Holidaymakers are driving aviation's recovery. But is it a false dawn?

Airlines that survived the pandemic intact now have a greater share of the market

Holidaymakers are packing their wheelies and heading for Europe's beaches in their droves, determined to make up for two summers of Covid curbs. This week, Ryanair chief executive Michael O'Leary said the airline hoped to fly 165 million passengers in its current financial year, ahead of the 149 million it carried in the 12 months to March 2020 before the pandemic grounded air travel. The Irish giant has 15 per cent more seats available to travellers than it did in 2019/20.

On Thursday, its rival Easyjet said bookings for the last 10 weeks were "consistently above pre-Covid levels", although, unlike Ryanair, the British carrier has fewer seats this year than it did before the virus struck. And earlier this month, Aer Lingus predicted that it could break even this year after 24 months of losses and said it aims to reach more than 90 per cent of pre-pandemic capacity.

Stephen Furlong, aviation analyst with Irish stockbrokers, Davy, says the evidence from airlines dismisses any notion that Covid would change air travel. "There is enormous pent-up demand," he says. "In European short-haul, we're at 90 per cent of 2019 capacity."

Holidaymakers

Observers always believed domestic and short-haul travel would revive fastest as the pandemic receded, while long-haul's recovery would lag. Enda Corneille, Gulf carrier Emirates' Ireland country manager, says the opposite appears to be true. "We're seeing demand right across the aircraft, business, first-class and economy," he says. "At the moment long-haul demand is out the door."

Emirates is filling up to 95 per cent of the seats on its aircraft out of Dublin. Corneille observes that the queues at its check-in desks are more like those for Malaga or other European sunspots. "It's young couples, it's families," he says, adding that people are clearly treating themselves after two years of Covid.

Some are flying to Dubai, but many are connecting on to other destinations, including India and Pakistan, Asia generally, South Africa, and Australia and New Zealand, which have just re-opened after some of the world's longest lockdowns.

Lynne Embleton, Aer Lingus chief executive, confirmed this month that its forward bookings for both long- and short-haul were strong. The Irish carrier's transatlantic routes are important to its profitability and central to its growth plans. Its owner, International Airlines' Group, expects all North Atlantic services to be close to full capacity from the end of June.

Holidaymakers are driving much of the recovery. From the Republic's perspective, the balance so far favours outward travel. April's Irish Tourism Industry Confederation dashboard recorded 740,000 overseas arrivals for the month, 21 per cent behind April 2019.

The 1.9 million travellers that the Republic had lured in 2022 to the end of last month was 35 per cent less than two years ago. Emirates is seeing a fair inward and outward balance, but a share of those flying back here are Irish people living abroad.

Business travel

Business travellers make up airlines’ other key constituency. Embleton said that, in the Republic, this group was lagging those from other countries. She put it down to the State’s cautious post-Covid re-opening rather than to any general trend.

During the pandemic, the consensus was, that once it was over, corporates would continue relying on Teams and Zoom, despite their multiple drawbacks, and that businesspeople would be slower to take to the skies than holidaymakers.

The experience to date also belies that prediction. “Teams and Zoom are really replacing the phone call,” says Furlong. He argues that small and medium-sized businesses have to travel, mostly to re-establish or maintain links with customers and suppliers.

He noted that in the US, a key Irish trade partner, United Airlines has said business travellers are back. O'Leary remarked this week that Ryanair was also seeing them return.

Emirates maintains that this cohort returned more quickly than predicted, not surprisingly led by aircraft lessors. “We’re talking to a lot of corporates who are saying they’re back travelling,” says Corneille. However, he acknowledges that leisure travellers are filling some of the carrier’s business class seats.

All this is good news for airlines that survived the crisis intact, as it leaves them with a greater share of the market. In fact, Furlong notes that Ryanair grew its market share through the pandemic as competitors closed or cut back radically. O'Leary confirmed this week that it has more than half the Irish market, while it has around 40 per cent of Italian air travel. Similarly it has carved out greater shares in many European cities including Budapest, home to rival Wizz Air and Vienna.

False dawn?

