The summer season has arrived, and with it the desire for vacations. Unlike other periods, we are now in an unstable macroeconomic environment, characterized by still high prices and decreasing purchasing power.
Even so, the forecasts made on the basis of the data presented by the airlines show positive expectations for the summer period.
“Investment bank JP Morgan said European airlines should benefit from the summer after the industry suffered during the pandemic. Americans are planning trips to Europe this summer like there’s no tomorrow,” says Radu Puiu, financial analyst of XTB Romania.
Alaska Airlines’ revenue rose 31% in the first quarter of this year compared to the same period last year. According to CEO Ben Minicucci, the company “returned to pre-pandemic flight levels” between January and March.
In the financial results, Delta published an optimistic outlook for the coming months. According to Delta president Glen Hauenstein, the airline saw “record advance bookings for the summer.” In 2023, Delta expects its revenue to grow at an annual rate of 15% to 20%.
According to Radu Puiu, the advance booking of flights shows that Delta Air Lines has a positive outlook for the rest of the year due to strong travel demand. Booking flights in advance also means fares are increased to meet higher travel demand.
“Revenue in the first quarter of this year increased by 45% compared to last year and reached $11.8 billion. Also, they registered a 14% advance compared to 2019, before the pandemic”, points out the XTB Romania analyst.
Europe also announces a busy season
The owners of British Airways, IAG, and Air France-KLM reported extremely solid bookings for the summer as travelers pressed ahead with holiday plans despite a cost-of-living crisis. This came even as the IAG chief warned that strikes and staff shortages could still disrupt major airports.
“Airlines and European airports are under pressure to avoid repeating the chaotic scenes of last summer, which affected the return to mass travel after the blockades during the pandemic period,” points out Radu Puiu.
IAG, which also owns Iberia, Vueling and Aer Lingus, reported strong summer ticket sales and a better-than-expected winter season. That means profit in 2023 will exceed its previous forecasts.
The positive outlook matches that of other major European airlines. Lufthansa, easyJet and Ryanair all pointed to solid summer bookings, underscoring a consumer prioritization of travel spending despite high inflation and an uncertain economic outlook.
British Airways was forced to cut flights over the Easter holidays due to strikes at Heathrow, although the hub – which last summer limited passenger numbers to cope with staff shortages – said there would be no similar measure this year. year.
The group said it now expects annual profit to be above the upper end of a range of 1.8-2.3 billion euros.
Air France-KLM reported strong summer ticket sales after first-quarter revenue rose 42 percent year-on-year to €6.33 billion. The airline also forecast capacity for 2023 at 95% of pre-pandemic levels, which is in line with previous forecasts, which indicated a range of 95-100%.
Good prospects for low-cost
British airline easyJet is expected to beat market forecasts for full-year profit, boosted by summer bookings and strong Easter demand despite strikes in France.
The airline’s passenger capacity increased by 40% in the first three months of 2023, with 99.8% of Easter flights operating despite strikes by French air traffic controllers.
Johan Lundgren, the company’s CEO, said he expected this resilience in the face of strikes to continue. However, the lockdown has caused easyJet to cancel around 1,000 flights. Meanwhile, the company’s holiday business is expected to grow 60% this year. Advance bookings were particularly strong for traditional beach destinations such as Malaga, Mallorca, Alicante and Faro.
The company’s revenue climbed 80% in the first half of the year, while strong passenger growth sharply reduced losses in the traditionally quieter winter months.
“The UK low-cost airline’s outlook confirms the picture presented by other European carriers. Respectively, a strong post-pandemic recovery in flight demand and travelers’ tolerance for much higher fares”, the analyst emphasizes.
Over capacity operation for Ryanair
After easyJet posted robust summer bookings Ryanair Holdings joined the trend. In the financial year to March, Ryanair returned to a near-record profit of €1.4 billion, after posting a loss of €355 million the previous year.
The profit achieved exceeded the expectations of analysts and the company, approaching the record profit of 2018, which amounted to 1.45 billion euros. While the European airline industry has not fully recovered, operating at around 95% of pre-pandemic capacity, Ryanair has operated at 125% of its pre-pandemic capacity, continuing on this growth trajectory.
CEO Michael O’Leary was cautiously optimistic, expecting profits to rise further, but moderately, this year and therefore surpass 2018’s record highs. Although summer demand will be strong, rising costs with the fuel must be effectively compensated. Moreover, winter and less active periods will be the ultimate test.
The International Air Transport Association (IATA) said the airline industry’s net profit is expected to reach $9.8 billion in 2023 (1.2% net profit margin), which is more than double the forecast previous $4.7 billion (December 2022).
Operating profits for the airline industry are expected to reach $22.4 billion in 2023, much improved from the December forecast of an operating profit of $3.2 billion. It’s also more than double the $10.1 billion operating profit forecast for 2022. About 4.35 billion people are expected to travel in 2023, which is close to the 4.54 billion that have flown in 2019.
“Economic uncertainties have not dampened the desire to travel, even as ticket prices have absorbed high fuel costs. After deep losses caused by the pandemic, even a net profit margin of 1.2% is a result worth celebrating. But given that airlines earn an average of only $2.25 per passenger, repairing damaged balance sheets and creating sustainable returns on capital for investors will continue to be a challenge for many airlines,” emphasizes Radu Puiu.
IATA Director General William Walsh said resilience is the story of the day and there are many good reasons for optimism. Achieving industry-wide profitability after the pandemic crisis opens up great potential for airlines to reward investors, finance sustainability and invest in efficiency. Still, that’s a big list to make, with a net profit margin of just 1.2%.
2023-06-09 01:00:04
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