B6| REPORTONBUSINESS O THEGLOBEANDMAIL| FRIDAY, MARCH 13, 2020
Prices forAir Canadaand Transat
shares fell by 9.1 per cent and 16.9
per cent, respectively, on the To-
ronto Stock Exchange on Thurs-
day. American Airlines’ share
price plunged by nearly 16 per
cent on the Nasdaq stock market.
Norwegian Airlines suspended
4,000 flights and laid off half its
employees, saying Mr. Trump’s
ban worsened its plight.
In response to COVID-19, Air
Canada has suspended flights to
Italy and China and reduced ser-
vice to other regions. WestJet Air-
lines has cut its flight capacity by
12percentandputafreezeonhir-
ing.
The loss of lucrative interna-
tional markets removes a key
plank in the airlines’ business
plan, said John Gradek, a lecturer
on aviation at McGill University
and a former Air Canada senior
manager.
Air Canada has flown to Italy
for only a few years, but the pos-
siblelossofmajormarketsinGer-
many, France and Britain would
have a “significant impact on Air
Canada’s operations,” Mr. Gradek
said by phone. Air Canada could
redeploy the wide-body interna-
tional fleet of Boeing 777s and
787s in the Canadian market,
adding a lot of capacity and
weighing on fare prices at a time
the domestic market appears
weak. “There is a lot of fear out
there, a lot of trepidation, a lot of
messaging from the health au-
thorities to stay home, and that is
having an impact on Air Canada’s
bookings,” he said.
Air Canada has declined to dis-
cuss its sales and provided no fi-
nancial update.
Transat shareholders in Au-
gust approved a takeover offer
from Air Canada worth $18 ashare, or $720-million. Canada’s
Competition Commissioner is re-
viewing the deal, and is expected
to look carefully at the combined
companies’ dominant market
share in Montreal and 60-per-
cent grip on the transatlantic
business. Transport Canada is
conducting a public interest as-
sessment.Transat said it expects the deal
to close by the second quarter of
2020, and has asked thegovern-
ment to speed up the review
process in light of the industry
crisis.
“The more time goes on, the
more aviation companies across
the world become more vulnera-
ble,” Transat’s Ms. Guérard said.“So we think this coronavirus sit-
uation will accelerate consolida-
tion in the industry and acceler-
ate the vulnerability of compa-
nies.”
Transport Canada did not re-
spond to e-mailed questions on
Thursday about government aid
to airlines.
Air Canada’s offer is above the
$10.59 closing price of Transat
shares on the Toronto Stock Ex-
change on Thursday. But the air-
line is not seeking to change the
terms of the deal, which analysts
say would make Transat’s new
Airbus planes available to replace
Air Canada’s 24 grounded Boeing
737 Max aircraft.
“We are moving forward with
the acquisition of Transat AT as
planned,” said Peter Fitzpatrick,
an Air Canada spokesman.
The head of Edmonton-based
domestic carrier Flair Airlines
said its ticket sales are within 4
per cent of targets, and passenger
volumes are normal for this time
of year.
“We haven’t seen the down-
turn yet,” said Jim Scott, chief ex-
ecutive of Flair, which flies seven
planes to 10 Canadian cities, and
has no international routes. Mr.
Scott said one of the carrier’s big
U.S. investors is ready to inject
any needed cash.TRANSAT (TRZ)
CLOSE:$10.59,DOWN$2.16
AIR CANADA (AC)
CLOSE:$24.90,DOWN$2.50Airlines:AirCanadasaysacquisitionofTransatismovingforwardasplanned
FROM B1Transat AT CEO Jean-Marc Eustache is seen at the company's annual meeting Thursday. Transat has called
on the government to speed up its review of Air Canada’s takeover bid.RYANREMIORZ/THECANADIANPRESSPrincess Cruises, the operator of
two ocean liners that were quar-
antined after they became hot-
beds for coronavirus infections,
said on Thursday it would sus-
pend voyages of all its 18 ships for
two months.
The suspension upends an in-
dustry already struggling with
cancellations after the outbreak,
and comes after Finland’s Viking
Line temporarily paused oper-
ations of its river ships and ocean
liners around the world.
“Never ... in the 20 years I have
served in this company, have we
been tested in ways we have been
tested over the past 40 days,” Jan
Swartz, president of Princess
Cruises, said on the operator’s of-
ficial YouTube channel, address-
ing the decision to suspend oper-
ations.
