By Guy Taylor
Low-cost carriers are facing “unignorable” challenges despite this summers travel boom, analysts have warned, ahead of a crunch results week.
Ryanair and Wizz Air will report half year results on Monday and Thursday. The period covers a record breaking summer season for aviation, which saw airlines net bumper profits as consumers flocked abroad.
Both carriers look set to join the likes of Easyjet and the IAG in benefitting from strong demand trends in the last quarter, with passenger traffic above pre-pandemic levels.
But experts are counselling caution. Airline share prices, including the budget duo’s, have plunged over the last month and a number of issues are threatening the post-pandemic party.
Supply chain problems have tempered airlines’ capacity forecasts, while a global oil price spike provoked by conflict in the Middle East has bumped up the cost of kerosene-based jet fuels.
Wizz Air slashed its capacity for the second half of the year by 10 per cent over summer, after issues were uncovered with the engines of some of its Airbus aircraft. Ryanair has also trimmed its full-year traffic guidance due to Boeing delivery delays.
Yi Zhong, equity research analyst at Alphavalue, said “low-cost carriers are facing unignorable external challenges.”
“Both companies largely rely on on-time aircraft delivery to realize their unparalleled expansion plans and further compress their cost base.”
Zhong believes Ryanair’s strong fuel hedging strategy will alleviate much of the burden of higher jet fuel costs, but Wizz Air has no such luck.
“The company is in the middle of P&W’s GFC engine issues in addition to comparably weak hedging. Don’t forget its positioning and long-term expansion ambitions in the Middle East amidst the current war and geopolitical stress.”
Ruxandra Haradau-Döser, head of european aviation research at HSBC, said “the focus will be on bookings for the current quarter, since both airlines indicated in previous statements lower booking levels for November and December than some of the competitors.”
“Traffic in Europe has now recovered to almost pre-covid levels with leisure traffic in our view above 2019 levels. Therefore, we expect traffic growth rates to significantly slow down next year with leisure traffic stabilizing at the level of this year,” she explained.
Haradau-Döser expects European-wide capacities to develop “largely in-line with demand” amid supply chain issues and pilot shortages, with passenger yields stabilizing at the “current high level next year.”
“However, for airlines that plan further aggressive capacity growth, we cannot exclude some yield pressure during seasonally weaker demand periods of the year.”
