February 26, 2021

Why Economic Takeoff Depends on Air Travel

Getting travelers back in the skies will likely accelerate economic recovery on the ground—but COVID-19 vaccines will need to dispatch passenger fears as effectively as the virus.

by:

JIM GLASSMAN, HEAD ECONOMIST, COMMERCIAL BANKING Feb 02, 2021

Key points:

Total U.S. boardings have fallen to less than half their pre-pandemic levels. Despite air travel’s relatively low infection rates, people are still nervous to fly.
Air travel has an enormous economic footprint—airlines and aviation manufacturers directly employ over one million workers.
Governments worldwide have recognized the industry’s importance, providing $159 billion in emergency support during the pandemic.
More flights may resume quickly as vaccines are rolled out.
The return of travel will likely release pent-up demand for new aircraft.

Air travel’s incomplete recovery: Passengers are hesitant to return to the skies before COVID-19 vaccines become widely available. U.S. daily flights remain halved and international arrivals stand at only a quarter of pre-pandemic levels.

Unlike the dining and entertainment sectors, airlines have not been subject to government-mandated shutdowns—so passengers’ willingness to fly appears to be a major factor behind low ticket sales.
Flying appears to present low contagion risks—relatively few cases of COVID-19 have been traced to flights.
Still, people have grown understandably wary of spending hours in a confined space. The public’s reluctancy to fly seems unlikely to dissipate until the threat of COVID-19 disappears.

The economic power of flight: Air travelers patronize hotels, restaurants, local ground transportation systems and tourist attractions after they’ve reached their destinations. When these ancillary activities are accounted for, approximately 5% of the nation’s total economic activity is tied to air travel.

Airlines and airports directly employ almost 500,000 workers; aviation manufacturing accounts for another half-million jobs.
The falloff in travel has been particularly challenging for the nation’s largest tourism economies in central and southern Florida, Southern California, Arizona and cities including Washington D.C., Nashville, Tenn. and Las Vegas.
Without a steady stream of arrivals, rental car companies may be delaying new fleet purchases. Business purchases of motor vehicles remain well below their pre-pandemic peak.
Ride-hailing workers who shuttle passengers to the terminal have also suffered. Almost six million gig economy workers have sought help from the Pandemic Unemployment Assistance (PUA) program.
Cancelled travel plans have likely changed spending patterns. In the aggregate, this displaced spending has obscured the toll of air travel’s decline. This is why GDP is closing in on a full recovery, despite the dormancy of this significant segment of the economy.

Government aid is helping: Policymakers around the world recognize air travel’s importance to the global economy. Aid packages are helping airlines weather the pandemic.

The CARES Act provided $32 billion to keep airline workers on payrolls, and the second federal stimulus package included another $15 billion to recall 32,000 furloughed workers.
Worldwide, emergency aid for airlines has totaled $159 billion¹, covering approximately 38% of the industry’s projected pandemic revenue losses for 2020.
Emergency relief can keep workers attached to their jobs, helping the industry snap back when the pandemic subsides.

Increasing tailwinds: With vaccine distribution ramping up, U.S. passengers are likely to return to the skies in 2021.

People will likely want to see their loved ones face-to-face as soon as they’re confident the pandemic has been contained.
Similarly, business travel should quickly rebound. Many see teleconferencing as a stopgap measure, not a true replacement for on-site visits.
Passenger volume has been rising slowly, making gradual gains before vaccines were available. This may be a sign of pent-up travel demand.
Aircraft sales may strengthen throughout the year. Manufacturers currently have $475 billion in backlogged orders, and 400 Boeing 737 Max 8 jets—worth approximately $40 billion—are being prepped for delivery.

https://www.jpmorgan.com/commercial-banking/insights/treating-the-airline-industrys-passenger-problem?mkt_tok=MzE4LVlNVy05MjUAAAF7fgjkJKGHuE5UvWBJi5elHsVEIN9NDsF-8U813OUlHMPeTmcIHla63Lrjr7EHy2kMk7lBbvfwR7QZsR4hwOlG6LYQxcL0FwDJcab967H9sJ2E5w

February 26, 2021

BASF Results

BASF proposes stable dividend despite pandemic, sees support from organic growth

Author: Nigel Davis

2021/02/26

LONDON (ICIS)–BASF management on Friday said a €3.30/share dividend would be proposed to the annual meeting as the company generated what it called a solid cash flow in 2020 despite the pandemic.

The company reported strong earnings in the fourth quarter of the year after facing the difficult operating environment brought about by the coronavirus pandemic earlier in 2020

Financial analysts had been predicting a dividend cut. The pay out would be flat compared with 2019 but the yield would be 5.1% based on the year end share price of €64.72

The expected earnings power of the ongoing businesses and their cashflow will be sufficient to cover investments and dividend payments, CEO, Martin Brudermuller, said, outlining future dividend policy. BASF has also, effectively, put the brakes on capital spending in 2021.

“Based on our medium-term financial planning, we will also have scope to reduce our financial indebtedness,” he added.

BASF is developing what could be seen as a more sustainable business model. No major investments are planned, rather bolt-on acquisitions that add to the company’s technical expertise and regional manufacturing capabilities.

Currently, BASF is in the midst of its largest ever investment – at Nanjing in China – and is investing in battery materials.

The divestments it has on hand include the pigments business and the IPO (initial public offering) of Wintershall DEA.

“The new Verbund site in southern China and our investments in battery materials will provide additional momentum for BASF’s future growth. We will finance the strong organic growth in these areas with proceeds from our divestitures.” Brudermuller said.

“Despite high investments in these growth activities in the coming years, we expect that our portfolio will be less capital-intensive after this transformation.”

BASF has also agreed to pay performance bonuses to staff despite lower returns in 2020. The return on capital employed (ROCE) for the year sank to 1.7% compared with 7.7% in 2019, with earnings impacted by non-cash impairments of €2.9bn.

Employee performance-related compensation is determined by ROCE and for the year was below the pay-out threshold.

The BASF board, however, had agreed to pay bonuses totalling €360m as a sign it said of recognition and appreciation of work done through the pandemic. “With this bonus, we want to acknowledge the huge effort put in by the BASF team in the pandemic year 2020, which was difficult for everyone,” Brudermuller said.

The company’s share price dipped in early trading on Friday, falling 1.3% as of 12:30 GMT, despite the stable dividend and stronger fourth-quarter earnings. The tepid market response was due to conservative 2021 earnings projections undershooting analyst expectations, according to Baader Bank’s Markus Mayer.

“After BASF’s share price outperformed over the last weeks, we expect profit taking on today’s reporting,” he said.

“The reason might be prudent earnings guidance… which assumes significant disruptions to global supply chains,” he added.

https://www.icis.com/explore/resources/news/2021/02/26/10611465/basf-proposes-stable-dividend-despite-pandemic-sees-support-from-organic-growth