Norwegian Air to cancel 85% of flights and temporarily lay off 90% of staff
reuters.com
reuters.com
Their LP’s would probably take a hit to unlock the cash and get into something more likely to rebound faster.
The 787's and the A321LRs are good planes that they could sell, but the 737-800 is an obsolete plane which has a very hard time operating with a profit when competing against the new crop of fuel-efficient narrow bodies. You can't really sell them to anyone for any reasonable amount in the current market. MAX 8's are also hard to get rid off, but for a different reason.
Then the company they got loans from has a repayment deficit, they can repossess the leasing companies assets, and pay to store them, and try to sell them ... but they're going to be getting pennies-on-the-dollar (who wants to pay to store aeroplanes they can't fly for profit?). Duplicate that over the other loans they called in in other industries; now they're burning cash as well??
If the top of the tree, the banks or capitalists, can hold out then they stand to make a tidy packet when markets rebuoy but even then there'll be a huge lag if they laid off multiple tiers of companies.
Either we all have to agree not to force each other to close down, or we all do each other over. It's not pretty.
I'm wondering what happened in 1918 with "Spanish Flu", people instigated social distancing then - closing down schools and churches - so presumably there were businesses too that couldn't pay their rents? I imagine things were less severe because more businesses would own their resources, and would be part of communities that would collapse if they called in what they were owed.
Since all of the infrastructure already exists it shouldn't take that long to scale back up.
Seating like we used to have a few decades back is available. It costs about the same as it used to. People seem to forget how expensive air travel were back in the days, no wonder it was more luxurious.
That's part of the reason the airline requires you to sit in allocated seats - so they can notify the people sitting in neighbouring seats if you have a notifiable disease.
My personal hypothesis is the low pressure ultra-low humidity air in planes dries out mucus membranes in the nose and throat making it more likely for airborne things to get in.
Sorry to be crude, but it beggars belief that people can afford flights, realise why they're discounted, and yet be so short sighted.
The most important thing in a market economy (aka economies that are not communist), is competition. Competition is the primary thing that keeps costs low. Without it, we (consumers) are all toast - however it'd be great for the stocks of those few remaining airlines (with enormous upside potential). Flying in airplanes is a mostly ineclastic good. this means, people can't just stop flying. All this is extremely bullish for the remaining airlines, in the long run (2 years+).
The last couple weeks have shown this to be quite untrue.
If this pandemic leads people to realise that so much flying really isn't necessary, and actually changes long-term behavior, that could be at least one silver lining.
If people decided to enter markets purely based on profits then shouldn't there be a bunch of competitors for Google's search engine biz?
As to your second part, search engines aren't a high profit business; advertising is.
It's not like anyone is going to scrap the planes, or shoot the pilots.
Provided COVID-19 doesn't get going again next winter.
MERS peaked in 2014 (and 2015, 2016, ...), but there are still cases.
There are of course other options in restructuring etc, but investors can always face the possibility of loosing all the money they have invested.
Some have debt, most of the ones where I am do not though. You have depreciation, which is non-cash. Even staff costs have a variable component based on hours flown, although (where I am) they still have to pay a base salary.
(Btw, just generally...most airlines are run very efficiently. They are huge enterprises deploying these big expensive assets, and they run with very little capital. Obviously, this does vary by strategy but the low-cost airlines usually turn their capital more than once...just looking at $LUV...134m passengers, 747 planes, $22bn revenue on invested capital of $10-12bn...just based on a quick calc)
Unsurprisingly, if you are an airline company and you stop running flights then you don't have many costs.
The issue airlines have is labour law. I think we will see countries like the Nordics manage this better (SAS appears to have been able to furlough 90% of their staff) because it is easier to lay off staff temporarily (I believe this is in sector-wide bargaining agreements). In the UK, as a counter-example, it is much harder because there are no sector-wide agreements so temporary lay-off needs to be in your contract. Maybe airlines have this, I don't know but it seems like some don't see what the option is between bailout to pay staff their base salary or layoffs (and btw, airlines could just sack everyone which would end up being massively costly to the rest of us). We aren't bailing out the airlines, we are bailing out the staff.
I don't know how many of their employees are Norwegian though..
https://en.wikipedia.org/wiki/Scandinavian_Airlines
Again: I'm aware that you haven't said anything to the contrary. But it's useful context.
