Airlines face more turbulence before vaccine relief

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.

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 percent of their level 12 months ago, Olivier Ponti of aviation data specialist Forward Keys said. That compares with 36 percent for US domestic bookings and 48 percent 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 percent.

“The lockdown puts strains on demand, and we’re adjusting capacity according to demand,” chief executive Jozsef Varadi said. “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 percent, 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.”

“Destroys confidence’

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. —