WOOD Flash – EMEA airlines: 10M22 traffic, start of shoulder season sees demand and pricing holding up

November marks the start of the low season for the airlines in the Northern Hemisphere, as they transition to the winter schedules. However, many carriers are entering the shoulder season from a position of strength. The traffic recovery across Europe during the summer surprised on the upside, and the booking evidence does – so far – not suggest demand or pricing falling off a cliff in the run-up to Christmas. It is still too early to make a read-across for January or February, given the length of the booking window. However, considering the widespread concerns about the deterioration of purchasing power, we see every month that is not a complete disaster as a success. The calendar 3Q22 results confirmed that a number of airlines, including Ryanair, Pegasus, Turkish Airlines (THYAO) and Aegean, are having a flagship year. Even Wizz Air, which is suffering due to the initial absence of fuel hedges, surprised with a stronger-than-expected liquidity position at the end of September. The MSCI EU Airlines Index is up nearly 30% from the end of September lows, having outperformed the European stocks by nearly 20% over the period. We believe that the stellar share price performance of THYAO so far this year could be an opportunity to take profits for international investors (locals may justify a more positive view, due to the hard currency exposure it offers). Even after the c.70% rally over the past month, Wizz Air remains our preferred pick in our airlines coverage. We believe that the efficient fleet should drive a return to profitability, and we do not see a distressed capital increase as a base case.