And yes, a bailout is likely. The govt will likely help keep Norwegian Air's planes flying during the Coronavirus period. Additional help is possible.
[1]: https://www.sasgroup.net/annualreports/2018/assets/pdf/eng/S...
I probably agree with providing liquidity in the form of some sort of short-term loan in order to live through a completely unexpected macro crisis, if it's done on equal terms to everyone. But Norwegian won't survive that either, I think.
Italy just did so for Alitalia.
https://www.reuters.com/article/us-italy-alitalia-idUSKBN212...
They can always estatise it, but I don't imagine an airliner is strategic enough for that.
> Having lost money each year from 2017 to 2019 and raised cash from shareholders on three occasions, the company’s debts and liabilities had grown to 82 billion Norwegian crowns ($7.9 billion) by the end of last year.
Don't forget that asterisk. USA unemployment benefits (even in liberal states, like California) are just truly awful. Losing my job "temporarily" for 2 months would cut my income drastically with no recourse (other than finding other employment), and say goodbye to affordable medical care (COBRA costs are outrageous)
This is why we need social safety nets people! I pay 47% of my income to the government and I am 100% fine with raising taxes to pay for Medicare For All and a real social safety net.
That said, it's going to be hard to see who doesn't go bankrupt with the virus. Airlines are on limited margins at the best of time, and parking half the fleet makes their business model untenable very quickly.
The other thing is that unlike almost all of the rest of the world, airports in the US are still publicly owned, and funded by per-passenger fees. A lot of cities are going to have a massive gaping hole in their budgets because of that.
Which is a shame as I had a great experience when I flew and the cost can't be beat ($500 return from SFO to Barcelona).
[1]https://www.cntraveler.com/story/norwegian-air-is-taking-las...
$500 on Norwegian is better than $1000 on United. They're both getting the same set of subsidies.
The same thing goes from SAS.
Does that include the crews who are typically based in foreign countries to skirt Norwegian labor laws?
Only as long as their
Anything above that and people have to start rethinking their choices and be held accountable for their choices.
By the same token I shouldn’t hold accountable Google or FB engineers who are just trying to make a living.
Or soldiers who did atrocities because they were just trying to be good soldiers.
No you shouldn't - they need to put food on their families' tables just like you do.
> Or soldiers who did atrocities because they were just trying to be good soldiers.
Well committing an atrocity is a crime. If people are acting criminally that's different. And if they're committing atrocities then they aren't good soldiers, are they?
> No you shouldn't - they need to put food on their families' tables just like you do.
I disagree. They have any option who to work for, as you and I, and they chose to work for unethical companies. They don't need to put food on their families' table. I am not judging as everyone makes their own choices, but it's good to hold them responsible. Maybe I would have done the same or do so in the future. But I wouldn't expect people to feel empathy for me when shit hit the fan.
Many people don't. Tech interviews are unforgiving. Some people have to take the opportunities they get offered to them. Even if you can pass an elite Google interview one time that doesn't mean you'd get past the interview anywhere else.
> They don't need to put food on their families' table.
Their families can starve?
> I wouldn't expect people to feel empathy for me when shit hit the fan
Hows about we all practice empathy with everyone, no matter what good or bad choices they've had to make to survive in the past?
We cannot permit American and other airlines to use federal assistance, whether labeled a bailout or not, to weather the coronavirus crisis and then return to business as usual. Before providing any loan relief, tax breaks or cash transfers, we must demand that the airlines change how they treat their customers and employees and make basic changes in industry ownership structure.
As an industry they provide an exceptional service, but it's rarely that they as comapnies are profitable over time.
However I don't expect any kind of real 'new' outrage from this particular action though. There aren't people flying... so yeah this result is pretty understandable.
Most folks are understandably busy with other news.
They recently introduced a fee for cabin-luggage which could be disputed but:
1. I don’t mind, I generally fly with a small bag;
2. my partner has enough miles to get free upgrades.
No one has complained about it when boarding.
Most people use price checking sites to purchase tickets, and because people only look at the initial price tag and fees aren't calculated until the end.. budget airlines started gaming the system to appear even cheaper. (shifting costs into fees and away from the fare)
Since consumers won't change their habits, many or even most airlines had to adopt the same practices in order to compete.
