TThe goose that lays the golden eggs is in the air again. The reopening of the US border to leisure travelers from the UK and most European countries – with the concomitant expansion of transatlantic schedules – has finally given long-haul airlines something to celebrate.
The first flights for non-essential foreign visitors – vacationers, friends and family – will take off on Monday. For British Airways owner IAG, not to mention rival Virgin Atlantic and other carriers, it will be like Christmas, Thanksgiving and all of their birthdays rolled into one.
Following the reopening, IAG predicted a narrower loss – € 3 billion this year, up from € 4.3 billion in 2020 – and a possible return to profits by Easter. Transatlantic travel is the lifeblood of long-haul airlines, and the location and common language have traditionally placed UK carriers in pole position in the European market. Back in the days before the pandemic, when airlines were making a profit, most of IAG’s revenue came from BA and the bulk of BA came from the United States.
On short-haul routes, BA was strongly rejected by the low-cost airlines. Other than those who have a connecting flight, live next door to Heathrow, or particularly like smartly dressed flight attendants and free cookies, there is little reason to pay the domestic carrier’s fares to Europe.
The United States, however, is different. Norwegian, which was trying to grab a share of that market, pulled out and the full-service airlines all entered into partnerships, joint ventures and alliances – Virgin in particular opting for the powerful arms of Delta, based in Atlanta. Next week, both UK carriers expect full planes, as passengers will also benefit from easier and cheaper test requirements. BA says Zoom-weary business travelers book as well.
That’s almost enough to make investors forget billions in losses and an uncertain future: IAG shares rebounded on Friday from an initial dumping when the group released its third-quarter results and forecast for the year.
Analysts aren’t seeing any returns so soon. There are still problems to come: The industry was obsessed with oil prices a decade ago as dollars a barrel were soaring, and they are rising sharply again. The cost of the massive borrowing that has driven carriers over the past 18 months is also expected to rise. And it remains to be seen whether open borders and easing travel restrictions are a one-sided trend – especially considering how Britain’s laissez-faire policy and relatively high case rates are viewed by more cautious governments.
Nonetheless, for now, it is the season of goodwill, and BA and Virgin have emerged from their old trenches to unite and gang up against their common enemy: Heathrow. The ritual pantomime of circling the regulator every few years and making exaggerated demands for an increase or decrease in airport landing fees has taken on a special scale this time around.
Not only does the pandemic mean all parties are really down, Heathrow has fueled Ebenezer by trying to double what it charges. The Civil Aviation Authority, playing the sad sack, said “only” a 56% increase in average charges – around £ 35 per passenger – would be eligible.
The argument continues. IAG boss Luis Gallego said on Friday he would consider moving IAG’s investments overseas if the fees meant the airline couldn’t generate a decent return on capital in the UK. But in another breath, Gallego admitted that BA only made a profit once in a decade on the old cheap second-choice Gatwick. Virgin has returned its slots to the West Sussex alternative. However, IAG is continuing its plans to create a cleverly disguised BA subsidiary over short distances, allowing it to cut costs and stave off the expansion of its competitors.
For the big bucks, however, there’s clearly only one game in town. One in four flights between Europe and the United States passes through Heathrow, but 40% less today than two years ago. After an 18-month course of survival rations, IAG and Virgin will aim to fill their boots on crowded planes heading to the pond from Heathrow.