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Airline fees could increase to counter COVID losses

  • UK airline shares among the biggest movers in stock markets
  • British Airways CEO say cost-cutting days are over for airlines
  • London Heathrow airport’s landing fee hike bid dismissed by UK aviation regulators
  • European airline capacity slumps, but Europe-US travel hopes is boosting confidence
  • What are the highest-ranking COVID safety airlines?

UK airline shares ended higher on Monday alongside news of a return to international travel and as the UK’s “roaring” reopening comeback continues to impress investors.

The deteriorating coronavirus situation in India also drove stocks in London higher despite two cases of the Indian COVID variant being identified in Italy on Monday.

It comes after Italy imposed a travel ban on India following reports of the strain being found in Tuscany in March.

If additional cases are reported in other European countries, this could threaten the UK’s hard-won vaccine success and cause ministers to contemplate whether to slow down loosening COVID-19 restrictions.

Nonetheless, there is much to be optimistic about and news that Europe-US travel will be allowed this summer is supporting risk.

During an interview with The New York Times, EU Commission President Ursula von der Leyen hinted towards a potential return to transatlantic travel. While Mrs von der Leyen refrained from providing a timetable, the move signalled a significant change in EU policy and sent UK stocks higher at the start of the week.

London’s blue-chip FTSE 100 Index closed 24.56 points higher or by 0.4%, at 6,963.12 while the FTSE 250 ended up 205.08 points, or 0.9%, at 22,577.34.

While both indices are trading in the red on Tuesday, UK airline shares remain relatively well-supported as we head into the North American session.

Ryanair closed 0.26 points higher, or by 1.59% at 16.59, and TUi has jumped up 18.30 points or 4.41% to 433.30.

Although British Airways parent company IAG, Wizz Air Holdings and EasyJet shares slipped into the red on Tuesday, there could be more end of lockdown gains in store.

Passengers certainly have much to look forward to when COVID-19 travel restrictions are lifted as British Airways CEO Sean Doyle hinted that cost-cutting days are over for airlines as organisations will need to spend to remain competitive post-pandemic.

British Airways says airlines will prioritise offering value for money

British Airways (BA) had developed a reputation for some of its cost-cutting strategies over the last few years. The most notable being when management decided to replace the airline’s complimentary refreshments with a buy-on-board menu for short-haul flights.

However, BA CEO Sean Doyle announced earlier this week that now is not the time to introduce cost-cutting measures if airlines want to remain competitive within the travel and aviation industry.

While the airline stopped short of reintroducing complimentary catering on short-haul flights, they now offer free water and a snack to passengers.

EasyJet boss Johan Lundgren is also looking at making changes to accommodate shifting market trends and the position of airlines post-lockdown.

According to recent reports, Mr Lundgren is considering offering flights from London Heathrow Airport this year, citing the importance of flying out from large airports once international travel resumes.

However, Heathrow Airport remains an expensive choice for the budget airline. Operating flights from the UK’s busiest airport could also force the business to increase ticket prices to accommodate the cost.

EasyJet’s CEO is yet to confirm the move and given that a price war is brewing among budget airlines, it seems rather unlikely that they will see it through.

That said, London Heathrow’s recent bid to hike airline and landing fees was rejected by the Civil Aviation Authority (CAA), which could present travel firms with an opportunity if they have the finance available.

UK regulator call Heathrow airport’s airline fee hike “disproportionate”

The Civil Aviation Authority (CAA) has said that Heathrow Airport’s application to recover GBP 2.6BN by 2021-end was “disproportionate” and failed to offer any value to customers.

Britain’s busiest airport asked for an immediate adjustment of GBP 800M and the CAA to deliver the remaining funds throughout the year despite revealing that it had enough liquidity to see it through 2023.

While the UK’s aviation regulator acknowledged that depressed air travel had negatively impacted business, it said that it would reassess the issues raised at the following scheduled price review.

Instead, the CAA offered a GBP 300M adjustment to support London Heathrow and prevent short-term risks to consumers as it reopens for business.

