| 12.6°C Dublin

Outbreak will hasten airline consolidation, predicts Davy

Close

Shrink: Norwegian will be among the carriers to become smaller, according to Davy. Photo: John Mulligan

Shrink: Norwegian will be among the carriers to become smaller, according to Davy. Photo: John Mulligan

Shrink: Norwegian will be among the carriers to become smaller, according to Davy. Photo: John Mulligan

AIRLINE traffic levels beyond the year 2022 are fated to be "well below" 2019 levels, according to Davy Stockbrokers who have predicted a more consolidated industry in Europe that could see carriers such as Norwegian and Alitalia shrink.

"European airlines could have a quick financial recovery, aided by pent-up demand and hedging at very low fuel prices," noted the broker in a report. "Fare discounting may be prevalent to kick-start demand into 2021 and beyond."

Earlier this week, Ryanair chief executive Michael O'Leary said that deep ticket discounting can be expected once carriers resume flying.

"The minute we're about to start flying again we'll start doing seat sales, and so will every other airline," he told Reuters.

He added: "Whether it's 9.99 euros, 4.99, 1.99 or 99 cents per seat, we almost don't care - our critical thing in the short term isn't to make money, it will be to get our pilots and cabin crew back flying and the aircraft back in the air."

Davy said it expects that the European airline market will follow the US model of consolidation.

"Airlines that were strong coming into this crisis should be stronger coming out," it noted.

"Many will disappear, some will be significantly smaller, Davy added. "Aircraft deferrals, lease extensions and aircraft retirements will become the norm."

Norwegian has already indicated that it intends to undertake a major debt for equity swap which will all but wipe out existing shareholders. The carrier was already struggling before the coronavirus pandemic grounded flights.

Davy noted that 95pc of earnings by airlines in Europe are in operations controlled by six carriers. But the top six carriers in Europe account for 66pc of overall capacity. In the United States, the top ten airlines control 99pc of the market.

The broker said the current crisis will "hasten" consolidation in Europe. It said that could see some of the long "tail" of European airlines disappearing, with carriers such as Norwegian and Alitalia shrinking. It predicted that even some of the stronger airlines, such as Lufthansa, may be smaller after the pandemic.

Davy also warned that restarting airlines after the crisis will be "complicated".

"We have never shut down the industry on a global scale before," it added.

Irish Independent