Ryanair Sees Opportunity as Europe’s Airline Sector Retrenches

Madhu Unnikrishnan
February 8th, 2021 at 6:00 AM EST

Recovery is unlikely to come this year, Europe’s largest low-cost carrier said, but the changing airline landscape in the region presents Ryanair with opportunities for growth as travel demand starts to return.

Ryanair, in particular, took an aggressive stance on the issue during its most recent earnings call. Several European airlines are staggering or have sought the equivalent of bankruptcy protection, including Flybe, Germanwings, Level and Montenegro Airlines, while Norwegian is completely changing its business strategy. Eurocontrol expects more airlines to exit the market in the coming years. Bankruptcies and downsizing not only take competitive capacity out of the market but also free up slots at constrained airports, Ryanair CEO Michael O’Leary told analysts last week.

Ryanair also plans to more vigorously object to what O’Leary called “illegal state aid” to carriers like Lufthansa and Air France, which he said distorts the competitive landscape.

The key to the airline industry coming back will be vaccines. Ryanair, like most European carriers, saw any gains over the summer last year evaporate as new virus variants emerged late in 2020. A more meaningful recovery won’t occur until more people are vaccinated, and O’Leary expressed hope that European governments would ease travel restrictions as vaccines roll out. “We do see unlimited post-Covid growth opportunities,” he said.

Ryanair expects to take delivery of 24 Boeing 737 Max aircraft (which the company appears to be attempting to rebrand as “Boeing Gamechangers”) this year, part of a 210 aircraft deal the carrier announced last year. By 2026, the company expects to have 600 aircraft in its fleet.

In the meantime, its most recent quarter was terrible. Ryanair reported a €306 million ($368 million) quarterly loss on revenues that were down 82 percent to €340 million. Passenger traffic plunged 78 percent to 8.1 million passengers in the quarter.

Madhu Unnikrishnan

Cargo a Big Winner for Japan’s Two Majors

International passenger traffic may have all but vanished, but for Japan’s two major carriers, ANA and Japan Airlines (JAL), cargo was a rare bright spot for the nine months that ended in December.

JAL operated more than 11,000 cargo flights on passenger aircraft to make up for diminished belly-hold capacity from the near stoppage of international passenger flights. Despite operating less freight capacity overall compared with 2019, volumes were almost at the same level, and freight revenue rose by 32 percent.

JAL’s overall revenues plunged by 68 percent in the nine-month period last year compared with 2019, to ¥357 billion ($3.3 billion). The airline carried only one-quarter of the passengers it did in 2019. JAL reported a ¥294 billion loss for the period.

Meanwhile, ANA reported record cargo revenue for its third quarter, and revenues from international cargo for the nine-month period rose 30 percent compared with 2019. The carrier reported a surge in transporting medical equipment early in the year, and then a surge for electronics from August. ANA also operated cargo-only flights on passenger aircraft to offset the decline in belly-hold capacity, and it started flying freighter flights to Frankfurt and Bangkok.

ANA lost $3.4 billion in the nine-month period, on revenues that fell by two-thirds to just under $5 billion. The carrier is slashing its international route network as travel demand remains depressed. ANA’s Peach unit operated at 42 percent of its 2019 capacity for the nine months that ended in December 2020. Revenues for the unit fell by 76 percent.

Madhu Unnikrishnan

Allegiant Plots Growth and Plans to Recall Workers

Allegiant Air is leaning in to the leisure-first recovery in air travel with plans to be among the first U.S. carriers to grow beyond its pre-coronavirus pandemic schedule.

The Las Vegas-based low-cost carrier plans to grow capacity 0.5-5.5 percent in the first quarter compared to the same period in 2019, said CEO Maurice Gallagher Jr. during a fourth quarter earnings call. A move that Allegiant’s unique model flying peak days between southern leisure destinations and smaller cities — primarily in the Midwest — makes possible, he added.

“We believe it’s time to step on the gas,” Gallagher told investors. The capacity growth comes ahead of a dramatic 21-route expansion that will see the carrier add Portland, Ore., to its map in April, and Jackson Hole, Wyo., and Key West, Fla., in June.

With the first-quarter growth, Allegiant plans to recall its previously furloughed staff to active duty. The airline furloughed roughly 130 pilots after the CARES Act expired on September 30. These crews began receiving paychecks again with the payroll support extension in December but were not actively flying.

Things only continue to get better, at least in Allegiant’s view. The airline could increase capacity by roughly 20 percent in the second half of 2021 compared to two years earlier, said Vice President of Revenue and Planning Drew Wells during the call. However, he couched this by adding if travel demand permits.

The growth is at odds with the majority of the U.S. industry. Every major carrier, from American Airlines to JetBlue Airways and Southwest Airlines, plans to be smaller — some significantly — in 2021 than in 2019. On top of that, the consensus on first-quarter demand is that it will look a lot like the fourth quarter — depressed with possible green shoots by March.

Allegiant will fuel its expansion by taking advantage of the glut in used aircraft. The carrier plans a net 13-Airbus A320 expansion of its fleet for 108 aircraft by the end of 2021. This includes returning three jets to service from storage, adding five purchased before the crisis and six purchased after Covid-19 hit. It plans to retire one Airbus jet.

The carrier’s outlook comes after it booked losses in 2020 along with nearly every other airline. Allegiant reported a net loss of $184 million for the year. Revenues slid 46 percent to $990 million on a 14 percent decline in expenses to $1.27 billion. Passenger traffic fell 42 percent on a nearly 18 percent decline in capacity.

