U.K. Quarantine Upends Airline Plans for Return to Flight

(Bloomberg) --

A U.K. plan to quarantine arriving air passengers threatens to upend the airline industry’s timetable for a resumption in flying over the coming summer months.

Prime Minister Boris Johnson is drawing up plans for a 14-day quarantine that may be introduced by the end of May, the government said. He will flesh out his approach to lifting the U.K. lockdown in Parliament on Monday, a day after it was outlined in a televised address to the nation.

Airlines that grounded most of their fleets since demand plummeted in March have been banking on travel to begin inching back somewhere between June and August. That time frame, now in doubt, would allow carriers to salvage a portion of the ticket revenue usually reaped during the peak summer travel season that ends in September.

The quarantine “will once and for all close the book, we think, on any lingering upside risks of a summer rebound in U.K. air travel,” Citibank analyst Mark Manduca said in a note.

With recent earnings reports, Ireland’s Ryanair Holdings Plc projected up to 50% of original planned traffic for the July-September period, while British Airways owner IAG SA penciled in about a 45% level.

Shares of airlines with a significant exposure to the U.K. slid, adding to significant losses this year. IAG fell as much as 3.7%, with Easyjet Plc dropping as much as 8.8% in London In Dublin. Ryanair declined as much as 5%.

Johnson is drawing up plans for a 14-day quarantine system to guard against a resurgence in infections, according to officials.

“We will introduce these measures with the exceptions worked out, with the flexibility we need by -- we’re aiming for the end of the month,” Foreign Secretary Dominic Raab said in a BBC radio interview. The quarantine plan would be “subject to a series of exemptions,” he said.

London Market

London, the world’s biggest market for air travel and a hub for business and tourism, was already feeling the blow from an aviation slump now in its third month. Three operators at London Gatwick -- British Airways, Virgin Atlantic Airways Ltd. and Norwegian Air Shuttle ASA -- have signaled they plan to reduce their presence, at least temporarily.

IAG Chief Executive Officer Willie Walsh, testifying to Parliament on Monday, said he was surprised by the U.K. plan.

“We had been planning to resume flying on a pretty significant basis in July,” Walsh said. “I think we’ll have to review that.”

EasyJet said quarantine procedures should only be in place for a short period and should be “regularly reviewed” to ensure they are targeted and proportionate and don’t unnecessarily constrain air travel.

European Coordination

In Europe, the International Air Transport Association has called for a coordinated approach to reopening, while acknowledging the challenges to this approach given that different countries have different infection rates.

The European Commission is due to set out recommendations to the bloc’s governments on Wednesday. The EU’s digital chief, Margrethe Vestager, told lawmakers last week that digital contact tracing apps might “enable at least some traveling during the summer.”

With a significant rebound in revenue put off until summer 2021, airlines that are heavily exposed to the U.K. market such as IAG and Easyjet may need to raise more capital, Manduca said. He estimates Easyjet may need as much as 1 billion pounds ($1.24 billion) in added equity.

The industry is calling for more government aid.

“Ministers are effectively telling people they can no longer travel for the foreseeable future and airlines will respond to that by grounding their operations,” said Tim Alderslade, CEO of industry group Airlines UK. “That is why they require urgent additional government support to get through this growing crisis.”

©2020 Bloomberg L.P.

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