Turbulent times are continuing for the airline industry and there are dark clouds ahead that could extend for some time yet.
Bad news came in triplicate for the sector at the start of the week, with British Airways owner the International Consolidated Airlines Group (LSE:IAG) and easyJet plc (LSE:EZJ) both cancelling hundreds of flights, while Ryanair Holdings PLC (LSE:RYA) issued a profit warning.
As passenger traffic has not recovered as much as it expected, Ryanair said losses are likely to be at the higher end of its previous expectations, with elevated fuel prices also poured into the mix for its new financial year.
Meanwhile, rival low-cost airline easyJet blamed high levels of staff absentees due to Covid for its decision to cancel more than 200 scheduled flights since last Friday.
BA also cancelled close to 100 flights for the same reason.
Some of the pain for the airline industry is self-inflicted, said AJ Bell investment director Russ Mould.
BA owner IAG axed around 12,000 staff during the pandemic and has been accused of a blatant fire-and-rehire scheme as it looked to bring back cabin crew on substantially reduced terms and conditions.
So these new cancellations, said Mould, “stem from airlines and airports having insufficient staff to cope with rising demand”, though he acknowledged that a resurgence in Covid cases has not helped, with many workers off sick.
“The broader aviation sector has been waiting for the magic moment where flying restrictions were lifted, and individuals regained their confidence to get on a plane again. With both forces now in motion one would have thought businesses that enable and support the flying experience would be making hay while the sun shines. Unfortunately, the sector’s recovery is as chaotic as someone on their first flying lesson,” Mould said.
Today’s news showing long queues of people waiting to get on planes will put many others off from flying too, he suggested.
“Together these forces could result in tens of thousands of people saying they won’t bother with flying again this year, and best to wait until everything has settled down.
“If the current disruption continues into the Easter weekend, we could easily see airlines like EasyJet have to downgrade their earnings forecasts.”
Making matters worse is the fact that oil prices, which were already rising last year, have reached new multi-year highs following Russia’s invasion of Ukraine, which is adding costs to airlines.
Ryanair said it has increased the level of fuel hedging for the current year and has even begun to put some in place for next year.
Analyst Alexander Paterson at Peel Hunt said: “The invasion of Ukraine and recent rises in Covid will inevitably have hampered demand and higher fuel prices will put some downward pressure on FY23 estimates.”
However, he is more confident about underlying demand, seeing it as “robust” and so reiterated his ‘buy’ rating “in anticipation that trading will recover and the stock will rally once these near-term headwinds ease, with high fuel costs impacting competitors more than Ryanair given high levels of FY23 hedging at 75% and an increasingly efficient fleet”.