As Travel Falters, Airlines are still Mustering for the Post-Covid-19 Battle

Europe’s easyJet has been more cautious than other low-cost airlines in trying to gain strategic advantages from Covid-19, but this may be about to change.

By guest author Jon Sindreu from the Wall Street Journal

Graphics and caption courtesy by the Wall Street Journal

As U.S. airlines retrench, Europe’s easyJet is raising funds for expansion. Its newfound aggression may say more about competition than the status of the post-pandemic recovery.

On Thursday, shares in the London-based carrier fell more than 10 %, following news that it is planning a rights issue to raise about GBP 1.2 billion (USD 1.7 billion), which is approximately a third of the company’s market value at the previous close. The airline probably doesn’t need extra help to repair its relatively robust balance sheet. Instead, it plans to funnel much of the new cash into strategic investments.

“Opportunities will arise at airports,” the company said, “many of which are slot constrained, as legacy airlines restructure short‐haul operations and regulators impose remedies in response to state aid.”

EasyJet ESYJY also disclosed on September 9, 2021, that it has rejected an unsolicited offer for an all-equity takeover. Many point to Wizz, an Eastern European upstart airline that has been particularly explicit about exploiting the travel crisis to take market share. Now easyJet, which previously appeared more cautious about the recovery than its budget peers, is borrowing from the Wizz playbook, albeit with a wholly different spin.

Unlike other European no-frills airline asyJet seeks to establish beachheads in big primary airports like Amsterdam Schiphol and Paris Charles de Gaulle. In the U.S., Southwest Airlines LUV has spent the past decade steering in that direction. Competing with legacy airlines in their operating bases means higher costs, but it has also allowed both players to wrest a bigger share of the lucrative corporate-travel market. Southwest gives business flyers extra perks, and easyJet deviates from the low-cost norm by granting them extra legroom.

Covid-19 has the potential to accelerate this trend, because some companies may be more price-conscious and traditional full-service operators have been hit hardest. Southwest has ramped up orders of 737 MAX jets from Boeing,  and for the first time has launched routes from Chicago O’Hare, United Airlines main hub. Southwest, Frontier Airlines, ULCC Spirit Airlines SAVE  and JetBlue  —another U.S. budget airline with a focus on premium travel—will soon now all be flying from American Airlines’ key Miami base.

By contrast, easyJet’s scheduled seat capacity is still down 20 % relative to February 2020, figures by Oliver Wyman’s PlaneStats show, even as its European low-cost competitors Ryanair, Wizz Air and Vueling push far above pre-pandemic levels. The company’s conservatism might have been even greater if its founder, Stelios Haji-Ioannou, had last year succeeded in ousting Chief Executive Johan Lundgren, who refused to cancel a GBP 4.5 billion order for Airbus planes.

To be fair, a lot of this strategic talk hasn’t translated into reality yet. The percentage of Southwest’s routes involving hub airports is roughly the same as pre-Covid-19. EasyJet’s has fallen only a bit, and its market share has actually shot up at London Gatwick, which has been abandoned by Norwegian Air Shuttle and heavily de-emphasized by British Airways.

Are legacy carriers withstanding the attack then? Not so fast: Any battle over business travelers requires them to return. So far this hasn’t happened much, and earlier hopes of a rebound in the fall get dimmer every day. On Thursday, the eight top U.S. carriers warned of weaker-than-expected booking trends due to the Delta variant of Covid-19.

But the rejected takeover bid for easyJet suggests that others see long-term value in the hybrid model it has built since 1995, and that competition will heat up one way or another. To take advantage of legacy carriers’ weakness, there is no time like the present.