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Airline industry: Borders to reopen, economic relief

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Air France-KLM CEO Benjamin Smith told AFP, “Great news,” summarizing the mood of an airline industry that has suffered tens of billions of euros in losses since governments closed borders in March 2020 in an effort to curb the pandemic.

The travel restrictions on the North Atlantic route have been particularly hard on the historic European airlines (Air France and KLM, as well as British Airways and Lufthansa), with their highly developed long-haul networks. The Franco-Dutch group made 40% of its turnover on these routes. At Lufthansa, half of the long-haul fleet was used for transatlantic flights.

“A Historic moment”
“The announcement of this Monday represents a historic moment” according to the CEO of British Airways, Sean Doyle, for whom “the world is open again” to customers who “can book with confidence”.

Due to their considerable domestic market (between 25 and 30% of their revenue), the large American companies (United, Delta, American…) welcomed “a positive step in our country’s recovery”, according to Nicholas Calio, the CEO of the trade association Airlines for America.

Airlines for Europe, its European sister organization, applauded the Biden administration’s decision, saying it will boost transatlantic traffic and tourism, and help families reunite.

“This is a big step forward” that will “boost the economy”, said Willie Walsh, the director general of the International Air Transport Association (Iata), which represents 290 airlines worldwide and 82% of global air traffic.

Blur on business travel
Washington’s announcement was hailed as an “important change in the way we manage the risks of contagion” by Iata, which called for a science-based approach to movement restrictions.

Transatlantic traffic was less than 50% of its levels in 2019, a fall from the summer of last year. This summer, the European airline industry anticipated a reopening before the busy summer season, but American officials followed Europe’s example and did not open their borders.

Colin Scarola, an analyst at CFRA Research, noted that the opening “comes a little later than we expected, given what we know about vaccine effectiveness.”

George Dimitroff, an analyst at Ascend by Cirium, an air travel data firm, warned that despite Smith’s pledge to deploy more aircraft to connect Europe and the U.S., a recovery may be slow.

“We wouldn’t expect airlines to increase rotations right away, except on the busiest routes, since some aircraft are still underutilized,” he said, noting “bigger changes in March 2022 when airlines are preparing their summer schedules.”

“If you don’t fill a plane to 75 or 80 percent, the flight will not be profitable. You need passengers on both sides of the plane,” Morningstar analyst Burkett Huey explained.

For MetaNews.

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Jonathan Hobbs is an Australian investor and author that trades on a variety of asset classes, including currencies, equities, and commodities. Jonathan’s experience as a macro trader leverages his unique writing style to combine important elements, such as technical analysis and news. The other elements that he brings into his unique writing styles are foundation analysis aimed at rational equilibrium values, evaluating the sizes and motivations of buyers and sellers, as well as identifying the needs of the buyers and sellers in the individual markets. Jonathan is committed to quality writing for new traders as well as veterans.

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