European airlines will likely remain cautious about adding seating capacity for the summer travel season and beyond, given lessons learned from the experience of U.S. carriers that failed to meet surging demand in that country, International Air Transport Association director general Willie Walsh commented during the group’s Media Day on Wednesday. Walsh also amplified calls for governments to offer more clarity over plans for reopening borders as airlines express a need for lead time to prepare for reinstating capacity.
“I think we've got to recognize, for example, that a lot of aircraft that were in the fleets in 2019 have been permanently removed. So it will take time for airlines to recover their network,” said Walsh. “I think the appetite for risk amongst a lot of airlines would be significantly lower because of the impact on balance sheets.”
Walsh noted that the industry’s debt burden has increased by $220 billion to $650 billion—a figure, he added, that will likely increase further by the end of the year. “I think it's a combination of aircraft that have been retired [and] weaker balance sheets, which will discourage airlines from taking risks in terms of reintroducing parts of networks that were unprofitable or marginally profitable before the crisis,” explained Walsh.
IATA still believes total traffic will rebound to 2019 levels in 2023 or 2024, thanks largely to hesitancy by airlines to return to expansion patterns evident between 2015 and 2019, he added.
In the U.S., where domestic markets account for some 66 percent of the total, demand for travel within the country returned faster than some airlines anticipated, which, Walsh said, supports IATA’s view that pent-up demand exists elsewhere. However, given that in Europe, for example, international travel accounts for 89 percent of the market, visibility on plans for relaxing border restrictions in the EU will prove all the more important to the continent’s airlines.
“I put the U.S. to one side because…it’s a very big market with a single decision [on travel restrictions]," noted Walsh. “If you look at the EU...you've got a lot of decision-makers...If you get the timing of the increase in your network wrong, your costs are going to significantly increase.”
The IATA boss also cited the fact that European airlines’ 2021 cash burn of $81 billion didn't include fuel expenditures and much of the usual labor costs, thanks to government support programs. That point, along with the lack of traditional sales in advance of carriage that airlines enjoyed before the pandemic, suggests a cash-flow imbalance.
“You’re going to see a disconnect between the cash going in and the cash going out,” said Walsh. “And this is where I think airlines are going to be very cautious.”