Europe’s low-cost airlines could have the edge in a post-Covid world
Ryanair and EasyJet airplanes.
Getty Images News by Horacio Villalobos — CNBC has learned that European low cost airlines are more attractive than larger flag carriers, in spite of the large support programs from countries around the globe.| Getty Images News | Getty Images
LONDON — European low-cost airlines have clear advantages over larger flag carriers in a post-pandemic world, analysts have told CNBC, despite the massive support packages deployed from governments around the world.
As the pandemic coronavirus brought an end to travel, it’s been difficult times for airlines. However, the low-cost carrier market is showing improvement in comparison to national airlines, who can sometimes be subsidized or receive preferential treatment.
“You are seeing legacy carriers unable to move so quickly compared with the lost-cost carriers out of the pandemic,” Paul Charles, chief executive officer of the luxury travel consultancy firm The PC Agency, told CNBC’s “Squawk Box Europe” Monday.
According to the International Air Transport Association, domestic and international flights grew in July relative to June. However demand is still far below levels before the pandemic. Europe’s passenger traffic fell 56.5% in July 2019 alone.
However, easyJet, a British low-cost carrier, said it expects to fly up to 60% of its 2019 levels in the three months between July and September. In comparison, IAG — the owner of British Airways said it only expects to fly around 45% of its 2019 capacity over the same period.
LufthansaA second flag carrier is predicting that it will fly approximately 40% of its 2019 capacity in total 2021. Budget airline Ryanair, meanwhile, said its fiscal full-year traffic to March could reach between 90 and 100 million passengers — which would represent between 60% and 67% of the 148.6 million passengers it flew in the full year to March 2020.
Hargreaves-Lansdown’s equity analyst Laura Hoy stated that low-cost carriers benefit by focusing on short-haul flights. These airlines are becoming more popular due to ongoing travel restrictions, uncertainty and the pandemic.
Hoy also stated that consumers don’t want to spend a lot on airfares due to economic uncertainty, as well as the potential for more disruption in the future. This is good news for low-cost carriers.
Ryanair shares have increased 1.8% in the past year. Wizz Air Another low-cost company, Ryanair, has seen shares rise by 7.5%, while easyJet is seeing a 9% drop. Wizz Air tried to merge with easyJet, but this offer was rejected by the latter last week.
However, IAG has fallen 2.6% and Lufthansa shares have declined by 19.7% year to date.
“You are going to see the likes of easyJet able to take up more opportunities. Charles, from The PC Agency said that this could mean more slots and moving their fleet more rapidly to capitalize on demand.
This is despite all of the cash injections different governments made to Lufthansa in the aftermath of the pandemic. The German government donated 9 billion euros ($10.6 million). British Airways also received a £2 billion loan from the U.K. government in December.
Hoy explained that although the assistance helped through some difficult times, it wasn’t a support for their growth. She added that financial assistance came with many conditions, including limitations on dividend payments.
It is unclear how far the governments are willing to go in order to maintain their flag carriers’ viability. While they have supported the sector in some cases, others are now facing legal action. In general, the government is cash strapped after the shock caused by the virus.
“There is going to be a change of tune,” Charles said, as “governments are looking to offload where they can, they can’t afford to keep some of these stakes, they would rather cash them in and see private sector buyers inject more innovation into the sector.”
I believe you’ll see some relaxations in the ownership restrictions of carriers over the years, particularly in Europe. This is the right time to see private equity start to enter the sector. This is due to the fact that many short-haul carriers are able take market share away from legacy carriers,” he said.