Airline stocks fall on Covid and demand fears

Ryanair boss Michael O'Leary remains bullish about the near-term future for passenger bookings.

Airline shares fell sharply on fears of fresh travel restrictions due to the continued spread of the Delta variant, plus the traditional back-to-school period threatening to dent family holiday bookings and wider demand.

Ryanair led the drop in European aviation stocks with a 2.8% fall, while Aer Lingus and British Airways owner IAG – already down around 25% since March – was close behind shedding nearly 2.7%. Both were down by over 3% earlier. EasyJet, Wizz, Lufthansa and Air France-KLM also saw declines.

Carriers - including Ryanair - are keeping prices low to prolong leisure demand through October. The airline is also beefing up winter timetables in a bet that the yearning for a vacation will sustain sales even in what’s normally the quietest period for European travel.

Tour operator TUI said it’s ready to add capacity in Mediterranean resorts if the opportunity arises.

At the same time, a surge in Covid cases, that has led to renewed lockdowns in Asia and a flatter travel market in the US, is threatening to strangle off a European tourism revival that’s seen capacity in the region recover to two-thirds of 2019 levels.

“There’s a risk that the really good late summer traffic we’ve seen could be a bit illusionary,” said Nick Cunningham, an analyst at Agency Partners in London. 

“With kids going back to school, and the likelihood that could bring a flare-up in cases, winter is looking much more uncertain for the airlines.” 

It remains unclear whether vaccinations will keep case numbers low over the winter, when viral infections generally surge. Any significant outbreaks are likely to trigger a deeper clampdown and put off older travellers and those without children who have the ability to travel year round.

For the moment at least, European airlines are grabbing what they can.

Ryanair has already said it will operate 250 new routes this winter, seeking to capitalise on demand from people who missed out on a summer break overseas. Wizz Air has restored 100% of pre-pandemic seating, becoming one of the few major operators worldwide to do so.

Ryanair has now said it expects to see a strong recovery in the coming three months.

"We're on track to exceed our target of 10.5 million [passengers] in August [2021],” said Ryanair group chief executive Michael O’Leary.

“And, looking out to September, October, we see that very strong recovery continuing and I'd expect to carry about 10.5 million passengers a month in September, October, November. As long as there are no adverse Covid developments, things are fair for a very strong recovery,” he said.

Lufthansa said it will generate positive cash flow this year and should be able to fully unwind a €9bn Covid rescue package next year. But, the German carrier said it is braced for a hard winter as Covid continues to spread and curbs on travel remain in place.

Elsewhere, Norwegian Air – which has emerged from bankruptcy proceedings - said it shouldn’t need to raise any more cash as bookings have lifted, although it hasn’t provided guidance for the current year.

- additional reporting Bloomberg and Reuters