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American Airlines stock has crashed after the company announced a 75% reduction in capacity because of the coronavirus. Analysts warn things could get worse.
Many airlines all over the world are currently in panic mode because of the coronavirus. A lot of them, including travel companies in general, seem to be finding it very difficult to make ends meet simply because the volume has seriously plunged. Some airlines are grounding a significant percentage of their fleet, while others are looking to cut a chunk of employee pay. American Airlines Group Inc (NASDAQ: AAL) is one of those badly hit and its stock is already plunging in response to drastic measures it’s currently taking.
The Texas-based airline is easily the world’s largest by revenue, fleet size, and the number of destinations it has access to. However, this transport behemoth has made huge changes to its operations. In a recent press release, American Airlines says that between March 16 and May 6, it will cut down its international long-haul year over year capacity, by 75%.
American Airlines (AAL) stock reacted to the news by plunging 17.89% in premarket trading. Currently, AAL is trading at $14.07, after reducing the loss to just a little over 9%. While this seems like good news, its entire trajectory in recent times has been terrible. AAL has lost 55.58% in the last one month, with a total 2020 crash of 54.78%
American Airlines Overhauls Operations
The announcement includes several updates for international routes. It says that all short-haul international flights will continue with their regular routes. These include flights to the Caribbean, Central America, Mexico, Canada, and a few other parts of South America. However, it has suspended most flights to Asia, Australia and New Zealand. For the South American destinations, suspensions include Rio de Janeiro, Guyana, São Paulo, Santiago, Bogota, and many more.
The company has also added that its domestic capacity to reduce by 20% in April when compared to last year. For May, the domestic capacity reduction will hit 30% but on a year over year comparison.
COVID-19 Could Bankrupt Airlines
As airlines continue to suffer coronavirus effects, there are now warnings that things could get considerably worse for them. These airlines are still trying very to stay afloat amidst the general lockdown and in some cases, self-imposed isolation. Already this isn’t working as their stocks are plunging and some are looking to put their staff on unpaid leave.
According to a report from the CAPA Centre for Aviation based in Sydney, some of these airlines are looking at bankruptcy within months. In the report, the firm says that most of the world’s airlines will be bankrupt by the end of May. It adds that already, all of the steps the airlines are taking including grounding fleets and suspending flights, are causing their cash reserves to run down quickly.
“As the impact of the coronavirus and multiple government travel reactions sweep through our world, many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants,” reads the report.