U.S. Reopening Hands British Airways a $1 Billion Lifeline

By BLOOMBERG

Before Covid-19, there was the $1 billion connection.

That’s the revenue that British Airways generated each year linking its London Heathrow hub and New York John F. Kennedy International Airport, where a healthy mix of tourist and business customers made it the most lucrative route on the planet. More than 18 months after aviation was plunged into crisis, the corridor finally reopened to Europeans, marking a major step in the return of long-haul travel. 

British Airways is commemorating the milestone with a one-off revival of the BA001 flight moniker that once reserved for supersonic Concorde trips, arguably the classiest way to fly across the Atlantic. The likes of Deutsche Lufthansa AG and United Airlines Holdings Inc. also stand to benefit from a more robust trade between London, Paris and Frankfurt at one end and New York, Chicago and Los Angeles at the other.

Yet the market that reopened on Monday will be very different to the one that prevailed prior to the pandemic. Demand will be lower, with flights effectively limited to the fully vaccinated. The corporate road warriors who were once the North Atlantic’s lifeblood are still largely grounded as firms avoid unnecessary travel, putting the onus on attracting leisure passengers. And when business demand does pick up, it could be restricted by a preference for the money-saving video calls that redefined how remote colleagues interact. 

The U.S. is letting in Europeans just as virus infections surge again across the continent. Germany’s infection rate has climbed to the highest since the start of the pandemic, breaching 200 for the first time.

British Airways will face tough competition, as Heathrow-based Virgin Atlantic Airways Ltd. and continental rivals Air France-KLM and Lufthansa also pour capacity into the diminished market. From the U.S., United is plotting an expansion across Europe, with new routes from spring including Bergen, Norway, and Mallorca in Spain. 

“It’s a critical turning point in the recovery of aviation,” British Airways Chief Executive officer Sean Doyle said aboard the departing Airbus A350 aircraft, festooned with American flag bunting running the length of the plane. “We’re taking steps to move quickly and rebuild our program.”

Long check-in lines at airports from Heathrow to Paris Charles de Gaulle to Frankfurt highlighted the buoyant demand to get back on a trans-Atlantic flight. Heathrow suffered traffic jams getting into the terminal and long lines at security, in part because one of the two X-ray machines in the fast-track lane had broken down. 

Retired Jumbos

Owned by IAG SA, BA will scale up to six daily trips to JFK and two additional services to Newark Liberty International Airport by late winter. 

That’s still below the 12 a day seasonal maximum offered to the New York area pre-pandemic, when North American services accounted for 15% of BA’s overall capacity, according to aviation consultancy Cirium.

Flights were previously operated largely by Boeing Co. 747 jumbos, but with the aging four-engine model retired from the BA fleet during the pandemic, the carrier’s more efficient 777 twinjets will take on a bigger role, with all of the planes to be used on New York flights featuring a revamped business cabin.

IAG Chief Executive Officer Luis Gallego said in a briefing Friday that North American bookings are almost back to 2019 levels, though the upswing won’t stave off an estimated 3 billion-euro ($3.5 billion) full-year loss.

“There is a significant recovery underway,” Gallego said. “Our teams are working very hard to capture every opportunity.”

Virgin Rivalry 

Ranged against British Airways at Heathrow will be Virgin Atlantic, which has has gone toe-to-toe with the bigger carrier for close to 40 years at what’s usually Europe’s busiest hub. Virgin, reliant on the U.S. for 70% of capacity pre-pandemic, will operate three flights a day, mainly using Airbus A350 planes after also retiring its jumbos. 

“This is a day of celebration,” Virgin CEO Shai Weiss said at Heathrow, where the first Monday departure was at the same time as BA001, from a parallel runway. “We’ve seen pent-up demand, so I would urge people to book now to get the good prices because its filling up very rapidly.”

Different Classes

People making family visits or taking a long-haul vacation differ from corporate clients in their concern about the ease of travel and even preferred takeoff times, said Tiffany Funk, who manages travel blog One Mile at a Time.

“The vice-president of sales will happily eat in the lounge, catch a red-eye and then attend an 8 a.m. meeting,” she said. “Leisure travelers want to know they’ll be able to fly and not get stuck because of the endless paperwork currently needed, and then sit back, enjoy the food and watch a movie.”

The new U.S. rules:

Fully vaccinated people with a negative Covid-19 test result in the prior 72 hours can board a flight and enter the country so long as they share contact-tracing information. Unvaccinated foreigners will be generally barred, while unvaccinated Americans need a negative test. The U.S. will consider people arriving by plane vaccinated if they’ve had shots authorized by the Food and Drug Administration or that have an Emergency Use Listing from the World Health Organization.

 

Competition on the North Atlantic revolves around three joint ventures, each with antitrust immunity allowing their U.S. and European members to operate almost as one airline, coordinating timetables and sharing costs and revenue.

The most profitable of the tie-ups has historically been BA’s pact with American Airlines Group Inc., a carrier that’s used the pandemic to swap out aging Boeing 767s and Airbus A330s in favor of newer 777s and 787s.

Demand at American has surged beyond pre-Covid levels, according to Chief Revenue Officer Vasu Raja, who said on Oct. 21 that transatlantic bookings were stepping up with every passing week. He predicted that corporate travel will start to recover from the first quarter of next year.

Virgin Atlantic is partnered with Delta Air Lines Inc., its 49% shareholder, which said Friday that many international flights are expected to operate with every seat full on Monday. Delta will add flights this winter targeting London, Amsterdam, Munich, Dublin and Frankfurt. 

Great Signal

The alliance also includes Air France-KLM, whose Paris and Amsterdam hubs vie with Heathrow for transfer passengers. Ben Smith, its CEO, said Oct. 29 that the “quite amazing” exit of bigger jets at European rivals including BA and Lufthansa has taken capacity out of the system, aiding the entire industry’s recovery. 

Lufthansa, which is allied with United, will offer about 200 weekly flights to 17 U.S. destinations through November, with U.S. bookings up 50% since the Biden administration announced the reopening and quadrupling on some routes including New York.

CEO Carsten Spohr said last week that Lufthansa is seeing evidence of strengthening corporate demand, particularly from the engineering, automotive, pharmaceutical sectors.

“It’s great to see it happening,” IATA Director General Willie Walsh said of the U.S. reopening. “It’s very important both for the industry and the message it sends. The fact that the U.S. was closed to Europe gave a lot of other countries comfort that they could keep their borders closed.”