easyJet has announced plans to operate 75% of its route network to return in August, however due to fewer daily services, only 30% of flying capacity will operate between July and September. Nevertheless, this is positive move and caused the company’s share price to increase after the announcement.
A bold statement by the airline
In a ‘business as usual scenario’, an increase in operating costs would result in an increase in prices in order for the company to break-even. However, in the current situation amid COVID-19, an increase in price will only deter a recession-hit traveler from booking a post-coronavirus holiday.
Travelers will be uncertain about booking future travel for this summer, as many travel restrictions remain in place and there is no guarantee that bookings in the near future can be honored. Along with reduced confidence, many European citizens have been financially affected by the impact of COVID-19, with unemployment levels increasing and an impending recession leaving reduced disposable income for luxuries such as international trips.
By announcing the planned resumption of such a large portion of its flight schedule, easyJet is seeking to instill confidence, by saying ‘we are ready and prepared to fly again’. However, this resumption of routes only translates into 30% of its original schedule. Whilst routes are returning, the frequency of them will be reduced to minimise losses from lower-capacity flights.
easyJet is trying to generate demand
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By GlobalDataBy announcing seat sales with millions of fares at reduced prices, easyJet is attempted to get travelers to consider a trip that they would not have contemplated at the height of the coronavirus crisis. The offer of cheap fares for desirable flights will make travelers who are maybe looking for a cheap escape post-lockdown, or who have a travel voucher from a previous cancelled trip, to book and create revenue for easyJet.
Whilst the current travel situation is uncertain, with 14-day quarantine rules in question for return travelers to the UK, and talk of air bridges between certain countries, cheap fares which suit a recession-hit budget traveler will appeal to easyJet’s core target market.
This move could be loss-making in the short-term
As the cost of flying will inevitably increase, with social distancing measures, new hygiene procedures and the possibility of not selling a fare for the middle seat on easyJet aircraft, cutting revenue by seat sales could be harmful to its financial position. With a current cash burn of £160 million per month, revenue must be gained soon to help avoid deep financial trouble.
Whilst the company does not expect demand to return to post-COVID-19 levels until 2023, this move to instigate demand is a starting point for the long road to recovery.
Flying planes at a higher cost with reduced revenue could be financially damaging in the short term. However, this move is necessary and is the lesser evil when compared to not flying planes at all. easyJet’s situation is just as uncertain as the travelers, but both have to take risks to survive.
