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Amidst the ensuing travel chaos experienced across the United States and Europe, as travel and leisure rebound from the last two years of restrictions due to the COVID outbreak; the five largest European airlines could raise investor sentiment as demand surges and some airlines post better-than-expected earnings.
The summer of travel chaos has left millions of passengers stranded in long queues at airports, as staff shortages partly caused by the pandemic and the Great Resignation have seen thousands of flights being canceled or delayed.
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Disruptions in the sky, and on the ground have made it increasingly hard for airlines to keep up, as passenger demands have surged over the last few months as more countries have now eased foreign travel restrictions imposed during the onset of the COVID pandemic in 2020.
Despite the chaos, which has brought hundreds of flights to a halt and seen thousands of pieces of luggage lost, some airline carriers have managed to keep a cool and steady outlook for the year ahead in terms of financial performance.
While some airlines have posted positive earnings last seen in 2019, there’s a handful of new economic challenges that could soon dampen performance as the world starts to step out of the pandemic.
For starters, geopolitical tension in Europe has meant that airlines had to slash their flight schedules in some parts of Eastern Europe after Russia further advanced its invasion of Ukraine in February. The growing conflict led to the European Union closing its airspace to Russian traffic, which resulted in European airliners seeing stock performance coming down 3% – 6% during February and March.
Additionally, there’s been a significant increase in airfares compared to pre-pandemic levels, which since January 2022 have already gone up by 47%, according to recent insights by Adobe Analytics. The sudden price hike comes with a basket of mass economic challenges, from surging inflation to fuel costs hitting record-highs at the start of spring, severe staff shortages, and political uncertainty which have all weighed heavily on airlines.
Growing economic concerns hasn’t been the only challenge as well. Difficult weather conditions, from record-shattering heatwaves to volcano eruptions – which may cause flights to Reykjavik to be canceled – have taken a toll on the global airline industry.
But even as some airlines were prepared to handle the increased number of average daily passengers, airports that have become overwhelmed have asked airline operators to limit ticket availability. London Heathrow Airport, considered to be one of Europe’s busiest have since mid-summer, placed a cap on passenger limit to 100,000 per day, which in return forced airlines to cut back on ticket sales.
The announcement by Heathrow executives was soon followed by other airports in Europe, including Amsterdam Schiphol Airport and Gatwick Airport to lower passenger capacity well into 2023.
The macroeconomic trends have not been quite pleasing for European airlines, and over the pond in the United States, some airlines have reported some positive earnings in the last quarter, but are still shy of pre-pandemic levels.
Ryanair Holdings PLC
Considered to be one of Europe’s most affordable low-cost, short-haul airline operators, Ryanair (NASDAQ:RYAAY) has made some strides in recent months, even after announcing back in May 2022 that ticket prices for most of its scheduled routes will increase in the coming months.
Ryanair managed to keep its costs significantly low, offering a minimal onboard experience while focusing largely on increasing passenger count and adding new routes. Q1 2022 managed to beat most expectations, with revenue increasing by 602% between €0.37 billion to €2.60 billion, and seeing passenger numbers also recover 9% ahead of 2019 figures for the same period.
RYAAY, on the other hand, manages to trade fairly well considering the current economic climate and the sudden downturn the airline industry experienced in March. So far diluted earnings per share (EPS) is up by 166,67% year-over-year (YoY). Not only has Ryanair been able to reduce its debt to €0.4 billion on June 30, from €1.45 billion on March 31, but the airline has also been ranked the #1 EUI Airline for sustainability and #2 in the world for EGS actions.
German Lufthansa AG
Lufthansa (ETR:LHA), the German flagship carrier has become a stark competitor in the European airline market, operating several brands, Lufthansa German, SWISS and Austrian Airlines, and its low-cost European brand, Eurowings. The several namesakes of Lufthansa mean that it has exposure at both ends of the market.
Its recent Q2 2022 earnings showed that the company generated a net income of €259 million, compared to a total net loss of €756 million throughout 2021. Total turnover for Q2 was €8.46 billion. The company served more than 29 million passengers throughout the second quarter, significantly higher than the 7 million served during the same time last year.
