Is Ryanair right to be so optimistic about the airline industry’s post-Covid recovery?

The US is open again. Britons and Europeans are now able to fly across the Atlantic to America; the land borders with Canada and Mexico are open too. It is a huge event for the airline industry, particularly for British Airways, as Heathrow to JFK in New York is the second busiest long-haul flight in the world, just behind JFK to San Francisco.  

Or at least it was in 2019 before the pandemic struck. And that raises a wider question. To what extent will the new normal be different from the old normal? International air travel is just one element, a very visible one, of a much wider issue. We have seen European airlines back to about two-thirds of their pre-pandemic levels over the summer, but you would expect that. Next year, Ryanair is hoping to carry 165 million passengers, against its 150 million pre-Covid target. So it thinks that the new normal for European air travel will actually be bigger than the old normal. But that is short-haul and mostly leisure travel. Business travel is the great contributor to revenues on the North Atlantic routes, and the shadows over that are larger. 

So far we can only guess. There will be a burst of pent-up demand as families reunite and postponed travels plans are reinstated. But it will take several months before the industry settles down, and we simply do not know whether and when air travel will indeed get back to its pre-pandemic peak. The outcome will depend on social choice – is foreign travel something we will prioritise or have our habits and values been irrevocably changed? – as much as what we are permitted to do by the various national authorities.    

But there are clues from other industries. Take retail in the UK. Before the pandemic, some 20 per cent of retail sales were online. Sales were 20.2 per cent online in January 2020. They then shot up to a peak of 37.1 per cent in both November 2020 and January 2021. However, the latest numbers show they were back to 25.9 per cent in September. Doubtless, online will perk up this month with the early Christmas rush, but the high street is clearly managing an effective fightback.  

There are other indicators. One I particularly like is the Bloomberg Pret one, which takes the weekly sales at Pret a Manger outlets in key locations and compares those with pre-Covid levels. That gives a rough-and-ready take on how many people are going into the office and how many are still working from home. London suburban sites are about 30 per cent higher than they were earlier, suggesting that many people are still slinking out from home for a coffee, whereas in New York’s Wall Street area sales are running at about half the old level. London City is close to 90 per cent of pre-Covid sales, suggesting that office occupancy has bounded back. Sales in Paris and Hong Kong are at 70 per cent and 80 per cent respectively.

So the message on WHF is that, so far, we are not back to normal by any means, however some areas are getting back there reasonably steadily. The data is a guide to where we are now, but does not yet tell us where the new normal will be, so we have to rely on intuition and experience.

Now come back to flying. Several points. One is that there was already some resistance for environmental reasons, particularly in Europe. True, continental Europe is only about 15 per cent of global GDP, so from a world perspective that may not be so significant, but concerns will rise and rightly so. A big test will be whether Ryanair is right about the scale of the recovery.

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A second issue is vaccination. At the moment only people who have been fully vaccinated are allowed back into the US – the exceptions are very limited. So what may well emerge will be a two-tier travel market, with many people who are for whatever reason unjabbed being unable to fly. (Much of Africa and parts of Asia suffer from a slow rollout.) That too will contain growth.

Third, and most obvious, business travel will probably be more limited. If it were to fall by even 20 per cent that would have a profound impact on the industry.

So the most likely outcome will be that the airline industry recovers in phases. The new normal may eventually be more or less like the old normal, but in some sectors – short-haul in Europe, perhaps – we may actually have reached peak flying. Other areas, such as internal flights in China, will continue to grow rapidly.

And the North Atlantic? My intuitive feeling is it will come back fast, but maybe not quite as fast as the airlines hope.