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Low-cost airlines to lead post-COVID recovery: GlobalData


No-frills airlines cutting costs quickly

Low-cost airlines to absorb pent-up demand

Aviation recovery key for jet fuel, carbon offsets demand

London — Low-cost airlines will lead the post-COVID recovery in the aviation sector, market information provider GlobalData said Feb. 22.

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The analysis, if borne out, suggests low-cost airlines will be first to drive a recovery in demand for jet fuel and carbon offset credits as airlines claw their way back from the unprecedented global slowdown of 2020.

"The low-cost airline model will lead post-COVID recovery and help revitalize demand," GlobalData said in a statement.

Frugal cost-cutting measures and operational responsiveness will see these carriers move quickly to absorb pent-up demand and capitalize on any opportunities ahead of other high-cost model airlines, the company said.

"Low-cost carriers have trimmed costs well. Although all airlines have drastically reduced costs to weather the storm created by COVID-19, it is evident that low-cost carriers have managed to push already low-cost bases even lower," GlobalData travel and tourism analyst Gus Gardner said in the statement.

"These carriers can now operate cash-positive routes with a lower load factor than before, which is incredibly important with the current low levels of demand."

The low fares offered by low-cost airlines will better cater to the increased need for affordability among cash-strapped consumers, and these operators can push ticket prices to new lows and still break even, the company said.

"With leisure travel most likely to rebound first and low-cost carriers' short distance, point-to-point networks will better suit pandemic-cautious travelers looking for trips closer to home," said Gardner.

Any post-pandemic recovery in the aviation sector is a clear demand driver for conventional jet fuel and sustainable aviation fuels as well as carbon offset credits under the United Nations Carbon Offsetting and Reduction Scheme for International Aviation.

Under CORSIA, airlines must hand over carbon offsets to cover any growth in CO2 emissions above a 2019 baseline. Airlines covered by the scheme's pilot phase, which started in 2021, submitted data showing total CO2 emissions of 537 million mt in 2019, according to the UN's International Civil Aviation Organization.

In Europe, aviation's CO2 emissions fell 57% in 2020 from the previous year due to the pandemic, according to data from pan-European aviation industry group Eurocontrol.

Globally, flight activity is not expected to recover to 2019 levels until 2022-23, according to some industry sources, pushing back expected demand for offset credits by a few years.

In addition, the more significant demand for carbon offsets is more likely to materialize when the market for long-haul flights recovers.

Long-haul flights of more than 4,000 km represent only 6.2% of flights, but are responsible for 51.9% of aviation's CO2 emissions, according to Eurocontrol.

Some signs of buying of offset credits by industries outside the aviation sector helped lift CORSIA-eligible carbon credit (CEC) prices in February, with prices rising to $1.49/mt Feb. 19, compared with a range of $0.80 to $1.10/mt in January, according to S&P Global Platts daily assessments.