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Recovery doesn't fly for airlines

2021-09-15T16:59:13.905Z


In the best-case scenario, the airline industry will end the year 29% below pre-pandemic levels Aircraft parked at Cotswold Airport (UK) Matthew Horwood / Getty Images From AeroMéxico to Alitalia (now ITA), the pandemic has left a trail of debts in public and private companies, which have needed large bailouts. Some rescues focused on that at some point everything would go back to being similar to 2019. But the recovery does not reach the skies. The projection for world air traffic for 2021


Aircraft parked at Cotswold Airport (UK) Matthew Horwood / Getty Images

From AeroMéxico to Alitalia (now ITA), the pandemic has left a trail of debts in public and private companies, which have needed large bailouts.

Some rescues focused on that at some point everything would go back to being similar to 2019. But the recovery does not reach the skies.

The projection for world air traffic for 2021 continues to fall, in part because the rapid contagions of the delta variant have worsened the outlook in many places in Asia, according to a forecast from the consultancy Bain & Company.

Global revenues for this year in the world of aviation are expected to be 38% lower than those of the industry before the covid, to reach in the best case the 255,000 million dollars.

Although there are more or less hopeful forecasts.

The IATA one shifts between one-time optimism and a medium-term look: its latest traffic report, published earlier this month, reflects that the revenue of passengers per kilometer of the entire industry during July was still 53% lower than pre-school levels in a traditionally lively month of vacation in the Northern Hemisphere.

In view of this, it foresees a closing of the year 29% below previous levels.

More information

  • Public fuel for Qatar Airways

Improvement by countries

International traffic improves on all continents in the face of terrible 2020, but the weakness of the Chinese market, restrictions in Australia and uneven recoveries leave the scene wide open.

The good news comes from Russia, which continued to recover internal traffic, and from coastal cities, but in Australia restrictions have returned and in China passenger volumes remain below pre-pandemic levels.

Barclays overshadows the projections of the airline industry: the industry in 2021 will remain 46% below the levels of 2019. The full recovery, if it comes, will not be until 2023.

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  • Ryanair criticizes the government for bailing out "failed airlines" like Air Europa instead of lowering rates

Be that as it may, after the worst aviation crisis in history, few dare to venture what the industry will be like in the future. Yes, as Luis Gallego, president of IAG (Iberia and British Airways) said this spring, the companies will end up being smaller and highly indebted or there will be large corporate movements. David Hohn, partner responsible for Transaction Services at KPMG in Spain, puts it in perspective: “Before the covid the sector was going to a clear consolidation. In the US, there were few companies left and the process was going to move to Asia and Europe. But now everything has changed. Companies have depreciated, and who needs to expand capacity now? Prices are on the ground, there will be purchases, but I think that the consolidation will not be so fast ”. From Everis, Javier Martí, partner of Hospitality, Travel and Leisure,points out that during the next two years demand will continue to be very volatile, with changes and restrictions. "Before the crisis, some traditional airlines were going through difficulties, so now they can come out weak if they do not take advantage of the situation to transform."

It is difficult to fix a damaged engine in mid-flight to which, as in the movie Land as you can, more and more calamities are added. Last year, falling demand for fuel brought the industry bill down from $ 186 billion to just $ 78 billion. Thousands of tons of fuel purchased in advance (with so-called

forward

contracts

)

accumulated in deposits and this caused a drop in the prices of future contracts, which in May 2020 became negative, according to IATA data. "It was as if money was thrown into a river", describes Hohn, "because many of these future contracts forced to buy a fuel that was not going to be needed." A situation that turned out to be temporary, with the recovery of the price of the barrel to 70 dollars this August. But companies now, even with higher prices, do not want to get their fingers caught again by the more than possible variants of the disease. So they have opted for higher purchase prices, but without being forced to keep the fuel. That, in the end, will affect ticket prices, experts believe. "There are exceptions, but prices are not low in general," says Martí,"And most likely they are not going to remain moderate."

There is a Swedish word,

flygskam

, which means something like "shame of flying", and which synthesizes another of the forces that row against the recovery of the sector, at least in Europe. Governments are highly sensitized to sustain the way out of the crisis by drastically reducing greenhouse gas emissions, and as global warming becomes more dramatic, many states could follow the French example and ban domestic flights that can be done by train in less than two and a half hours. That would directly impact the flights that have previously recovered, the short haul ones.

The return to normality in the long distance is at a slower pace.

Credit Suisse estimates that none of the major Europeans will need more capital in the remainder of the year after billion-dollar injections, but warns that, in cases like IAG's, if the long radius is not restored, the recovery will not be complete.

"The liquidity buffers provide enough flexibility to handle the winter in the face of a strong summer in 2022, where the pressure should be relieved," the study reads.

But not everything can be trusted to vaccination: KLM, for example, just canceled winter flights to Miami, Orlando and Las Vegas in a setback for transatlantic travel.

Winners

In this troubled river, the companies that seem more agile are being the

European

low cost

, because they have more flexible cost structures that do not depend on long distance or the business traveler segment. Ryanair and Wizz Air already achieved 82% occupancy in their ships in August, the highest percentage since March 2020. Winter will decide if the agony ends or if, as Gallego said, the jibarización is yet to come.

Source: elparis

All business articles on 2021-09-15

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