According to Bloomberg Intelligence’s 2024 European Airlines Outlook, jet-fuel pricing is volatile, and peers would welcome relief amid persistent cost hikes elsewhere, such as wages and airport fees. Large network operators Lufthansa, Air France-KLM and IAG are driving consolidation to improve efficiency. Meanwhile, budget brands Ryanair, EasyJet and Wizz Air are intensifying short- to medium-haul competition, though Pratt & Whitney engine issues have temporarily hamstrung the latter.
The slow return of corporate and international Asian travellers, potential economic pressure from inflation and interest rates, and the conflicts in Ukraine and the Middle East remain industry risks, adds BI.
Overall, BI sees three key trends in 2024:
Cost Inflation. Wage inflation, airport and route fees, carbon costs and maintenance may feed into higher costs. Jet fuel prices are relatively high again vs. history, and while this can be volatile, hedges may prove important in the short term.Demand Normalization. Higher fares may be tougher to pass on as pent-up demand unwinds and consumer budget pressures continue, with the slow return of corporate travel unable to provide much of an offset.Consolidation. Consolidation may eventually combat some structural profitability headwinds. The Lufthansa-ITA and Air France-SAS (as part of a consortium) minority deals are in process, together with IAG’s pursuit for the remainder of Air Europa. A controlling stake of TAP Air Portugal is also up for grabs.
Conroy Gaynor, BI Industry Analyst, commented: “European airline consolidation progress in 2024 may pave the way to offsetting some margin threats. Pending deals include Lufthansa's minority stake in ITA and IAG's Air Europa purchase. Air France-KLM, meanwhile, is helping rescue SAS. Ryanair can boost intra-region share as Wizz Air stumbles on engine issues and EasyJet remains tepid on expansion.
“IAG, Lufthansa and Air France-KLM have either bought, or are buying, minority stakes in Air Europa, ITA Airways and SAS, respectively. If their midterm ownership ambitions are realized, our calculations show a boost to pro forma available seat kilometres (ASK) of up to 18% vs. their combined 2023 consensus of 944 billion. Still, antitrust reviews may force slot sales. IAG's Iberia and Vueling share the top four spots in Spain with Air Europa, while Lufthansa-ITA may have to cede territory, including in Munich and Milan.”
Ryanair, EasyJet to Drive 2024 Europe Budget Airline Penetration
Ryanair and EasyJet are set to push European market share for budget airlines in 2024, believes BI, with Wizz Air giving up capacity gains on engine inspections. BI’s scenario analysis shows the three exceeding 45% of intra-region air traffic by 2025 as Wizz retakes the lead on growth rate. EasyJet is targeting a disciplined 5% annualized seat expansion from 2023-28.
Conroy Gaynor, BI Industry Analyst, commented: “European discount airlines are adding to their fleets more quickly than legacy counterparts, with newer aircraft and labour productivity proving an advantage. Wizz Air had 19% annualized passenger growth from fiscal 2015-20, boosting operating leverage and bringing unit expenses closer to larger rival Ryanair, which achieved 10% in the same period. The same figure for Ryanair was 5% in the 12 months to October vs. the equivalent in 2018-19, and 11% for Wizz, despite the pandemic. These are taking advantage of rivals exiting or restructuring. In the UK, Thomas Cook collapsed in 2019, followed by Flybe in 2020.”