Another body blow for the frequent-flyer class

Hug the grandparents, celebrate with friends and hit the beach. Whatever your plans once you've been vaccinated for Covid-19, there's a good chance it involves getting on a plane.

More than half of Americans and Europeans may have been vaccinated by mid-2021, according to analysts at Goldman Sachs Group Inc. Some forecasts aren't as rosy. But if the rollout goes smoothly, and there's a way for passengers to prove they've been inoculated, air travel could start to recover.  

Speed is of the essence, and not just to protect lives: Summer is when European airlines make most of their revenue.

Any recovery of this beleaguered industry remains vulnerable to setbacks, however. The new restrictions imposed on flights from Britain, where authorities warn that Covid has mutated to become more virulent, is a reminder of that. Monday's sell-off of European airline stocks is a warning against complacency. More grounded planes during the usually busy Christmas period means less cash to repair airline finances.

Respite can't come soon enough. Leaving aside cargo, where constrained capacity has led to strong pricing, 2020 has been a miserable year for aviation. And it's ending much as it began, with a surge in virus cases and more stringent lockdowns that have slowed international travel to a trickle. There will have been about 6 million fewer European flights in 2020 compared with 2019, according to air traffic management organization Eurocontrol. That's a 55% decline. Even if vaccines are administered rapidly, air traffic probably won't recover to 2019 levels before 2024.  

Airline borrowings have ballooned in their effort to remain afloat. Virgin Atlantic Airways Ltd. and Norwegian Air Shuttle ASA filed for creditor protection to restructure unsustainable liabilities. Deutsche Lufthansa AG and Air France-KLM shared almost 20 billion euros ($24.4 billion) of government assistance between them, triggering claims that such aid has distorted competition. British Airways owner International Consolidated Airlines Group SA wasn't so fortunate. It had to raise 2.7 billion euros in a discounted rights offering.

Even before the latest U.K. travel embargos, EasyJet Plc expected to have flown no more than 20% of its regular capacity in the final three months of 2020. When demand is so low, cost cuts often aren't enough to prevent cash draining out of the airlines. Lufthansa is bleeding around 350 million euros each month and is expected to cut tens of thousands more jobs. Air France-KLM needs to raise equity to rebalance its debt-heavy capital structure.

And yet, investors have been minded to look beyond the short-term pain and focus on how vaccines might transform travel demand. Remarkably, the shares of Wizz Air Holdings Plc and Ryanair Holdings Plc are back to where they were before their shareholders began fretting about the new coronavirus in February. 

These budget airlines' finances are in better shape than full-service rivals, and they're more orientated toward leisure and short-haul travel, which are expected to recover first. Business travel will probably rebound more slowly because companies won't want to risk employee health.

Perhaps investors had become a bit complacent before this week's U.K. wake-up call. Wizz is valued at close to 50 times forward earnings. 

With unemployment rising in the U.K. and elsewhere, many people won't have the money to travel in 2021. The lack of international coordination on travel restrictions and quarantines is still worrying, too, with countries often deciding new rules unilaterally and suddenly, as British travelers discovered at the weekend. No wonder the few customers still booking do so at very short notice, giving airlines much less visibility of future demand.

Vaccination may eventually become essential for international travel but even passengers who've taken their shots might be capable of spreading the virus. A combination of prevention measures will probably remain in force for a while. Bitter experience has made governments cautious. The tourists who flocked to Europe's beaches last summer when restrictions were lifted helped seed a second wave of Covid.

Preflight virus testing is more widely available, but this hasn't convinced many passengers that flying's worth the hassle. England's "test and release" program to cut quarantine times suffered a chaotic start. Setting up travel bubbles between countries has been difficult. There's hope that digital apps and health passports being developed by the airline industry to store virus test results and Covid vaccine certificates will eventually make quarantines unnecessary.

Airlines and tour operators believe there's massive pent-up demand for travel. Bookings surged this year when European countries lifted restrictions on popular destinations such as the Canary Islands. Wizz is especially bullish. The no-frills Hungarian carrier aims to add 30% more aircraft to its fleet by 2022 compared with March. Its customers tend to be younger and need to fly for work or to visit friends and family.   

Nonetheless, the elderly will be first in line to receive the vaccine. A boom in travel by the over 60s might annoy millennials and gen-Z travelers, who already feel they're getting a rough deal being cooped up inside, but it would be a clear sign that confidence is returning. Just don't count on it yet.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

Disclaimer: This article first appeared on foreignpolicy.com, and is published by special syndication arrangement.