Securing Ireland’s connectivity
Demand for air travel, despite a short lived lift over the summer, has now dramatically deteriorated reflecting the spike in COVID-19 infection rates and the consequent re-imposition of restrictive lockdowns across many countries.
The financial cost to the airline and travel industry has been devastating. European airlines, with the biggest capacity drop and fastest cash burn, have suffered the impact of COVID-19 more heavily than airlines in other world regions. The top four European airline groups – IAG, Lufthansa, Air France-KLM and Ryanair – have reported aggregate losses of €3.9 billion for Q3 July-September, compared to a profit of €5.2bn in 2019, which represented almost two thirds of the combined annual profit.
Ireland is fortunate in having two airlines heavily invested in the market and provides a distinct competitive advantage for tourism providing a speedy reinstatement of services as soon as the virus in under control and consumer sentiment recovers. Foreign airlines, other than those serving a strong hub network, as is in the past will be slow to reinstate services to/from Ireland.
Ryanair, the market leader in delivering short haul visitors to Ireland, achieved a small operating profit for the quarter, although not enough to offset the losses in the preceding quarter. The airline reported a net loss of €197m for the six months April through September on an 80% drop in passengers. Ryanair has the strongest liquidity position among the top European airlines with €4.5bn cash in hand at September 30. A strong balance sheet together with its lowest cost base, means Ryanair is best positioned to emerge a winner from the crisis to fund low fares, grow its network and expand its fleet including taking delivery of 30 new Boeing 737 aircraft. The airline is expecting to bounce back in summer 2021, operating 80% capacity.
IAG, Aer Lingus’ parent, reported an operating loss of €3.2bn (before exceptional items) for the first nine months of the year on passenger revenues down by 71%. IAG’s already strong balance sheet has been boosted by a recent €2.7bn rights issue Aer Lingus, the group’s leading source of revenue and profit in recent years, is well positioned as a ‘value airline’ on the North Atlantic, and the airline’s leading source of revenue and profit in recent years, is well positioned to gain first mover advantage on transatlantic services as soon as demand resumes. US airlines are likely to be slower to restate services on thinner US-Europe routes providing a distinct advantage to Aer Lingus in gaining market share of both the Ireland inbound and outbound markets as well as attracting greater numbers on routes from North America to Europe via its Dublin hub.