Low-cost European airlines could have the edge in a post-Covid world

LONDON – Low-cost European airlines have clear advantages over major airlines in a post-pandemic world, analysts told CNBC, despite massive support programs being rolled out by governments around the world.

It has been a difficult time for airlines as the coronavirus pandemic halted travel. But today, low-cost carriers seem to be showing signs of recovery compared to national carriers, which can often be subsidized or receive preferential treatment.

“You see traditional carriers unable to move so quickly compared to lost cost carriers outside of the pandemic”, Paul Charles, CEO of luxury travel consultancy The PC Agency, told CNBC’s “Squawk Box Europe” Monday.

The International Air Transport Association said earlier this month that international and domestic flights increased in July compared to June, but demand was still “well below pre-pandemic levels.” In Europe alone, passenger traffic is still down 56.5% compared to July 2019.

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

Lufthansa, another national airline, predicts it will fly around 40% of its 2019 levels over the whole of 2021. Low-cost airline Ryanair, meanwhile, said its full-year tax traffic up to ‘in March could reach between 90 and 100 million passengers, which would represent between 60% and 67% of the 148.6 million passengers it carried in a full year until March 2020.

Laura Hoy, equity analyst at Hargreaves Lansdown, said budget airlines benefit from the focus on short-haul flights. These are proving to be more attractive to consumers given ongoing travel restrictions and the uncertainty surrounding the pandemic.

Additionally, Hoy added that amid economic uncertainty and the potential for further disruption in the future, consumers are unwilling to spend a lot on flights, which also benefits the low-cost airlines business model. .

Ryanair shares are up 1.8% since the start of the year. Shares of Wizz Air, another low-cost company, are up 7.5% over the same period, while those of easyJet are down 9%. Wizz Air had approached easyJet about a possible merger, but the latter declined the offer last week.

On the other hand, IAG is down 2.6% year-to-date and Lufthansa shares are also down 19.7% over this period.

“You’re going to see companies like easyJet able to seize more opportunities. This potentially means getting more slots, but also moving their fleets more quickly to take advantage of demand,” Charles of The PC Agency also said. .

This despite the massive injections of money that various governments have made following the pandemic to national carriers, namely the 9 billion euros (10.6 billion dollars) that the German government gave to Lufthansa. British Airways also received a £ 2 billion loan from the British government in December.

“The aid got them through a bad time,” Hoy said, but it didn’t support their growth. The financial aid came with many conditions, including restrictions on dividend payments, she added.

In addition, there are question marks as to how far governments will be willing to go to keep their national companies afloat. They have backed the industry, but some face legal action and are, in general, strapped for cash after efforts to contain the economic shock of the virus.

“There is going to be a change of tone,” said Charles, because “governments are looking to offload where they can, they can’t afford to keep some of these issues, they prefer cash it in and watch private sector buyers inject more innovation into the sector. “

“I think you will see some loosening over time, especially in Europe, of some of these restrictions on who can own carriers, so now is the time when you will see more private equity start to emerge in. And it is on the backs, of course, of many short-haul carriers capable of taking their market share from these traditional carriers, ”he added.