Airlines Face Tougher Times Ahead in Europe
Germany's Lufthansa (DLAKF) , (DLAKY) and British budget carrier EasyJet (ESYJY) on Thursday became the latest European airline to warn of turbulence ahead, citing both terrorist attacks and political and economic uncertainty as the biggest worries for the industry.
The region's airline stocks all made a steep descent on the back of the two airlines' warnings. Lufthansa was down over 3.8% at €10.27 ($11.31), EasyJet was off more than 6.5% at 1,053 pence ($1.39), while International Consolidated Airlines Group (ICAGY) , which operates both British Airways and Spain's Iberia, dropped over 3.6% to 405.3 pence. In Paris, Franco-Dutch operator Air France-KLM (AFLYY) , which will release its results on July 27, was down 4.6% at €5.31.
EasyJet's great rival, the Irish low-cost carrier Ryanair (RYAAY) - Get Report was also down 4.5% at €11.13.
In a statement Lufthansa said advanced bookings have declined significantly due to terrorist attacks, and greater political and economic uncertainty in Europe. It expects unit revenue for the half year from July to December to fall between 8% and 9%.
EasyJet said its third-quarter performance was impacted by the attacks on the Brussels airport and the Egyptair crash. Performance was also hit by air traffic control strikes, runway closures at London's Gatwick airport and severe weather. It also pointed to the June 23 Brexit vote for the U.K. to leave the European Union as an additional source of economic and consumer uncertainty.
But different carriers have reacted in different ways. While Lufthansa's profit warning comes with a downward revision of its full-year capacity growth plan from 6.0% to 5.4%, it is also reportedly in talks to further consolidate the German market by acquiring a number of planes from its smaller rival Air Berlin and possibly acquiring some of its routes. Air Berlin is a direct competitor to Lufthansa's lower-cost subsidiary Eurowings.
Other budget carriers, meanwhile, are focusing on core businesses rather than cutting back. EasyJet boss Carolyn McCall told reporters on Thursday that her company will continue to expand in the U.K. rather than reduce capacity while the uncertainty surrounding Brexit looms over its international routes.
Her comments come a day after London-listed Central European airline Wizz Air said it would be readjusting its network to halve its intended growth in flights to and from the U.K., while redeploying that capacity to its non-U.K. routes.
The message is no need to panic. But, "frustratingly," as analysts at Cantor Fitzgerald put it, in a note this morning, EasyJet didn't provide full-year forecasts in the latest trading update.
"Although EasyJet will add significant capacity in 4Q, forward bookings are weaker than we expected and yields are likely to be significantly down. Overall, we expect full year consensus forecasts to continue to be trimmed."
Budget or not, airlines are in for a tough time over the coming months. As International Air Transport Association chief executive Tony Tyler told the BBC earlier this month, neither terrorism nor the fragile state of the global economy "bode well for travel demand."
It was, he said, "difficult to see an early uptick."