Airline Investors Weigh Up More Pandemic Baggage

As Americans flock to airports for a holiday travel bonanza, Europeans are bracing for a winter of government clampdowns. The U.S. airlines ought to be in a better position, but Covid-19 disruptions are likely to bring new storms on both sides of the Atlantic.

The 2.2 million travelers who passed through U.S. airport checkpoints on Nov. 19 made it the single busiest air travel day since the start of Covid-19, according to the Transportation Security Administration. The agency expects around 20 million people to travel during the Thanksgiving holiday season, a slight decline from record 2019 levels. But Delta Air Lines expects its passenger numbers to triple compared to last year.

U.S. airlines are scrambling to capture the full benefits of a recovery in passenger demand. Some, like $13 billion American Airlines, have had to cancel flights. Still, the one thing they don’t have to worry about is being forcibly grounded by their governments – unlike European counterparts. With infection rates soaring, Austria has already imposed another national lockdown. Bigger countries like Germany may follow suit.

Airlines serving the United States have an in-built advantage, because their home turf is a real single market, with only one federal government to lobby. Within the broader European Union, public health decisions remain national, not collective. Thus budget carrier Ryanair’s home base of Ireland may be fully open, but destinations 90 minutes away may be closed. As Austria’s lockdown became increasingly inevitable, shares in Ryanair and carriers like UK-based easyJet and Germany’s Lufthansa shed around 10% of their market value.

Both continents will have to contend with China. The Chinese New Year holiday that starts on Feb. 1 produces the largest human migration in the world, and in 2022 overlaps partially with the Olympic Games in Beijing. Cancellation of holiday travel in the People’s Republic would not only affect movement within the world’s most populous country but impact international flights for months.

That’s bad news for airlines everywhere. But it’s especially bad for investors of European ones. International travel made up one-fifth of passengers in the United States but around 85% in Europe. That makes Ryanair’s enterprise value of twice its forecast sales, according to Refinitiv, seem generous compared with American Airlines’s multiple of just one times revenue. Europe’s travelers are at greater risk of being grounded, and the same goes for its airlines’ investors.

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