Demand slows for budget airlines – is it a good time to invest?
Budget airlines easyJet and Ryanair are in for a bumpier ride now that demand among consumers seems to be slowing
Shares in easyJet fell by 7% last week after the budget airline posted a first-half loss that was slightly larger than expected, and announced the departure of CEO Johan Lundgren, says Karen Gilchrist on CNBC. Pre-tax losses came in at £350m for the six months to 31 March 2024.
Lundgren claims that the company has “positive momentum” coming into the summer travel season, with consumers still inclined to spend on holidays, “particularly to classic European destinations such as Spain, Portugal and Turkey”. The fact that Lundgren is being replaced at the top by finance boss Kenton Jarvis implies “a smooth passing of the baton and no change to corporate strategy”, says AJ Bell’s Russ Mould.
Combined with the management’s confidence that the company is on track to meet its medium-term target of annual pre-tax profits of £1bn, the news should have been “reassuring”. But in this case it was “just not enough to please the market”, with the negative reaction from shareholders suggesting that the status quo was exactly what they didn’t want. They were clearly hoping an outsider would come in and “shake things up”.
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Which budget airlines are taking a hit?
It’s easy to understand investors’ mixed feelings about Lundgren and his team, says Lex, the investment column in the Financial Times. His time at the top was “rarely without drama”. EasyJet had to raise equity twice to get through the pandemic, while he faced questions over his strategy, including whether he “should have been more aggressive in a grab for market share post-pandemic”.
Still, Lundgren deserves credit for leaving easyJet in a “robust state”. It should also “avoid the worst of the snarl-up in aeroplane deliveries that will constrain capacity in the next few years”, and should support higher ticket prices.
EasyJet is not the only airline experiencing pockets of turbulence.
Shares in rival Ryanair have fallen back from €21 (£18) last month to around €18 (£15), says Alistair Osborne in The Times. The fall comes after Ryanair admitted that it now thinks summer fares are going to be “softer” than either Michael O’Leary or the market previously expected. Ryanair is also set to suffer from more aircraft delivery delays from Boeing, which could prove costly given that the airline has already hired extra crew members. It seems that customers’ “insatiable demand” for flights is finally cooling, says Hargreaves Lansdown’s Susannah Streeter.
While consumers have been “ring-fencing budgets to satisfy their wanderlust”, there are now signs that many more are “starting to baulk at higher prices”, with flight prices having risen by a fifth over the past year. And “recessionary winds” around Europe, with economies set to remain “highly sluggish” this year, mean that people may remain “cautious”. Still, a bout of “washout weather in key markets” may still prompt spurts of seat-buying to sunnier destinations.
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