It’s been a remarkable 2023 for Europe’s major airlines.
Travel demand has returned with a vengeance after years of Covid-related torment. Carriers across the board cashed in on a historic summer, announcing record profits, bumper dividends and a string of aircraft orders.
So-called ‘pent up demand’ — referring to holidaymakers desire for travel post-lockdown — stole the show despite a chaotic summer of disruption, which included a monumental slip-up at the UK’s National Air Traffic Services (NATS), European wildfires and continued airspace issues across the continent.
Here were the headline-grabbing moments at Britain’s most prominent airlines:
- Ryanair: Announced first ever dividend for investors, forecast record annual post-tax profit and placed a multi-billion dollar order for 300 Boeing 737 Max jets, burying the hatchet on an 18 month feud with the manufacturer.
- Easyjet: Reinstated dividend, ordered 157 Airbus aircraft and posted record profits over the busy summer period.
- British Airways owner the IAG: Record profits in two consecutive results, between January and October, and a forecast to return to pre-pandemic levels by the end of the year.
- TUI: Doubling profits despite a major hit from wildfires on the continent. London markets are shuddering at the thought of a potential delisting, revealed in its December results.
- Jet2: Survived turbulence created by the departure of its long-time chief and founder, Philip Meeson. Helped by half-year profits doubling in November.
What lies in store in 2024?
It says a lot that such a booming year of demand ultimately posed more questions than answers.
Disruption has been a feature of this year. Ryanair chief Michael O’Leary’s furious tirade against NATS in a commons committee hearing summed up the thoughts of the entire sector on the UK’s air traffic system.
Many of the issues were out of airlines’ control. Wildfires, war in the Ukraine and Middle East and air traffic control strikes in Europe can’t be legislated for. Aircraft delivery delays at Boeing and Airbus are also largely in the hands of the two manufacturers.
But analysts say carriers may be getting overconfident, amid a demand upturn that can’t be relied on forever. Shares dipped at a slew of different airlines over the Autumn months, despite a string of positive results, revealing investor’s concerns over how long the travel boom will truly last.
The conflicts in Eastern Europe and the Middle East aren’t going away any time soon and will likely keep oil prices high into next year. Supply chain issues plaguing the major plane makers have also not been resolved, with carrier’s now passing on ticket fare hikes to consumers.
And it remains to be seen whether consumers’ ethereal ‘pent-up demand’ will hold amid higher food, energy and mortgage bills.
“If anything, the industry’s biggest enemy may be — as usual — overconfidence. Capacity additions are in the pipeline and these fleet expansion plans, coupled with lingering fears of a recession and sticky oil prices, were behind the mid-year swoon in airline prices,” Russ Mould, investment director at AJ Bell, told City A.M.
“As soon as the industry starts to make anything like a decent profit, new entrants pile in and existing players ladle on the capacity – that’s why net margins are still so thin and revenue and profit streams so volatile. Competition is just brutal.”
“As soon as the industry starts to make anything like a decent profit, new entrants pile in and existing players ladle on the capacity – that’s why net margins are still so thin and revenue and profit streams so volatile. Competition is just brutal.”
Russ Mould, investment director at AJ Bell
The chequered return of corporate and international Asian travellers also poses an industry risk, according to the 2024 Bloomberg Intelligence airline outlook. “Even if strong leisure demand holds, European airlines’ scope for earnings per share upgrades is more limited in 2024 vs a bumper 2023,” the report noted.
That said, trade body the International Air Transport Association (IATA) forecasts a slight increase in net profits to $25.7bn in 2024, a prediction its director-general Willie Walsh hailed as a “tribute to aviation’s resilience”.
The sector is famously volatile, with thin profit margins and return on capital. A look at history suggests any boom may soon be followed by a bust, but airlines aren’t ready to hear that just yet.