Airline outlook dims again as new travel curbs threaten summer

By Laurence Frost and Sarah Young

LONDON (Reuters) – Recovery prospects for Europe’s coronavirus-stricken airlines are slipping from bad to worse, as a British minister warned on Tuesday against booking summer holidays and Germany mulled a drastic new clampdown on travel even within the EU.

UK consumers should “absolutely” hold off from booking holidays, said Nadhim Zahawi, the minister responsible for vaccinations. “There’s still 37,000 people in hospital with COVID at the moment – it’s far too early for us to even speculate about the summer.”

Airline shares, which had gained ground since November’s vaccine breakthroughs, have come under pressure this week amid concern that new coronavirus variants and resulting lockdowns now threaten the all-important summer season.

While major carriers have secured liquidity to survive the slump for many more months, analysts say, the latest setbacks mean some may need fresh funds to survive the following winter – tough at the best of times – and weaker airlines may fail.

Mounting restrictions and testing demands threaten more “stress and friction” throughout the summer, as well as “a more truncated recovery in demand than investors currently envisage”, Citi analyst Mark Manduca warned in a note.

The travel outlook for the Easter break – this year falling in early April – already seems almost hopeless.

German Chancellor Angela Merkel told party lawmakers on Tuesday that “no tourist travel should be taking place”, as her government weighed tougher measures.

Throughout the crisis, governments have tried to maintain travel links among EU and European Free Trade Association (EFTA) states. Over the weekend, however, Sweden barred travel from neighbour Norway in an attempt to stem the spread of new COVID-19 variants, and Belgium banned non-essential travel.

Britain is also considering mandatory confinement in “quarantine hotels” for some international arrivals, following the example of some Asian countries.

Shares in UK-exposed easyJet and British Airways parent IAG have both fallen 14% over five days amid the resurgent gloom, wiping out some of their gains since November. Ryanair has lost 6% in the same period.

And while aircraft manufacturers have been cushioned by their large pre-crisis order books, some suppliers and engine makers are feeling the heat.

Rolls-Royce further lowered its financial forecasts on Tuesday, predicting a 2 billion-pound ($2.7 billion) cash outflow this year as the collapse in flying hours hit so-called power-by-the-hour contracts as well as maintenance.

British airlines and airports warned that further travel restrictions would prove “catastrophic”, calling for a bespoke support package to help them survive the prolonged crisis.

The new curbs also threaten jobs and cargo shipments including medical equipment, industry body Airlines UK said.

Airlines’ key role in vaccine distribution is also helping some to push back against restrictions affecting staff.

KLM, part of Air France-KLM, won a partial reprieve from Dutch plans to require rapid COVID-19 tests of returning crew, after warning of cargo disruption.

(Reporting by Laurence Frost in Paris and Sarah Young in London. Editing by Mark Potter)