Low-cost airlines may be ‘better positioned’ for 2021 challenges

As the world races to roll out mass vaccination programs to combat Covid-19, analysts say more carriers will likely go bust this year and pre-pandemic demand won’t be returning anytime soon. But there could be one bright spot: Low-cost airlines that mostly fly domestic routes could recover faster than their larger, full-service counterparts. “There will be failures due to lack of ‘oxygen,’” said Peter Harbison, chairman emeritus of consultancy firm CAPA. “Consolidations are too hard outside domestic markets, so failures are more likely.” According to travel data company Cirium, 48 airlines failed in 2020. Last year, governments stepped in with “gravity-defying support” to keep airlines afloat, through a combination of direct funds and job support programs, Harbison explained. “Cash flow is increasingly critical and all airlines are still burning through large amounts of it,” he said, adding that at this time of the year, airlines typically accrue cash from advanced bookings for spring and summer. “But thanks to the status of infection levels in many countries and the continuing likelihood of border closures/quarantine, there’s reluctance to book ahead even despite super cheap fares and generous change/refund conditions,” Harbison said. “There are lots of variables, but I don’t think the necessary cash is going to flow in much before mid-2021, even if then.” CAPA’s prediction is that pre-pandemic levels of air travel will only be achieved in 2025 due to prolonged uncertainty around recovery, compounded by a severe drop in business travel and far fewer international seats flying.<br/>