But there is a sense in some quarters that this cannot last. Dalton Philips, chief executive of DAA, the company responsible for Cork and Dublin airports, this week cautioned in a submission to regulators on passenger charges that the pent-up demand of recent months could plateau next year.

Corneille describes demand for Emirates’ services as “abnormal”, with definite signs that people are treating themselves. Holidaymakers who have booked economy seats are showing up at check-in to pay €700 or €800 more for upgrades to business or first class. There is a question over whether all this “is sustainable in the medium term”, he concedes.

Ryanair takes a different tack. O'Leary warns that, with war in Ukraine and Covid still lurking in the background, it is impossible to say definitively how things will play out in coming months. Consequently the airline has not yet made any profit forecasts for its current financial year, which ends on March 31st.

Furlong has noticed that regulated airports, including London Heathrow, tend to warn that post-Covid air travel buoyancy may not continue. However, that caution is mostly evident in submissions to regulators, in which they are going to make the strongest cases possible for increases in their passenger charges.

Nevertheless, uncertainty does still cloud the horizon. High inflation and likely interest rate increases point to a recession. O’Leary told analysts that Ryanair believed this could happen later this year but insisted that it would be good for the carrier, as people will still fly, but trade down to lower-cost airlines with obvious benefits for his business.

Furlong agrees in part with this analysis of how recessions hit airlines. “People trade down from higher cost, expensive trips to a cheaper trip and some people trade down so that they do not travel,” he says. He also notes that air travel and economic growth are linked.

Fuel costs

Fuel is a more immediate issue. Surging oil prices, most lately a consequence of Russia’s invasion of Ukraine, mean higher kerosene costs. The big players insulate themselves from this sort of volatility by hedging, a practice designed to level out risk by ensuring a large part of carriers’ bills are predictable.

Ryanair has hedged 80 per cent of its fuel needs for its current financial year at an oil price of less than $70 a barrel. Depending on the type of crude, oil was selling on Thursday for around $106 or $107 a barrel. Similarly, Aer Lingus parent IAG is 70 per cent covered, while other carriers have similar cushions in place.

O’Leary was quick to point out on Monday that Ryanair’s cover takes it into next March, when its financial year ends, while most of its rivals are only hedged to the end of December. Even at that, he predicted that high oil prices could lead to cost increases over coming months for which his company has not budgeted.

Last month, Eamon Brennan, the Irish director general of Europe's air traffic control body, Eurocontrol, warned that many carriers were not viable with oil above $100 a barrel, so it remains to be seen how these would fare while crude continued to trade above that level. He also forecast that some carriers could impose fuel surcharges as the year progressed, making flying more expensive or less attractive to consumers.

So far anyway, high oil has not taken the steam out of the recovery. Ironically, one thing that could to some extent is the industry’s own ability to deal with the post-pandemic upsurge in demand.

Air travel businesses axed vast numbers of staff during the pandemic. In the Republic, tough and lengthy restrictions led to the closure of Stobart Air and more than 5,000 people losing their jobs across the industry.

Airport queues

Around St Patrick's Day, the first bank holiday of 2022, travellers complained that security queues at Dublin Airport led to them missing flights. A lack of staff caused the problem, something DAA hopes to have almost rectified from next month. It was not the only business to experience this. British Airways cut some planned short-haul capacity, while UK airports are suffering from labour shortages.

O'Leary confirmed there were "pinch points" in airports around Europe, highlighting Dublin and Berlin, as examples. However, he added that the DAA had done "a good job" in hiring staff to deal with the problem. Corneille says that Emirates deferred restoring a second daily Dubai flight from Dublin to September, from July, because a lot of the companies servicing it at the airport are unable to get staff. That means it is "leaking" passengers to competing carriers.

Extra background security checks introduced for all aviation workers in the Republic this year were partly blamed for the problem here. However, the industry and An Garda Síochána – responsible for the checks – have worked out a compromise designed to get airlines and airports over the immediate hump.

Some airlines warned it was yet another problem likely to slow their recovery here, but no-one has actually said it will prevent them putting on all the flights they have planned for 2022.

Irish air travel’s recovery is poised to continue gaining altitude in coming months. No-one really knows how long it can maintain the momentum, but one thing is certain: you won’t find much room for social distancing on that Mediterranean beach this summer.

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