MIAMI – The air transport crisis and the very slow recovery of traffic caused by the COVID-19 pandemic have severely undermined European carriers making them potentially available prey.
The French newspaper Le Figaro decrypts a situation that, although a dim light at the end of the tunnel can be seen, a giant like United Airlines (UA) still posts a gigantic loss of US$1.4bn for the first quarter of 2021 but its CEO, Scott Kirby, sounds optimistic with a “We now see a path back to profitability” declaration.
The same attitude is shared by Ed Bastian, Delta Air Lines (DL) CEO, “We expect to generate cash in the second quarter”, both declarations being driven by air traffic showing sign of recovery in then US market during the very recent past.
The Chinese market is showing even more evident signs of recovery where the three major carriers, Air China (CA), China Eastern Airlines (MU), and China Southern Airlines (CZ), carried 48 million travelers in the course of the three first months of 2021.
This number shows a “contained” loss of “only 11%” compared to the same pre-COVID period, with an almost 7% increase in ASK (Available Seats per Kilometer), according to data published by the Chinese Civil Aviation Administration of China (CAAC).
Nevertheless, the Chinese air market has also seen the bankruptcy of the HNA Group, a giant concern owner of Hainan Airlines (HU).
The picture is not the same in Europe where airlines are still navigating in a quagmire. Eamon Brennan, CEO of Eurocontrol in charge of European airspace control, acknowledges a minus 64% in air traffic compared to 2019. In the meantime, Air France (AF), which has already cashed over US$8bn (€10bn) in aid, is again under perfusion by over US$3bn (€4bn).
KLM (KL) is waiting to receive the same aid from the Dutch government while Lufthansa Group (LH) member Austrian Airlines (OS) has already furloughed 650 jobs and is preparing to double that number while alienating several aircraft from its fleet.
All hopes for European carriers are now based on an expected summer travel recovery. LH bets on a 70% capacity increase, AF on 50% but, in the words of Ben Smith, AF-KLM CEO, “visibility is limited.” The International Air Transport Association (IATA) does not see a healthy recovery for European airlines, which are considered as “the ones with the lowest recovery in 2021” with losses ranging to US$22bn.
The reasons for this continuing negative outlook lie in the particularity of the European market which, to the contrary of the US and Chines ones which are open and more unhindered, is highly and negatively impacted by restrictions imposed by every single country in the European airspace, either under the form of PCR tests or quarantine or both, thus creating obstacles to incoming travelers from a market that should be considered domestic.
Participation of Foreign Capital
The situation may result in a financial weakness; bringing about bankruptcies, fusions, or increased participation from foreign investors or airlines with ample available funds, thus creating a new deal within the European air transportation industry. A recent example was seen by the recent recapitalization of AF where MU increased its participation up to 9.6% in AF-KL capital.
Other examples are Qatar (QR) and the IAG Group, British Airways (BR), Iberia (IB), and Vueling (Vy), Etihad (EY) and Alitalia (AZ) and now defunct Air Berlin (AB),
There is, however, a limit to the participation of foreign capitals, established by the EU Commission to the limit of 49.9%, so to avoid that a foreign concern obtains a majority of shares and takes controls.
Last but not least, another danger comes from Low-Cost Carriers (LCC), which would most probably rebound ahead of legacy carriers on the short and medium-range markets. These LCCs are comprised of Ryanair (FR), EasyJet (DS), and WizzAir (W6), to mention a few, taking a big crunch on the European market.
When prey is available, predators are not far away.
Featured image: Air France Airbus 330-200 F-GZCM – Photo: Casey Groulx/Airways