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Amid the travel chaos in the United States and Europe, rising demand for Europe’s five biggest airlines and better-than-expected earnings at some airlines could boost investor sentiment as they bounce back from two years of lockdowns due to the Covid-19 pandemic.
The summer of travel has left millions of passengers stuck in long lines at airports, due to staff shortages in part due to the pandemic and massive layoffs as thousands of flights have been canceled or delayed.
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In 2020, disruptions in the skies and on the ground have made it difficult for airlines to continue as passenger demand has surged as more countries eased restrictions on foreign travel imposed during the outbreak of the Covid-19 pandemic.
Although the chaos has grounded hundreds of flights and lost thousands of bags, some airlines have managed to maintain a bright and calm outlook for the year ahead in terms of financial performance.
While some airlines posted positive earnings at the end of 2019, there are a few new economic challenges that could dampen performance as the world begins to emerge from the pandemic.
For starters, geopolitical tensions in Europe have forced airlines to curtail their flight schedules in parts of Eastern Europe after Russia escalated its invasion of Ukraine in February. The escalating conflict has led the European Union to close its airspace to Russian traffic, which has resulted in a 3-6% decline in the stock performance of European airlines in February and March.
In addition, there has been a significant increase in air traffic compared to pre-pandemic levels, up 47 percent since January 2022, according to recent insights from Adobe Analytics. The sudden hike in prices comes with a host of economic problems, from inflation to early spring fuel costs, severe labor shortages and political uncertainty all weighing on airlines.
Growing economic concerns are not the only challenge. Extreme weather conditions, from record-breaking heat waves to volcanic eruptions – which could lead to the cancellation of flights to Reykjavík – have wreaked havoc on the world’s airline industry.
But even as some airlines prepare to handle rising average daily passenger numbers, overcapacity airports have prompted airline operators to limit ticket availability. Since mid-summer, London’s Heathrow Airport, one of Europe’s busiest airports, has imposed a 100,000-passenger-a-day limit, forcing airlines to reduce ticket sales in response.
Heathrow executives’ announcement was soon followed by other European airports, including Amsterdam Schiphol Airport and Gatwick Airport, to reduce passenger capacity by 2023.
The macroeconomic trend has not been very encouraging for European airlines, and across the pond in the United States, some airlines reported some positive earnings in the last quarter, but still shy of pre-pandemic levels.
Ryanair Holdings Pvt
Ryanair (NASDAQ: RYAAY ), one of Europe’s lowest-cost short-haul airline operators, has made some progress in recent months, even after announcing that ticket prices for most of its planned routes in May 2022 will increase in the coming months.
Ryanair has managed to keep costs down significantly by offering a minimal on-board experience, focusing mostly on increasing passenger numbers and adding new routes. Q1 2022 managed to beat many expectations, with revenues growing by 602% at €0.37 billion to €2.60 billion, and passenger numbers recovering 9% ahead of 2019 figures in the same period.
On the other hand, the RYAAY has managed to do fair business considering the current economic climate and the sudden collapse of the airline industry in March. Diluted earnings per share (EPS) so far has increased by 166.67% year-over-year. Not only was Ryanair able to reduce its debt to €0.4 billion from €1.45 billion on June 30, but the airline was consistently ranked the #1 EUI airline and #2 in the world for AGS measures.
German Lufthansa AG
Lufthansa (ETR:LHA), the German flag carrier, operates several brands in the European airline market, including Lufthansa German, SWISS and Austrian Airlines, and Eurowings, a low-cost European brand. Lufthansa’s multiple names mean it has exposure at both ends of the market.
Its recent Q2 2022 earnings show the company generated net income of 259 million euros, compared to a total net loss of 756 million euros in 2021. Total Q2 revenue was 8.46 billion euros. The company served more than 29 million passengers in the second quarter, which is significantly higher than the 7 million it served during the same period last year.
