Pressure is building on the Australian government to financially support the airline sector after flag carrier Qantas announced deep cuts to routes that all but shutter the airline’s international flights.
In a move that will also financially batter airports already struggling with a plunge in passenger numbers due to the coronavirus crisis and the summer’s deadly bushfires, Qantas said it would be closing 90% of international flights and 60% of domestic flights from the end of the month.
The new cuts are dramatically higher than cuts announced just last week and come on top of flight closures also announced by rival airline Virgin Australia.
Internationally, analysts predict the coronavirus pandemic will bankrupt most of the world’s airlines by the end of May.
“I think we’re pretty fucked,” a senior Australian airline source told Guardian Australia.
It’s believed Qantas would like the government to waive fees and charges, but is not seeking a direct transfer of cash from the public purse.
On Tuesday, the trade minister, Simon Birmingham, said the government would work with the industry, saying that “a strong airline sector in Australia in the future is not negotiable”.
While Qantas made deep cuts on Tuesday, market speculation about which airline is in the most financial strife centres on Virgin.
On Monday night, ratings agency S&P cut Virgin’s credit grade from B to B- and signalled it could be downgraded further.
Bonds the company issued in November to help it take full control of its Velocity frequent flyers program were changing hands at lunchtime on Tuesday for $38 – a steep discount from their face value of $100.
In a bid to bring revenue forward, Virgin has slashed the price of domestic flights by up to 35% and offered people who book before next Monday a share of 10m frequent flyer points.
“The rate at which people are buying toilet paper indicates they won’t be flying any time soon,” the source said.
Airlines are also desperately trying to conserve cash to get through the next few months by getting staff to take their leave, or leave without pay.
But they are reluctant to make workers redundant because that would involve spending money from the very pot they are trying to preserve.
Even so, there is a limit to how much airlines can do to cut their costs.
“Even if you ground the fleet you still have to pay leasing companies,” the source said.
There are also maintenance costs and some unavoidable airline fees to pay.
At Virgin, market talk focuses on the idea the company might ask its big overseas shareholders – Gulf airline Etihad, Singapore’s flag carrier Singapore Airlines and Chinese conglomerate HNA – to inject it with an emergency supply of cash.
There is also talk Virgin is considering selling Velocity points in bulk at a discount to corporates such as banks, which use them in their own promotions.
All these options have so far been ruled out by Virgin.
The cuts to routes will smash airports such as Sydney’s, which get much of their revenue by charging fees to airlines.
Sydney Airport is laden with debt, owing the banks more than $10bn. Some $769m of this falls due this year.
All up, the airport drew in $1.64bn in revenue last year.
But if aeronautical services revenue falls 60% from last year, that would slash the airport’s income by $429m.
“Sydney Airport has a strong balance sheet and liquidity position underpinned by $1.4 billion in undrawn facilities,” an airport spokesman said.
“We are well positioned to face this issue.”
Appearing on ABC radio on Tuesday morning, the finance minister, Mathias Cormann, appeared open to a rescue package for the airlines.
Asked if the government would consider supporting sectors including the airlines as part of a second stimulus package currently being put together by the Morrison government, Cormann said: “Yes, we are thinking very carefully on how we can provide the most appropriate support both through the transition during this challenging period but also to maximise the strength of the recovery in the bounce-back on the other side.”
Pressed on whether this could include a waiver of the approximately $1bn in fees the industry pays every year to regulator Airservices Australia, he said: “These are all of the things that are on the table for discussion.”