Specialist
Former senior executive at International Consolidated Airlines Group SA (IAG)
Agenda
- Key airlines’ approaches to cutting cash burn and boosting liquidity, plus positioning entering the coronavirus period
- Demand shape outlook in recovery and implications for particular airlines – short-haul vs long-haul and business vs leisure
- Outlook for yield and load factors in the short and medium term and review of breakeven load factors at given yields for key airlines
- European airline industry’s approach to fleet management and impact of coronavirus on operating aircraft numbers and ownership structures
Questions
1.
Could you summarise traffic trends over the last few months and their trajectory as travel tentatively returns?
2.
Do you think there will be a straight-line increase in volumes from August and September through to the rest of 2020? Do you think any increase will be quite lumpy?
3.
The LCCs [low-cost carriers] seem to have pursued slightly more aggressive strategies for bringing volumes back up. Do you think recent announcements around subduing some of that volume re-entry are due to demand not returning as quickly as expected? Have the LCCs been assessing their flights’ unit economics and perhaps trying to consolidate demand into fewer flights?
4.
The IATA [International Air Transport Association] said it expects traffic to return to previous levels by around 2024. Do you think that’s about right?
5.
You mentioned United Airlines CEO Scott Kirby’s prediction that the US domestic market won’t surpass 50% of normal levels until a COVID-19 vaccine is found. How could Europe compare? Presumably, there would be greater barriers to reaching the 50% level because of higher restrictions on intra-EU traffic vs US domestic traffic. Do you think the European traffic ceiling is lower than 50% until a vaccine is found?
6.
How much of the gradual increase in demand do you think is coming from the leisure vs business segments? How much of the leisure recovery might be driven by the VFR [visiting friends and relatives] segment, given this seems to be the least elastic portion of demand? Do you think the business recovery is much smaller?
7.
Do you think we could have an uncharacteristically strong off-season through Q3, Q4 and Q1 due to pent up demand, especially in the leisure segment?
8.
Which European airlines have been most aggressive in returning capacity? Which have been holding out? Norwegian said it’s still 94% down on capacity, while some LCCs are much higher than that. Would you say there’s a clear split between the network carriers and the LCCs?
9.
How do you rate Wizz Air’s more aggressive strategy? Do you think it’s comparable to Ryanair’s bet on increasing capacity in 2008-09, when the company bought aircraft when they were cheap and positioned itself as the low-cost producer by virtue of its scale? Do you think that’s what Wizz Air is doing now?
10.
EasyJet raised GBP 419m from the equity market, and Ryanair has made a similar move. How willing do you think the equity market is to give capital to airlines?
11.
Do you think BA and other network carriers have the cost structures to dip into the leisure segment as much as they might need to in order to make up for the lost business demand?
12.
Could you compare the cost structure optimisation at IAG vs at other network carriers such as Air France KLM and Lufthansa?
13.
How could structurally lower flight demand affect aircraft orders going to Airbus and Boeing? Could there be more cancellations, delays and a structurally reduced demand for aircraft? Might the CO2 emissions regulation still be a strong tailwind for aircraft renewal?
14.
What do you make of the risk flowing into the lessor segments, given the sale-and-leasebacks players have pursued? EasyJet has done a fair amount of these.
15.
Do you predict further consolidation in the airline market? How could that play out?
16.
What’s your medium-term yield outlook? How could a large number of airlines collapsing affect European market capacity, given the fragmentation of this market vs the US? Could that level of capacity take-out support yields in the medium term?
17.
You suggested that airlines’ airport costs will increase. Could there be an argument for airport slot pricing decreasing, given how the greater-than-expected traffic increases over the last 5-10 years have fed into airports’ WACC [weighted average cost of capital] calculations for return on asset base, as well as the changes to required returns in the financial markets more generally?
18.
To my understanding, Ryanair and Wizz Air’s profits per available seat kilometre reached a high-water mark in 2015. Do you think this is the case for all airlines? Has profit per available seat kilometre fallen across the board, and if so, why?
19.
I believe Ryanair’s break-even load factor has increased slightly on an operating income level – I think that’s less a yield story than a unit cost story. What are your thoughts on where break-even load factors are for the LCCs vs the network carriers? How could players respond to potentially lower demand for at least a couple of years, given the interaction across load factors, yields and unit costs?
