Airlines can expect summer profits uplift but threat of 'notable disruptions' remains
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European airlines and airports can expect to boost profits this summer, but the threat of more turbulence involving flight cancellations and chaos at airports still looms large, a ratings firm has warned.
DBRS Morningstar, which assesses the corporate performance of airlines and airport operators, said aviation is facing tailwinds for their peak and profitable months, "with financial performance so far in 2023 beating expectations and a strong summer season of earnings coming".
But, in a report, "Global Aviation Sector Yet to Clear All Runways for Smooth Summer 2023", the ratings firm has warned there was no guarantee that airports had sorted out the staffing crisis that forced some European operators to introduce ceilings on the number of flights they would handle as services on the ground fell into chaos.
"Long lines at security checkpoints and mishandled baggage were often observed at major international airports in 2022. Since the very underwhelming operating performance during last year’s peak summer season, airlines and airports globally have been actively bolstering their operations," DBRS said.
For this summer, "North America and Europe are expected to experience the most notable disruptions, with the woeful New York airports' performance leaving a mark on the former, while stressed labour relations should buffet the latter," it said.
"The Asia-Pacific Region seems best prepared to handle surging air travel demand," according to the report.
“We believe that overall for the summer 2023 air travel season, surging demand will lead to very favourable financial results for global airlines and airports, which ultimately will be supportive of current credit ratings,” said Rohit Kumar, assistant vice president, at DBRS.
“However, the operational performance in the summer 2023 season will show how far the aviation sector itself needs to travel before claiming to have fully recovered," he said.
The report comes as the share prices of European airlines have, in general, anticipated a huge uplift in earnings this year. But the share price gains would be seriously threatened should there be a large number of cancellations, for whatever reason, this summer.
Ryanair is looking to drive its profits to record levels in its current 2023-2024 financial year, while the revenues generated by IAG, — the owner of Aer Lingus, British Airways, Vueling, and Iberia — have also risen this year. Ryanair shares have climbed 37% since the start of the year. IAG shares have risen 29% over the same period.
Meanwhile, Ryanair-rival Wizz Air said it has hired more staff to help prevent any repeat of the chaos it faced last summer.
“I don’t think this summer is going to be perfect in terms of the operating environment,” said chief executive Jozsef Varadi. “But we will be a lot more resilient, a lot more robust in processing all those issues affecting us.”