Yesterday saw shares in Easyjet, Wizz Air, Jet2 and British Airways owner the IAG plunge dramatically as some of Britain’s biggest carrier’s were given a reality check following results from Ryanair.
The airline posted a sharp fall in profit and warned of “materially lower” ticket fares in the coming months as consumers tighten their belts. The typically bullish Dublin outfit’s shares were languishing down 17 per cent on the Euronext by close of play.
After a near two-year-long post-pandemic boom, the UK’s listed airlines may finally have hit some turbulence.
Since the pandemic, Europe and much of the globe has witnessed a surge in demand for travel, as holidays top the agenda following years of lockdown.
Such soaring demand, which resulted in a string of record profit hauls at many major airlines, began a steep rise in airfares. This was compounded by supply chain issues at the world’s largest plane manufacturers, which has constrained aircraft deliveries and the availability of flights.
The significance of Ryanair’s announcement, then, should not be understated and explains much of Monday’s sell-off. The impact was such that Premier Inn owner Whitbread and Holiday Inn owner Intercontinental Hotels Group were both among the FTSE 100’s biggest fallers, as investors feared consumer spend across the travel sector would fall.
“In the same way some popular brands are now having to reach for discount codes to tempt shoppers to trade up again, Ryanair has informed markets that greater ‘price stimulation’ will be needed this summer – in plain language it’s pushed passengers past their limit and needs to roll back on the further price hikes it had anticipated making,” Danni Hewson, head of financial analysis at AJ Bell.
He added: “The old adage that the best cure for rising prices is rising prices appears once again to have been on the money.”
The budget airlines will be most impacted given their model. The IAG’s fall can be partially explained by its subsidiary Vueling, Spain’s largest low-cost carrier.
But it follows wider warnings from across the pond over the last month. Lufthansa has flagged “negative market trends,” while some US airlines have recently slashed fares on domestic routes.
It also falls against a backdrop of the increasingly pressing, yet costly, need to transition to greener fuels. The boss of the IAG, Luis Gallego, called for urgent action to scale up the supply of Sustainable Aviation Fuel (SAF), a biofuel seen as critical to the industry’s climate goals, on Monday. The group has already invested over $1bn in the nascent technology as it looks to hit a target of using it for 10 per cent of its flights by 2030.
Looking at the history of airlines, profits are often very cyclical, with booms tending to be followed in quick succession busts.
Yesterday’s sell-off could be a signal the industry has topped out in its most recent profit cycle.