If you've ever used a price checking site to search for airline tickets, you've likely contributed to creating this problem.
https://www.cnbc.com/2020/03/16/us-airlines-seek-more-than-5...
I understand businesses have to make tough choices, but this seems like egregiously irresponsible planning, akin to using every paycheck for exorbitant luxury while figuring you can use a credit card for necessities and coast on some equilibrium of credit card payments.
It’s ridiculous for large corporations like this to not have sufficient reserves to ride it out for lengthy periods of time while disallowing “lay everyone off” from being a side effect.
They probably are hoping totally private competitors like Ryanair are gone, so they can buy their planes and fly their routes.
Instead we see executives get out with huge severance or even just accumulated wealth, and stick taxpayers with unemployment bills.
I don’t recall ever hearing the argument that companies should pick up the burden.
But there is a lot of literature suggesting people save up for a ”rainy day”:
https://en.m.wikipedia.org/wiki/The_Ant_and_the_Grasshopper
https://www.biblegateway.com/passage/?search=Genesis+41&vers...
It naturally reminds me of reserve requirements for banks.
Couple of major considerations come into my mind, some of which I think you touched on: - Would have to rethink private business financial reporting because private businesses (in the US, anyway) have to share much less of their financials to the public & government. - I'm assuming there'd have to be gradients of how this is applied. I mean, big companies like Uber and Tesla operate at a huge loss for years after their startup phase, intentionally, to grow their capital and tech, in the hope of being a profit-center eventually. - To your point, maybe such rules would apply primarily to mission-critical industries: airlines, hospitals, telecom/internet, fuel/utilities/water/electric. - Maybe you get an exemption up to X employees, and it doesn't kick in until Y years after opening. Like, if you can't find profitability after 15 years, then something, something happens?
I don't know, cool thought.
So in a situation like this, companies can temporarily let employees go home without pay and the government pays them.
You could argue that a reserve requirement would be better (e.g in order to hire someone a company must place 6 months pay in reserve), but that would just put a lot of capital to no use.
Firing + collecting unemployment is not the same as requiring fiscal responsibility, not even in terms of superficial intentions.
To any Norwegians around HN: Were they in trouble before the corona crisis ? Stock value[1] started a heavy downward trend around Feb 2018, from 171 down to 41 before corona crisis, down to 7 as of today.
I am based in Spain, and I am seeing this same trend in some local companies. It seems that coronavirus is the trigger for an existing, latent problem.
They got hit quite bad with the grounding of 737 MAX (10% of fleet), and before that they a lot of issues with the 787 Dreamliner (20% of fleet).
I don't know enough to say they'll be fine, but there's a chance it's not as bad as it sounds.
I flew their Premium Economy internationally and it was similar to US domestic first class.
This is way inaccurate, I can count several worse ones beyond the absolute champion of all crappy airlines, the Ryanair.
Oh, it's a click-bait title.
The text itself says "will [..] temporarily lay off 7,300 employees", so this is still in the planning stage and not meant to be permanent.
https://www.cnbc.com/2020/03/16/coronavirus-makes-airlines-c...
What are you going to prop up when world travel and trade is shut down? And domestic regions are locked down too?
The kicker is that we had been seeing negative long term indicators for a while before this - inverted yield curve, and long overdue for the approximately 7 year recession cycle, among other indicators.
I would love to be convinced otherwise but, regardless of the outcome of the 2019ncov situation, this is shaping up to be a trigger for a global recession, possibly a depression. Modern society cannot sustain itself indoors without radical measures. The vast majority of people probably work at jobs that cannot be performed remotely.
I can see it not rippling if (a) a vaccine comes out in time, or (b) people just give up and work anyway, accepting coronavirus as a risk of life. Unlike sacrificing everything for the sake of not getting coronavirus, that can actually go on indefinitely.
If you develop symptoms you may need serious medical attention (intubation) in order to survive regardless of age.
Wether or not you develop symptoms you can develop serious organ damage that results in life long chronic health problems (due to damage to lungs, kidneys and testes.)
It sounds to me like this virus is in fact much more serious than most people thought even with the hype.
All of the worst [pending] peer reviewer papers are gradually being confirmed, it seems. The news has been getting consistently worse for literally two months now and we now have at least a dozen countries on lockdown, and growing.
Not even remotely true.