On the stock market side, it’s been a different story, as total EPS was €0.33, a loss per share of €1.26 from last year. Year-to-date (YTD) share prices have been steady, growing 0.67%, but not making any significant changes over the last few months. Currently, LHA has an average day range of €6.68 – €6.89, struggling to breach the €7.00 to €10.00 mark.
Out of most European airlines, operating both domestic and international routes, Lufthansa has been one of few who have been able to control the sudden uptick in passenger demand over the summer, and has recently announced hiring 5,000 additional employees and striking a wage deal with current staffers.
Air France-KLM Group
The joint venture between Air France and KLM Royal Dutch Airlines (EPA:AF) currently operates the most routes to more than 100 countries outside of Europe. The duo currently has one of the largest transatlantic joint ventures with Delta Air Lines and Alitalia.
Second quarter performance was up, despite the airline having to see an increase in its expenditure for fuel and labor. A total net income of €324 revealed a €1.8 billion improvement for the same period in 2021. The airline posted positive earnings before interest, taxes, depreciation, and amortization (EBITDA), with overall free cash flow ending the quarter at €1.5 billion.
Both cargo and passenger figures improved significantly, helping to boost their overall second quarter performance. For investors, share prices have come down about 24% YTD, signaling higher ticket costs, and challenging macroeconomics have impacted AF since the start of the year. Despite its low price point, the airline group still operates a well-performing balance sheet.
International Consolidated Airlines Group
With strong demand across the different airlines IAG (LON:IAG) operates, including its premium airlines – British Airway and Iberia – the company posted an above-average Q2 performance.
Most of the company’s airlines saw a significant increase in passenger capacity, which increased around 65% from Q1. Additionally, short-haul European flights made up the majority of passenger increase, seeing an 89% increase from the same period in 2019. North America was up 84%, and Latin America and the Caribbean jumped 81%.
Higher operating costs were a big constraint for IAG, as total unit revenue for Q2 increased by 6.4% with a passenger yield of 10.6%, higher than before the pandemic.
YTD performance has come down more than 24%, and IAG currently holds a strong, yet pricey position with an average range of £118.91 – £121.90. For investors, IAG can offer to improve long-term performance, but overall market performance in the last few months has not been what it should be, especially considering the already rough patch British Airways and other IAG brands have endured over the last couple of weeks of summer.
EasyJet
The fifth of the Big Five European Airlines is the low-cost, point-to-point, and short-haul airline EasyJet (LON:EZJ), which despite experiencing major disruptions across the continent, the company still managed to operate 95% of its planned scheduled routes in Q3 2022.
For the quarter, EasyJet flew more than 22 million passengers, seeing a 7x higher increase for the same period in 2021. Company profit after EBITDA was £103 million, still below the £313 million reported in Q3 2019. Higher inflationary conditions and fuel prices have made it difficult to operate at a profit while keeping airline tickets at a minimum.
Stock performance has also taken a major hit throughout the earlier months of the year, but the last few weeks have seen EZJ climb by 12.25%. The average price per share between £395.90 and £411.40 makes EZJ one of the most valued European airline shares. Though the company has experienced some headwinds in the last few months, investors are still positive about the overall performance EZJ has to offer for long-term gain.
To Finish Off
The Big Five, including Ryanair, Deutsche Lufthansa, Air France-KLM Group, International Consolidated Airlines Group, and EasyJet are all seeing significant performance as domestic and international travel have soared since more countries are lifting pandemic-related travel restrictions.
Though this has meant that the aviation and airline industry can get back on track, beating most estimates, there’s still a long road towards recovery, as airlines and airport operators are having to face tightening macroeconomic conditions. Inflationary concerns and aggressive rate hikes are red flags signaling a looming recession.
As the summer starts to wind down, with some airports noticing a slight decline in daily passenger numbers, perhaps the coming months will prove how well The Big Five can hold out during economic headwinds, slowing consumer spending, and a steady return of travel and leisure.
The winter months will perhaps be the real test for these airlines, posting new earnings, and seeing market sentiment change overall as chaotic economic conditions continue well into the next quarter.
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