Clouds lift as confidence returns to battered aviation industry

It has been a stream of bad news for Heathrow boss John Holland-Kaye over the past 18 months. His airport has lost nearly £3bn since the pandemic began and terminals have been mothballed, while he has been engaged in frantic government lobbying to reopen UK borders.

But in the past few weeks, the black clouds hanging over aviation seem to be lifting to reveal at least chinks of blue sky, prompting Holland-Kaye to call a meeting of airlines and ground-handlers with a new message: Make sure you are ready for flying to rebound in the coming months. 

“I think we have come out of the phase where we just batten down the hatches,” he told the Financial Times. 

This cautious optimism is slowly spreading across large parts of the ravaged airline industry, which has suffered its worst ever crisis as one of the hardest hit sectors in the pandemic, with executives betting vaccines and loosening travel restrictions have cleared the path to recovery.

Confidence is growing fastest in the US with carriers starting to report profits thanks to a buoyant domestic market, while in Europe the new upbeat mood has prompted the region’s airlines such as easyJet and Ryanair to plan a ramp up in their flying schedules during the late summer.

“We are in the midst of an unprecedented recovery,” Doug Parker, American Airlines chief executive, told analysts on the latest quarterly earnings call.

Willie Walsh, ex-head of British Airways owner IAG who runs global airline trade body Iata, added: “The recovery has definitely started in the second half, there are signs of things improving, restrictions being relaxed or removed, and we have to take positives from that.”

It is a sharp change in fortunes for an industry that has been battered by the pandemic with global airlines losing a combined $125bn in 2020 and forecast to lose another $48bn this year by Iata.

Although optimism is tempered by an uneven recovery that has been slow in parts of the world with limited access to vaccines and an awareness new variants could reverse the outlook, the outbreak of positivity is backed by the increase in the number of planes in the sky and loosening restrictions.

Since May, the number of planes in the air has risen steadily to its highest level globally since the crisis started, according to data from Citigroup, while easing restrictions and signs governments are moving towards living with Covid in key markets are at the heart of newfound confidence.

The UK has significantly loosened travel restrictions for vaccinated travellers. Even Singapore, a poster child for tough restrictions to contain the virus, this week said it aims to introduce quarantine free travel for vaccinated people in September.

Increase in passengers going through US airport checkpoints

In Europe, a late summer surge in bookings, prompted by an EU-wide digital travel pass brought in at the start of July, has boosted optimism further, confirming airline executives’ hopes that the desire to travel has been undimmed by the pandemic.

“What we are seeing empirically is there is nothing wrong with the consumer,” said Jozsef Varadi, chief executive of Hungarian-based Wizz Air. “We think the desire to travel is totally intact.”

The no-frills, low-cost airline has forecast a complete return to pre-pandemic 2019 levels of flying in August, putting it at the forefront of a recovery, led by the short-haul carriers, that is taking hold across Europe this summer.

But even some legacy airlines, hampered by the slow return of long-haul and business trips, are showing signs of optimism. Flag carrier Air France-KLM, for example, said it was confident it will return to profit this quarter.

In the US, the speed of the recovery has taken the industry by surprise, with demand for domestic flying snapping back so quickly that some flight crews have been left sleeping by baggage reclaims as airlines have failed to find enough hotels, according to unions.

There have also been fuel supply shortages at some airports, while American Airlines had to cancel hundreds of flights after not having enough pilots to keep up with demand for flights this summer.

Global airlines racked up heavy losses in recent quarters

They are problems the industry will happily face as three out of the “Big Four” US carriers reported a profit in the second quarter, with the outlier, United, predicting it would be back in profit too by the second half.

Another big plus are early signs that business travel, one of the last areas to recover, is starting to revive, while Boeing on Wednesday said it would cut 10,000 fewer jobs than it forecast in October as the market rebounds.

Even the rapid spread of the Delta variant in a largely vaccinated population, and some companies closing their offices again, has not dimmed the enthusiasm.

Still, with US borders closed to most people from the UK and Europe, the industry is waiting for the full reopening of transatlantic routes — among the busiest and most lucrative in the world. These are worth about £9bn a year in revenue to US and UK carriers, but have been stagnating at about 25 per cent of normal flight volumes for more than a year.

“We are very close to losing another peak summer season on the important transatlantic market,” Iata’s Walsh said.

After 18 months of pain, many of the world’s airlines think the worst is over © Hollie Adams/Bloomberg

The recovery is also strongly biased towards the well-vaccinated western world, with flight volumes still more than 40 per cent lower than normal in Africa, the Middle East and Asia-Pacific. Many countries without the luxury of high vaccination rates to counter the Delta variant are now in the grip of their worst outbreaks of the pandemic so far.

In Asia, the huge Chinese domestic market, which has more-or-less fully recovered, is skewing the region’s overall numbers, which are worse than headline figures suggest.

“The already dire situation has recently been compounded by new Covid-19 infections across the region due to the Delta variant, with ongoing border restrictions holding back any meaningful restart,” said Subhas Menon, the director-general of the Association of Asia Pacific Airlines.

Hopes for recovery will be “dim” until governments accelerate the vaccine rollout, he added.

Even while well vaccinated Singapore begins to look at gradually opening up, New Zealand has shut the “trans-Tasman travel bubble” with Australia. Prompted by an outbreak in Australia, it underlines an industry at the mercy of changing government policy.

Small multiple chart showing passenger numbers in North America and other regions

At the same time, Australia’s Qantas still expects a more than $1.5bn loss in the 2021 financial year, despite government support and a strong network of domestic routes.

In particular, lingering concerns over new variants means executives everywhere are conscious optimism could suddenly evaporate.

“Clearly we are on an upward trend, but I am not sure it is going to be a straight line like we all wish for,” said Wizz’s Varadi.

But, after 18 months of pain, many of the world’s airlines think the worst is over.

“We are reaching the light at the end of the tunnel,” said Luis Gallego, chief executive of BA owner IAG.

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