[ad_1]
Text size
Roslan Rahman / AFP via Getty Images
Another $ 15 billion in government aid should arrive soon for airlines. But stocks were down on Monday, reflecting the accumulation of negative news about the pandemic as Europe and other regions reimposed travel restrictions on reports of a new Covid-19 strain.
Airlines appear to have secured $ 15 billion in federal aid to help cover payroll as part of the $ 900 billion stimulus bill that Congress is expected to pass soon. Airlines have said the aid should help them bring back more than 30,000 workers who were suspended after payroll support under the Cares Act expired this fall. The new aid would also halt wage cuts and delay wage cuts until April for carriers taking the cash.
Airlines have pushed hard for money, arguing they can’t come close to covering their operating expenses as domestic travel remains below 60% from 2019 levels. The new payroll support is expected to be a combination of grants and loans, similar to the original Cares Act. It is also likely to require airlines to issue warrants on shares in exchange for the cash.
the
NYSE Arca Airlines Index
was down 3.7% in early trading on Monday amid extensive market sell-off, with the
S&P 500
1.2%.
While the cash injection should help win back workers and prevent further leave, it will not address the underlying causes of the crisis. The recovery has stalled as Covid cases hit new records in the US with more than 200,000 cases reported daily. Airlines have been cutting capacity and slashing schedules as booking trends weaken.
International travel is taking another hit with reports of a potentially more contagious strain of the virus in the UK, prompting European countries to restrict trade and ban flights from the UK. The new strain may be a 70 % more contagious than the main one, although it is not clear if it would be more lethal or less sensitive to a vaccine.
The airlines most affected by the UK flight ban to Europe are
International Group of Consolidated Airlines
(IAG.UK),
easyJet
(EJZ.UK),
Ryanair holdings
(RYAAY) and
Wizz Air Holdings
(WIZZ.UK), according to Raymond James.
US airlines flying to the UK and Europe are also likely to experience cancellations.
Airline stocks have risen since early November on positive advances in vaccines, raising optimism for a stronger recovery in 2021 and 2022. But the outlook for travel at the end of the year and early 2021 they have been constantly deteriorating.
“Short-term reserve curves have worsened, cash spending guidance has gone in the wrong direction and it is now unclear whether concerns about a new strain of Coronavirus could spread beyond the UK,” the analyst wrote from Citigroup Stephen Trent.
Even if the vaccines are shown to be effective against the new strain, countries can now delay plans to lift travel restrictions, according to Raymond James’ Savanthi Syth.
“This probably means that it may take longer to remove the strict travel restrictions,” he wrote in a note Sunday. “We believe it also reinforces the need for more coordinated testing protocols for travel as restrictions are removed.”
Analysts are likely to lower their fourth-quarter revenue estimates if trends continue to worsen, with the first quarter of 2021 now looking more vulnerable as well.
Write to Daren Fonda at [email protected]
