“Quarantine roulette” brings more woes for troubled airlines

Sudden new travel restrictions are yet another headwind for the aviation and holiday sector. Most carriers have had to cut capacity. Alex Rankine reports.

The travel industry is in “a tailspin”, says The Observer. While other sectors of the economy are opening back up, the government’s sudden imposition of quarantine measures on people returning from France, Malta and the Netherlands last week did more than wreck millions of holiday plans. It also puts at risk the hundreds of thousands of British jobs that depend on airports and travel operators. 

Second-quarter figures from tour giant TUI provided a vivid illustration of the damage done to airlines by the pandemic. The Anglo-German business reported a 98% fall in revenue in the period, which coincided with lockdown, says Christopher Thompson on Breakingviews. Operating cash flow in the first nine months of TUI’s financial year hit “negative €2bn”. That has forced it to take loans from the German government. TUI can only pray that a surge in advance bookings for next summer means that 2021 will be a better year.  

Who will be next? 

This summer has been an introduction to “quarantine roulette”, says Alistair Osborne in The Times. Which destination will be banned next? Now investors can join travellers in trying to anticipate governments’ sanitary edicts by gambling on travel companies. TUI says a rights issue is “one option”, but few will be mad keen to buy into a share dilution at a business valued at £2bn but with debts of “€7bn if you strip out customer deposits”.  

Britons are rapidly concluding that the only sure path is to “stay at home in the rain”, says Nils Pratley in The Guardian. Ryanair doesn’t anticipate a speedy improvement – it has cut flight capacity for the coming months by 20%. The budget airline’s plan to operate at 70% of normal levels in September had always been a long shot; easyJet’s 40% target looks more appropriate for this pandemic-scarred summer. Ryanair can afford the misstep. A low cost base and a resilient balance sheet make it one of the stronger European airlines, says Philip Georgiadis in the Financial Times. At the end of June it had more than €3.9bn in cash.  

EasyJet announced this week that it will close hubs at London Stansted, London Southend and Newcastle in response to reduced demand. The airline has taken on more debt to get through the crisis, but remains one of a handful of global carriers still boasting an investment-grade credit rating, says Lex in the same paper. Fare competition between the airlines has all but disappeared. Passengers have either decided to pay up to fly, or won’t go at any price. “Profitability” is “a long-haul destination”.  

At least one carrier, however, is looking to the long term. Hungary-based Wizz Air plans to open a new base at Gatwick, aka easyJet’s “fortress”, says Simon Calder in the Independent. The initial expansion is modest, but Wizz Air’s UK boss Owain Jones says it is “a statement of intent”.  

Recommended

Share tips of the week – 7 October
Share tips

Share tips of the week – 7 October

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
6 Oct 2022
China’s economy is heading for a sharp slowdown
Chinese economy

China’s economy is heading for a sharp slowdown

With a slowing property market, Covid lockdowns sapping growth and the CSI 300 stock index down by 22% this year, China’s economy is in trouble.
6 Oct 2022
5 of the world's best stocks
Share tips

5 of the world's best stocks

Concentrating on a few highly profitable companies that excel in their fields can reduce the overall risk in your portfolio, says Rupert Hargreaves. H…
6 Oct 2022
The dangers of derivatives as the “Goldilocks era” ends
Investment strategy

The dangers of derivatives as the “Goldilocks era” ends

That this is no longer a benign environment for investors, says Andrew Van Sickle. But – as the recent pension-fund derivatives blow-up shows – not ev…
6 Oct 2022

Most Popular

Should you take a 25% tax-free pension lump sum in instalments?
Pensions

Should you take a 25% tax-free pension lump sum in instalments?

Taking out a 25% tax-free lump sum sounds appealing but it might not be the best way to manage your pension
30 Sep 2022
Markets may have bounced, but this is not the end of the bear market
Stockmarkets

Markets may have bounced, but this is not the end of the bear market

Stocks are back on the rise, commodities and precious metals prices are up – even the pound has rebounded. But none of this is typical of bull markets…
5 Oct 2022
October’s Premium Bonds: how to check if you are a winner
Savings

October’s Premium Bonds: how to check if you are a winner

NS&I has added almost 110,000 more prizes to October’s Premium Bond draw – are you a winner?
4 Oct 2022