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UPDATE 1-Airlines face more turbulence before vaccine relief

Thu, 14th Jan 2021 11:32

* Lockdowns hit bookings ahead of vaccine rollouts

* Cash-burn may worsen before recovery - IATA

* European airline sector 'primed for disappointment' - Citi
(Updates with Norwegian Air long-haul closure in second
paragraph)

By Laurence Frost and Sarah Young

PARIS/LONDON, Jan 14 (Reuters) - For a year expected to mark
a turning point for pandemic-stricken European airlines, 2021 is
off to a rough start.

A resurgence of COVID-19 lockdowns has killed off a fragile
bookings upturn, executives and analysts said, as insolvent
Norwegian Air finally axed its long-haul operations on
Thursday.

The setbacks deal a blow to airline hopes that the promise
of vaccines would put the worst of the crisis behind them, and
set the stage for a summer rebound.

New outbreaks and travel restrictions - some designed to
curb the spread of a highly infectious virus variant detected in
Britain - have hit forward bookings that are usually relied upon
to bring in vital cash during the thin winter months.

Global airline industry body IATA believes a return to
positive cash flow "might not arrive before the end of the
year," Chief Economist Brian Pearce said.

"Meanwhile the cash burn is going to continue" and may even
in increase in Europe, Pearce told an online conference on
Wednesday.

Some carriers may yet run out of cash, he added. For
bailed-out airlines like Air France-KLM and Lufthansa
, a longer slump increases both debt and the likelihood
more support will be needed.

Europe faces the worst relapse - although hitherto buoyant
Chinese and Russian domestic bookings have also been weakened by
new restrictions.

Intra-European bookings for the first half of the year stand
at 22% of their level 12 months ago, Olivier Ponti of aviation
data specialist ForwardKeys said. That compares with 36% for
U.S. domestic bookings and 48% for flights within China.

'CARNAGE IN EUROPE'

Airlines have responded by cancelling yet more services.
Ultra-low-cost carrier Wizz Air, which has been
expanding its fleet and network during the crisis, is suspending
most UK routes and sees January capacity down 75%.

"The lockdown puts strains on demand, and we're adjusting
capacity according to demand," Chief Executive Jozsef Varadi
told Reuters. "It's going to be a difficult quarter."

Data provider OAG, which tracks airline schedules, predicted
"carnage in Europe" after airlines slashed western Europe
capacity by a quarter.

"A loss of some 1.5 million seats in a week is staggering,"
analyst John Grant said. With another 580,000 dropped in eastern
Europe, "expectations for the next few months are grim".

Recovery hopes have driven a share rebound for European
airlines since the first vaccine breakthrough in November,
before lockdown setbacks pared average gains to 30%, based on
the Stoxx Europe airlines index.

More bullish investors may be getting ahead of themselves,
some analysts caution.

European aviation is "primed for disappointment", Citi
analyst Mark Manduca said.

"We see recovery risks into summer because (pre-flight)
testing will in our view likely stifle demand," he added in a
note. "Slower-than-expected rollouts of vaccines to corporate
populations will likely continue to strangle a business-demand
recovery."

'DESTROYS CONFIDENCE'

The volatile outlook hugely complicates all-important summer
schedule planning, as airlines must decide several months ahead
whether to commit cash to bringing back and overhauling parked
jets and rehire staff.

Wheel out too much capacity and the unfilled seats will
deepen losses. An airline that underestimates demand, on the
other hand, risks handing badly needed business to rivals.

Nearly three-quarters of European routes are now under
restrictions, according to UBS research - a higher proportion
than at the height of the pandemic's first wave last March-May.

Airlines are growing exasperated with governments' refusal
to drop quarantines for pre-flight COVID-19 testing. When
Britain added testing requirements on top of a quarantine,
Ryanair CEO Michael O'Leary decried "another shambolic measure".

"What this does is it destroys all confidence in bookings,"
he told the BBC on Friday.

Similar moves by Canada, Germany and Japan have drawn fire
from the industry.

"These governments are not interested in managing a balanced
approach to the risks," IATA Director General Alexandre de
Juniac said on Tuesday.

"The industry's situation is still perilous - in fact it got
worse over the year-end holiday period."
(Reporting by Laurence Frost and Sarah Young; Editing by Pravin
Char)

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