnings, the airline was expecting per-share earnings of 75 cents to $1.25.
Southwest Airlines Co. Chief Executive Gary Kelly has agreed to a 10% pay cut, according to the Wall Street Journal. Southwest signaled it had identified a “severe recession” in the sector.
For MarketWatch’s full daily coronavirus coverage, see: Coronavirus update: 116,119 cases, 4,087 deaths; airlines cut capacity and some CEOs take pay cuts
“Given the weak travel demand, we are seriously considering reductions to our scheduled flying in the short term, and we will continue to monitor demand for necessary reductions thereafter,” Michelle Agnew, manager for media relations at Southwest, told MarketWatch.
Airline stocks have been hit hard as companies cancel nonessential travel and consumers steer clear of regions and countries that have had high numbers of cases of the virus-borne COVID-19 illness, which broke out in Wuhan, China, late last year. The virus has spread to 114 countries and created clusters of infection in Iran, South Korea and Italy.
A decree put into place in Northern Italy this week has been extended to the entire country as the number of cases and deaths have soared in Italy. People there are now only allowed to travel for work or family emergencies.
The S&P 500 airline subindex has fallen 30% in 2020, as investors have fretted about the history of large losses that has plagued the sector each time demand is abruptly halted. After the Sept. 11, 2001, terrorist attacks, for example, Congress was forced to approve a $15 billion bailout package for the industry.