On the stock market side, it’s a different story, with total EPS of €0.33, compared to last year’s €1.26 per share loss. Year-to-date (YTD) stock price is stable, growing 0.67%, but has not made any significant changes over the past few months. Currently, LHA has an average daily range of €6.68 – €6.89, struggling to breach the €7.00 to €10.00 mark.
Lufthansa, one of the few European airlines operating both domestic and international routes, has been able to handle the surge in passenger demand during the summer, recently announcing that it has hired 5,000 more staff and signed a wage deal with the current. Employees.
Air France-KLM Group
The joint venture between Air France and KLM Royal Dutch Airlines (EPA:AF) currently operates the most routes outside of Europe to more than 100 countries. The duo currently owns the largest transatlantic joint venture with Delta Air Lines and Alitalia.
The airline’s second-quarter performance increased despite lower fuel and labor costs. Total net income of 324 euros in 2021 showed an improvement of 1.8 billion euros for the same period. The airline posted positive earnings before interest, taxes, depreciation and amortization (EBITDA), with total free cash flow ending the quarter at 1.5 billion euros. .
Both freight and passenger figures improved significantly, helping boost their overall second quarter performance. For investors, the share price is down 24% YTD, reflecting higher ticket costs, and a challenging macroeconomic environment has impacted AF since the start of the year. Despite the low price point, the airline group still maintains a good performing balance sheet.
International United Airlines Group
The company delivered an above-average Q2 performance thanks to strong demand from various airlines operating IAG ( LON:IAG ) , including its premium airlines – British Airways and Iberia.
Most of the company’s airlines reported significant increases in passenger capacity, up 65 percent from Q1. In addition, short-haul European flights increased the number of passengers. Compared to the same period in 2019, it showed an increase of 89 percent. North America increased by 84 percent, and Latin America and the Caribbean jumped 81 percent.
Higher operating costs were a major drag for IAG, as overall segment revenues rose 6.4% in Q2 on passenger yield of 10.6%, higher than before the pandemic.
YTD performance is down over 24%, and IAG currently holds a strong, but valued position at an average of £118.91 – £121.90. For investors, IAG may offer to improve its long-term performance, but the overall market performance has not been what it should have been in the last few months, especially considering the already difficult performance of British Airways and other IAG brands in the last two weeks of the summer.
EasyJet
EasyJet ( LON:EZJ ), the fifth of the Big Five European low-cost, point-to-point and short-haul airlines, is still operating 95% of its services despite major disruptions across the continent. Planned routes scheduled for Q3 2022.
During the quarter, EasyJet flew more than 22 million passengers, a 7x increase for the same period in 2021. The company’s profit after EBITDA was £103 million, still below the £313 million reported in Q3 2019. High inflation conditions and fuel prices. They have made it difficult to make a profit while keeping airline tickets low.
Stock performance also took a hit in the first few months of the year, but over the past few weeks, EZJ has surged 12.25%. The average price between £395.90 and £411.40 makes EZJ one of the most valued European airline stocks. Although the company has experienced some headwinds over the past few months, investors remain positive about the overall performance that EZJ will deliver for the long term.
to finish
The big five, including Ryanair, Deutsche Lufthansa, Air France-KLM Group, International Consolidated Airlines Group and EasyJet, are seeing strong performances as many countries lift pandemic-related travel restrictions and domestic and international travel continues to grow.
Although this means that the aviation and airline industry may be back on track, beating most estimates, there is still a long way to go as airlines and airport operators face tightening macroeconomic conditions. Inflation concerns and aggressive price increases are red flags that indicate a looming recession.
As winter begins to wind down, with some airports seeing a slight drop in daily passenger numbers, the coming months will likely prove how well The Big Five can hold up to the economic headwinds, reduced consumer spending and the continued return of travel and leisure travel. .
The winter months are likely to be a real challenge for these airlines, as they post new earnings, and see the chaotic economic conditions leading up to the next quarter as overall market sentiment changes.
It has been updated
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