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Regional travel is on the verge of rebounding. What Next?

On the 14th of May, last Friday, only seven commercial flights arrived at Florence Airport, according to data by Flightradar24. The city, one of the top touristic cities in Italy, had only a handful of domestic services to key cities and a couple of flights to some of the big European hubs, as travel restrictions to Italy remained tight.

This example illustrates the current state of the aviation sector in Europe. The borders were not closed, but restrictions are such that travel is virtually halted. At times during 2020 there were hopes of a recovery. These were shattered by a second wave of the pandemic, hurling travel and tourism back to the dark ages.

In January 2021, only 12.045 passengers passed through Florence Airport, compared to 185.140 during the same month of the previous year.

Although this picture is consistent throughout Europe, signs are emerging to suggest the industry is on the verge of change. First, the COVID-19 vaccination rollout is expanding beyond the elderly to the wider population.

Second, evidence from the United States indicates that once vaccinations ramp up, travel starts to rebound. And with most of the European economies heavily reliant on tourism, the EU is pushing for a reopening not as a hypothesis, but as a necessity for these countries.

Obviously the U.S. case is different because domestic travel is much more important for the industry on that side of the Atlantic and restrictions were not nearly as harsh as in Europe.,

This way, airlines are already expecting a relatively quick rebound, all things considered. In its latest investors report, Lufthansa Group (LHA.DE) said it expects 2021 to be at 40% full-year ASK capacity versus 2019; Ryanair (RYAAY) said it expects to fly 80 to 120 million passengers in its financial year 2022 (April 2021-March 2022), versus 149 million in the FY2020 (April 2019-March 2020).

So the regional rebound is knocking at Europe’s door. And as per the US experience, once it arrives, it could grow quickly. Airlines need to be prepared with aircraft and crews retrained with valid licenses and maintenance capacity.

“Travel will burst once borders within Europe reopen”, says Shakeel Adam, managing partner of German aviation consultancy firm Aviado Partners. “Airlines need to be ready. We need to prepare for something analogous to the roaring 20s; those who can travel will rush to travel.”

The rebound will no doubt be driven by growth in leisure demand which is already gaining traction.

Data from the most recent financial reports of TUI Group (TUI1.DE) show that net bookings are not only accelerating for this year’s summer compared to previous months, but in fact bookings for next year’s summer are almost three times higher for the same period in 2019 (579,000 versus 148,000).

With such fast growth airlines must be prepared for the rebound. If capturing any residual demand to generate any revenue was the challenge for network planners during the pandemic, now the same will stand true, with the difference that demand will actually exist. Airlines need to be quicker than others and need to be better at predicting which borders open first. Quick capacity adjustments will be critical and the winners will be the airlines which are most nimble.

The recovery could not come soon enough. Many airlines did not receive bailouts and are dangerously close the brink of needing to shut down -- in its latest financial report, Ryanair points out that it expects airlines will fail, driving consolidation and a faster rebound for the airlines who survive.


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