Airline stocks were some of the biggest fallers on Monday 24 February, a day that saw mounting fears over Covid-19 drag down the FTSE 100 index by more than 3 per cent. London-listed airlines including International Consolidated Airlines Group (IAG), easyJet (EZY) and Wizz Air (WIZZ) plunged amid a rising death toll and disruption in Italy, a key destination for UK travellers.
A surge in infections in Northern Italy has prompted the closure of towns and the cancellation of events, as Italy recorded 4 deaths and 152 cases at the start of the week, compared with just 17 on Friday 20 February. Italy represents around 9 per cent of European Economic Area (EEA) capacity. A transport strike taking place on 25 February will also cause problems for flights attempting to leave and enter Italy.
The news means that concerns over airlines’ ability to operate are no longer limited to Asia-Pacific operators. The Italian disruption follows an alarming statement from the International Air Transport Association (IATA) last week, which forecast a $29.3bn (£22.3bn) cut to airline revenues prompted by the virus. The trade body expects airlines from Asia-Pacific to lose $27.8bn and those in the rest of the world $1.5bn. This last figure is now likely to rise given the subsequent news from Italy.
The outbreak is likely to temper airline demand from North America, which would harm IAG in particular given its extensive transatlantic activity. IAG shares fell 9 per cent at the start of the week. The group counts British Airways and Iberia among its roster of brands. British Airways, which represents between 60 per cent to 85 per cent of IAG’s profitability. has cancelled flights to and from Beijing and Shanghai until April 17, 2020. Iberia has cancelled flights from Madrid to Shanghai.
EasyJet, Wizz Air and Ryanair (RYA) are likely to be affected by travel restrictions and contractions in demand linked to Italian travel. Ryanair, whose shares fell by nearly 14 per cent on Monday, said that all of its flights were currently operating normally. easyJet and Wizz Air shares fell 17 per cent and 11 per cent respectively, while Tui (TUI), whose stock fell 10 per cent, said that it had not been disrupted by the coronavirus thus far. Tui does not fly to China while it considers Italy as mostly a summer destination. A spokesperson for Wizz Air said that "there has been no disruption to Wizz Air flights". easyJet did not respond to a request for comment.
The chaos wrought by coronavirus is also likely to impact a number of unlisted airline competitors, including Flybe and Alitalia, which are both currently in receipt of government support. Flybe’s government bailout in particular has courted criticism from the likes of Ryanair, which has accused the British government of breaking European state aid rules over its bailout of Flybe.
Peel Hunt transport analyst Alex Paterson suggested that Covid-19 could serve as a “catalyst for consolidation” of other smaller airlines, too. He observed that it could also prompt the British and Italian governments to decide that, regarding their lifelines for Flybe and Alitalia, “enough is enough”.
