The Qantas Airways Limited (ASX: QAN) share price couldn’t muster enough speed for takeoff this morning even after the federal government threw the industry a $715 million lifeline.
The Qantas share price slumped 4.9% to $2.72 in early trade while Regional Express Holdings Ltd (ASX: REX) lost 6% to 78 cents. Only the Virgin Australia Holdings Ltd (ASX: VAH) share price jumped 12.7% to 7.1 cents but that’s more to do with the airline grounding its international service.
Experts warn that most airlines around the world are at risk of going bankrupt by end of May unless government’s step in to support the industry, which is the worst hit by the COVID-19 pandemic.
The Qantas share price collapsed by nearly 60% in the past month alone while Virgin lost nearly 40%. The Regional Express Holdings Ltd (ASX: REX) share price declined about 30%.
In comparison, the S&P/ASX 200 Index (Index:^AXJO) (ASX:XJO) lost about a quarter of its value over the same time frame.
Why the government is lending a hand
Australia can’t allow the major airlines to become insolvent as that would hinder the recovery when the coronavirus threat passes. The federal government is stepping in to lend a hand by offering refunds and waivers on fuel excise, according to the Australian Financial Review.
The move will immediately inject $159 million back into the airlines bank accounts from reimbursements from the excise paid by domestic airlines since the start of last month, said Deputy Prime Minister Michael McCormack.
Qantas chief executive Alan Joyce said the pandemic was the single biggest shock to global aviation as countries shut their borders or impose strict quarantine to contain the virus outbreak.
Global industry in turmoil
Virgin Australia just announced that it is stopping all international flights while Qantas moved to cut international capacity by 90%.
The crisis has already claimed casualties in the industry. UK-based Flybe went into administration while China’s HNA Group, which is one of three foreign airlines with a significant stake in Virgin Australia, fell into state hands, reported the AFR.
The coronavirus arguably poses a bigger risk to the travel industry than the GFC, and it isn’t only airline stocks that are falling from the sky. The Webjet Limited (ASX: WEB) share price and Flight Centre Travel Group Ltd (ASX: FLT) share price have plunged to multi-year lows.
More bad news to come
The worst could be yet to come. More countries have only just started imposing tight movement controls that are likely to last for weeks. The high fixed costs in the airline industry means a drop in revenue is exaggerated at the bottom line.
What this means is that the federal government’s $715 million rescue package may not be enough. For one, refunding fuel tax won’t save jobs and airlines will be forced to slash jobs to stay afloat.
The level of job losses are a good indication of how quickly the Australian (and global) economy can recover from COVID-19.
The turbulence is far from over. The industry and its shareholders better strap in and ready their barf bags.
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Motley Fool contributor Brendon Lau owns shares of Webjet Ltd. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. The Motley Fool Australia has recommended Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.