Connect with us

Hi, what are you looking for?

Economy

Airlines try ultra-cheap fares to get the world flying again

The nightmare year of 2020 brought the airline industry’s first decade of sustained profitability to a shuddering halt. The coronavirus pandemic tore through in a tumultuous, unprecedented way, leaving carriers in a deep hole, along with a constellation of aerospace manufacturers, airports, and leasing firms.

This year is shaping up to be a transition year for an enterprise that takes passengers on the equivalent of 208 million annual trips around the globe. At best, the path ahead will be bumpy, with progress toward a return to travel dependent on the pace of vaccine roll-outs, access to capital, government policies, and the unpredictability of a virus that’s not yet fully understood. Still, there will be leaps, including the first commercial flights to near-space.

Here are some developments to look for over the next 12 months.

FARE WARS
Airline traffic won’t see a major boost until vaccines saturate enough of each country’s population to stamp down infection rates. Even then, it may take effort to get some people back on planes. In Europe, that’ll mean fares as low as 9.99 euros ($12.33), according to Ryanair Holdings Plc Chief Executive Officer Michael O’Leary. 

Other ideas being floated to entice travelers are free hotel stays, 2-for-1 deals, and complimentary travel insurance. Travel-pass promotions from carriers such as China Eastern Airlines Corp., which is offering unlimited flights for a single price, have proved popular and been extended into this year, while online agents show ultra-cheap trips in China for the Lunar New Year holiday next month. 

The key question is how long it’ll take to wean customers off those incentives. An upturn in leisure and family travel should hit by midyear, depending on the region. 

More lucrative business traffic is likely to trail as companies resist sending people out on the road. John Grant, chief analyst at flight-bookings specialist OAG, says it won’t be a recovery until enticements are no longer needed and carriers can manage routes for profit.

CASH QUEST
Airlines raised record amounts of money in 2020. More will be required in 2021. Stock sales and debt conversions will take on a greater importance as companies try to restore balance sheets to health. 

Governments, which ponied up $220 billion in state aid last year according to Moody’s, will continue to play a role. France and the Netherlands, the largest shareholders in Air France-KLM, are in negotiations to inject billions of euros more, while converting part of the 10.4 billion euros already loaned into hybrid debt. 

Carriers like EasyJet Plc are likely to raise more equity, while cash burn remains a concern, according to Daniel Roeska, an analyst at Sanford C. Bernstein. Some airlines are in more desperate straits. Norwegian Air Shuttle ASA’s court-supervised restructuring plan relies on attracting new investment and would largely drop the low-budget trans-Atlantic business it’s known for to focus on regional services. 

Creditors of bankrupt Thai Airways International Pcl are due to consider a rehabilitation plan in February. AirAsia X Bhd., the Malaysian long-distance carrier, and Thailand’s Nok Airlines Pcl are also due to present plans in coming months. 

US airlines will receive $15 billion in federal aid to help pay workers through March 31, on top of $25 billion in similar help provided during 2020. The U.S. Treasury Department has made billions more available in the form of loans.

AIRLINE SHAKEOUT
Dozens of airlines have disappeared or filed for bankruptcy since the pandemic began. More are on life support, in danger of getting swallowed by stronger players. 

In Germany, Deutsche Lufthansa AG is taking straight aim at holiday specialist Condor by adding routes to sunny spots like Zanzibar and Corfu. Condor, once a Lufthansa unit that in 2019 survived the failure of then-parent Thomas Cook, could make a tempting target. However, some big players like Lufthansa that accepted bailouts may be prevented from making purchases by terms of state aid packages. 

In India, Tata Sons Ltd. bought out struggling partner AirAsia Group Bhd.’s stake in a local joint venture. State-owned Air India is another potential target, possibly through Vistara, Tata’s venture with Singapore Airlines Ltd. Air India’s buyer would “definitely need to make it a lot leaner,” Bloomberg Intelligence analyst James Teo says.

SPACE TRIPS
After years of work and premature predictions, the first “ordinary” space adventurers are poised to take flight in 2021 with billionaire Richard Branson inaugurating commercial suborbital rides at Virgin Galactic Holdings Inc. 

The company has told investors its spacecraft will carry Mr. Branson from New Mexico in the first quarter and then commence services with a group of about 600 early customers who have paid as much as $250,000 a ticket. 

Mr. Branson’s venture could see competition from Jeff Bezos, who’s developing Blue Origin LLC’s New Shepard reusable rocket for suborbital rides. In October, the company performed its seventh test flight from Van Horn, Texas. It plans “a couple” more before humans fly. 

A third outfit, Elon Musk’s Space Exploration Technologies Corp., is set to fly a four-person private crew for Axiom Space Inc. late in the year. The group will have a 10-day stint aboard the International Space Station as part of NASA’s efforts to spur commercial enterprise in low-earth orbit.

WIDE-BODY WOES
While interest is starting to pick up for smaller jetliners, the market for twin-aisle aircraft from Airbus SE and Boeing Co. is “beyond grim,” said aerospace consultant Richard Aboulafia. Sales were depressed before the outbreak, and a surplus of used models will crimp demand for years. 

With long-distance travel on hold, Airbus and Boeing have seen higher retirement rates for their biggest planes within airline fleets and a dearth of new orders. 

And there’s not much sign of encouragement. Boeing is fighting to hold on to orders for the largest plane on the market, its 777-9, which is two years behind schedule. Analysts see more production-rate cuts ahead for the better-selling Boeing 787—which is also beset by production snafus—and the Airbus A350. 

