World news – Airlines are dangling ultra-cheap fares to make the world fly again

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The nightmare year 2020 brought the aviation industry’s first decade of sustained profitability to a standstill. The coronavirus pandemic spread in a turbulent, unprecedented way, leaving air carriers in a deep hole along with a constellation of aerospace manufacturers, airports and leasing companies.

2021 will be a year of transition for a company that handles passengers The equivalent of 208 million trips are carried around the globe every year. At best, the road to the future will be bumpy. Progress towards return depends on the pace of vaccine adoption, access to capital, government policies, and the unpredictability of a virus that is not fully understood. Still, there will be jumps, including the first commercial flights close to space.

Air travel will not see any major boom until vaccines saturate each country’s population enough to lower infection rates. Even then, getting some people back on airplanes can take some effort. In Europe, according to Michael O’Leary, CEO of Ryanair Holdings plc, this means tariffs of only 9.99 euros.

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Other ideas designed to attract travelers include free hotel stays, 2-to-1 deals and free travel insurance.

Travel pass promotions from airlines like China Eastern Airlines Corp, which offer unlimited flights at a single price have proven popular and expanded to this year as online agents offer ultra-cheap travel in China for the next Chinese New Year holiday month. The key question is how long will it take customers to turn these incentives off. An upswing in leisure and family travel is likely to occur in the middle of the year, depending on the region.

More lucrative business transactions will likely decline as companies refuse to send people out on the streets. John Grant, chief analyst at flight booking specialist OAG, says there will be no recovery until enticements are no longer needed and airlines can manage the routes for a profit.

Airlines raised record amounts in 2020. More will be required by 2021. Stock sales and debt conversions will become more prominent as companies try to restore their health records.

The governments that Moody’s said paid $ 220 billion in state aid last year will continue to play a role. France and the Netherlands, the largest shareholders in Air France-KLM, are currently negotiating the introduction of billions more euros and converting part of the 10.4 billion euros already borrowed into hybrid debt. Carriers like EasyJet plc are likely to raise more equity while cash burn continues to be an issue, said Daniel Roeska, analyst at Sanford C Bernstein.

Some airlines are in a more desperate position. Norwegian Air Shuttle ASA’s judicial restructuring plan is based on attracting new investment and would largely abandon the transatlantic low budget business, which is known to be focused on regional services. The creditors of the bankrupt Thai Airways International pcl are expected to consider a rehabilitation plan in February. AirAsia X Bhd, the Malaysian long-haul airline, and Thailand’s Nok Airlines pcl are also expected to come up with plans in the coming months.

US airlines will receive $ 15 billion in government aid through March 31 to complete the payment of workers, in addition to $ 25 billion in similar aid provided in 2020. The US Treasury Department has provided billions more in loan form.

Since the pandemic began, dozens of airlines have disappeared or filed for bankruptcy. Others are life sustaining and run the risk of being swallowed by stronger players. In Germany, Deutsche Lufthansa AG is targeting vacation specialist Condor directly by adding routes to sunny locations like Zanzibar and Corfu. Condor, once a Lufthansa unit that survived the failure of then-parent Thomas Cook in 2019, could be a tempting target.

However, some big players like Lufthansa that have accepted bailout packages may be prevented from making purchases as part of the frame to implement state aid packages. In India, Tata Sons Ltd has bought AirAsia Group Bhd’s stake in a local joint venture. State-owned Air India is another potential target, possibly through Vistara, Tata’s company with Singapore Airlines Ltd. The Air India buyer should « definitely get a lot leaner, » says James Teo, an analyst at Bloomberg Intelligence.

While interest in smaller aircraft is growing, the market for twin-ship aircraft from Airbus SE and Boeing Co is « grim » said aerospace consultant Richard Aboulafia. Sales were down before the outbreak and an excess of used models will dampen demand for years.

Airbus and Boeing, with their long-haul journeys, have higher retirement rates for their largest aircraft in airline fleets and a lack of new orders detected. And there isn’t much evidence of encouragement. Boeing is struggling to keep orders for the largest aircraft in the market, the 777-9, which is two years behind schedule. Analysts see further reductions in production rate for the better-selling Boeing 787 – which is also plagued by production Snafus – and the Airbus A350.

According to Sash Tusa, an analyst at Agency Partners, production of the less popular A330 could decrease to a pro Month decrease. The aircraft struggled to attract orders despite a revamped version, with the financial troubles of its largest customer AirAsia X being the most recent blow. Still, analysts predict the program will hobble at lower rates instead of being scrapped.

Big airlines began tackling smaller and smaller goals as the 2019 air travel boom peaked. Now they are dropping new unprofitable routes to contain losses. Fewer flights, smaller planes and reduced city connections are putting a strain on the economies of several tourism-dependent locations.

Part of the withdrawal could continue indefinitely, according to Mr. Grant from the OAG. Long distances that are still in the development phase are particularly at risk. From the end of March, British Airways will permanently cancel 13 long-haul destinations in North America, the Middle East, South Africa and Asia. Cathay Pacific will cease operations in seven locations around the world if losses rise.

Cities like Manchester, England are vulnerable to weaker connections to key markets like China, while flights from Beijing to Lisbon, Barcelona and even Madrid are coming under pressure could if the airlines re-evaluate. Major Middle Eastern airlines like Emirates and Qatar Airways, which carry passengers around the world, are unlikely to close the gaps, Grant said. He says they are serving as many destinations as they can realistically due to the lack of link traffic. « It’s more about getting back to pre-Covid capacity and demand. » BLOOMBERG

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Ref: https://www.businesstimes.com.sg

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