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AIR FRANCE-KLM

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U.K. Carriers Push Air Bridge to U.S. Amid Vaccination Success

04/06/2021 | 12:38pm EDT

By Benjamin Katz

LONDON -- British Airways and Virgin Atlantic Airways Ltd. are pushing for the establishment of a travel corridor between the U.K. and U.S. without requirements for expensive Covid-19 tests and quarantines on both sides of the Atlantic, as carriers here try to capitalize on a robust vaccination drive and falling coronavirus cases.

Contrasting that optimism, Air France-KLM Group said it won approval for another large government-financed lifeline as it faces months of reduced traffic amid soaring infections and slow vaccination efforts across continental Europe.

The diverging tacks highlight how a resumption of air travel is moving at significantly different speeds around the world. In the U.S., airlines are gearing up for a busy summer amid a relatively smooth vaccination drive across the country in recent months. Chinese travelers returned to airports in droves late last year, though traffic fell again at the start of the year as Covid-19 cases picked up in some parts of the country.

Travel between countries, meanwhile, has remained largely grounded amid a wide array of country-specific travel restrictions. That has hampered European carriers, dependent on international service.

"Large domestic markets are doing great," said Alex Irving, an aviation analyst at Bernstein. "Of course, Europe doesn't have that. Ultimately it depends on vaccine rollouts when governments will be comfortable unlocking their borders."

The U.K. government could be a test case. It is preparing to disclose details of plans to allow residents to fly internationally as early as next month. Speaking to reporters Tuesday, aviation executives in the U.K. pointed to new guidance from the U.S. Centers for Disease Control and Prevention saying fully vaccinated travelers can fly again with low risk to themselves and others.

In the U.S., discussions are also under way to determine what conditions are necessary for lifting restrictions on international travel, according to people familiar with the matter.

The industry has floated the idea of easing U.S.-U.K. travel requirements before, but vaccine success on both sides of the Atlantic has emboldened them to push harder now.

Executives are also pushing the U.K. government to move quickly on detailing which overseas air markets will get the green light for service, saying they need time to prepare facilities, return parked aircraft to service and bring back furloughed staff. British Airways Chief Executive Sean Doyle warned the U.K. government not to "waste the opportunity of having had an incredibly successful vaccine rollout." British Airways is a unit of International Consolidated Airlines Group SA.

U.K. airlines hope an accelerating recovery in the U.S., led by domestic travel, bodes well for a pickup in international demand. Both Delta Air Lines Inc. and United Airlines Holdings Inc. have said they may have stopped bleeding cash last month, and in mid-March U.S. airports posted their busiest weekend since March 2020.

Anticipating a surge in travel, U.S. airlines in recent weeks announced plans to fly more than 150 new domestic routes. Delta also said it would stop blocking the middle seat on its flights from May 1, while United is restarting its pilot recruitment programs. Discount operators Frontier Group Holdings Inc. and Sun Country Airlines Holdings Inc. have raised hundreds of million of dollars in separate initial public offerings as they look to ride a surge in passenger travel heading into the summer.

On continental Europe, however, new Covid-19 cases are soaring in places. Major travel markets like Germany and France have fallen behind in vaccinations, and governments have reimposed lockdowns and other pandemic restrictions.

Discounters Ryanair Holdings PLC and Hungary-based Wizz Air Holdings PLC, both heavily dependent on cross-border European flights, said demand remained depressed in March amid the rise in infections across the continent. Ryanair, Europe's biggest airline by passengers, said it flew just 500,000 passengers in March, a 95% decline from last year, while Wizz recorded a 73% drop to 480,200 travelers.

Ryanair is planning to operate at about 15% of its April 2019 capacity this month, according to aviation data firm OAG. Michael O'Leary, the Dublin-based carrier's chief executive, said last week he expects vaccination numbers to continue to rise in Portugal, Spain and Italy, setting a path for a jump in travel as early as this summer.