Output of the less-popular A330 could go down to one a month, according to Agency Partners analyst Sash Tusa. The plane has struggled to attact orders despite a reengined version, with biggest customer AirAsia X’s financial troubles the latest blow. Still, analysts predict the program will limp on at lower rates rather than being scrapped.

WEAKER LINKS
Major airlines packed into ever smaller destinations as the boom in air travel hit its zenith in 2019. Now, they’re dropping newly unprofitable routes to stem losses. Fewer flights, smaller planes, and reduced big-city connections are eating into the economies of several tourism-dependent locations.

Some of the pullback could last indefinitely, according to OAG’s Mr. Grant. Particularly vulnerable are long-haul routes that were still in their developmental phase.

From late March, British Airways will permanently axe 13 long-haul destinations across North America, the Middle East, South Africa and Asia.

Cathay Pacific will cease operations to seven global locations as losses mount. Cities such as Manchester, England, are vulnerable to weakening links to key markets like China, while flights from Beijing to Lisbon, Barcelona and even Madrid could come under pressure as airlines re-evaluate. 

Large Middle Eastern carriers like Emirates and Qatar Airways, which thrive on whisking passengers across the world, aren’t likely to fill the gaps, according to Mr. Grant. He says they’re serving as many destinations as they realistically can, given a dearth of connecting traffic. “It’s more about getting back to pre-COVID capacity and demand levels.”

STARTUP HUSTLE
While launching an airline into the teeth of the industry’s worst-ever downturn might seem reckless, there is some logic. Financing remains cheap, and the pandemic has created a huge fleet of grounded jetliners, many owned by leasing firms desperate to find new operators. 

Planemakers are also seeking buyers for brand-new aircraft following order cancellations—Boeing’s 737 Max in particular as the model returns from a 20-month grounding. 

Incumbents have cut capacity and thousands of jobs, providing would-be rivals with a glut of experienced staff, while high debt levels limit their ability to fight back. 

Among projects underway, Cyrus Capital aims to revive Britain’s Flybe after buying the brand from administrators, while newly founded Emerald Airlines has won a contract to provide regional flights for Ireland’s Aer Lingus.

Oslo-based Flyr, set to launch in coming months, wants to pick up traffic from Norwegian, and the founders of PT Lion Mentari Airlines are said to be planning a startup in Indonesia. 

In North America, Canada’s Flair Airlines aims to expand from three jets to 50 under a new brand and management, while in Miami, Global Crossing Airlines, flying as GlobalX, plans to operate charter flights to Latin America. 

South African lessor Global Airways helped launch discounter Lift on Dec. 10 with its own surplus jets, indicating a possible new direction for finance firms stuck with idled planes.

BRAVE NEW WORLD
Just as long security lines, removing your shoes and limits on liquids have colored the post 9/11 experience of air travel, COVID is likely to herald continued use of masks, social distancing and apps for passenger records. 

“When we look back on this in five or 10 years, it’s going to be a catalyst for many changes,” says John Strickland of airline advisory firm JLS Consulting. 

Passengers are likely to demand airlines maintain their current high levels of hygiene, which could impact profitability. 

One major change that’s becoming part of the landscape is the introduction of pre-departure COVID tests.

Carriers had been pushing for the step as a way to encourage travel for months with little success before the detection of a new strain of the virus in Britain forced governments into a rethink. 

France and other European nations demanded screening for all UK passengers, while Scott Sunderman, managing director for medical and security at testing specialist Collinson Group, reports a surge in demand at London Heathrow airport after carriers including British Airways and Virgin Atlantic Airways Ltd. made checks mandatory for US-bound flights—a policy the US is itself considering for flights coming in from abroad. 

On the positive side, many airlines have eliminated change fees and refunds could get easier after an outcry when cash-strapped carriers held on to revenue for canceled flights. Improvements to processes for boarding and check-in are also likely to become permanent. — Bloomberg

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

Investing

The number of businesses going bust in England and Wales jumped last month to its highest level since the start of the pandemic, as...

Economy

Co-engineered with ZEISS, new vivo X70 highlights state-of-the-art mobile photography technology Global brand vivo remains top of mind when one thinks of premium imaging...

Investing

Half of the UK’s working mothers do not get the flexibility they ask for, while those that do work flexibly face discrimination, according to...

Economy

By Jenina P. Ibañez, Reporter   Money sent home by overseas Filipino workers (OFWs) increased for the seventh straight month as more host economies with...

Economy

The Bureau of Internal Revenue (BIR) clarified that only medicines and medical devices for the treatment of coronavirus disease 2019 (COVID-19) included in an updated government list...

Economy

Typhoon Kompasu has resulted in the worst container shipping traffic jam in months, one that now stretches throughout Southeast Asia and may take weeks to unravel. ...

You May Also Like

Investing

Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...

Economy

Ivermectin, an existing drug against parasites including head lice, has had a checkered history when it comes to treating COVID-19. The bulk of studies...

Investing

As a traditionally rigid insurance industry becomes bogged down by antiquated processes and operations, a handful of industry leaders are seeking to shake things...

Economy

US President Joseph R. Biden, Jr., will rely on ally countries to supply the bulk of the metals needed to build electric vehicles and focus on...

Disclaimer: SmartRetirementReport.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.



Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!