"Low-cost airlines may be \u2018better positioned\u2019 for 2021 challenges"

" \n As the world races to roll out mass vaccination programs to combat Covid-19, analysts say more carriers will likely go bust this year and pre-pandemic demand won\u2019t be returning anytime soon. \n \n\n \n But there could be one bright spot: Low-cost airlines that mostly fly domestic routes could recover faster than their larger, full-service counterparts. \n \n\n \n More airlines could go bust \n \n\n \n \u201cThere will be failures due to lack of \u2018oxygen,\u2019\u201d Peter Harbison, chairman emeritus of consultancy firm CAPA \u2013 Centre for Aviation, told CNBC by email. \u201cConsolidations are too hard outside domestic markets, so failures are more likely.\u201d \n \n\n \n According to travel data company Cirium, 48 airlines failed in 2020. \n \n\n \n Last year, governments stepped in with \u201cgravity-defying support\u201d to keep airlines afloat, through a combination of direct funds and job support programs, Harbison explained. \n \n\n \n \u201cCash flow is increasingly critical and all airlines are still burning through large amounts of it,\u201d he said, adding that at this time of the year, airlines typically accrue cash from advanced bookings for spring and summer. \n \n\n \n \u201cBut thanks to the status of infection levels in many countries and the continuing likelihood of border closures\/quarantine, there\u2019s reluctance to book ahead even despite super cheap fares and generous change\/refund conditions,\u201d Harbison said. \u201cThere are lots of variables, but I don\u2019t think the necessary cash is going to flow in much before mid-2021, even if then.\u201d \n \n\n \n CAPA\u2019s prediction is that pre-pandemic levels of air travel will only be achieved in 2025 due to prolonged uncertainty around recovery, compounded by a severe drop in business travel and far fewer international seats flying. \n \n\n \n Low-cost carriers may survive better \n \n\n \n Industry experts say low-cost carriers serving local or regional markets may have a higher chance of survival compared to full-service intercontinental carriers. That\u2019s likely due to international borders staying closed in the near term and fewer business travelers. \n \n\n \n Shantanu Gangakhedkar, a consultant at Frost & Sullivan, said there\u2019s been some recovery on domestic routes in the Asia-Pacific region. \u201cI believe airlines that have a strong presence in domestic operations are comparatively better positioned, at least till the time border restrictions are lifted,\u201d he told CNBC in December. \n \n\n \n Gangakhedkar said low-cost carriers have an advantage over their full-service counterparts because they have lower operational costs and their fleet largely consists of single-aisle aircraft that are suitable for domestic routes. \n \n\n \n Asia-Pacific airlines will face overcapacity for \u201cat least a couple of years,\u201d and that could lead to consolidation among carriers as well as aircraft lessors and suppliers, said Joanna Lu, Asia\u2019s head of consultancy at Cirium. \n \n\n \n \u201cIt\u2019s critical for airlines and the whole supply chain to adjust to serve a smaller industry and prepare for very different market demand,\u201d she told CNBC last month. \n \n\n \n Still, Lu warned that low-cost airlines won\u2019t be able to hold out forever. \n \n\n \n \u201cIf the pandemic continues and travel restrictions remain, (low cost carriers) would also become more vulnerable,\u201d she said. \n \n\n \n Looming uncertainty \n \n\n \n Last year, as the coronavirus pandemic spread around the world, border closures and various levels of social restrictions crippled the airlines industry, forcing global carriers into\u00a0survival mode. \n \n\n \n Passenger traffic plummeted 67% last year compared to 2019, according to travel data firm Cirium and many carriers were\u00a0forced to cut expenses\u00a0by an average of one billion dollars a day even though massive financial support from governments helped staved off large-scale bankruptcies. \n \n\n \n The International Air Transport Association (IATA) said in December that\u00a0airlines will suffer a net loss of $118.5 billion for 2020and a net loss of $38.7 billion in 2021. \n \n\n \n CAPA\u2019s Harbison said internationally, uncertainties in areas including passenger safety, airlines, and the opening and closing of borders remain a big challenge. There are also only a \u201cfew domestic markets of great value,\u201d he said, adding that even then countries such as Japan, South Korea and China are seeing a Covid-19 resurgence. \n \n\n \n \u201cIt\u2019s in domestic markets that vaccines will offer the biggest tailwind to reopening, but we still have a long way to go and mutations threaten to derail some of these efforts,\u201d he said. \n \n\n \n \n \n\n \n www.cnbc.com \n "

"Low-cost airlines may be \u2018better positioned\u2019 for 2021 challenges"

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