European low-cost airlines could take advantage in a post-Covid world

Ryanair is EasyJet.

Horacio Villalobos | Getty Images News | Getty Images

LONDON – European low-cost airlines have clear advantages over the largest flag carriers in a post-pandemic world, analysts told CNBC, despite massive packages of support provided by world governments.

It has been a contentious time for airlines as the coronavirus pandemic has halted travel. But now, low-cost carriers appear to be showing signs of recovery compared to domestic carriers, which can often be subsidized or treated preferentially.

“You see, legacy carriers can’t move so quickly compared to cost-lost carriers outside of the pandemic,” Paul Charles, executive director of luxury travel consulting company The PC Agency, told CNBC on “Squawk Box Europe” on Monday.

The International Air Transport Association said earlier this month that international and domestic flights were picked up in July compared to June, but demand was still “much lower than pre-pandemic levels”. In Europe alone, passenger traffic was still down 56.5% from July 2019.

However, easyJet, a low-cost UK carrier, said it expects to fly up to 60% of its 2019 levels in the three months between July and September. In contrast, IAG – the owner of British Airways said it expects to only fly around 45% of its 2019 capacity during the same period.

Lufthansa, another flag carrier, predicts it will fly around 40% of its 2019 levels by 2021. The airline Ryanair, meanwhile, said its full-year fiscal traffic in March could it reaches between 90 and 100 million passengers – which would represent between 60% and 67% of the 148.6 million passengers flying throughout the year to March 2020.

Laura Hoy, equity analyst at Hargreaves Lansdown, said low-cost airlines benefit from being focused on short-haul flights. These are proving more attractive to consumers given travel restrictions and uncertainty about the pandemic.

In addition, Hoy added that amid economic uncertainty and potential for further disruption ahead, consumers are unwilling to spend much on flights, which also benefits the business model of low-cost airlines.

Ryanair shares have been up 1.8% from date to year. Shares of Wizz Air, another low-cost carrier, grew 7.5% over the same period, while easyJet fell 9%. Wizz Air had approached easyJet for a potential merger, but the latter declined the offer last week.

On the other hand, IAG is down 2.6% year-on-year and Lufthansa shares are even lower at 19.7% for that period.

The perspective

“You’re going to see the likes of easyJet being able to take more opportunities. That means potentially getting more slots, but also moving its fleet around faster to take advantage of where the demand is,” Charles from The PC Agency also said.

This is despite the massive cash injections that several governments have made since the pandemic to flag carriers, namely the € 9 billion ($ 10.6 billion) that the German government has given to Lufthansa. British Airways also received a £ 2bn loan from the UK government in December.

“The aid made him go through a bad time,” Hoy said, but he did not support his growth. Financial aid comes with a number of conditions attached, including restrictions on dividend payments, he added.

In addition, there are questions about how far governments will be willing to go to keep their flag carriers afloat. They have supported the sector, but some are facing legal action and are, in general, ripped off for money after efforts to contain the economic shock from the virus.

“There’s going to be a shift in tune,” said Charles, who “governments are trying to unload where they can, they can’t afford to keep a portion of those interests, they prefer collect them and see that private sector buyers inject more innovation into the sector ”.

“I think you’ll see some loosening over time, particularly in Europe, of some of these restrictions that carriers may have, so it’s time that you actually see more private action starting to emerge in the sector. And that’s the return. , of course, of many short-haul carriers able to take their market share from those inherited carriers, ”he added.

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