In recent weeks, European tourism and leisure stocks have recovered, but there is still a long way to go before returning to the pre-crisis level.
The Stoxx 600 travel and leisure sector, spanning 16 companies, lost 42% in the first quarter of 2020. This was due to blocking measures throughout Europe and wider travel restrictions to limit the use of Covid-19. For comparison, the sector grew by 6% in the second quarter of 2020.
“You will fight here to see a linear recovery,” said Marc Manduca, travel and leisure analyst at Citigroup, told CNBC on Monday.
He added that believing that the sector will recover to pre-crisis levels in the next six to twelve months is “too optimistic.”
European economies began to open in the second quarter, as the incidence rate declined. However, this was done gradually, and there are still many travel restrictions.
For example, Greece still does not welcome British tourists and many summer destinations reopened their doors with tough social distance measures that would limit the capacity of hotels and restaurants.
“Stocks have grown over the past 30 days, which, we believe, is associated with the fact that more and more countries are relaxing travel restrictions, companies are acquiring additional sources of liquidity, and the market is turning into cyclical ones,” UBS analysts for European airlines note in a note earlier month.
“However, the industry is facing the most difficult summer season it has faced in recent decades,” they added.
The industry will need to convince customers that travel is safe to increase demand.
Earlier this month, EasyJet announced that it expects an increase in capacity in the summer season, but, according to its estimates, in the fourth quarter of the financial year (from June to September) the capacity will be only 30% of his planned pre-Covid-19 numbers.
Ryanair said in May that he would carry no more than 50% its initial traffic is from July to September.
“Summer will be an artificial incentive,” Manduca told CNBC over the phone, predicting some structural changes in the wider airline sector.
It is expected that short distance operators and available operators will recover faster, as their operations are easier to manage.
Airlines have become one of the companies most affected by the pandemic. However, substantial government intervention was undertaken to keep some of them afloat.
For example, Lufthansa agreed to financial assistance in the amount of 9 billion euros (10.11 billion dollars) to the German government. In France, the government also developed a € 7 billion rescue package for the French Air France-KLM, while the other half received assistance from the Dutch government.