EasyJet’s share price, along with other airlines, has come under increasing pressure over the last few days as the prospect of longer lockdowns and tighter restrictions has pushed back the date when air travel is able to return to some semblance of normal.
When news about the vaccine first hit the newswires back in November, travel, leisure and hospitality stocks were among some of the main beneficiaries, having borne the brunt of the sell-off in March last year.
Since those March lows last year, the shares have recovered some of their lost ground, however recent events with respect to tighter restrictions, which came into effect in December and are still in place, have placed enormous pressure on the cashflow of all the major airlines.
EasyJet share price in focus after revenue nosedives
This morning’s update from easyJet has thrown into sharp focus the pressure on the balance sheets of all the major airlines, after the low-cost carrier announced an 88% drop in Q1 revenue, a much bigger fall than expected, while saying that it expects to operate only 10% of its flights in Q2.
While the airline has said that it has enough liquidity headroom to survive a prolonged drop in capacity, the outlook for the sector still remains enormously uncertain. Having secured another £1.4bn in additional liquidity to keep going over the summer, that may well be true, however it still remains highly unlikely that anything like a semblance of normal demand will return this year which means the airline may well be forced to sell and lease back more of its fleet over the course of the rest of this year.
Wizz Air share price higher despite sharp revenue fall
Wizz Air, another budget airline, also reported a steep drop in passenger numbers this morning, a fall of 77.3% in its Q3 numbers, while revenue fell 76.5% to €149.9m.
Various travel restrictions across Europe, along with a slow vaccination programme, is likely to mean that a lot of the normal holiday destinations for European and UK travellers will be mostly off limits until next year, even if the UK manages to complete its own vaccination programme by the summer.
This idea of pent-up demand prompting a rebound in travel out of the UK, and Europe more broadly, would only make sense if other European countries had done enough to inoculate their own populations, something that doesn’t seem likely at the moment given how far behind a lot of European countries already are, particularly given the current row being played out with respect to the AstraZeneca jab.
Airlines facing uncertain outlook
It is also highly likely that some countries might ask for evidence of vaccination before allowing anyone in, particularly ahead of the autumn and winter months when the virus is likely to be more contagious, and that’s assuming there aren’t any new variants in the meantime.
There will always be some people who will probably want to get on a plane once they are able to do so, however a lot of people may well decide to stay at home rather than run the risk of being involved in the lottery of a foreign holiday, when the virus is still being tackled across the world.
A lot of airline passengers may well also be put off by the behaviour of some airline and travel companies over the past few months in dealing with customer complaints. There is some evidence that some of these companies have been less than helpful, and acted in less than good faith when it comes to dealing with customer refunds and complaints, in terms of moving flight dates and granting refunds when government restrictions change, and choosing to hide behind the small print in their terms and conditions.
All in all, its highly unlikely that the airline sector will see anything like a return to normal much before 2022, which means the next few months are likely to be very bumpy indeed.
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