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Europe’s Chaotic Reopening Forces Airlines to Experiment

Faced with the stop-start reopening of European borders, airlines need to improvise.

On Thursday, shares in EasyJet ESYJY -1.68% fell after the British low-cost carrier reported a pretax loss of 701 million pounds, equivalent to around $989 million, for the six months through March. Investors seemed disappointed that EasyJet provided no guidance for the summer, and said it only expected to fly 15% of its 2019 capacity in the current quarter.

Earlier this week, Europe’s budget airline leaderRyanair said 2021 traffic would likely come in toward the low end of a previously estimated 80-to-120 million passenger range. While the U.S. market is normalizing, bookings in Europe are still happening extremely close to departure. The Irish airline said only 20% of summer seats were booked, compared with about 50% for the same point in a normal season.

Scheduled summer capacity relayed by airlines to data providers is still running only slightly below 2019 levels, but those seats could easily be canceled if Covid-19 variants spread or governments maintain border restrictions. A slow vaccine rollout has forced some authorities to impose a shifting kaleidoscope of travel bans.

Countries like France, Italy, Greece and Spain are still classified as “amber” by the U.K., a big source of tourists. On Wednesday, British Prime Minister Boris Johnson said travel should be limited to 12 destinations that were set to “green” on May 7. In neighboring Europe, only Portugal and the tiny island of Gibraltar qualified.

The uncertainty looming large over Europe means the situation could turn out better than it currently looks. Vaccinations are making up a lot of lost ground, and the European Union agreed Wednesday to let in inoculated travelers. It seems unlikely that Britain will keep countries like Italy and Spain on its amber list for long.

Airlines are responding with more nimbleness than ever. EasyJet added 100,000 seats to Portugal shortly after the U.K.’s announcement and is ready to make adjustments as the summer progresses, including deploying as much as 90% of its fleet, Chief Executive Johan Lundgren said Thursday.

Europe’s budget operators have scheduled 1,270 new routes in 2021 that weren’t on their 2020 route map, and dropped 1,437, according to Oliver Wyman’s PlaneStats data. Compared with 2019 networks, the differences are even larger. This level of pandemic churn is much greater than in any other region, or historic rates.

New nonstop routes with the biggest capacity additions include Wizz Air flying between London Luton and Cyprus Larnaca; Norwegian Air Shuttle seeking to compete with Finnairin linking Helsinki with Málaga and Alicante; and a raft of discounted flights to Italy, Spain, Portugal and Greece announced by Ryanair.

However, the battle for the few appetizing markets that open up will be cutthroat, limiting airlines’ earnings potential. Both EasyJet and Wizz now schedule a lot of capacity on a new route from Milan to Sharm El Sheikh, Egypt, for example.

The percentage of airport pairs that the top three European low-cost carriers fly without competition, already on a downward trend in recent years, is drifting even lower. While the pandemic has caused many airlines to retrench, budget operators see the crisis as an opportunity to gain market share. As travel reopens, EasyJet plans to keep focusing on primary airports as part of its long-term strategy to lure business travelers away from legacy airlines.

Europe’s budget airlines may offer some upside for investors prepared to bet on a chaotic reopening. They just need to watch out for the market’s endemic scrappiness.

This article originally appeared on Wall Street Journal

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