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Flying Wider

31 January 2020 by jbchevrel

Day after day, more airliners around the world are reducing or grounding flights to mainland China as the number of people infected by the coronavirus there keeps growing, surpassing that of SARS. Yesterday the WHO declared the outbreak a public-health emergency of international concern. Moody's Chief Economist said that a coronavirus pandemic would be more of a "black swan" than the GFC. Lonski also noted that while policymakers could flood the world with freshly liquidity to combat the crisis, it isn't sure what tools CBs would have to deal with a pandemic. British Airways was the first global airline to announce this Wednesday that it was suspending all its flights to mainland China, while maintaining routes to HK. They then said Thursday that flights were cancelled for a period of one month. Iberia (also IAG) also canceled its flights to China until the end of February. Air France-KLM (AFKLM) and Finnair Oyj have also grounded their flights. As a consequence, within our universe: Since January 20th, the CDS of AFKLM has widened by +32bp. TUIGR has widened by +22bp. TUI is more focused on intra-Europe flights, to not say UK to Spain. This being said, they have some China tour holidays (guides, accommodation, etc). This is for € HY space. LHAGR 5y CDS +16bp (still since Jan 20th ) in € IG space. The German carrier has grounded flights to the country until Feb 9th. The group offers a total of 54 regular weekly connections from Germany, Switzerland and Austria to the Chinese mainland. Across the Atlantic, American Airlines Group Inc. (AAL) has suspended its Shanghai and Beijing services from Los Angeles from Feb. 9 to March 27 (yes, it is March), citing declining demand, but will keep flying between Dallas-Fort Worth and China. UAL same until March 28. Delta Air Lines Inc. (DAL) also said it will temporarily suspend all U.S. flights to China from Feb. 6 through April 30 (yes, it is April) due to the virus outbreak. As a result, in $ HY space (still measured since Jan 20th ) AAL has widened by +19bp and UAL has widened by +40bp. This is without mentioning Asia-Pacific carriers. Among the numerous other airlines (I think ~50 in total) which took measures, Lion Air stopped its routes to and from China, Cathay Pacific Airways has cut back capacity to manage a drop-off in demand. In the antipodean A$ IG CDS space, QANAU 5y contract has widened by +8bp (still since Jan 20th). In the same time, the stocks of those companies have lost in the area of -8%/-10% for most of them, as the coronavirus health crisis will likely dent their revenues.