European airlines can expect improving prospects towards the end of this year and next, bank HSBC has predicted, citing the progress being made on airport testing and vaccines.
Describing this month as “the darkest moment” for the continent’s carriers, the bank highlights in a note to clients that October traffic was down 80% on last year “and looks likely to be notably worse in locked-down November”.
Yet from this nadir, it expects trading conditions to improve.
“The Pfizer vaccine news has dominated the headlines, but there is a swathe of other vaccines approaching,” the bank writes, adding that “there is far greater momentum than before to use testing as a tool to reopen global travel. The aviation industry’s lobbying for pre-flight testing is also gaining some traction.”
This raises the prospect that travel corridors could be established, bolstering demand even before vaccines are rolled out.
HSBC expects European governments to begin ease lockdown restrictions around Christmas, although travel is likely to pick up regardless over the holiday period, as has been seen in the US market.
Demand for visiting friends and family and for leisure remains “strong”, writes the bank, while the levels of caution that have led to a dwindling of business travel are likely “overdone”.
Combined, these factors point to an earlier recovery of the airline sector, a reopening of long-haul and corporate travel, “and earlier return to 2019 levels”, in the view of HSBC.
The bank had previously raised concerns about Wizz’s cash burn and costs from its rapid network expansion, which would impact unit costs. “We still think this will depress earnings and cash flow in the winter; but if the path to the market opening looks better than before, Wizz will undoubtedly grow into that opportunity,” it now writes.
Cargo volumes and revenues are likely to be supported by vaccine distribution, even as belly capacity returns once travel restrictions ease, HSBC suggests.