Clouds lift as confidence returns in struggling airline industry

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It has been a flood of bad news for Heathrow boss John Holland-Kaye over the past 18 months. The airport has lost nearly £ 3 billion since the start of the pandemic and terminals have been cocooned, while Holland-Kaye has engaged in a frantic lobbying by the government to reopen UK borders.

But over the past few weeks, black clouds hanging over aviation appear to be lifting to at least reveal gaps of blue sky, prompting Holland-Kaye to call an airline and ground support meeting with a new message: make sure you are ready to fly to bounce back in the next few months.

“I think we are out of the phase where we just closed the hatches,” he told the Financial Times.

This cautious optimism is slowly spreading through much of the ravaged airline industry, which has suffered its worst crisis as one of the worst-hit sectors in the pandemic, with executives betting on vaccines and releasing travel restrictions paved the way for the recovery.

Confidence is growing fastest in the United States, with carriers starting to profit from a vibrant domestic market, while in Europe the new optimistic mood has prompted regional airlines such as easyJet and Ryanair to plan to speed up their flight schedules at the end of the summer.

“We are in the midst of an unprecedented recovery,” Doug Parker, chief executive of American Airlines, told analysts on the latest quarterly earnings conference call.

Willie Walsh, former head of British Airways owner, International Airlines Group, who heads the global airlines trade body Iata, said: “The recovery has definitely started in the second half of the year, there are signs of improvement, the restrictions are relaxed or removed, and we have to take some positive points out of that.

This is a dramatic change in fortunes for an industry that has been hit by the pandemic, with global airlines losing $ 125 billion in 2020 and Iata expects to lose an additional $ 48 billion this year.

While optimism is tempered by an uneven recovery that has been slow in parts of the world with limited access to Covid-19 vaccines and a realization that new coronavirus variants could reverse the outlook, the epidemic of positivity is supported by increasing the number of planes in the sky and relaxing restrictions.

Since May, the number of planes in the air has steadily increased to reach its highest global level since the start of the coronavirus crisis, according to data from Citigroup, while easing restrictions and signs that the Governments preparing to live with Covid in key markets are at the heart of newfound confidence.

The UK has significantly eased travel restrictions for vaccinated travelers. Even Singapore, a child emblematic of the strict restrictions to contain the virus, said it aimed to introduce quarantine-free travel for those vaccinated in September.

Increased number of passengers passing through U.S. airport checkpoints

In Europe, an increase in bookings at the end of the summer, spurred by an EU-wide digital pass introduced in early July, further heightened optimism, confirming the hope of airline executives that the desire to travel has not been shaken by the pandemic.

“What we are seeing empirically is that there is nothing wrong with the consumer,” said Jozsef Varadi, managing director of Wizz Air, based in Hungary. “We believe that the desire to travel is totally intact. ”

The low-cost, no-frills airline has planned a full return to pre-pandemic 2019 flight levels in August, putting it at the forefront of a settling short-haul-led recovery across Europe this summer.

But even some legacy airlines, held back by the slow return of long-haul and business travel, are showing signs of optimism. Air France-KLM, for example, said it was confident it could return to profit this quarter.

In the United States, the speed of the recovery took the industry by surprise, with demand for domestic flights returning so quickly that some flight crews were left asleep by baggage claim as airlines failed to find enough hotels, according to the unions.

There have also been fuel shortages at some airports, as American Airlines has had to cancel hundreds of flights after not having enough pilots to meet flight demand this summer.

These are issues the industry will thankfully face, as three of the “big four” US carriers reported second-quarter profit, with the outlier, United Airlines, predicting that it would also return to profit in the second half.

Global airlines have suffered heavy losses in recent quarters

Another big advantage is an early sign of a recovery in business travel, one of the last areas to recover, and Boeing said on Wednesday it would cut 10,000 fewer jobs than expected in October as the market rebounded.

Even the rapid spread of the Delta coronavirus variant in a widely vaccinated population, and some businesses closing their offices again, has not quenched the enthusiasm.

Yet with US borders closed to most people in the UK and Europe, the industry is awaiting the full reopening of the transatlantic routes – some of the busiest and most lucrative in the world. These represent around £ 9bn per year in revenue for US and UK carriers, but have stagnated at around 25% of normal flight volumes for over a year.

“We are on the verge of losing another peak summer season in the important transatlantic market,” said Walsh of Iata.

The recovery is also heavily skewed in favor of the well-vaccinated Western world, with flight volumes still more than 40% below normal in Africa, the Middle East and Asia-Pacific. Many countries without the luxury of high vaccination rates to counter the Delta variant are now in the throes of their worst pandemic epidemics to date.

Small multiple graph showing the number of passengers in North America and other regions

In Asia, China’s huge domestic market, which has more or less fully recovered, skews the region’s overall numbers, which are worse than the numbers suggest.

“The already dire situation was recently compounded by new Covid-19 infections in the region due to the Delta variant, with ongoing border restrictions preventing any meaningful restart,” said Subhas Menon, chief executive of the Association of Asia Pacific Airlines. .

Hopes of recovery will be “weak” until governments speed up vaccine deployment, he added.

Although Singapore is starting to consider opening up gradually, New Zealand has closed the “trans-Tasman travel bubble” with Australia. Driven by an epidemic in Australia, it highlights an industry at the mercy of changing government policy.

At the same time, Australia’s Qantas still expects a loss of more than $ 1.5 billion in fiscal 2021, despite government backing and a strong network of domestic roads.

In particular, lingering concerns about the new variants mean leaders around the world are aware that optimism could suddenly evaporate.

“It’s clear we’re on an uptrend, but I’m not sure it’s going to be a straight line like we all want,” said Varadi of Wizz.

But after 18 months of suffering, many airlines around the world believe the worst is over. “We reach the light at the end of the tunnel,” said Luis Gallego, CEO of IAG.

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