Crisis management has now morphed into post-pandemic recovery.
Fresh from announcing its intention to resume flights on 15 June, initially comprising mainly domestic flying in the UK and France, easyJet has become the latest airline to provide details of its fleet and cost structure plans.
In line with IATA projections, easyJet believes that the levels of market demand seen in 2019 are not likely to be reached again until 2023. Consequently, it expects its year-end 2021 fleet size to be around 300 aircraft, 51 aircraft lower than the anticipated fleet size for year-end 2021 which was reported to the market prior to COVID-19. The reduction in fleet size will be achieved through the deferral of 24 aircraft deliveries from financial years 2020, 2021, and 2022 and the re-delivery of leased aircraft.
In New Zealand, an email to staff and customers from Greg Foran, Air New Zealand’s Chief Executive Officer, confirmed that the airline had cut more than 95% of its flights. Preparing for a resumption of international tourism, Foran wrote, “it is clear the Air New Zealand which emerges from COVID-19 is a much smaller airline and could take years to get back to its former size. Therefore, we are planning to be a domestic airline with limited international services to keep supply lines open for the foreseeable future… We expect that even in a year’s time we will be at least 30% smaller than we are currently.”
Unfortunately, a reduction in fleet size invariably means a reduction in the workforce. EasyJet is consulting on the loss of 30% of staff, while Air New Zealand has begun the process of a large-scale reduction of its workforce.
Such cutbacks have come in association with funding initiatives. EasyJet has signed two loans totalling approximately £400 million, with both loans maturing in 2022. Air New Zealand has negotiated a loan with the NZ Government, which as Foran says, comes with interest and must be re-paid.
The Group has secured the financial support of shareholders, including the Cueto and Amaro families, and Qatar Airways, to provide up to US$900 million in debtor in-possession (DIP) financing.
Subject to the approval of the European Commission, the German government has approved a €9 billion stabilisation package from the Economic Stabilization Fund (WSF) for Lufthansa Group. Part of the package includes WSF taking up to a 20% stake in the Group, with the aim of divesting its interest by 31 December 2023 subject to certain conditions being met, as well as a three-year €3 billion credit facility with banks.
But airlines now find themselves with the Sword of Damocles dangling over their heads: running costs which are unsustainable in the face of a depressed tourism market and a collapse in passenger travel, necessitating financial aid which is all the time accruing interest and will have to be paid back, which itself is dependent on an upswing in passenger traffic.
Post-recovery, airlines will need to balance massive debts with their ability to compete with other airlines.