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While good figures are expected from the tourism sector in the “Old Continent”, those who in theory should have been big winners in the stock market before a record summer are experiencing a dramatic month.
The reasons are the same for the major airlines. Air France has fallen 22% in the past 30 days, while Norwegian has fallen 25%. WizzAir has fallen 13%, while Lufthansa, Ryanair and EasyJey have fallen between 4% and 5%. Only International Airlines Group remains optimistic (+0.24%).
Stock market data confirmed warnings from Air France-KLM and Norwegian Air, all of which warned they faced “difficult times” due to “strikes, rising costs and problems with aircraft deliveries” (due to the Boeing crisis).
The warnings serve as a warning to investors about future business conditions, suggesting the industry will continue to face tough times.
Air France-KLM announced that revenue in its French operations had fallen as travelers avoided Paris during the Olympics. Then on Thursday, Norwegian Air ASA cut its full-year profit forecast, citing rising costs, falling demand and delayed aircraft deliveries. The stock plunged 16%, the biggest drop so far in 2021.
However, analysts said airline stocks tend to perform better at the end of the year and the current underperformance is not unusual.
All eyes are now on major European companies reporting earnings this month, with Ryanair first to report first-quarter results on July 22, followed by EasyJet and Air France-KLM in the same week.
The failure of many European airlines’ budget airline stocks to soar during the peak period can be attributed to several factors:
Rising fuel costs
Rising fuel prices have significantly impacted airlines’ operating costs.
For budget airlines, which rely heavily on keeping costs low, the growth makes it difficult to maintain profitability without raising ticket prices, which could deter cost-sensitive travelers and each fare hike.
Operational Challenges
Airlines are facing operational problems, including staff shortages and delays in aircraft deliveries.
The aviation industry is still recovering from the severe disruptions caused by the COVID-19 pandemic, and these operational disruptions have impacted its ability to effectively handle high summer demand.
Competition and pricing pressure
Fierce competition among airlines has led to aggressive pricing strategies that have squeezed profit margins.
In addition, the entry of new low-cost airlines has increased competition and put pressure on established airlines to keep prices low, further affecting their stock performance.
Economic uncertainty
Economic uncertainty in Europe, affected by factors such as inflation and geopolitical tensions, has led to cautious consumer spending.
Although travel demand has recovered, economic concerns may force travelers to choose more cost-effective travel options, affecting the revenue growth of low-cost airlines.
Environmental regulations and taxation
Tighter environmental regulations in Europe and increased taxes on aviation fuel have increased airline operating costs.
Low-cost airlines, which operate on thin margins, are particularly vulnerable to these additional costs, which would weigh on their financial performance and share prices.
Pandemic-related restrictions
Although travel restrictions have been significantly eased, the ongoing impact of the pandemic, such as varying entry requirements and health protocols between countries, continues to impact consumer confidence and travel patterns.
Such inconsistencies could deter potential travelers, dampening airlines’ expected peak-season growth.
Currency Fluctuations
Currency fluctuations can also affect airline profitability, especially those that operate internationally. For European airlines, a weaker euro against the dollar could increase fuel costs and other dollar-denominated expenses.
These factors have combined to create a challenging environment for Europe’s “budget” airlines, preventing their share prices from delivering the expected growth during peak travel periods.
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