Economies are defrosting for the summer. Just in time for the tourism industry to recover. But it won't be colourful - companies are on a big decline after the last months and they won't be able to recover their losses.
Where to go for summer holidays
Things appear much less bleak for attractive locations in Poland at first sight. A lot of accomodations are booked - especially summer cottages. But domestic tourism will not earn much - most of the money comes from foreign tourists.
Also southern EU states will find themselves in a difficult situation without sun-thirsty tourists from the north. Some of them will be afraid of flying, or will not be able to afford to go. Others will no longer have a holiday because they took it at the beginning of the crisis. And for example, the British government has just imposed a quarantine obligation, so the prospect of going on holiday is again months away.
However, the airlines see the situation differently and are waiting for the queues of those willing to go. EasyJet is going to come back in mid-June, Ryanair in July. It wants to handle half of its usual traffic. Wizz Air is counting on the return of flights at the level of 60 percent of normal summer network and as much as 80 percent of winter network.
After the defrosting of international air traffic on Wednesday, the company was the first to declare that it is restoring traffic from Poland - immediately on the day of its opening and from all bases.
It seems that some carriers assume that people will not be scared of flying and that we will not spend money more sparingly, including on holidays.
- We think there will be far more people willing than we can handle. It is not at all passengers who are afraid to get on the plane, the problem is travel restrictions," says Jozsef Varadi, head of WizzAir, probably referring to the quarantine obligation, but maybe also the ban on flying to and from Poland, unique in the Union.
There are several questions. Will the carriers actually restore as many connections as they have announced? Will the passenger traffic be large enough to maintain these connections? Some holiday flights are already cancelled... And will the carriers not end the season with huge losses in case of lack of interest of passengers?
There is no enthusiasm among industry analysts. - The infrastructure is ready for traffic, but the fact that some airline expects such traffic is not the same as a viable prognosis - says Jacek Krawczyk, EU aviation expert.
- Airlines' plans are more ambitious than hard forecasts, UBS expert Jarrod Castle, quoted by Bloomberg, believes. According to him, the traffic will be lower than 50% in comparison to the one that usually is in summer.
CRA Moody's also indicates that the demand will be heavily reduced, both this and next year. Global traffic is expected to fall by 65-75 percent this year and by 35-55 percent next year, compared to 2019.
Castle points out that in most countries, ticket revenues in the third quarter will fall to 60% of their usual level. And for many, this summer brought the whole annual earnings, even in good times. No wonder that cheap lines still bet on the summer and make a good face despite a weak hand.
You can imagine that the carriers will launch planes and then the bosses will bite their nails when there are no passengers. - As soon as the plane goes back to flying, it comes back with 100% of the cost immediately. But the return of passengers may take longer," concluded Rickard Gustafson, head of the Scandinavian SAS airline, recently.
This carrier shows that the great self-confidence of companies in the industry is not a rule at all. SAS intends to return only 20 of the 163 aircraft by mid-June. Others are in no hurry either. The Norwegian has hibernated, and once it starts to operate again, it will only launch small planes to fly in Norway. They won't fly further until next year.
In fact, LOT is in no hurry either. According to recent announcements, it will not fly until July.
Air France-KLM will restore 20 percent of its flights throughout the summer, Virgin Atlantic Airways will only have five flights across the Atlantic. Why? Because, in fact, the connections, which will "fill up" slowly, probably are not worthwhile to start up yet.
Lufthansa is expected to restore 90 percent of short and medium sized flights and 70 percent of long-haul flights by September. But how often it will fly is unknown. Not so much, I guess, because it will cut the fleet by 100 planes and 200 others will still be grounded - until 2022. Lufthansa also wants to reduce employment by around 16 percent, which would mean 22,000 people being made redundant. According to Reuters, the trade union representing Lufthansa pilots has proposed a pay cut of up to 45 percent to protect their jobs.
The forecast of Frankfurt Airport, Lufthansa's main base, also sheds more light on the situation. The port is only counting on the return of "normal" numbers of passengers in three years time.
However, Lufthansa passengers are being tempted by attractive promises. While the government had previously warned that there will be no repatriation if someone goes on holiday despite recommendations and gets stuck somewhere, the company now says the opposite: in the event of problems, for example if someone is not allowed into the destination country, Lufthansa guarantees a return flight.
Each carrier can now mainly guess what the traffic will be - and make decisions according to how expensive a mistake they can handle. For example, Ryanair owns its own planes, so it doesn't have to pay leasing instalments. In addition, the company saves on employment costs by using outside contractors.
- Average annual profit of Ryanair over the last six years was 1 billion euro. So the airline has a huge cash reserve. What is more, it has a flexible connection grid, so if there are difficulties in one country, it can quickly move somewhere else and feel safe - says Dominik Sipiński, ch-aviation and Polityka Insight analyst.
But WizzAir already leases planes and employs them on a full-time basis, so the cost of restoring connections will be higher.
We're traveling with google
However, there is some reason for optimism. Now the traffic is 75% lower than in January, but still 30% higher than in April, the worst month in aviation history. It is also higher than the forecasts from April and March. Brian Pearce, an IATA economist, notes that we are already more likely to google information about connections than in the peak of the coronavirus, which means a change of moods.
IATA chief Alexandre De Juniac admits that low-cost airlines will do better than traditional airlines, serving business traffic, because the latter demand will grow more slowly. According to the Sanford C. Bernstein analysis center, it will be 20 percent lower if we don't find a vaccine. - We will wait even five years for the return to the previous level of these trips - announces Daniel Roeska from Sanford C. Bernstein.
Middle Eastern carriers, such as Emirates, are in the worst position, because they serve the most difficult and slowly recovering traffic: not only distant, but also business. The sheikhs already know that the shopping list for new aircraft has to be thrown away or rewritten.
- The Emirates carried 60 million people a year, it had more than 25 flights a day to India, 7-8 to Bangkok and to Sydney alone two connections a day. All this with machines for four hundred to six hundred passengers. The demand for new planes was enormous," Sebastian Mikosz, the former head of LOT and now a board member of IATA, recently told us.
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