Virgin and Qantas shares avoided a nosedive on Monday despite one of the toughest weekends the aviation industry has seen.
Qantas dipped to a four-year low of $2.86 just after trading opened but rallied to finish the day just above the psychologically important $3 mark.
Virgin ended the day on $0.069, significantly higher than last week’s plunge to $0.053. However, just before close, it was announced credit rating agency Standard & Poor’s had downgraded the carrier to a ‘B-‘.
Monday’s trading came after a dramatic weekend for the region’s aviation industry. Late on Friday, Prime Minister Scott Morrison advised against “non-essential” international travel.
The next day, New Zealand Prime Minister Jacinda Ardern upped the stakes by saying all arrivals, including Kiwis, must self-isolate for 14 days, before Australia copied the policy on Sunday.
Internationally, the weekend saw a string of dramatic announcements from airlines that would have influenced the ASX.
These included United announcing it would cut 50 per cent cut of its capacity for April and May; American stating it would suspend 75 per cent of its long-haul international flights from the US, from 16 March until 6 May; and British Airways’ chief executive sending an email to all staff saying the airline’s very survival was at stake.
Over the weekend, Spain and France followed Italy in announcing unprecedented lockdowns confining millions to their homes.
Meanwhile, New York said it would close public schools and limit restaurants to takeouts.
In an announcement that landed at 4:44pm AEDT, S&P downgraded Virgin Australia to a ‘B-‘ and placed its ratings on CreditWatch with “negative implications”.
The agency said in its release, “We believe Virgin Australia’s concerted efforts to further reduce capacity, exit loss-making routes, as well as accelerate cost reduction and fleet simplification initiatives — while appropriate — are unlikely to fully offset the cash flow impact of reducing travel demand.
“As a result, we believe there is an increasing likelihood that near-term cash outflows will increase, and leverage will remain elevated in fiscal 2021.”