If you’ve been fortunate enough to fly in the past few days I am sure you noticed what I have, the seats are starting to fill up again. It seems one sector is starting to tick toward profitability, or at least toward a halt of cash burn. Many are saying that the recovery in air travel will be led with domestic leisure travel; are Low Cost Carriers going to lead the way to recovery?
2 Airline Stocks With Big Upside as Air Travel Begins to Perk Up
Daren Fonda | Barrons
- “The carriers [Spirit & Southwest] may be some of the biggest early winners in a recovery, according to Cowen analyst Helane Becker. She expects the domestic market to recover more quickly than international routes, and sees gains for low-cost carriers that focus on leisure travelers.”
- “Becker isn’t expecting air travel to reach anywhere near 2019 levels this year.”
- “As states open, we expect the airlines to see demand for regional traffic increase,” Becker wrote in a note published Thursday. Airlines are seeing stronger demand in Florida, Texas and Colorado, she wrote, and JetBlue Airways (JBLU) is seeing a pickup in sales in flights from the Northeast to Florida, one of its strongest markets.
- “Travelers might still be reluctant to take a long-haul flight to Europe or Asia. And it might be many months until international travel bans and quarantine procedures are lifted.”
- Southwest has approximately $13 billion in cash, which could last up to 20 months.
- Spirit has the ability to raise it’s total liquidity to $2.4 billion, which could last up to 20 months.
Indigo Partners MD, Bill Franke, and COVID 19: LCCs best placed
CAPA Centre for Aviation
- “Industry veteran and Managing Director of Indigo Partners William (Bill) Franke believes the two most pressing issues airlines are facing as they attempt to recover from the sudden onset of the COVID-19 pandemic are ensuring that they can achieve breakeven cash flow, and ensuring that passengers feel safe to travel.”
- “There will obviously be some marketplace changes as airlines work to adapt to a post COVID-19 reality, but Mr Franke remains bullish on the resiliency of the ULCC model.”
- “From now, Indigo feels reasonably comfortable with its large order book with Airbus, and Mr Franke said that airframers and lessors were working to find solutions that would work for everyone. However, there will inevitably be some pressure on aircraft pricing in the near term.”
- “Those airlines had significant unrestricted cash on hand, which is part of Indigo Partners’ strategy, “…but you have to measure the burn of that cash against a timeline, and in our case, we made the assumption just out of lack of knowledge that 85% of an airline might be on the ground for up to a year, and on that basis, we tried to calculate cash burn against cash availability and position the airlines for survival”.
- “The US ULCC Frontier, which is owned by Indigo, has stated that it could be operating close to a full schedule in Jul-2020.”
- “Airports and airlines needed to convince the traveller through a series of actions, before any vaccine is available, that it is safe to travel, said Mr Franke.”
- “Individual airlines are taking steps to fit what they think the market wants”, said Mr Franke. In some cases there have been false starts with empty middle seats, and that has resulted in politicians jumping on the issue, he remarked. There are also mixed messages on requiring passengers to wear masks. “There is a lack of integration around opportunities to manage the process with the passenger”, Mr Franke said, with everyone trying to find their own path forward.
- “Mr Franke said that, in his own view, there would broadly be a two-year period where aircraft would be available, and depending on the model, “there will be pressure on prices” until the situation is sorted out.”
- “It seems the airlines that make up the portfolio of Indigo Partners are in solid shape as they work through the challenges created by the pandemic; the company is also being opportunistic during the crisis, reflecting its bullishness in the aviation sector for the foreseeable future.”
- “On Friday afternoon, Gov. Steve Sisolak gave Nevada casinos a tentative date they could plan to reopen: June 4. Seventy-eight days after casinos first closed down to help stem the spread of COVID-19.”
- “Our members have spent more than two months preparing for this day,” she said in an emailed statement. “They’ve put in place enhanced health and safety plans and protocols … Our members are excited to show off the enhancements they’ve made that preserve the experience while ensuring the well-being of our employees and visitors.”
- “Virginia Allegra from Fresno, California, said she plans to visit Las Vegas soon after it reopens; she’s already had to rebook six reservations with MGM Resorts as tentative booking dates were pushed back.”
- “Others, like Ryan Cisneros from Texas, want to wait until Las Vegas properties end social distancing protocols at table games and pools before returning. “Vegas is all about social interactions, especially at the blackjack table,” he said. “I typically go to Vegas two to three times a year, but until everything is normal regarding the social distancing aspect, (I) would rather just wait or go somewhere else.”
Click here for the Las Vegas Review Journal article.
Hertz Files For Bankruptcy, Stunning US Automakers As Leaders Scramble For Solutions
- “Late last night, Hertz filed for bankruptcy. The restructuring has sent shockwaves through the US auto industry, according to CNN. What’s driving the decision? Reduced air travel.”
- “Last year, all US rental car companies bought nearly 2 million automobiles – or about 10% of the US auto industry production. Now, major auto manufacturers like Ford, GM and Fiat Chrysler are seeing a vast aspect of their annual sales threatened.”
- “In the US, Hertz employs 38,000 people. So far, 12,000 have lost their jobs and 4,000 have been furloughed. To gain some breathing room, the company renegotiated with lenders on debt due in April – extending the payment deadline to May 22. That was the day the company filed for bankruptcy.”
- “To be clear, bankruptcy is a restructuring – not a declaration that the company is going out of business. Hertz already abandoned part of its fleet, selling 54,000 cars in March – but the cancellation of auto auctions (and the closure of many new car dealerships) has blocked the company from continued relief.”
- “Today’s action will protect the value of our business, allow us to continue our operations and serve our customers, and provide the time to put in place a new, stronger financial foundation to move successfully through this pandemic and to better position us for the future.”
Click here for the Forbes article.
The U.S. DOT has given airlines the approval to drop service to 60+ airports.
- “Each U.S. airline will be allowed to shed 5% of its airports served or five airports, whichever is greater.”
- Due to the weak passenger demand, airlines have been authorized to proceed with additional service exemptions.
- Many airports will have service reduced to only one carrier.
- “Any objections to these route reductions must be filed by May 28, 2020.”
Click here for the Live and Lets Fly article.