Warren Buffett doesn’t admit to many mistakes. Asked this weekend about his decision to dump $ 4 billion in US airline shares last May, Berkshire Hathaway chief executive replied curtly: “I don’t consider this a great moment in Berkshire history. ”

Shares of American, United and Southwest Airlines have all more than doubled in a year, and Delta’s stock price has also had it until a recent drop brought its gain below 100 for. hundred. Although most US carriers are still burning cash, they are resolutely enthusiastic about the future. “The worst is behind us,” Southwest managing director Gary Kelly said in first quarter results, and US chief Doug Parker predicted “the pace of the recovery is picking up.”

Across the Atlantic, Lufthansa CEO Carsten Spohr tried to sound just as optimistic. “We are looking to the future with some confidence and optimism,” he said. But he also had to reassure investors that “this unprecedented crisis forces us to overcome our known weaknesses, and it will make us stronger”.

Although linked by alliances, the major US and European airlines face radically different fates. The Covid-19 pandemic has exacerbated the structural differences between the two markets, putting U.S. carriers in a much stronger position to adapt to a drastically altered travel environment.

Passengers at Düsseldorf Airport. Last week, flights to Europe were down 64% from 2019 due to the pandemic, and were not helped by the slow rollout of the vaccine © Friedemann Vogel / EPA

In 2019, North America was very profitable. Most of the major carriers had used the Chapter 11 bankruptcy to cut costs. Fifteen years of consolidation had left the five major carriers (including Air Canada) with 75% of their capacity, which allowed them to increase prices.

In Europe, low-cost operator Ryanair had already made its way into the top five, a group that only controls 51 percent of capacity, and other low-cost carriers were nibbling their heels. Lufthansa and IAG, the parent company of British Airways, are fighting back with their own cheap weapons, but that work is ongoing. European national carriers are much more dependent on long-haul passengers and business travelers for profit.

Enter the pandemic. Global passenger traffic has fallen by two-thirds last year, measured in revenue passenger-kilometers, which takes into account the number of travelers and the duration of flights. The carriers exploited government assistance programs, sold planes, and put on leave or let personnel stay afloat.

Winter lockdowns dashed hopes of a quick recovery. Last month, industry group Iata predicted that global demand in 2021 would only rebound at 43% of 2019 levelsand the industry as a whole would continue to lose money.

But dig deeper and a transatlantic split emerges. US domestic demand is expected to reach 2019 levels for the second half of the year, while European domestic demand will languish less than 50 percent. And U.S. airlines will cut their collective loss in 2021 to 2.7% of their revenue, while European airlines will show loss margins of 19%.

The rapid rollout of vaccines and the pent-up desire to see families dispersed are prompting Americans to start booking domestic flights, as well as nearby beach vacations. Over 1.6 m people were screened at US airports on Sunday, the most since March 2020. No wonder the United States last week saw the launch of its first new autonomous airline since 2007.

The situation is quite different in continental Europe, where vaccines were slower to arrive and flights last week were down. 64 percent as of 2019. Uncertainty over UK travel rules has forced Heathrow Airport plan for 13 to 36 million passengers this year, up from 81 million in 2019. Low-cost carriers are better positioned to move routes; easyJet is already promising free last minute changes to avoid quarantine.

“Historically, we have compared the domestic US and Chinese markets to short-haul travel in the Single European Sky. The pandemic was a sobering reminder that it is at the heart of an international market and much more complex to restart, ”says Geoffrey Weston of Bain & Co.

Line graph of global bookings for future air travel, seven-day moving average (indices, January 1-7, 2020 = 100) showing growing demand for domestic flights does not match internationally

Business trips remain deeply depressed all over. Given the rise of video conferencing, some analysts predict demand will remain 10% below 2019 levels in 2025. Lufthansa, which used to draw 45% of income business travelers, reduces premium offerings, and expands the premium economy to attract price-conscious small businesses and burgeoning leisure travelers.

Having missed the US rebound, Buffett says he “still wouldn’t want to buy the international airline.[ly]”. But the slowdown will not last forever, even in Europe. Watch for the strongest carriers to grow organically. Why buy from a failing competitor when landing slots, planes and crews are already cheap?


Follow Brooke Masters with myFT and on Twitter

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