In the final quarter of 2020, the airline’s net loss was $28.8 million on a nearly 47 percent decline in revenues to $247 million.

There is one bet that Allegiant made pre-pandemic that is not paying off: Its Sunseeker Resort. Designed as a destination in-and-of-itself near the carrier’s Punta Gorda, Fla., base, construction halted last March during the early days of the crisis with no plans yet to resume. On Thursday, Allegiant President John Redmond said they will not “invest any more meaningful capital” in the project for the foreseeable future, and added that they are looking at the possibility of seeking new investors or new debt.

Edward Russell

UPS Rides the Cargo Wave to Record Year

UPS reported a record fourth quarter and year last year, buoyed by the phenomenal growth of e-commerce as much of the world was stuck at home during the pandemic.

The cargo carrier reported that business-to-consumer (B2C) traffic grew by 20 percent and comprised two-thirds of the company’s traffic. Amazon alone was 13 percent of the company’s revenue, up from just over 11 percent in 2019. Another trend UPS reported is growth among small- and medium-sized businesses.

UPS reported growth at a time when global GDP contracted by 2 percent in the fourth quarter, bucking the usual correlation of cargo to GDP. The company reported record fourth-quarter volumes and revenues. Operating profit for the quarter grew by 26 percent to $3 billion, the highest quarterly operating profit in the company’s history.

The U.S. Food and Drug Administration cleared UPS to ship the Covid vaccines toward the end of the year. The company added 16 aircraft to its fleet in 2020 and plans to add 11 more this year.

In Other News

  • Cargo was a winner for another airline. Singapore Airlines reported cargo yields were up 113 percent, even as tonnage was dramatically reduced thanks to the collapse of longhaul flying. The group said all seven of its freighters are “fully utilized” and it has dedicated 24 passenger aircraft to all-cargo flights during the pandemic.

    Singapore will incorporate SilkAir’s fleet of Boeing 737-800s into its own fleet in March. Groupwide, the carrier ended the year with 185 passenger and cargo aircraft. The mainline increased the number of destinations it serves to 38, SilkAir to eight, and Scoot’s destinations remained unchaged at 17.

    Still, Singapore reported revenues were down 76% for its most recent quarter from the year prior, generating a SG$142 million ($106 million) quarterly loss. Combined, the group’s airlines carried 195,000 passengers in the quarter, down from 10,051,000 in 2019.
  • Wizz Air aims to end the year with 152 aircraft, up from the 137 aircraft at the end of 2020. The carrier is making the transition from an Airbus A320 to an A321 fleet, CEO Josef Varadi said during the company’s most recent earnings call.

    The airline will focus on its core Central and Eastern European markets and has rejiggered its network for what he called “sun and sea” destinations, but bookings tapered off at the end of last year after spiking in the summer. Wizz Air in the quarter opened bases in Oslo, Bari, Italy and Cardiff in the UK, and last month launched its Abu Dhabi subsidiary.

    Wizz Air’s cash position is such that it could survive for two years without operating a “single flight,” Varadi said. Still, the company’s quarter was pretty bad: revenues fell 80 percent, and the company reported a €116 million ($140 million) quarterly loss.
  • SkyWest reported a $46 million quarterly loss in the fourth quarter, and a loss of $9 million for the full year. The year ahead is impossible to predict, given shifting demand from the regional’s mainline partners, but CEO Chip Childs says the company could be break-even in the second quarter, after reporting a loss in the first quarter. Daily cash burn held steady at $250,000. Block hours are expected to be 2-3 percent higher in the first quarter than they were in the fourth quarter of last year.

    SkyWest is adding 31 Embraer E175s for United and Delta this year, and last year, it added 18 E175s for American. It will remove 62 50-seaters it flew for American and Delta this year.

    “Undoubtedly, the next several months will be turbulent, but we’re optimistic about the shape of the recovery so far,” Childs said. “As demand returns, we are confident our fleet will continue to fill a critical role in the return to travel.”
  • The numbers are in. IATA released its 2020 passenger and freight traffic reports, and the numbers for 2020 are as awful as we thought they’d be. Globally, airline passenger traffic fell by 66 percent, and capacity plunged 57 percent. Among IATA’s regions, the Middle East saw the sharpest declines, down more than 72 percent, compared with 2019. But not one region of the world reported a traffic decline of less than 60 percent in 2020. International traffic, understandably, dropped the most, with the Asia-Pacific region reporting international traffic falling by more than 80 percent. Domestic traffic did better, with Brazil leading the pack with “only” a 49 percent year-over-year decline.
  • The picture, again, was brighter for cargo, however. Freight ton kilometers dropped by 11 percent in 2020, year-over-year, but freight capacity fell by 23 percent for the year. Yields and revenues grew to records, IATA reported. The growth of e-commerce from a largely locked down population. Both Korean Air and Japan Airlines, for example, noted that cargo revenues rose, fueled by increased demand for electronics and other high-value freight. Azul said cargo revenues grew by 64 percent for the year. Global trade in goods contracted by only 6 percent, IATA noted.
  • Is it on or off? Boeing could be working on the New Midmarket Airplane, even after CEO Dave Calhoun said, on the company’s recent earnings call, that plans were on hold. The company is considering a new family of jets that would fill the niche slightly above the Airbus A321-family in size,  Aviation Week & Space Technology first reported. The new aircraft likely wouldn’t enter into service until the end of the decade, if green lighted.

Madhu Unnikrishnan

Madhu Unnikrishnan
February 8th, 2021 at 6:00 AM EST

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