UBS’s latest take on the airline sector has the feel of a calm flight meeting a few bumps.
The investment bank expects most carriers to post stronger third-quarter profits than last year, but the skies ahead look less clear. Costs are climbing, demand visibility is slipping and industrial unrest is back on the radar.
Jet2 PLC (AIM:JET2) is expected to hit some headwinds, with UBS forecasting a fall in first-half profit despite another solid summer.
Wizz Air Holdings PLC (AIM:WIZZ) faces a tougher landing still after closing its Middle East business, while higher fuel and operating costs are squeezing margins. The analysts sit well below market forecasts on that one.
Attention now shifts to what happens next. UBS expects management updates to focus on winter capacity, delivery delays, capital returns and the possible impact of the UK budget.
Labour disputes could also loom large, with Air France-KLM exposed to strike risk at home and Lufthansa’s pilots voting on industrial action.
Air traffic, however, continues to climb. Short-haul capacity across Europe is now running about 5% higher than in 2019, while long-haul routes are up 8% on pre-pandemic levels.
The fourth quarter should see another nudge higher, with overall capacity growth of about 5% year on year. Athens and Zurich are leading the way, while Edinburgh and Gatwick have trimmed their schedules slightly.
UBS maintains a preference for short-haul over long-haul airlines and still rates Lufthansa a “buy”, with a €9.25 target price.
The bank’s message is clear enough: the sector is holding altitude, but the weather ahead looks unsettled and pilots, both literal and corporate, will need a steady hand on the controls.