Europe’s largest low-cost carrier, Ryanair, has been forced to cut its UK network following the tough conditions imposed by further lockdowns in the UK. This drastic action shows the difficult operating environment that will persist for airlines in the coming months.
Ryanair has pulled the majority of its UK network from 21 January amidst the new UK lockdown restrictions ratified in law on Wednesday 6 January. This is a sensible if not vital decision taken by the airline. The new lockdowns across Europe have suffocated travel demand. Inbound and outbound flows in the UK look set to remain stagnant in the coming months.
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Other UK based airlines have followed suit. British Airways, Virgin Atlantic, and easyJet have all suspended most of their schedules and are only conducting fights for essential connectivity.
Ryanair’s 2021 traffic forecast downgraded
The airline has downgraded its 2021 traffic forecast, signaling the tough operating conditions expected in Europe over the coming months. As Covid-19 cases rise, more European governments are likely to impose further travel restrictions. Airlines will be left fighting for survival as there are limited destinations to fly to, and demand has almost disappeared once again.
Ryanair was expecting to operate loss-making flights
The airline does not expect any financial implication from the flight cancellations as they expected ‘many of these flights would have been loss making’. Demand in the market has, once again, reached rock bottom, and as the Covid crisis worsens, the operating conditions will get tougher.
The current conditions make it incredibly tough for any airline to operate profitable routes. With little demand and dwindling load factors, airlines are left with little choice. The suspension of unprofitable routes, for now, is the only option to conserve cash flow and ensure survival.
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By GlobalDataThe vaccine will do little to revive short term demand
The Covid-19 vaccine rollout out will do little to revive travel demand. The limited supply, and the logistical challenges of distributing the vaccination, further show that recovery will not happen quickly.
Until a substantial number of the population is vaccinated, the pent-up demand experienced in the summer is likely to have diminished. The road to recovery will be long, airlines must adopt an agile network management approach and focus on profitable routes. Further cash-generating activities could occur with airlines looking towards sale and leaseback opportunities, shrinking staffing levels, and renegotiating supplier contracts to conserve cash.
Ryanair is not the first, and certainly will not be the last, to downgrade its 2021 outlook. The Covid-19 situation in Europe currently looks bleak, the vaccine is not a silver bullet, and the road to recovery will be long. Frugal decisions will need to be made to ensure survival.
