Europe’s Airlines Dangle Summer Bargains to Unlocked Masses
Europe’s Airlines Dangle Summer Bargains to Unlocked Masses
(Bloomberg) -- European airlines are offering some attractive discounts to people itching for an escape from months of coronavirus lockdown. But fares could rise quickly as demand picks up.
Carriers are touting promotional summer prices as they return to the skies for the first time since late March or early April. Ryanair Holdings Plc is advertising return trips from London Stansted to Seville, Spain, in mid-July for 20 pounds ($25), or Trieste in Italy for 50 pounds. The low-cost carrier’s average return fare last year was 74 euros ($83).
“It’s a great time to be a consumer,” said Mark Manduca, an analyst with Citigroup in London. “You’re going to get some great deals. Airlines are looking to fill their planes this summer.”
Prices are down about 14% for travel this month and next compared with last year, and about 10% for August, according to data provider Skytra. How long those offers last depends on how fast people shrug off concerns about the virus and their own finances, and how well airlines match capacity to demand. Discipline will be required in order to retain a measure of price control and prevent a full-blown fare war from breaking out.
Norwegian Air Shuttle ASA became the latest carrier to commit to a return on Wednesday, saying it will operate 76 short-haul
routes out of Scandinavia from July 1 using 20 planes. The move marks a rethink after the discounter said in April that
overseas flights probably wouldn't resume until next year.
Ryanair Chief Executive Officer Michael O’Leary has said a fare battle may be on the cards as European airlines chase market share in the aftermath of the pandemic.
While Ryanair touts its bargains, figures from UBS derived from an analysis of screen-scraped fares suggest the Irish company has the greatest scope to put the squeeze on rivals. Its prices are up around 20% overall for July and August versus last year. That compares with decreases across most other airlines.
Ryanair’s ability to take on full-service operators may be limited, though, by multi-billion-euro bailouts granted to companies including Deutsche Lufthansa AG and Air France-KLM, which O’Leary says will help them subsidize weaker routes. The U.K. market, Europe’s biggest, has also been muddied by a 14-day self-quarantine rule for arrivals that could put people off flying whatever the price.
Fellow discounters EasyJet Plc and Wizz Air Holdings Plc, which brought back their first services in western Europe this week, appear less enthusiastic about unleashing a fare competition at a time when European consumers generally may have concerns that go beyond the cost of a ticket.
EasyJet CEO Johan Lundgren said Monday he’ll focus on profitable routes and expects fares to gain as demand begins to match supply. While the U.K. carrier will serve 60% of its usual network in July and 75% in August, daily frequencies will be slashed, with only about 30% of normal capacity deployed.
Wizz, Eastern Europe’s biggest no-frills carrier, expects to restore 60% of normal capacity by the end the third quarter and has ambitions to add more western hubs to Vienna, Milan and London Luton. At the same time, chief Jozsef Varadi said this month he won’t be driven by pursuing market share and that the biggest concern is to restore margins and keep costs under control.
What’s unusual about the current situation is that airlines are effectively starting from scratch, having lost out on several months of sales that would have steadily filled their summer schedules heading into the year’s busy season.
That could limit the extent to which they’re able to charge more for what would usually represent late bookings — tickets purchased within three days of flying now account for 41% of sales, according to the International Air Transport Association. The airline trade group said Tuesday it’s found consumer confidence in air travel has slipped since April.
Citigroup’s Manduca predicts that Ryanair will cut fares in coming months and still fly with its planes only three-quarters full as people prove reluctant to resume travel. Pricing might not recover fully until summer 2023, he said.
UBS analyst Jarrod Castle said that while advertised prices point to fare increases at some low-cost carriers in the third quarter, airlines will seek to actively manage revenue and the build-up in capacity, leading to further fluctuations.
“Some consumers, as things open up, might still be a bit hesitant to travel but potentially there’s a price at which they do,” he said.
Asia could proviede a clue to the development of flights and fares in Europe, as the region where the Covid-19 outbreak originated has already begun a cautious return to travel.
Carriers there are rolling out promotions to entice people back on board, with discounter AirAsia Group Bhd. offering unlimited flights between 16 Malaysian cities through March 2021 for 399 ringgit ($93). Korean Air Lines Co. is giving a 15% discount on international flights for two years if booked by May 31.
In both the Asia-Pacific region and the U.S., where flying never shut down as fully as it did in many European countries, Skytra data portend an upswing in ticket prices for July and August from a year earlier, after drops of about 22% and 12%, respectively, in June.
Delta Air Lines Inc. CEO Ed Bastian, though, said last week he expects to see domestic fares down 10% to 20% on average across the U.S. Discounter Southwest Airlines Co. began a new three-day sale on Tuesday, offering tickets as low as $49 each way to some domestic destinations.
``It will be a brutal low-fare environment,’’ Southwest CEO Gary Kelly told employees on May 29. ``There are far more airline seats right now -- and there will be for some time -- than there are customers.''
While rising demand could eventually lift fares, airlines are still likely to lose money for some time. About half of the global fleet remains grounded, while costs are poised to rise as government assistance such as employment subsidies taper off.
IATA estimates carriers will lose a combined $100 billion this year and next, dwarfing the $31 billion loss during the 2008-2009 recession. European airlines will shoulder $21.5 billion of that burden in 2020.
The airlines that ultimately emerge strongest in the region will be those that focus on what consumer data is telling them and have the agility to respond while keeping costs “razor low,” according to Manduca.
“Short-term they can fill their plane at a lower price and still make money,” he said. “And in the long-term they’ll have the ability to take market share from incumbents.”
©2020 Bloomberg L.P.