“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”.  

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