“This is perhaps the most diffi-
cult decision in our history.”
Shares of parent Carnival
Corp., which have already lost
more than half their value since
the start of the year, tumbled a
further 18 per cent. Rivals Royal
Caribbean Corp. and Norwegian
Cruise Line Holdings were also
down.
The crisis at Princess Cruises
deepened last week after one of
its ships, The Grand Princess, was
denied entry to San Francisco Bay
en route back from Hawaii as au-
thorities learned some passen-
gers and crew had developed flu-
like symptoms.
An initial round of testing
found that 21 people, mostly
crew, had been infected. At least
one couple who took the cruise
has sued the company, seeking
more than US$1-million in dam-
ages for emotional trauma.
Passengers from an earlier
cruise to Mexico aboard the same
ship had also tested positive for
coronavirus.
In February, the company’s
DiamondPrincesscruiseshipwas
in the spotlight when hundreds
on board were infected in what
was then the biggest concentra-
tion of confirmed cases outside
China. About 700 people on
board were infected and six died.
The suspension set off alarm
bellsamongthoseresponsiblefor
booking cruise holidays.
“We’re playing musical phones
tryingtogetanswersfromthedif-
ferent cruise operators and air-
lines we work with ... that’s reallywhat our day-in-day-out life
looks like right now,” said a travel
agent in Wisconsin who handles
bookings for Princess Cruises.
However, the agent said he still
had vacationers interested in
booking a Princess cruise in June.
Princess voyages under way
will carry on as planned, while
those that extend beyond March
17 will be ended at the “most con-
venient location for guests,” the
company said.
Analysts at SunTrust Robinson
estimated the suspension would
reduce Carnival’s full-year earn-
ings by about 50 US cents a share.
The company earned US$4.40 a
share last year.REUTERSCARNIVAL (CCL)
CLOSE:US$14.97,DOWNUS$6.78PrincessCruisessuspendsoperationsofentire
fleetfortwomonthsovercoronavirusthreat
UDAY SAMPATH KUMAR
The Princess Cruises Caribbean Princess docks at Port Everglades in
Fort Lauderdale, Fla., on Thursday. Princess voyages already under way
will carry on as planned, while those extending past March 17 will end
at the ‘most convenient location for guests,’ the company has said.
JOERAEDLE/GETTYIMAGESThat leaves government stimu-
lus spending. Ottawa has an-
nounced a $1-billion package of
coronavirus measures, but that’s
not enough to bolster the econo-
my. Australia, for example, has
announced a US$17-billion stim-
ulus plan; hard-hit Italy has bud-
geted US$28-billion.
It’s not as easy as you might
think. It can be surprisingly diffi-
cult to design stimulus spending
that pumps money into the
economy quickly.
But one way to deal with that
is to do first things first.
Queen’s University economist
Donald Drummond, a former se-
nior Finance Department official,
said Ottawa should address the
most direct effects of the coro-
navirus right away.
First, pump money into hospi-
tals, public-health agencies,
screening, testing and other
health-care spending that helps
contain and treat the virus.
The feds did some of that with
their $1-billion package released
earlier this week, but not enough
for cash-strapped provincial
health-care systems, Mr. Drum-
mond said.
Adding more would help con-
tain the virus, but it would also
stimulate the economy because
the money would be spent
quickly, in Canada, and mostly
go to Canadians.
“Doing your damnedest to
contain this is actually an eco-
nomic response, not just a
health-care response,” Mr. Drum-
mond said. “Strangely, policy au-
thorities seem to skip over this
step.”
That doesn’t have to wait for
Finance Minister Bill Morneau’s
March 30 federal budget.
He could announce one-time
health funding within a few
days; provinces could simply
agree to put all of it straight into
hospitals, screening and care.
That’s the health-care transfer
Mr. Ford should be talking about
now.
The next step is to provide
more support for employees and
self-employed people who have
to self-isolate or take time off
work, by expanding employ-
ment-insurance rules temporari-
ly. That will reduce the hit on in-
dividuals’ income and consumer
spending.
That too can be done quickly,
Mr. Drummond said.
After that, the budget could
provide support to hard-hit in-dustries, and a general stimulus
package aimed at getting money
out to people within six to nine
months. One way, Mr. Drum-
mond suggested, would be a
temporary holiday from the GST,
or a refundable tax credit that
sees cheques go out within
months.
Any stimulus must be big.
