Airline analysts warn ‘the hardest part’ is yet to come - Financial Times

Airlines are struggling through their worst crisis since the first commercial service began flying passengers just over 100 years ago.

In the past week alone, US carrier American Airlines said it would cut 19,000 jobs, Australian airline Qantas announced it would shed thousands more jobs and Norwegian Air Shuttle warned it needed another rescue package — only months after securing a bailout.

Analysts warn worse is yet to come as the prospect of second waves of infection and tough government rules on quarantine cripple airlines’ ability to forecast demand. The uncertainty is jarring to an industry that thrives on being able to predict long-term passenger demand with mathematical precision and adjust its schedules accordingly.

“You are getting airlines going from zero to 70 per cent capacity in the blink of an eye then having to ramp back down,” said Mark Manduca, an aviation analyst at Citi.

Domestic passenger numbers in some markets have slowly started to recover from lockdown lows, especially in Asia. Air travel in China has fully returned from its pre-Covid-19 levels, with about 15m seats scheduled in the week to August 30, illustrating the pace of the country’s economic rebound.

Japan too has resumed normal service. Domestic travel is not subject to the same level of restrictions as cross-border flights, leaving it well positioned to lead any recovery, analysts at Moody’s said this week.

Yet international travel remains adrift, with many markets operating well below the levels they enjoyed before the pandemic. The US has scheduled only a fifth of the seats used at the start of the year, while Vietnam — after a new coronavirus outbreak — has reduced capacity by 90 per cent.

This is a particularly thorny issue for Europe’s airlines as they have the challenge of navigating a patchwork of government regulations, including quarantine restrictions in its main markets.

“Europe’s legacy carriers have the challenge of rebuilding both demand against a backdrop of damaged consumer confidence and sudden knee-jerk travel restrictions. In addition, low-cost airlines face the threat of travellers opting for private cars which for many is seen as safer and more flexible,” says John Grant of OAG, the aviation consultancy. 

Ryanair has reduced its flight schedule for September and October, blaming a resurgence of virus cases in some parts of Europe for a “notable” weakening in forward bookings.

For the moment airlines fortunes are hanging in the balance. 

“This hybrid world we are living in is actually the most painful,” Mr Manduca said. “When you put costs into place and you have to unwind the business again and bring certain routes into hibernation is the moment when you get the worst cash burn.”

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Airline analysts warn ‘the hardest part’ is yet to come - Financial Times
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