Latin American airlines cut capacity, suspend guidance

Latin American airlines cut capacity, suspend guidance

Asset Management Corporate & Sovereign Strategy Economy & Policy Equity Brazil Chile Panama Latin America

Latin America's major airlines joined their global peers in the throws of the coronavirus downturn by adopting major cuts to their capacity as demand has collapsed in the wake of government imposed travel restrictions and passengers avoid public transport in an attempt to limit spreading the disease.

The rates of infection in Latin America are relatively low, but that is expected to change as testing becomes more widespread and officials grapple with an impending health care system overload.  

Airline stocks were swept up in the global market sell-off on Monday after central banks engaged in emergency cuts to their benchmark interest rates aimed at trying to keep economies working, let alone grow, but were seen as insufficient measures. 

As of late Monday, the World Health Organization reports that over 168,000 people have been infected globally with COVID-19, with over 6,600 deaths reported. Testing in the United States, hampered by an ill-prepared health system is ramping up and likely to show increases in infections rates. 

In the last week, Chiles’ LATAM, Brazil’s Gol and Azul, and Colombia’s Avianca announced deep cuts in their capacity, and LATAM and Azul have suspended their 2020 guidance. 

LATAM announced on Thursday the suspension of its 2020 guidance due to uncertainties stemming from COVID-19, according to security filings. “At this date, it is not possible to quantify the exact impact on demand nor how long it will take for its recovery, making it impossible to estimate the results for this year,” the company said in the announcement. On Monday, the region's largest carrier cancelled 90% of its international flights. 

The Chilean airline added that the company is taking immediate measures to minimize the effects of the current scenario through cost reductions and adjustments in capacity.  

Brazil’s Azul, the nation's No. 3 carrier, is cutting its entire international flight schedule from the state of Sao Paul, its main hub. It  suspended its 2020 guidance last Thursday, adding that it would be reducing international capacity be as much as 30% to reflect a lower demand environment, according to a company press release. The company also plans to implement a hiring freeze, launch an unpaid leave of absence program and negotiate new payment terms with its commercial partners.  

Avianca announced on Friday that is was temporarily reducing its operational capacity due to the exceptional circumstances of the coronavirus, according to a securities filing. According to the plan, Avianca will reduce capacity by 30% to 40% on March 14, 2020. The company added that it would be monitoring the impact of Covid-19 on the demand for its services.  

Gol announced on Monday through its investor webpage that the company had not suspended services, but that under the current situation it was reducing flight capacity by approximately 50% to 60% in the domestic market, and 90% to 95% in the international market until mid-June. Gol transports 37 million passengers per year to over 100 destinations, according to the announcement.  

Azul’s stock price has fallen 73% since the start of 2020, with losses accelerating in mid-February when the number of cases and deaths outside of China, particularly in Italy and the United States started to rise dramatically. Gol’s share price, year-to-date, is down 78.15%, while Avianca is off nearly 63% and LATAM’s price dropped 60%.  

 

Data Source: Refinitiv