Shaking off the Delta strain, European carriers grow cautiously bullish on air travel

Despite spreading like wildfire, the highly contagious coronavirus strain is causing relatively few headaches for the commercial aviation industry. That’s according to the chief executive of Europe’s largest carrier by revenue.

“Evolving variants are part of a pandemic, so I think the world is getting used to that now, and experts have expected nothing else,” Lufthansa CEO Carsten Spohr told reporters on Thursday, echoing similar recent optimism from rivals like United Airlines.

The sector has seen a pickup since the gradual relaxation across much of Europe of quarantine and lockdown rules. Throughout the start of 2021, such restrictive measures did the most to discourage passengers from booking flights to see friends and family, go on vacation, or take a business trip. 

“Overall, I think it’s visible that with double vaccination you are able to travel around the world, even in the U.S. Soon, hopefully,” Spohr explained. “So the impact [of Delta] is less than one might think.”

Anticipating that the United States will drop current travel restrictions on overseas travelers—the White House just yesterday signaled it would permit vaccinated air travelers to resume flying to the U.S.—Lufthansa has begun preparing to resume flights to the U.S. Before the quarter is out.

“My hope naturally is that it happens earlier, and I believe it will. But our financial plans are conservatively based on the end of September,” he said.

As a result, Lufthansa’s capacity measured in seat kilometers should reach roughly 50% of pre-COVID levels, on average, in the third quarter, and climb to 60% in the final three months of this year, versus just 29% in Q2.

Last year, air carriers had a catastrophic year. According to the trade body IATA, passenger revenues fell across the board by 69% to $189 billion, and net losses ballooned to $126.4 billion, as the coronavirus grounded flights from Tokyo to Texas. It was the worst decline in commercial air travel since records began in 1950, the trade group said.

Deep retrenchment

Since Brussels opened up the EU to American tourists in June, transatlantic routes have already become Lufthansa’s most profitable pillar of business even before resumption of two-way traffic. 

The number of bookings made in June was more than twice as high as at the beginning of the quarter, the company reported. While growth has trailed off somewhat, Spohr said it was difficult to pinpoint Delta as the cause, since the industry may have crossed the threshold of peak demand for summer holidays anyway.

“They’re still increasing, [just] not as steep of course as they did in the early summer,” Spohr said. 

Speaking to CNBC, United Airlines boss Scott Kirby said late last month that “every day, bookings get stronger and stronger,” arguing that “the most likely and logical outcome is that we continue largely unabated.” And Europe’s biggest budget airline, Ryanair, is betting big that travel will bounce back briskly in the second half of the year.

While Lufthansa halved its operating loss to just below €1 billion ($1.18 billion) in the second quarter, it celebrated its first underlying cash-positive reporting period since the beginning of the coronavirus crisis. 

Nevertheless, the group, which also includes Swissair, Austrian Airlines, Eurowings, and Brussels Airlines, is still in the midst of a deep retrenchment in operations.

The Frankfurt-based flier is reducing headcount by over a quarter to roughly 100,000 employees, and it plans to sell the remainder of its LSG catering business. It has also mandated an investment bank to examine the sale of a minority stake in its maintenance subsidiary, Lufthansa Technik.

“What we are currently really looking at is getting out of this crisis as a much stronger company—to use this crisis to really transform the company to be agile, faster, and be back to very good profitability levels,” finance chief Remco Steenbergen told reporters.