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Accustomed as we are to Michael O'Leary slathering on the hyperbole to achieve his own ends, ITV's Robert Peston had no reason to argue when the Ryanair boss – joining by video link as a guest on the political hack's show on Wednesday – said the state of the airline industry has "never been worse".
“We operated about 50 per cent of our schedule through August, September. We expect to operate only 40 per cent of our schedule into October and at the moment November and December look like they’re booking at around 10 per cent of our normal volumes,” O’Leary said.
It’s an all-too-familiar picture across the European airline industry as a resurgence in coronavirus cases, threat of a double whammy as winter flu season approaches, and fast-evolving travel curbs and quarantines across the continent keep would-be travellers away from carriers’ websites.
The International Air Transport Association, which has been lobbying hard, with limited success, for systemic Covid-19 testing on passengers at airports, estimates revenues lost to airlines globally this year will top $400 billion (€344 billion).
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The wave of government bailouts and tapping of shareholders for cash is set to continue.
Shareholders in Aer Lingus owner International Airlines Group (IAG) had until Friday to decide whether to buy new stock in a deeply discounted €2.75 billion share sale to shore up its finances. Carriers from EasyJet to Finnair have also turned to the stock market to raise funds in recent months amid a slump in passengers during the coronavirus pandemic.
German carrier Lufthansa, which secured €9 billion of government-led bailout cash over the summer, has signalled that that it may need to raise more money - possibly next year.
This will keep a cloud over shares in the company, which this week unveiled plans for further job and fleet cuts and booked a €1.1 billion impairment charge against idled aircraft.
Stock market investors have similar reasons to be cautious about Air-France KLM. The carrier confirmed this week that it is in talks with its main shareholders about plans to raise more capital – saying €10 billion of emergency loans backed by the French and Dutch governments in May will keep it going for less than 12 months.
Earlier this month, Goodbody Stockbrokers analysts Mark Simpson and Nuala McMahon downgraded their view on the European airline sector to 'underweight' – the equivalent of a 'sell' – saying a rally by airline stocks in recent months has left the sector "overbought".
“While the optimists point to the fact that [coronavirus] mortality rates have dropped substantially over the last few months vs the rise in cases, it is more likely that the level of closer contact will spread infections back to the more vulnerable, with this a catalyst for another rise in deaths from Covid-19,” they said.
The winter flu season will only add further strain on hospital services, which may lead to more stringent air travel restrictions. Even if there is a Covid-19 vaccine breakthrough in the coming months, it would be well into next year, or later, before it is widely rolled out.
Dubliner Willie Walsh, who retired as IAG chief executive earlier this month, was particularly downbeat when he took part in an online seminar this week, saying air travel is never going to return to the way it was before the pandemic - "because there is so much repair that's going to have to be done".
Even the tens of billions of aid that governments have ploughed into the sector will have to be paid back at some state, putting pressure on companies as they seek to recover.
Any rebound, of course, will be dependent on the path of the virus and discovery of an effective vaccine. Increased testing at airports may help in the meantime, but likely only marginally.
When demand finally improves, analysts reckon short-haul carriers with strong cash positions are best positioned.
O’Leary, possibly unparalleled in the industry at being able to see through a crisis, surprised the market earlier this month by selling €400 million of shares to further strengthen one of the best balance sheets around and position Ryanair to take advantage of “significant growth opportunities” as rivals run into trouble. O’Leary stumped up €16 million to take part in the deal, to avoid dilution of his 4 per cent stake.
The group moved quickly afterwards – with its investment grade credit rating underpinned – to raise €850 million in a bond sale, becoming the second European carrier to tap debt markets since the pandemic crisis erupted in March.
It’s enough to keep Ryanair going for almost 18 months assuming its entire fleet was grounded – and also cover the repayment of a £600 million UK Covid credit facility and €750 million of bonds that mature next year, according to analysts at Morgan Stanley.
Strong balance sheets are key given the risks to the consensus market view that European airline capacity will recover from being down 50-60 per cent for 2020 as a whole to operating within 20-30 per cent of 2019 levels next year.
“Newsflow on travel restrictions, capacity revisions and Covid treatments and vaccine will likely keep airline stock volatility high,” Morgan Stanley said.
In the meantime, the Wall Street giant’s number crunchers reckon Ryanair has been taking a greater share of a vastly shrunken European market. They estimate its current leading 16.4 per cent slice of the internal EU market will rise to more than 21 per cent in 2025.
Earlier this year, the biggest threat to Ryanair's growth ambitions was extended delays to the delivery of a fleet of Boeing 737 Max planes.
The prolonged grounding of the 737 Max worldwide since March last year – as the aircraft maker works with regulators on fixing the plane’s flight-control software and aircraft pitch sensors following two deadly crashes within five months – has, in retrospect, turned into an advantage during the Covid-19 demand slump.
O’Leary secured a permanent spot in aviation folklore when he exploited a collapse in demand for aircraft following the 9/11 terrorist attacks by locking in an order for 100 Boeing 737s at a deeply discounted price.
The executive said last week that Ryanair is in talks with Boeing about “repricing the existing orders and also quantifying the compensation” it will receive for delivery delays. It has even been suggested that O’Leary might seek to increase orders.
At a time of maximum industry anxiety, O’Leary, once again, has the upper hand.