Covid-19 has decimated air connectivity
Commercial flight movements at Ireland’s three main airports fell by 58% (Source: IAA release January 11, 2021), as airlines curtailed services and abandoned, at least temporarily, many routes. Ireland’s connectivity has reduced by more than two-thirds. Dublin Airport has lost service to over 100 destinations, while all other airports are experiencing severe reduction in connectivity, including the total withdrawal of international service from regional airports for periods of time.
Passenger numbers at Dublin Airport in 2020 fell by 77% , while traffic at Cork and Shannon was 79% and 78% below the previous year, with regional airports experiencing an even steeper fall in demand. The drop in inbound tourists by air was more marked as outbound Irish traffic provided a boost during the summer window of easing of restrictions.
Airlines and airports have suffered devastating income losses, massive cash burn, and job shedding in a struggle to survive.
Inbound visitor traffic has grown at a faster pace than domestic originating demand at both Dublin and Cork in recent years, while North American visitors accounted for two out of every three transatlantic passengers at Shannon. Regional airports, while catering to lower volumes of inbound traffic, are of particular importance to their local economies.
The most demonstrable impact of increased airlift on tourist arrivals in recent years has been the expansion of direct air service to Ireland from the USA, Canada and selected European gateways, while the launch of services via the Middle East, and more recently from China, drove demand from new emerging markets. Visitors from North America have increased by 66% from 2014 on the back of increased airline connectivity.
Outlook for European air services
Prior to the current travel restrictions and vaccination requirement for entry introduced in early January, the daa had forecast up to 16 million passengers in 2021, half of 2019’s all-time high of 32.9 million, with a return to pre-pandemic volumes not expected before 2024. However, forecasts can be expected to be subject to revision due to the ongoing crisis.
Latest projections from Eurocontrol suggest that flight numbers in European airspace would reach 51% of 2019 levels in 2021 and fully recover by 2026. This recovery path “factors in likely progressive vaccine deployment across Europe” during 2021, but not “full coverage” or the “disappearance” of Covid-19 in the next 12 months.
Europe’s leading low-cost carriers (LCCs) have mostly navigated through the crisis in better shape than the leading legacy airline groups. LCCs have distinct advantages over legacy rivals as demand for travel resumes. These airlines focus on short haul, where the recovery is faster, they are less reliant on business travel that is slow to recover, and they have low unit costs and so can operate with lower fares at a time of economic hardship for consumers. Moreover, Ryanair, a market leader, has a strong balance sheet and has outperformed rivals on profitability and more crucially cash with €4.5bn cash in hand at September 30, 2020.
Restoration of connectivity essential for tourism recovery
Ireland is fortunate in having two airlines – Aer Lingus and Ryanair – heavily invested in the market. This provides a distinct competitive advantage for tourism of a more speedy reinstatement of services as soon as the virus in under control and consumer sentiment recovers. Foreign airlines, other than those serving strong hub networks, as is in the past will be slower to reinstate services to/from Ireland.
Ryanair – the market leader in delivering short haul visitors to Ireland
Current services are massively reduced in Q1 with the airline revising downward its forecast for its financial year ending March 2021. A strong balance sheet, together with its lowest cost base, means Ryanair is best positioned amongst European airlines to emerge a winner from the crisis to fund low fares, grow its network, and expand its fleet, including taking delivery of new Boeing 737 aircraft.
The airline is well positioned to gain market share and can be expected to aggressively market its services as market conditions improve. Currently five million seats are on offer on Ireland routes in the airline’s summer schedule, marginally down on 2019. (Source: OAG Schedule Analyser) While four of the carrier’s top volume routes are between Dublin and Britain, the airline is expected to adopt a cautious approach to the reinstatement of some routes with lower demand and yield profiles, which may impact the number of routes served to/from Ireland, with airports outside of Dublin more vulnerable to any reduction in service.
Aer Lingus – Ireland’s top network carrier
Aer Lingus’ year-round services on key European trunk routes and its extensive transatlantic route network are key to the success of inbound tourism. IAG, Aer Lingus’ parent, has boosted its already strong balance sheet by a recent €2.7bn right issues and a UK back-guaranteed loan.
