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European airlines see travel withstanding consumer squeeze for now

by jcp
Editorial & Advertiser disclosure

By Sarah Young and Klaus Lauer

LONDON (Reuters) – British Airways-owner IAG, Europe’s biggest airline Ryanair and rival easyJet said demand for travel was holding up, calming worries that pressure on household budgets could stall aviation’s recovery from the pandemic.

Australia’s Qantas Airways Ltd also said on Thursday it was seeing consumers willing to pay higher fares despite rising inflation and interest rates.

Shares in IAG jumped as much as 10% after an unscheduled announcement on Thursday to report better than expected profit for its summer quarter and a confident outlook. Meanwhile, Ryanair said its bookings for the northern hemisphere autumn mid-term and Christmas holidays are ahead of pre-COVID levels and it sees average fares rising by more than expected until the end of March.

In Europe, most airline stocks have plunged over the last six months, some by as much as 50%, over worries that rising household bills will dampen appetite for travel.

But the airlines injected optimism back into the market on Thursday.

IAG, which also owns the Aer Lingus, Iberia and Vueling airlines, said forward bookings remain at expected levels for this time of year “with no indication of weakness”.

CAUSE FOR OPTIMISM

Johan Lundgren, chief executive of easyJet which had earlier issued forecasts for its annual results, was more cautious, saying that there was “uncertainty out there”, but the low-cost operator also said there was cause for optimism.

“Despite the difficulties that households have, we still know that holidays and travel are top of the list when people can prioritise what they want to do with their disposable income,” he told reporters.

For Britain’s October school holiday and the Christmas week, easyJet said ticket sales exceeded pre-pandemic levels and load factors – a measure of seats filled – for winter bookings and pricing were robust.

Analysts noted that the strength of the dollar against the pound and the euro lately has made it cheaper for American visitors to come to Britain and Europe, a particular boost for IAG which has a large exposure to the transatlantic market.

Ryanair’s chief executive Michael O’Leary said that demand appeared to be supported by savings built up during the pandemic but he sounded a note of caution over how long that could endure, saying he does expect that customers’ disposable income will get hit by increases in interest rates and the cost of living further into the northern hemisphere winter.

That was echoed by Hargreaves Lansdown equity analyst Sophie Lund-Yates who said IAG’s upgrade was “a very welcome surprise, but whether the spritely mood music can be maintained is another question entirely”.

 

(Writing by Sarah Young; Editing by Emelia Sithole-Matarise)

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