CITY 51
21 March 2020 THE WEEKTalking points
Comparedwithmanyotherairlines,
BritishAirwayshasa“robustbalance
sheetandthesupportofastrong
parentgroup”intheshapeofIAG,
saidtheFT.Thatdidn’tstopitsCEO,
AlexCruz,fromfiringoff“adoom-
ladenmemo”tothecarrier’s45,0 00
stafflastweek.Headinghismissive
“TheSurvivalofBritishAirways”,
Cruzoutlinedthatthecarrierwould
beforcedtocutjobs,suspendroutes
andgroundaircrafttosurviveacrisis
“moreserious”than9/11,which
nearlycrippledtheindustry.Cruz
wasn’taloneindemandingimmediate
actionfromgovernments.TheUS
carrierDelta Airlinescalledonthe
Trumpadministrationforsupport;thebossofNorwegianAir
Shuttlesaidhewas“confident”Norway’sgovernmentwouldride
totherescue.ThegreatestopprobriumwasreservedforVirgin
Atlantic,whichclaimsitwillhavetoground75%ofitsfleetby
theendofthemonth,saidHelenKnapmaninTheSun.The
airline’sfounder,SirRichardBranson, cameunderparticularfire
for“forcingthousands ofstaff totakeeightweeks’ unpaidleave”.
The crisishasrevealed “acontrastinstyles”amongourpilots-in-
chief,saidAlistairOsborne inThe Times.While Branson is
callingfor a£7.5bn rescuepackagefor theUKindustry,“hisold
sparring partner” at IAG,WillieWalsh, has delayedhis retirement
andis“hunkeringdown”fora
Darwinian“survivalofthefittest”.
Thegoodnews,saidNilsPratleyin
TheGuardian,isthat“strong
airlines”(includingbudgetcarriers
RyanairandeasyJet)“canabsorba
fairamountofshock”.Yetthespeedy
escalationofthecrisis–fromthe
shuttingofEuropeanhubstonon-
essentialtraveltotheintercontinental
travelbanimposedbyPresident
Trump–meansgovernmentsupport
isneeded.Ministersshouldkeepa
coupleofprinciplesinmind.First,
financialassistanceis“bestofferedon
anindustry-widebasisonequalterms
toall”.Secondly,theGovernment
shouldbe“strict”aboutwhotosupport–anditshouldn’tbe
shareholders.Iftheyhave“sanctioned”dodgybusinessmodels,
“theirlossescannotbeunderwrittenbythepublicpurse”.Thispandemichas“emptiedflights”,saidTheObserver.Itcould
alsochangeflying“forever”.Even thebigplayers “are likelyto
havetheirwingsclipped”if societiesstartquestioning“whether
the habitwasworthit”.Allthe more so,given action onclimate
change. Even beforethevirus,tradeprotectionismand the
erection of“fresh borderswithneighbours”werepointing inthat
direction.“Airlin es,so often thecanary inthe coalmine forthe
globaleconomy,may neverfly quitesohighagain.”Issueoftheweek: acrisi sint heair
Marketpanic: whattheexpertsthink
●Fevergripped
The Chancellor unleashed
ahugestimulus; theUS
wentfurtherwitha$1trn
package –andstillmarkets
keptfalling,saidBBC
Business.Not eventhese
massive sumscould “quell
worries” aboutCovid-19’s
economicimpact.Having
alreadyhitan eight-year
low,theFTSE 100 index
dived afurther5% on
Wednesdayas panic-selling
continued.Andmany
predicted no endinsight.
The virushas come“outof
nowhere, but it cannot be
blamed forwhatmayturnout to be a
prolonged markethiatus”, argued Fred
Cleary of Pegasus Capital. “This market
was in troublelongbeforeit hit. Stocks
had been pumpedandprimedon endless
monetary policyeasingmeasures”–justa
few weeks ago,theywereatrecord peaks.
Thebigger theclimb, theharder the fall.
●Pursued byabear
After an 11-year run, thebull market is
officiallydead,saidMark Atherton inThe
Times. Steepfalls in both theUSand UK
have takenstocks well below20% of their
recent highs–enter thesnarling bear.The
general adviceistoholdyour nerve:tosell
out now wouldcrystallise losses.The great
investor WarrenBuffett’s“axiom” is to
“befearful when othersare
greedy,butgreedywhen
othersarefearful”. And
someprivate investorshave
takenthedictumto heart.
Accordingto AJBell,last
week’s “Black Monday”
wasits busiesttradingday,
with buyersoutnumbering
sellers75 to25. Amongthe
stocksbeingsnappedup
weretheoilmajors,banks
andinsurers.Still, these are
“pretty brave moves”.●Goingonabear hunt
“Allbull marketsare alike.
All bear marketsare
horriblein theirownway,” saidMerryn
Somerset Webb in the FT.This onehas
been“stunninglyfast” andwehave no
idea howit willpan out–itdidn’t start
as afinancialcrisis, but “could easily”
becomeone. Thereare somebright points:
the precipitousfall intheoil price is akin
to “a $1trn-odd taxcut forconsumers”;
and government“helicopter money”
should eventually winmarket approval.
We may not havehitthe bottom yet, but
after 30%-plus falls,keepaneye on what
has becomelong-termcheap.“I’m not
suggesting youpileinfulltilt now”,but
you mightconsiderdrip-feeding. Perhaps
the mosthopeful wayofviewingthingsis
that “everypoundyouspendtodaybuys
you moreequity than it didlast week”.BAstaffreceiveda“doom-ladenmemo”fromtheCEOFun times for funds?
Britain’sFinancialConductAuthority
hasbannedtradersfromshort-selling
(bettingagainst)morethan150stricken
ItalianandSpanishshares.Manyinthe
Cityareurgingitnottotakesimilar
actionoverLondon-listedshares,
arguing“itwouldrestricttheproper
functioningofthemarket”,saidOliver
GillinTheSundayTelegraph.It’seasy
toseewhy.“Betsagainstcurrencyand
shares”havebeenpayingoff“hand-
somely”forUKhedgefundsasfearsof
aprolongedrecessiongripinvestors.Long-standingshortpositionsagainst
multiplexchainCineworldalone
returnedaround£150m“forahandful
offundsthatbetonitsdebt-fuelled
acquisitionspreeendingindisaster”.
Short-sellershavealso“prosperedby
correctlybettingthatanearlyinterest
ratecutwouldtriggerafallinsterling”.Thecrisishasalsogivenafilli pto
“active”fundmanagers,saidMadison
DarbyshireintheFT.Longblamedfor
failingtomakebetterreturnsthan
“passive”fundsthatmerelytrack
indices,manyhaveperformedwell
duringthesell-off.“Since20February,
fouroutoffiveUKmutualfunds
investedinUSequitiesoutperformed
themarket,while89%ofactiveUK
fundsoutperformed.”Perhapsclaims
theycan“provetheirmettleattimesof
volatility”havesometruthafterall.As
AnthonyMorrowofthefinancialadvice
serviceOpenMoneyconcludes:“for
activemanagers,itisshowtime”.Airlines may be in trouble–but do t hey really deserveablank cheque from the Government?Enterthe snarling bear