Aer Lingus’ investment strategy of expansion to its transatlantic network, positioned as a ‘value airline’, has delivered increasing revenue and profit in recent years, as well as driving increased numbers of tourists to Ireland. The airline is well positioned to gain first mover advantage on transatlantic services as soon as demand resumes. As US airlines are likely to be slower to restate services on thinner US-Europe routes, Aer Lingus are well positioned to gain a distinct advantage in winning increased market share of both the Ireland inbound and outbound markets as well as attracting greater numbers of transatlantic passengers on routes from North America to Europe via its Dublin hub.
The airline is expected to maintain an extensive network of European services providing high frequency connectivity with all major cities in the UK and mainland Europe as gateways for inbound tourists.
Foreign airlines serving Ireland
European legacy carriers linking Ireland with key hub airports, including BA, Lufthansa, and Air France-KLM, are expected to continue to serve Ireland, with capacity and frequency adjusted to demand patterns. Other carriers and secondary routes currently suspended may take time to re-open, as has been the experience in the past. The focus of recovery can be expected to be on routes with established records to Dublin and Cork.
The major US airlines serving Ireland are undergoing significant fleet reductions by accelerating the retirement of some models and deferring replacements. This will inevitably impact some services to Ireland – a fact already confirmed by the withdrawal of some routes serving Shannon and Dublin. The impact is likely to continue in the short to medium term, reflecting the pattern of previous recoveries.
Connectivity via Middle East hubs is expected to be maintained, while the reinstatement of the short-lived direct services from China and Hong Kong is unlikely in the short term.
Airports – short term outlook
All Irish airports have seen their traffic decimated as a consequence of the measures taken to address the virus in Ireland and across the globe. While the start of the connectivity recovery path, based on past experiences, is likely to see Dublin the preferred gateway for first wave connectivity recovery, Ireland and its gateway airport will be in competition with capital city airports around Europe to attract back services, particularly for long haul. It is expected that a slower rate of re-establishing services will be experienced at other airports.
Dublin Airport, the primary gateway for air travel, has announced an incentive scheme designed to allow airlines a higher level of confidence to commit capacity to Ireland, as market conditions improve, vaccines are rolled out and Government guidelines are further relaxed during 2021. Airlines delivering incremental traffic in any quarter above 50% and 70% of 2019 levels will benefit from graduated rebates. A similar incentive scheme for the rebuild of services is in place at Cork Airport.
Further Government financial supports will be needed to rebuild connectivity. Failure to assist the critical connectivity infrastructure and operators would severely limit the tourism recovery.
The Aviation Task Force report (July 2020), acknowledging that airlines needed to manage financial risk of route restoration, advocated a number of measures to reduce operating costs as an effective catalyst to rebuilding connectivity. The recommendations included “rebates on certain charges and per passenger sums as appropriate… to reduce the financial risk of rebuilding capacity and passenger numbers whilst meeting Government objectives on rebuilding connectivity and capacity.”
Cork, Shannon, Ireland West, Kerry and Donegal airports face a particular challenge having lost many services and incurred significant operating losses. The short-term recovery environment suggests that services to these airports will be slowest to recover, as has happened in the past, and will require specific financial supports from the State for survival. Such an approach would have to be notified to the European Commission for approval. A recent report from the Oireachtas (Issues affecting the aviation industry, December 2020) called upon the Government to engage “with the European Commission to seek derogation from State Aid rules for emergency funding to Irish airports”
While just under one in ten visitors arrive by ferry, the services provide a vital link from Britain and mainland Europe for tourists in cars and coaches. Own-car visitors tend to have a longer stay and higher spend profile than the average holiday visitor. The impact of the pandemic may also result in an increase in interest for travel by ferry, being perceived by some as offering a lesser health risk and a more environmentally friendly travel option.
The ferry operators – Irish Ferries, Stena Line and Britanny Ferries – continue to invest in Ireland routes and are offering increased capacity on routes to mainland Europe as freight demand has increased post Brexit.