A sign indicating beach at full capacity stands at Bogatell beach in Barcelona, Spain.
European travel and leisure stocks have rebounded in recent weeks but still have a long way to go before returning to pre-crisis levels.
The Stoxx 600 travel and leisure sector, which covers 16 companies, sank 42% in the first quarter of 2020. This was on the back of lockdown measures across Europe and wider travel restrictions to contain Covid-19. In comparison, the sector gained 6% in the second quarter of 2020.
“You’re going to struggle here to see a linear recovery,” Mark Manduca, a travel and leisure analyst at Citigroup, told CNBC Monday.
He added that believing the sector would rebound to pre-crisis levels in the next six to 12 months is “too optimistic.”
European economies have begun to reopen during the second quarter as infection rates have slowed. However, this has been done gradually and there are still many travel restrictions in place.
For instance, Greece is still not welcoming British tourists and many summer destinations have opened their doors again with strict social-distancing measures, which will limit capacity in hotels and restaurants.
“The shares have rallied in the past 30 days, which we believe is due to more countries relaxing restrictions around travel, companies gaining additional sources of liquidity, and a market rotation into cyclicals,” UBS analysts said about European airlines in a note earlier this month.
“Nevertheless, the industry faces the most challenging summer season it has faced in decades,” they added.
The industry will have to convince customers that it’s safe to travel in order to boost demand.
EasyJet said earlier this month that it expects capacity to grow in the summer season, but it estimated that in the fourth quarter of its fiscal year (between June and September), capacity will be only 30% of its planned pre-Covid-19 numbers.
Ryanair said in May that it will carry no more than 50% of its original traffic in the period between July and September.
“The summer will be an artificial boost,” Manduca told CNBC over the phone, forecasting some structural changes in the wider airline sector.
Short haul and affordable carriers are expected to recover more rapidly, he said, as their operations are easier to manage.
Airlines have been one of the hardest hit businesses by the pandemic. However, there has been significant government intervention to keep some of them afloat.
Lufthansa, for instance, agreed to a 9 billion euro ($10.11 billion) bailout with the German government. In France, the government also developed a 7 billion euro rescue package for the French arm of Air France-KLM, while the other half received a bailout from the Dutch government.