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Airways' inventories are falling after EU leaders have imposed journey restrictions inside the bloc

A KLM flight attendant goes for a walk at Schiphol Airport in the Netherlands.

EVERT ELZINGA | AFP | Getty Images

LONDON – Airline stocks fell on Friday after European governments announced further travel restrictions to combat soaring Covid infection rates and highly infectious varieties.

European leaders agreed on Thursday to keep their borders open but to discourage non-essential travel. This means that citizens wishing to move from areas where the virus is circulating at very high levels will have to test negative and be quarantined when they arrive in another Member State.

France has already announced that from Sunday citizens from other EU countries will have to carry out a negative PCR test 72 hours before departure.

"We firmly believe that we need to keep the borders open in order to keep the internal market working, but at the same time we are convinced that restrictions on non-essential travel should be possible," said European Council President Charles Michel Chairperson meeting among the 27 EU leaders said Thursday evening.

These travel restrictions pose a challenge to the EU as citizens, goods and services can move freely from one country to another. However, this approach has been badly hit by the pandemic, which then affects the performance of the travel sector.

IAG, the owner of Iberia and British Airways, fell nearly 4% on Friday. Lufthansa also fell by around 3%. Easyjet fell more than 4%.

The total travel and leisure sector in Europe fell 2.8% during European trading hours at noon.

Europe "badly affected"

Mark Manduca, a travel and leisure analyst at Citigroup, told CNBC earlier this week that all roadblocks, including test results, from leaving the house to arriving at the destination are negative for the sector.

He said the recovery would be rather "uneven" over the next 12 months. Due to travel restrictions, Manduca expects consumers to opt for longer vacations and fewer times per year instead of frequent long weekends.

Some European airlines like AirFrance and Lufthansa have received government subsidies to help manage the effects of the pandemic. However, there are questions about whether more assistance will be needed in the coming months.

Carsten Spohr, CEO of Lufthansa, said on Thursday that the company is currently losing 1 million euros every two hours. However, this is actually a "significant improvement," he said, as the airline was losing the same amount of money every hour at one point in 2020.

Earlier this month, the International Air Transport Association (IATA) announced that passenger numbers had stalled in late 2020.

Passenger traffic growth in November declined 70.3% year over year, IATA said, with Europe "hardest hit due to strict containment measures".

Vaccination records

European leaders have started to debate whether vaccination certificates should be used to encourage travel in the coming months.

The idea, promoted by Greece and other tourism-intensive nations, would allow the vaccinated to travel anywhere in the EU.

However, the 27 heads of state decided on Thursday to make a decision on so-called vaccination certificates at a later date.

"Instead of easing travel restrictions, vaccination records would simply create new boundaries between people and countries," said Alberto Alemanno, professor of EU law at H.E.C. Business School said by email.

"Given the very differentiated implementation of vaccination campaigns across Member States, it is more likely that certain nationals will be vaccinated than others as they are specific categories and age groups versus others," he added.

Lufthansa aircraft at the waiting position on the first of a two-day strike at Frankfurt Airport on November 23, 2016 in Frankfurt, Germany.

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