WOOD Flash – EMEA airlines: 9M22 traffic, the summer is almost gone

As the share prices continue to tank, on the back of the rapidly deteriorating economic outlook, and concerns about purchasing power, high fuel prices and the strong dollar, the summer traffic is probably yesterday’s news. Still, we note that the post-pandemic recovery in passenger traffic during the summer was robust in Europe. Ryanair carried 15% more passengers in 3Q22 vs. 3Q19 and Wizz some 21% more vs. 3Q19, with easyJet and the European majors trailing the 2019 results by some 10-20% in terms of RPK, according to the consensus estimates. At the same time, the RASK guidance has been largely maintained, and the consensus continues to expect the low-cost carriers to deliver some 10% RASK improvement vs. the 2019 levels in the summer quarter – for some of the FSCs majors, it could be even slightly better. The profit recovery is highly uneven: Turkish Airlines and Ryanair are heading towards a flagship year, thanks to strong passenger yields and hedged fuel, while the profits of others (e.g., Wizz Air) are suffering, due to a combination of high fuel costs and the strong USD. Weak demand in the winter ahead could mean that many of the smaller regional carriers and small legacy flags may need to raise capital to make it through. The likelihood and extent of possible government aid is unclear, given the level playing field rules and budgets stretched by the energy crisis. In order to shore up liquidity, weaker airlines may accelerate promotions and discount campaigns – while this could provide a short-term fix, it could come at the steep price of significantly reduced profitability ahead. Especially if the fuel price remains elevated, this tactic could prove to be very risky. Air freight rates continue to decline rapidly, albeit more slowly than the cargo shipping prices, and from very elevated levels. While not in the foreground, COVID-19 related restrictions remain a risk as we move into the autumn.