Insights

August 2020 Market Recap

The price of gold rose above $2,000 an ounce on August 4! Although it corrected later in the month, it remained in a “Golden Cross” trading pattern. In the airline space, carriers are still cutting jobs, but other optimistic news emerged. Click the buttons below to read our recap of the airline sector and the gold market for August 2020.

Strengths

  • China’s domestic air travel industry has made a speedy recovery from pandemic-hit demand. Ticket bookings for the last week of August hit 98 percent of last year’s levels, according to travel analytics company ForwardKeys. The firm also predicts that China’s travel demand will fully recover in September. The big three domestic airlines – Air China, China Eastern Airlines and China Southern Airlines – have outperformed airlines globally. China was also the first hit with the virus and the virus to ease restrictions.

  • The Trump administration gave emergency approval for American Airlines to deploy a surface coating that kills coronavirus for up to seven days. The EPA issued the emergency declaration for use in some planes and airport facilities, reports Bloomberg. This is a strong positive step forward for ensuring the safety of travelers. The administration is also looking at executive actions to help airlines avoid employee furloughs if Congress fails to provide financial assistance in a new round of stimulus. Several airlines have warned they will cut significant numbers of employees after restrictions on federal aid ends.

  • Wizz Air, Europe’s third-biggest budget airline, said it will continue adding planes to its fleet. European budget carriers have emerged as the winners from weak travel demand for two key reasons: 1) they had significantly higher cash reserves compared to network carriers before the pandemic and 2) they rely on short-haul services that are expected to recover before long-haul travel. Wizz Air plans to expand its presence at London’s Gatwick airport from just one plane to 20 if it can secure takeoff and landing slots, reports Bloomberg.

Weaknesses

  • Times are so tough for Qantas Airways that the carrier is selling its in-flight biscuit and tea bags to consumers at home. Bloomberg reports Qantas is selling its in-flight complimentary items online such as its signature biscuits, sleeper suits and smoked almonds. The packs, selling for $18 apiece, sold out within hours. Qantas announced 6,000 job cuts and plans to raise A$1.9 billion to weather the pandemic.
  • Aviation industry job cuts continue globally. The latest example is Finnair Oyj, Finland’s national carrier, who plans to eliminate as much as 15 percent of its workforce. The carrier said in a statement that it will lay off practically all its personnel in Finland.
  • Jet-engine maker Rolls-Royce reported its biggest-ever loss and shares fell as much as 10 percent August 27 on the news. The company plans to raise $2.6 billion in cash from disposals. Rolls-Royce said it lost 5.4 billion pounds in the first half of 2020 and said cash will flow out for at least another year. The company is one of many manufacturers suffering big losses from reduced aircraft demand.

Opportunities

  • Boeing announced its first 737 MAX deal of 2020. Poland’s largest charter carrier Enter Air added an option to take two additional aircraft, which if exercised would bring its MAX fleet to 10, reports Bloomberg. This is a rare positive story for Boeing as the manufacturer copes with both coronavirus-induced demand collapse and mechanical issues with the 737 that has left it grounded for a year.
  • Indonesia’s largest airport operator, PT Angkasa Pura II, is moving ahead with the construction of a new goods-handling facility in Jakarta, predicting that cargo will rise to 1 million tons a year within the next three years. The group is betting that cargo traffic at Jakarta’s Soekarno-Hatta airport will rise significantly from current levels around 600,000 tons annually.
  • Virgin Atlantic Airways announced its first new routes since the beginning of the pandemic. The recently rescued carrier controlled by Richard Branson will begin serving Pakistan for the first time after bans on the country’s flag carrier created a void in the market, reports Bloomberg. The first commercial flight from Israel to the United Arab Emirates (UEA) took place, after crossing through Saudi Arabian airspace that is normally restricted to Israeli air traffic. The UAE is the third Arab country to recognize Israel and opens new routes for commercial flights.

Threats

  • American Airlines said it will cut 19,000 workers when the federal payroll aid expires, capping a 30 percent workforce reduction since the pandemic began. United warned it may have to furlough 2,850 pilots if no extension to its federal aid is granted. Delta warned of 1,941 furloughed pilots. These are just a few examples of carriers warning of the consequences of a lack of more federal aid to stem decimated air travel demand losses.
  • Singapore Airlines spent half of the $6.4 billion it raised through sale shares in just two months – a stark warning that airlines are still burning cash rapidly amid weakened travel demand. The company said in a statement that the proceeds have been used for operating expenses, maturing fuel-hedging trades and ticket refunds from canceled flights.
  • Aviation Week Network said in a video conference that deliveries of commercial aircraft over the next decade will be 30 percent lower than previously forecast. The group sees around 16,000 jets delivered between 2021 and 2030 as the pandemic shattered air travel demand and a slow recovery is expected. This could be a long-term problem for aircraft and part manufacturers such as Boeing and Airbus.

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The Bloomberg EMEA Airlines Index is a capitalization-weighted index of the leading airlines stocks in European, Middle Eastern and African region.

The Bloomberg Americas Airlines Index is a capitalization-weighted index of the leading airline stocks in the North, South and Central American region.

There is no guarantee that the issuers of any securities will declare dividends in the future or that, if declared, will remain at current levels or increase over time.