Airlines face further turbulence ahead of vaccine relief By Reuters

4/4 © Reuters. FILE PHOTO: Geneva outbreak of coronavirus (COVID-19) 2/4

By Laurence Frost and Sarah Young PARIS / LONDON (Reuters) – During a year that is expected to mark a turning point for pandemic-hit European airlines, 2021 has gotten off to a rocky start. A resurgence of COVID-19 lockdowns has ended a fragile rebound in bookings, executives and analysts said, just as airlines expected the promise of vaccines to put the worst of the crisis behind us and set the stage for a rebound in summer. New outbreaks and travel restrictions, some designed to slow the spread of a highly infectious variant of the virus detected in Britain, have affected advance reserves that are generally relied on to generate vital cash during the rare winter months. The world body for the airline industry, IATA, believes that a return to positive cash flow “may not come before the end of the year,” said chief economist Brian Pearce. “Meanwhile, the cash burning will continue” and could even increase in Europe, Pearce said in an online conference on Wednesday. Some operators may still be out of cash, he added. For rescued airlines like Air France-KLM and Lufthansa, a longer fall increases both debt and the likelihood that more support will be needed. Europe faces some of the worst setbacks, although the so far optimistic national reserves of China and Russia have also been weakened by new restrictions. Intra-European reserves for the first half of the year are at 22% of their level 12 months ago, said Olivier Ponti of the aviation data specialist ForwardKeys. That compares with 36% of domestic bookings in the US and 48% of flights within China. ‘CARNAGE IN EUROPE’ Airlines have responded by canceling even more services. Ultra-low-cost carrier Wizz Air, which has been expanding its fleet and network during the crisis, suspends most UK routes and expects January capacity to decline by 75%. “The lockdown puts pressure on demand, and we are adjusting capacity in line with demand,” Chief Executive Jozsef Varadi told Reuters. “It’s going to be a difficult quarter.” Data provider OAG, which tracks airline schedules, predicted “a carnage in Europe” after airlines cut Western European capacity by a quarter. “The loss of about 1.5 million seats in a week is staggering,” said analyst John Grant. With another 580,000 fallen in Eastern Europe, “expectations for the coming months are grim.” Recovery hopes have fueled a rally in European airline stocks since the vaccine’s first teaser in November, before lockdown setbacks slashed average earnings to 30%, according to the Stoxx Europe Airlines Index. More optimistic investors may be getting ahead of themselves, some analysts warn. European aviation is “poised for disappointment,” said Citi analyst Mark Manduca. “We see recovery risks in the summer because, in our opinion, the (pre-flight) tests will likely stifle demand,” he added in a note. “Slower-than-expected vaccine deployments in corporate populations will likely continue to throttle the recovery in business demand.” “DESTROY CONFIDENCE” The volatile outlook greatly complicates summer schedule planning, as airlines must decide several months in advance whether to allocate cash to bring in and refit parked planes and rehire staff. Take out too much capacity and empty seats will increase losses. An airline that underestimates demand, on the other hand, runs the risk of delivering much-needed business to its rivals. Almost three-quarters of European routes are now under restrictions, according to UBS research, a higher proportion than at the height of the first wave of the pandemic last March-May. Airlines are increasingly exasperated by governments’ refusal to remove quarantines for pre-flight COVID-19 testing. When Britain added testing requirements in addition to a quarantine, Ryanair CEO Michael O’Leary condemned “another chaotic measure.” “What this does is it destroys all confidence in the reserves,” he told the BBC on Friday. Similar moves from Canada, Germany and Japan have drawn criticism from the industry. “These governments are not interested in managing a balanced approach to risk,” IATA Director General Alexandre de Juniac said Tuesday. “The situation in the industry remains dangerous; in fact, it worsened during the holiday period at the end of the year.”