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Global airlines prepare for Omicron volatility, agility will be key

12/01/2021 | 02:26pm EST
FILE PHOTO: Airlines prepare for the new coronavirus Omicron variant

SYDNEY/CHICAGO (Reuters) - Global airlines are bracing for more volatility due to the Omicron coronavirus variant that could force them to juggle schedules and destinations at short notice and rely more on domestic markets where possible, analysts say.

Many travellers have already booked trips for the Christmas period, a peak season for airlines, but since news of the variant last week, there are growing industry concerns over a pause in future bookings and further delays to the already slow recovery in business travel.

On Wednesday, United Airlines Chief Executive Officer Scott Kirby said the new variant will have a near-term impact on bookings.

Fitch Ratings has lowered its global passenger traffic forecasts for 2021 and 2022, saying the emergence of new variants like Omicron highlight the likelihood that conditions would remain volatile for airlines.

"It feels a little bit like we are back to where we were a year ago and that's not a great prospect for the industry and beyond," Deirdre Fulton, a partner at consultancy MIDAS Aviation, said at an industry webinar.

The International Civil Aviation Organization (ICAO) called for a "more measured and evidence-based" response, saying "the costs of significantly restricted global air mobility affect all countries".

Airlines have been blaming a lack of consistent and stable health protocols as well as border restrictions for depressed international travel demand.

New protocols in the wake of the Omicron variant are expected to add to their headache.

The United States https://www.reuters.com/business/healthcare-pharmaceuticals/us-cdc-urges-americans-avoid-travel-niger-poland-over-covid-19-2021-11-30, for example, is moving to require that all air travellers entering the country show a negative COVID-19 test performed within one day of departure.

All non-EU travellers to mainland France, where the Omicron variant has not been detected yet, will have to show proof of a negative COVID-19 test, regardless of their vaccination status, a government spokesman said. Ireland and Portugal are also demanding that travellers produce a negative test.

Airlines are currently using a range of apps to verify test results. Delta Air Lines said it would comply with Washington's directives, but did not say if the new testing requirement would need the carrier to make any changes to its verification app.

IMPACT TO VARY BY REGION

Omicron's impact will vary by country and region due to each government's response and the diverse nature of global airlines, as well as their business models.

Japan Airlines and ANA Holdings on Wednesday suspended new reservations for international flights arriving into Japan until the end of December as the country tightens border controls.

Hong Kong's Cathay Pacific Airways, which lacks a domestic market and is operating at only 10% of pre-pandemic capacity, said it was too early to assess Omicron's impact on demand.

Airlines in countries with large, strong domestic markets like the United States, China and Russia are better shielded from the greater uncertainties of international travel.

An analysis by UBS shows U.S. carriers have not yet changed their scheduled capacity, which is running at 87% of 2019 levels in December and is expected to reach 92% of pre-COVID capacity in January.

United Airlines is launching its Newark-Cape Town route on Wednesday and Delta Air is expecting strong bookings over the Christmas period.

"In the past year, each new variant has brought a decline in bookings, but then an increase once the surge dissipates. We expect the same pattern to emerge," said Helane Becker, an analyst at Cowen and Co.

Travel booking website Kayak said international travel searches from the United States were down only 5% on Sunday - a stark contrast to a 26% fall in searches from Britain, which had tightened testing requirements for arrivals.

Major European airlines are far more dependent on international travel than their U.S. counterparts, placing them more at risk of fallout from the Omicron variant.

In Asia, countries like Australia, Japan, Singapore and Thailand had only begun to cautiously lift border restrictions in recent weeks and passenger numbers remained at fractions of pre-pandemic levels before the Omicron variant was discovered.

John Grant, chief analyst at travel data firm OAG, said moves by Japan and Australia to delay entry to some foreigners due to Omicron were "sad and frustrating" but the proportionate impact on travel was "relatively insignificant."

Airlines globally have been more agile about quickly adjusting their schedules and destinations during the pandemic and that is expected to continue, he said.

(Reporting by Jamie Freed in Sydney, Rajesh Kumar Singh in Chicago, Sakura Murakami in Tokyo, Padraic Halpin in Dublin; Editing by Kim Coghill, Mark Potter and Marguerita Choy)

By Jamie Freed and Rajesh Kumar Singh


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
ANA HOLDINGS INC. 0.00% 2360 Delayed Quote.-1.85%
CATHAY PACIFIC AIRWAYS LIMITED -0.62% 6.42 End-of-day quote.0.47%
EASYJET PLC 1.50% 634.1068 Delayed Quote.12.45%
JAPAN AIRLINES CO., LTD. 0.61% 2128 Delayed Quote.-3.69%
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Sales 2021 40 507 M 5 202 M 5 202 M
Net income 2021 -11 611 M -1 491 M -1 491 M
Net Debt 2021 69 238 M 8 891 M 8 891 M
P/E ratio 2021 -3,72x
Yield 2021 -
Capitalization 41 327 M 5 304 M 5 307 M
EV / Sales 2021 2,73x
EV / Sales 2022 1,64x
Nbr of Employees 23 100
Free-Float -
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Kin Wing Tang Chief Executive Officer & Executive Director
Rebecca Sharpe Chief Financial Officer & Executive Director
Patrick Healy Chairman
Gregory Thomas Forrest Hughes COO, Director & Chief Service Delivery Officer
John Barrie Harrison Independent Non-Executive Director
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