Airlines face more turbulence before vaccine relief
January 14, 2021.
By Laurence Frost and Sarah Young.
For a year expected to mark a turning point for pandemic-stricken European airlines, 2021 is off to a rough start. A resurgence of COVID-19 lockdowns has killed off a fragile bookings upturn, executives and analysts said, just as airlines were hoping the promise of vaccines would put the worst of the crisis behind them and set the stage for a summer rebound (image - Kevan James)
New outbreaks and travel restrictions - some designed to curb the spread of a highly infectious virus variant detected in Britain - have hit forward bookings that are usually relied upon to bring in vital cash during the thin winter months.
Global airline industry body IATA believes a return to positive cash flow “might not arrive before the end of the year,” Chief Economist Brian Pearce said. “Meanwhile the cash burn is going to continue” and may even in increase in Europe, Pearce told an online conference on Wednesday.
Some carriers may yet run out of cash, he added. For bailed-out airlines like Air France-KLM and Lufthansa , a longer slump increases both debt and the likelihood more support will be needed. Europe faces some of the worst setbacks - although hitherto buoyant Chinese and Russian domestic bookings have also been weakened by new restrictions. Intra-European bookings for the first half of the year stand at 22% of their level 12 months ago, Olivier Ponti of aviation data specialist ForwardKeys said. That compares with 36% for U.S. domestic bookings and 48% for flights within China.
‘CARNAGE IN EUROPE’
Airlines have responded by cancelling yet more services. Ultra-low-cost carrier Wizz Air, which has been expanding its fleet and network during the crisis, is suspending most UK routes and sees January capacity down 75%. “The lockdown puts strains on demand, and we’re adjusting capacity according to demand,” Chief Executive Jozsef Varadi told Reuters. “It’s going to be a difficult quarter.”
Data provider OAG, which tracks airline schedules, predicted “carnage in Europe” after airlines slashed western Europe capacity by a quarter. “A loss of some 1.5 million seats in a week is staggering,” analyst John Grant said. With another 580,000 dropped in eastern Europe, “expectations for the next few months are grim”.
Recovery hopes have driven a share rebound for European airlines since the first vaccine breakthrough in November, before lockdown setbacks pared average gains to 30%, based on the Stoxx Europe airlines index.
More bullish investors may be getting ahead of themselves, some analysts caution. European aviation is “primed for disappointment”, Citi analyst Mark Manduca said. “We see recovery risks into summer because (pre-flight) testing will in our view likely stifle demand,” he added in a note. “Slower-than-expected rollouts of vaccines to corporate populations will likely continue to strangle a business-demand recovery.”
Above - Despite the ongoing crisis, Berlin finally opened its new airport late last year
Flughafen Berlin Brandenburg
The volatile outlook hugely complicates all-important summer schedule planning, as airlines must decide several months ahead whether to commit cash to bringing back and overhauling parked jets and rehire staff.
Wheel out too much capacity and the unfilled seats will deepen losses. An airline that underestimates demand, on the other hand, risks handing badly needed business to rivals. Nearly three-quarters of European routes are now under restrictions, according to UBS research - a higher proportion than at the height of the pandemic’s first wave last March-May.
Airlines are growing exasperated with governments’ refusal to drop quarantines for pre-flight COVID-19 testing. When Britain added testing requirements on top of a quarantine, Ryanair CEO Michael O’Leary decried “Another shambolic measure...what this does is it destroys all confidence in bookings,” he told the BBC on Friday.
Similar moves by Canada, Germany and Japan have drawn fire from the industry. “These governments are not interested in managing a balanced approach to the risks,” IATA Director General Alexandre de Juniac said on Tuesday. “The industry’s situation is still perilous - in fact it got worse over the year-end holiday period.”
© Laurence Frost / Sarah Young / Reuters
KJM Today Opinion - by The Aviation Oracle
Norwegian's operations at London Gatwick are set to drop dramatically
The travel industry has come close to being devastated by the virus, and given the latest mutations and resultant additional travel restrictions, the challenge is indeed far from over. While many of the state-supported airlines will undoubtedly see out the storm no matter how much aid needs to be thrown at them, it is only necessary to look at the plight of carriers like Norwegian to understand the true impact that the pandemic is having (the Oslo-based carrier is withdrawing from all long haul markets and retrenching in Europe, retiring more than 30 Boeing 787 Dreamliners making in excess of 1,000 employees at London Gatwick redundant alone). Meanwhile, if further evidence was needed, in mid-January UK holiday airline Jet2 suspended all flights and holidays until late March 2021.
It is becoming very evident that, no matter whether people want / are willing to fly or not, governments are increasingly prioritising health within their countries over freedom to travel – perhaps understandably so given their need to consider the needs of local populations above all else – and that is almost inevitably mean that in the not too distant future those who have not been vaccinated will not be allowed to pass through most international borders. While some countries are forging ahead with vaccination programs at an impressive rate, even the most optimistic of plans suggest it will take most of 2020 for them to reach a high proportion of the populace – at best. And anyone who believes that those who are not vaccinated will have the freedom to travel that has been enjoyed in the past needs to think again. There are plenty of precedents for needing to meet health regulations in order to cross borders (yellow fever, etc.) and documentation (visas, etc.) so asking customers to jump though yet one more hoop is not to be seen as impossible or even unreasonable. Indeed, with industry bodies such as IATA pushing for the implementation of health passports, it seems to be almost a foregone conclusion that it will be necessary for travellers to prove their immunity before they walk through the doors of an airport terminal. It really doesn’t matter whether we are pro or anti such restrictions - make no mistake, they are almost inevitable both to open up air corridors and secure the future of the industry.
London's Heathrow has seen a staggering 72.7% drop in traffic
In 2020 London Heathrow – one of the world’s busiest international gateways – saw a 72.7% drop in traffic. Given the UK did not fully lockdown until late March, the decline is truly sobering. IATA said that 50 years of airline travel growth has been wiped out in a single year. The industry climbing out of this hole is not going to happen overnight, even if leisure passengers previously cooped up in their homes results in a flood of pent up demand as soon as barriers to travel start to drop. The speed with which people can be vaccinated means the recovery is going to be slow – especially as many of those vaccine priority groups are less likely to travel frequently. Added to this challenge is that many businesses, often employing staff lower down priority vaccination lists anyway, have learned to live with working from home and Zoom / Team meetings. Such staff may well be slow to return to the levels of travel they engaged in previously, especially as employers will be reluctant to put employees in situations risks making them ill. And these are the high-yield customers whom airlines depend on to prop up fares and deliver a margin over costs.
The foreseeable future may well see uncrowded terminals and enforced distances between passengers
Heathrow Airport Ltd
Both the limited pace of vaccine roll out and the potential slow recovery of business travel point to airlines facing headwinds for a considerable period to come. Many pundits forecast the industry will not recover to 2019 levels until 2024. Although there is limited evidence of the green shoots of growth – with even one or two new airlines emerging having been able to take advantage of cheap aircraft –there are, sadly, going to be more failures over the next three years. Indeed, once the initial euphoria for freedom to roam the globe, prompted by low fares to lure customers back, is over, it seems almost certain that tickets will have to become more expensive to enable loans to be paid back and profit to return. It may even be that the golden age of cheap travel actually withered to an unnoticed end as the virus expanded its reach.
The airline landscape has already altered dramatically as the pandemic wrought chaos with many famous names (and noted aircraft types) disappearing forever. It seems almost certain there will be further changes and casualties before any form of normality – whatever that is – returns.
© The Aviation Oracle / KJM Today 2021