If people go back to normal (against the advice from every agency with experience handling communicable diseases) the disease will spread at an exponential rate. Healthcare systems across the globe will be overwhelmed (like Italy and China but vastly worse) and people start suffering and dying from curable illnesses due to lack of capacity.
Then, once people start dying by thousands, everyone will quarantine themselves anyway.
There is no scenario where this doesn't ripple.
We can argue (b), but did you just ignore my (a)? How would that ripple like this?
https://www.sciencedirect.com/science/article/pii/S0006291X1...
That's only if the vaccine works though. If do that process and it turns out it doesn't, it could make the situation a whole lot worse.
It almost certainly will. But there's a reason virtually every macro-economist is forecasting a rapid V-shaped recovery after the quarantine eventually ends.
At the end of the day, 90% of the population will still be working through the quarantine. And most of the rest will still receive unemployment benefits. Think about all those people collecting a paycheck, and just sitting at home. Now what happens when the quarantine ends?
They take all that money they've built up, and unleash it all at once. All those big-ticket purchases, vacations, and events, that got deferred happen in a short burst. All those people cooped up at home, will flood into restaurants, stores, and concerts. Think Chicago on the first warm day of spring. It's likely to be the greatest one-time surge in consumer spending in all of recorded history.
That's virtually guaranteed to jump-start the economy near instantaneously. And unlike 2008, the chance of systemic financial contagion is extremely low in today's environment. Banks are extremely well capitalized, and the vast majority of risky investment has been moved to non-bank entities, like corporate debt markets, private equity funds, and CLOs.
Finally even if business travel falls, expect consumers to make up a lot of the reduction in demand. The capacity exists and isn't going anywhere. Those airline seats and hotel rooms aren't going to sit empty. The price may fall, but tourists will take more trips when given discounts on the prices they're used to.
In general you can extend this reasoning to most of the pessimistic scenarios. First, real productive capacity will still be the same after the quarantine as it was before. Second, money spent in some sector isn't just going to get thrown into a hole if people stop consuming those products. One industry's loss is almost always another industry's gain. Finally, when demand contracts that means falling prices. When prices fall that enables new consumers and business models in the market.
All indications are that this virus will take more than two months to deal with - you should carefully monitor China for the next few weeks because their self reported recovery may not be genuine.
How long can businesses hold out? What's stopping authoritarianism from taking hold, left and/or right, if this drags on for 3-6 months? We don't even know if you build lasting immunity to this virus yet. It could become endemic.
0. https://www.macroaxis.com/invest/ratio/DB--Probability-Of-Ba...
On a different planet this topic would be discussed, at length, along with measures to contain the virus. Once we're in lockdown mode worldwide with only the shiny screen to tell us what is going on, it is game over, and rather too late to discuss and set the ground rules for "emergency" regimes.
However, symptoms and mortality rate have been exaggerated by the media, causing more panic than necessary. If a wave of Influenza would get the same attention and monitoring, it would expose similarly shocking stats ("exponential" growth, and around half a million deaths yearly). Yet there are very few measures actually taken by governments there, because it's difficult and basically an uphill fight.
For what it's worth, note that alleged mortality rates for COVID-19 are in fact just very rough upper bounds, since there is no systematic testing happening yet on a large scale. The closest to that is probably South Korea, where deaths make up less than 1% of confirmed cases. In contrast, Influenza mortality rates are always based on estimations, not just on documented infections.
Dude, believe what you will, but in the most affected areas, they can't even bury bodies fast enough, they are literally filling up churches with coffins. This does not happen with influenza, because we have vaccines and mitigation techniques that we do not have with Covid19. We don't even know for sure if or when reinfection can occur.
In a regular year, influenza in Italy kills 400-500 people, and simple pneumonia kills another 6,000 to 8,000. We've had 2,000 deaths from covid19 in 2 weeks, and concentrated in 20% of the country. Do we really want to "let it run its course" for a full year over the whole of Europe? At this rate, in two months we'll have broken all records.
You underestimate this at your peril.
Data is literally one query away.
>We estimated excess deaths of 7,027, 20,259, 15,801 and 24,981 attributable to influenza epidemics in the 2013/14, 2014/15, 2015/16 and 2016/17, respectively, using the Goldstein index.
https://www.sciencedirect.com/science/article/pii/S120197121...
Pretty much all restrictions only apply to people, not goods. Trade is going to continue.