Easyjet, Ryanair and Wizz Air: Have carriers reached the summit of a record rebound?
As expected, Easyjet posted a bullish trading update this morning, treating shareholders by reinstating its dividend thanks to record profits in the fourth quarter – but the airline’s share price dropped on the news and some analysts questioned whether the trend could continue.
Easyjet said it had swung to a £450m profit in the 12 months to September, up from a loss of £178m the prior year.
The announcement will likely keep Easyjet’s share price, which is already up over 50 per cent this year, raised for some time to come.
Yet shares in Easyjet had fallen five per cent by mid afternoon, as investors fretted over lower-than-expected profit guidance and the impact of slower demand through the winter months.
“If you look at the history of airlines, profits are very cyclical and booms tend to be followed in quick succession by busts,” Russ Mould, investment director at AJ Bell, told Morning Wire
The industry is certainly booming right now, as pent-up demand collides with the end of Covid-era restrictions in capacity.
Easyjet’s magnificent rally has been reflected across the industry, with rivals Wizz Air and Ryanair both up 36 and 47 per cent respectively.
However a number of challenges threaten to derail the jump, and analysts are already speculating that aviation may have reached the summit of what has been a record breaking year.
“When airlines feel so flush with cash that they can not only buy more aircraft but pay dividends as well, we’re usually a lot closer to the top of the profits cycle than we are the bottom, so it is possible that some investors are deciding to check out now, while the going is still good,” Mould noted.
“When airlines feel so flush with cash that they can not only buy more aircraft but pay dividends as well, we’re usually a lot closer to the top of the profits cycle than we are the bottom, so it is possible that some investors are deciding to check out now, while the going is still good”
Russ Mould, Investment Director at AJ Bell
Investors will be looking keenly at what plans each carrier has to expand capacity, on top of the potential for faltering demand into 2024, as the cost-of-living crisis and high interest rates linger.
Easyjets bumper order this morning may quell some concerns, but supply chain and manufacturing issues are rampant across the sector.
Wizz Air in September told investors its capacity would be limited by 10 per cent for the second half of the year after engine issues in its Airbus SE A320 neo aircraft forced it to ground some planes.
Ruth Griffin, leisure partner at Gowling WLG, said “the ongoing conflict in Ukraine is still causing issues with some flights routes and the possibility of further air traffic control strikes in Europe on the horizon gives shareholders a reason to be tempered despite the positive performance”.
Griffin added that soaring demand had created intense competition in the sector and that Easyjet would need to “continue offering affordable pricing” to capitalise on the return of travel.
Whatever the future holds, it may not be as smooth sailing as many airlines would wish consumers to believe.
“No one is feeling this brave right now, but if any airline executive is ever confident enough to repeat the words of then American Airlines’s chief exec Doug Parker in 2017, and assert that an airline will never lose money again, then it’s almost certainly time to head for the (emergency) exits,” Mould said.