Frankfurt It is a new experience for aviation. While the first sectors are feeling a reluctance to buy because of the high inflation, business is going brilliantly in the sky. The industry otherwise reacts as quickly as it does violently to economic and geopolitical crises.
Alex Irving from Bernstein Research recently wrote in an industry report that people were surprised back in November that there was no decline in ticket demand. This development continued until mid-December 2022. “The advance bookings are robust.”
The mood at the global airline association Iata has also improved. For the first time since the beginning of the pandemic, airlines are likely to be in the black again in 2023. The economists at Iata are forecasting the equivalent of 4.5 billion euros in after-tax earnings for the year that has just begun.
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That is far from the $26.4 billion that the airlines flown in in the pre-crisis year of 2019. But it’s a win – for the year 2022, which is just ending, the experts at Iata still calculate a loss of 6.9 billion dollars.
One reason for the sustained good booking situation is likely to be the catch-up effect. He meets an offer that is not yet back to the level of 2019. Almost all airlines are now showing a discipline in their capacity planning that was unimaginable until the beginning of the pandemic.
Limited supply means high ticket prices
For a long time, offers were pumped into the market at any price in the hope of stealing a few customers away from the competition. There was a ruinous price war that depressed ticket prices.
That has changed. The European air traffic control authority Eurocontrol recorded a total of 25,569 flights in Europe between January and the beginning of December 2022. That was only 83.1 percent of the level in 2019. A rather tight supply in turn ensures high prices and thus the earnings of the airlines.
But will the airline managers remain as disciplined as before? A look at the newly ordered aircraft raises doubts. According to the latest information, Airbus alone has 7,344 aircraft in the order book, the vast majority of which are short- and medium-haul jets. Even if many of these planes replace older equipment, there will be enough planes to increase overall seating.
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Big discounts are the most common way to fill an aircraft despite weak demand. Should the ruinous competition flare up again on certain routes in 2023, this would affect airlines that are not particularly economically stable.
This shows the current forecast of the Iata. The projected profit of $4.7 billion in the new year compares to sales of probably $779 billion. In other words: For every 100 euros in sales, the airlines only have 60 cents as profit. That is not enough, especially given the necessary investments in modern, more sustainable aircraft or synthetic fuel, which is greener but far more expensive than kerosene.
Airlines in focus: Lufthansa
There are two airlines that deserve special attention in 2023. One of them is Lufthansa. Europe’s largest airline group could be a key player in the consolidation.
On the one hand, there is a good chance of being awarded the contract for the Italian ITA. In industry circles and in the Italian media, there is talk of well advanced, good talks. The Italian government is under pressure to act: ITA is burning money, the state aid approved by the EU Commission is running out. Apart from Lufthansa, no other bidder was in sight recently.
If the transaction is successful, growth opportunities will open up for the company. The market in Italy is not easy, on short-haul routes it is dominated by low-cost providers such as Ryanair and Easyjet. On the other hand, Italy is already the second largest market in Europe for Lufthansa after Germany.
With ITA, the group would have an airline that could bring passengers from there to the hubs in Frankfurt and Munich – especially from the economically strong north of Italy. At the same time, Rome Fiumicino Airport can be used as a base for flights to North Africa or the Middle East.
The Portuguese government wants to start the privatization of the national airline TAP in 2023. Here, too, Lufthansa is considered a potential buyer. Unlike ITA, the Lufthansa management has not yet commented on the subject of TAP.
In addition, the Scandinavian SAS is a takeover candidate, for which Lufthansa is repeatedly mentioned as a potential buyer. For the group, 2023 could be the year in which it strongly expands its own market position in Europe.
Airlines in focus: Easyjet
The second airline where things could get exciting is Easyjet. Takeover rumors keep swirling around the British low-cost provider. Last year, management announced that it had rejected a hostile takeover bid.
Allegedly, the International Airlines Group (IAG) and the Hungarian Wizz Air showed interest at the time. A few weeks ago there was renewed speculation about a possible offer for Easyjet. The British newspaper The Times reported that the British-Spanish IAG was preparing an offer.
This has not yet been commented on or confirmed. Easyjet CEO Johan Lundgren tried to downplay the issue when presenting the latest quarterly figures. “I don’t see Easyjet as a target for an acquisition,” he said, instead not ruling out acquisitions by Easyjet himself. But it wouldn’t be surprising if Easyjet again became the target of takeover rumors in the coming weeks and months.
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