Air France-KLM said it was being hit by the "surge in the third wave of the pandemic in several European countries" and expects losses in the current quarter to reach 750 million euros, equivalent to $888 million. The company posted a loss of EUR1.7 billion for its most recent fiscal year.

It is still hopeful of a recovery in the summer, expecting that vaccination campaigns on the continent will speed up and lead to less-stringent travel restrictions. Still, the airline said the French government agreed to convert a shareholder loan of EUR3 billion issued last year into perpetual hybrid bonds in order to recapitalize the carrier. The government will also participate in a share capital increase to raise an additional EUR1 billion. The Dutch government is in separate talks with KLM on a similar recapitalization plan. The moves follow EUR10.4 billion in liquidity provided to Air France-KLM since the start of the pandemic.

Deutsche Lufthansa AG said it would seek shareholder approval next month to raise EUR5.5 billion to help pay down some of the EUR9 billion it received in bailouts from the German state last year.

In China, where almost all foreign travel has been barred since March 2020, domestic demand staged a recovery as airlines offered cheap deals to encourage people to fly. Monthly passenger numbers returned to pre-pandemic levels in September and in December were 10% higher than a year earlier, according to the Civil Aviation Administration of China.

But that recovery has proven fragile. A Covid-19 outbreak early this year centered on the northern city of Shijiazhuang disrupted the traditionally busy Spring Festival period. That triggered tens of millions of cancellations. Chinese airlines carried 8% fewer passengers during the holiday season, from Jan. 28 to March 8, compared with a year earlier, according to the civil aviation administration.

Wholly reliant on cross-border travel, Hong Kong's aviation sector remains largely grounded. Flagship carrier Cathay Pacific Airways Ltd. reported that it transported only 21,134 passengers in February, down 98% from a year earlier.

Alison Sider in Chicago and Trefor Moss in Shanghai contributed to this article.

Write to Benjamin Katz at ben.katz@wsj.com

(END) Dow Jones Newswires

04-06-21 1438ET

Stocks mentioned in the article
ChangeLast1st jan.
AIR FRANCE-KLM 2.24% 4.98 Real-time Quote.-2.73%
CATHAY PACIFIC AIRWAYS LIMITED 1.85% 7.15 End-of-day quote.-0.28%
DEUTSCHE LUFTHANSA AG -0.34% 10.63 Delayed Quote.-1.71%
INTERNATIONAL CONSOLIDATED AIRLINES GROUP, S.A. 0.63% 208.25 Delayed Quote.30.32%
RYANAIR HOLDINGS PLC 0.79% 16 Real-time Quote.-1.57%
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Financials
Sales 2021 14 257 M 17 085 M 17 085 M
Net income 2021 -2 579 M -3 091 M -3 091 M
Net Debt 2021 12 721 M 15 244 M 15 244 M
P/E ratio 2021 -0,96x
Yield 2021 -
Capitalization 2 129 M 2 550 M 2 551 M
EV / Sales 2021 1,04x
EV / Sales 2022 0,72x
Nbr of Employees 70 757
Free-Float 33,6%
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Mean consensus UNDERPERFORM
Number of Analysts 20
Average target price 3,53 €
Last Close Price 4,98 €
Spread / Highest target 60,6%
Spread / Average Target -29,2%
Spread / Lowest Target -98,0%
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Managers and Directors
NameTitle
Benjamin M. Smith Chief Executive Officer & Director
Frédéric Gagey Chief Financial Officer
Anne-Marie Couderc Non-Executive Chairman
Jean-Christophe Lalanne Executive Vice President-Information Technology
Maryse Aulagnon Independent Director
Sector and Competitors
1st jan.Capitalization (M$)
AIR FRANCE-KLM-2.73%2 550
DELTA AIR LINES, INC.15.99%29 730
RYANAIR HOLDINGS PLC-1.57%21 621
UNITED AIRLINES HOLDINGS, INC.29.18%18 078
AIR CHINA LIMITED9.18%17 905
CHINA SOUTHERN AIRLINES COMPANY LIMITED21.00%14 654