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Airlines are overhauling their business models after the devastating shock of Covid

LONDON — Airlines in Europe are looking at sunshine and beaches as their route to making money again.

The sector has been severely hit by the coronavirus pandemic, with people being advised to stay at home. Lufthansa said on Thursday that it registered a 75% drop in the number of passengers between 2019 and 2020 — highlighting the devastating impact experienced by many airlines since Covidhit.

However, they are now studying ways to adjust business models as economies attempt to reopen in the coming months.

“European carriers will pivot to leisure travel,” Adrian Yanoshik, an equity analyst at Berenberg, told CNBC Wednesday. “This is a tactical response. You follow the flow of people,” he said.

As European economies look at easing restrictions, it’s expected that people will try to go on vacation as soon as possible, after about a year of being stuck at home. In contrast, business travel is seen as taking longer to recover.

“Am I gonna do the one-day trip from London to New York for a three-hour meeting? Probably not, so there will be some impact on business travel,” Keith Barr, CEO of IHG Hotels & Resorts, told CNBC’s “Squawk Box Europe” last month.

Rickard Gustafson, CEO of Scandinavian Airlines, is also expecting “some significant shifts in the dynamics of the (airline) market.”

“I think we will see somewhat less corporate travel and more leisure travel,” he told CNBC. “We need to adapt our operation more towards seasonality to a larger extent than we do today,” he added.

Budget airlines such as Ryanair and easyJet have always lured costumers to take breaks in sunny European destinations, such as Greece, Spain and Italy. However, more airlines could do the same, such as Lufthansa and British Airways, which have traditionally catered to those traveling for work purposes.

“Corporate travel will be above 2019 levels by the end of the decade,” Stephen Furlong, senior analyst at wealth management firm Davy, told CNBC over the phone, adding that on the other hand leisure travel could snap back “very quickly.”

A different cabin mix

Corporate travel has led airlines to develop business class, premium seats and loyalty cards. But as part of a new focus toward leisure, analysts are expecting a different plane layout. “You’re going to get a cabin reconfiguration,” Furlong said, mentioning how business class will be a much smaller part of the airplane. “The size of the aircraft is (also) smaller,” he added.

Looking at how budget airlines have traditionally organized their aircraft, there is clearly a much smaller focus on premium clients. In fact, Ryanair, for instance, doesn’t have a loyalty card for frequent flyers.

“This is likely to be a temporary phenomenon. They are going to repivot to corporate (travel),” Yanoshik from Berenberg also said. But with more airlines focusing on leisure travel in the short to medium-term, he added that ticket pricing “will be weak.

Vaccine passports

European airlines are hoping that vaccine passports will be used as a way to recover some lost business this year.

The idea of a vaccine passport is still being discussed by European politicians, but the travel industry sees it as a must to allow some travel to return during this summer season. “Within the industry, IATA is pushing extremely hard” for this idea, Andrew Lobbenberg, an equity analyst at HSBC, told CNBC.

The International Air Transport Association is actually working on a travel pass, a digital platform where passengers can upload their health information. It has asked EU leaders to introduce vaccine passports so customers can feel safe traveling again.

Vaccine passports “will end up being part of the reopening of air travel,” Lobbenberg said.

This article originally appeared on CNBC

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