Douglas Porter, chief economist
at BMO, said a package about
half as big as that marshalled to
counter the 2008 financial crisis,
perhaps $15-billion to $20-bil-
lion, seems appropriate. That
won’t stop a downturn in the
second quarter, but could raise
confidence that the economy
will bounce back in the third, he
said.
Just look where we are: a long
way from where we were just
days ago.
The downturn is here. Every-
thing from hockey games to high
school is being cancelled. The
need for stimulus is suddenly
widely accepted. So for once, po-
litical leaders should be urged to
think short-term. Start with first
things first: spending on the vi-
rus, on health and on people af-
fected, fast. Then issue a budget
that gets money into the econo-
my quickly.Clark:Governmentdoesnotneedtowaituntil
budgetdaytoturnonthestimulusspending
FROM B1“It’sashort-termblip”asretailersbuildupinventoryandcon-
sumersstockpile,Mr.Biancosaid.“Withtoiletpaper,it’sjusta
matterofloadingyourclosetandpantry,andthenyou’relike-
ly not going to buy for weeks. Once the consumer stops buy-
ing,thatwillcreatealullinourbusinessthatwe’llhavetopre-
pare for. ... Anybody in tissue will probably have a stronger
first half of the year and a weaker back half of the year.”
Asproblemsgo,thatpalesincomparisontoindustriesthat
are weathering severe shocks because of the widespread eco-
nomic chaos caused by the spread of the novel coronavirus,
which causes COVID-19. In fact, the price of KP stock rose by
about 15 per cent over the past month before easing back this
week. But as stock markets crash, KP stock is still ahead of
whereitstartedtheyear,andunlesssupplyisdisruptedforits
main raw material, North American and South American
pulp, it should weather the uncertainty better than most.
Meeting the sudden increase in demand has required
squeezing extra production out of a network of eight North
American plants that already run around the clock. To do so,
the company has cranked up older, inactive production lines
that were less efficient and focused on producing more of its
higher-volume products such as 12-roll packs of two-ply tis-
sue. The company is also running down its finished goods in-
ventory, which it usually maintains at 20 to 45 days of supply,
to what Mr. Bianco called “dan-
gerously low levels. ... It hasn’t
bottomed out yet. ... We’ll replen-
ish the inventory after demand
slows.”He’seventakentodeliver-
ing toilet paper to friends and
familyinneed.“Ihaveatrunkfull
in my car,” he said.
Hesaidthecompanyismanag-
ing to increase deliveries by be-
tween 15 per cent and 25 per cent
depending on the account, and
that customers – some of whom
are asking for deliveries straight
to stores instead of distribution
centres–whocan’tgeteverything
they want have been understanding “because they recognize
we’re working through an unusual situation.”
Michael Medline, CEO of Sobeys parent Empire Co. Ltd.,
said despite a spike in purchases of food, health and hygiene
products, and cleaning supplies, “we have not seen disrup-
tionstothesupplychain”despiteshortagesofsomeitems.He
said suppliers aren’t increasing prices, “and we would never
allow them to do that,” nor will Sobey’s do so. “This is a seri-
ous situation.”
While Mr. Bianco thinks the run on toilet paper will be
short-lived,hesaidanincreaseinordersforpapertowelsand
facial tissues in recent weeks could continue “due to the hy-
gienic role those products play.” Meanwhile, he expects the
company’s“awayfromhome”business,whichaccountedfor
18 per cent of its $348.1-million fourth-quarter revenue, will
suffer in the next few months because of a drop in demand
from restaurants, stadiums, hotels and other hospitality pro-
viders. “We haven’t seen that downside yet, but it’s coming,”
he said.
For now, KP is not providing updated guidance for the first
quarter other than to say adjusted operating earnings should
behigherthanthe$23.6-millioninlastyear’sfirstquarter,but
less than the $46-million in the fourth quarter of 2019.
“There’s still three weeks left,” Mr. Bianco said. “A lot could
happen.”WithareportfromSusanKrashinskyRobertsonandGregMercerToiletpaper:Asmarkets
crash,KPstockstillahead
ofwhereitstartedtheyear
FROM B1Cashmere toilet paper is seen on a store shelf. Dino Bianco,
CEO of Kruger Products, thinks the current run on toilet paper
will be short-lived.MARIOBEAUREGARD/THECANADIANPRESSMeetingthesudden
increaseindemand
hasrequired
squeezingextra
productionoutof
anetworkofeight
NorthAmerican
plantsthatalready
runaround
theclock.