With a strong summer recovery on the cards, the CAA insisted that a minor adjustment would incentivise the airport to make more effective plans to benefit productivity and consumers.

The CAA also said that they would allow Heathrow to raise airline fees on a limited basis – much to the dismay of airport bosses.

In a publicly made statement, Heathrow Airport said: “The CAA has failed to deliver, and their decision risks undermining investor confidence in the UK.”

Other airlines have also commented on the matter, with British Airways owner IAG stating it was disappointed by Heathrow’s bid given that it is the most expensive hub airport in the world.

IAG’s comment comes alongside data showing that passenger numbers at London’s busiest airport plummeted by 73% last year to 22.1 million – approximately half of which were recorded before the COVID-19 pandemic struck the UK.

Other European airports have also been impacted by the spread of COVID-19, which effectively wiped-out long-haul flights due to travel restrictions and border closures.

Europe’s airline capacity collapses amid the coronavirus pandemic

According to the latest data, airline capacity in Europe has plunged to its lowest levels since governments imposed their first national lockdowns at the start of 2020.

Data from the Centre for Aviation (CAPA) revealed that passenger capacity in the week commencing April 19th was 73.6% lower than the same week of 2019 and barely 2% higher than levels seen during the first COVID-19 wave.

Europe is also underperforming other regions, with passenger capacity in Africa down 54.5% in the same week, the Middle East by 52.3%, South America by 48.3%, North America by 38%, and the Asia Pacific by 31%.

While many European airlines, such as budget carrier Wizz Air, anticipate a surge in bookings this summer as travel restrictions are lifted, lockdowns are eased, and fleets return to the skies, there are still numerous factors that pose a risk to recovery plans.

Wizz Air CCO George Michalopoulos said short-term policy changes remain of significant concern to recovery moving forward and urged governments across Europe to provide certainty over border reopenings, COVID testing and quarantine requirements.

Mr Michalopoulos also called on governments to acknowledge vaccine success and containment measures in a push to ensure the travel industry can resume business operations on a sustainable and permanent basis in the coming months.

Meanwhile, Jet2 airlines, which expects to report a loss of between GBP 375M and GBP 385M for the 2020/21 financial year, has urged governments to commit to reopening plans to prevent any further financial hardship disruption.

While Jet2 remains hopeful about their post-COVID prospects, ongoing policy changes undermine booking confidence, which will inevitably translate into an additional loss for airlines.

Coronavirus: Test costs, rules and COVID safety ratings

Even if plans to restart travel go ahead this summer, the prospect of travelling abroad may feel alien after months of restrictions and coronavirus lockdowns.

While the global vaccine rollout is accelerating and talks of travel corridors are boosting hopes, a significant number of people might be anxious to fly, especially if on flights where you will be confined to a cabin for an extensive time.

Air transport rating agency Skytrax has published new data on COVID safety after conducting a two-week-long audit on airline hygiene and safety protocol.

The study was conducted on more than 40 airlines, six of which received 5* ratings! These include:

  • airBaltic
  • Fiji Airways
  • Japan Airlines (JAL)
  • Nippon Airways
  • Oman Air
  • Qatar Airways

While some of the more renowned airlines haven’t been accredited five stars, most, including household brands British Airways, Ryanair, Easyjet, Air Canada and Emirates, received 4* ratings.

That said, holidaymakers planning to travel abroad should factor in additional costs before jetting off overseas as many airlines and governments have introduced stringent COVID-19 testing requirements.

In the UK, a coronavirus test could cost anywhere between GBP 70 and GBP 250, depending on whether you go to a private clinic or need to fast-track your results.

The British government will also be implementing a traffic light system from May 17th, which assesses a country’s risk based on its infection rate, vaccination success and healthcare system.

Travellers returning from “green” list destinations will only have to present proof of a negative COVID-19 test upon arrival into the UK. However, those arriving from “amber” countries will be required to self-isolate for ten days and produce negative coronavirus tests.

Meanwhile, arrivals from “red” list destinations must self-isolate for ten days in government-designated quarantine hotels, at a cost of more than GBP 1,000 per person.