European Airline Underperformance Highlights Consumer-Demand Risks, says Bloomberg Intelligence

European airlines will likely face lower earnings per share in the second half of the year, according to Bloomberg Intelligence’s Europe Airlines Midyear Outlook. Ticket prices might have peaked as demand from consumers decreases and flight capacity surpasses pre-pandemic levels. Although costs like wages and airport fees are rising, decreasing jet fuel prices could help mitigate these expenses. Major airlines like Lufthansa, Air France-KLM, and IAG are expected to drive consolidation in H2 to boost efficiency, while budget airlines Ryanair, EasyJet, and Wizz Air are increasing competition in short- to medium-haul markets.

Other ongoing challenges for the industry include the slow return of business travel, persistent high interest rates, and geopolitical uncertainties such as conflicts and election outcomes.

Conroy Gaynor, BI Senior Consumer Analyst, commented: “European airlines' negative returns in Q2-to-date has significantly worsened the H1 underperformance vs. the Stoxx 600. This was partly driven by the largest low-cost carriers Ryanair and EasyJet reporting signs of more-fragile pricing this summer and is despite more upbeat profit outlooks from Wizz Air and Norwegian. Full-service carriers remain the biggest underperformers, with IAG's resilience failing to offset the decline in Lufthansa and Air France-KLM. Ryanair is the only peer trading above early 2020, as it came through the pandemic with its finances intact and a greater cost advantage, supporting its market-share ambitions.

“European airlines' valuation multiples reflect myriad challenges, including geopolitical risk, unions and competition, despite the buffer of protectionism for many full-service carriers. Virtual meeting platforms and lifestyle changes continue to stifle corporate travel, so premium leisure is being targeted for pricing mix. Meanwhile, the cost of carbon and environmentally friendly alternatives continue to threaten to push up air fares, driving short-haul demand to rail or other forms of travel.”

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