Airlines struck by more Covid turbulence as new travel curbs hit recovery

·5 min read
omicron turbulence - Toby Dexter for The Telegraph
omicron turbulence - Toby Dexter for The Telegraph

Shai Weiss, the boss of Virgin Atlantic was feeling bullish. “I personally don’t see the UK and US reverting to the shutting down of borders, because cases are no longer the determining factor,” he told a conference last week.

“It’s really about variants of concern that are new and dominant beyond the delta variant, and we haven’t seen one. It’s not the same playbook.”

It seems Weiss may have spoken too soon: just a few days later, omicron was added to the World Health Organisation’s variants of concern list and a flurry of travel restrictions were quick to follow.

Countries including the US and the UK blocked travel to southern African countries, where the variant was first identified, while testing restrictions are ramping up. Travellers coming into Britain must now, once again, show proof of a negative PCR test.

Fresh rules spell havoc for a travel industry that has already been decimated by the pandemic, just as it was starting to recover. By Monday morning, all signs of optimism had faded at Virgin Atlantic.

“Restrictions on travel are not a realistic long term solution to combating variants of concern,” a spokesman said.

“Protecting public health must always come first and we support all efforts to contain the spread of Covid-19. However, it’s vital that the skies remain open with minimal restrictions in place, in order to support economic recovery, keeping families connected and businesses running.”

Richard Branson
Richard Branson

The timing could not have been worse for the airline. The Telegraph reported in September that Sir Richard Branson was fighting to get lenders on board to support a flotation of Virgin Atlantic amid concerns over cash reserves.

Weeks later it appeared a float had been put on pause and, earlier this month, rumours surfaced over a planned £400m cash raise from backers to buoy the business during the winter months.

A government move to curb travel “certainly doesn’t make it any easier” for them to raise, says Liberum analyst Gerald Khoo.

Virgin Atlantic is far from the only airline which will be feeling the squeeze. While it is one of only two carriers to fly directly from the UK to South Africa – the largest of the countries to face new curbs – the tougher testing rules will weigh on passenger appetite to travel at all.

Paul Charles, a former Virgin Atlantic executive and chief of travel consultancy The PC Agency, says: “Airlines will want these measures to be very short-term. Cash is needed to keep travel firms strong during the winter period. The last thing they need is an extensive flight ban in place.”

What’s more, with the risk of rules being introduced while abroad, many potential travellers may be reconsidering their options for the coming weeks.

Gatwick airport, along with others, has warned that the requirement to self-isolate as soon as passengers arrive in the UK, until they receive a negative PCR test, “will impact demand again and hit airport revenues until it is lifted”.

A spokesman adds: “It is only in recent months that passengers have felt confident to start travelling regularly again following the previous 20 months of costly and complicated travel rules.”

Investors are clearly wary of the repercussions. Shares in British Airways’ owner IAG, easyJet and Ryanair all plunged on Friday on the prospect of weaker bookings and possible further restrictions.

Yet much remains in the balance. It comes down to how scientists assess the risk of the omicron variant: whether it is found to be more contagious and better at evading existing vaccines.

If it is, “we expect travel restrictions to deepen and endure”, HSBC said. In this scenario, one of three it has mapped out, the bank expects international travel capacity to slip to as low as 25pc.

“Financially, this scenario would be extremely challenging,” HSBC said, suggesting that stronger airlines would need to raise fresh capital, while weaker carriers “will require further rounds of fresh capital from governments or would likely fail, delivering the consolidation that was expected going into the pandemic but to date has not materialised”.

Meanwhile, the overall travel recovery would be pushed back by around a year.

For now, airlines and travel groups will be holding their breath. Frustration is already mounting at the current situation.

In certain quarters, the pervading view is that such limited curbs are fairly pointless at this stage – serving only to dent passenger appetite. Hours after omicron was added to the list of variants of concern, cases were identified in Belgium, Germany and the UK.

Signs suggest the strain may have been in the UK for at least a week, with officials tasked with tracing a case of the variant in Essex contacting people who had been at a KFC as early as November 19.

Sage scientists have previously argued against limited travel bans, saying that only with blanket bans do “we know exactly where we stand”.

Still, for Downing Street, doing something may be better than nothing.

Earlier this year, the Government faced criticism that it had moved too slowly to block travel from India when the delta variant was first discovered, which resulted in the UK’s ‘freedom day’ being delayed.

Taking action early is a policy that proves popular with the public. A poll by Redfield & Wilton Strategies over the summer found that more than half of those surveyed thought restrictions to enter Britain should be stricter.

Unsurprisingly, airline bosses don’t hold the same view.

"It’s clear that these measures have been completely ineffective in the past, but impose huge hardship on people who are trying to connect with family and friends and clearly massive financial damage to the tourism and airline industry,” former British Airways boss Willie Walsh fumed on Monday.

It may have been clear skies this time last week, but the sector looks set for more turbulence.

“We expect airlines and trade associations to campaign against restrictions,” HSBC said, “but until there is some clarity as to the scale of the threat posed by omicron, we expect all protests will prove in vain.”

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