By Laurence Frost and Sarah Young
PARIS/LONDON (Reuters) – 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, as insolvent Norwegian Air finally axed its long-haul operations on Thursday.
The setbacks deal a blow to airline hopes that 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 the worst relapse – 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…
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