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Analysis: European airlines are still not ready for take-off

By Rob Griffin

12:24, 2 November 2021

Ryanair plane takes off in the sky with mountains below
Airlines are still facing pressures as they recover from the pandemic – Photo: Shutterstock

It has been a challenging couple of years for European airlines. The devastating global Covid-19 lockdowns grounded planes for months, and the subsequent travel restrictions added another tier of complications for the beleaguered industry.

Here we take a look at what leading analysts are expecting to hear over the coming weeks as leading names in the sector start updating investors on their earnings.


Gerald Khoo, a transport analyst at independent investment bank Liberum, expects the coming reporting season to tell stories of a disappointing summer for the airline industry.

In a report seen by, analysts had predicted the situation wouldn’t be as bad as last year, but had pointed out that travel activity remained hampered by the ongoing travel restrictions.

“Nonetheless, we see the industry as firmly on the recovery path, albeit with risks through the winter if some countries temporarily reverse the relaxation of restrictions,” Khoo wrote.

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Increased restrictions and regulations

International travel restrictions put been introduced by most countries in an attempt to limit the spread of Covid-19, with varying levels of severity.

The good news – at least for the shorter-haul airlines – is that most intra-European restrictions have been lifted. This has been enough to trigger a surge in forward bookings.

“The key risk for the industry is that there will be a reversal of the easing of restrictions through the winter,” added Khoo.

Capacity remains subdued

Khoo’s report also noted how European airline capacity (numbers of seats filled) was much better in the third quarter of this year than in the same period in 2020, but it nevertheless remains well down from pre-pandemic levels.

“Inevitably, this will be reflected in the financial performance of the airlines,” he said. “Early optimism on a rapid easing of travel restrictions proved to be not well-founded.”

Setting the scene

So far, Air France-KLM and Ryanair have both recently given updates, while Lufthansa is due to report third-quarter figures tomorrow (Wednesday 3 November), followed by IAG on Friday.

On 30 November it will be easyJet’s turn as the budget airline is due to announce full-year results, following the trading update it gave a few weeks ago.

At the time, easyJet predicted its headline loss before tax for the year ended 30 September 2021 was expected to be between £1.14bn ($1.56bn, €1.34bn) and £1.18bn.

Increased capacity

During the fourth quarter, easyJet flew 58% of its full-year 2019 capacity, a significant improvement on the 17% of full-year 2019 volumes it flew in the third quarter.

However, while domestic air traffic in the UK and in intra-European flying was 77% of 2019 levels, UK international travel was just 32% of its levels two years ago before the pandemic struck.

John Lundgren, easyJet’s chief executive and executive director, has noticed an improvement. He said: “We have seen city breaks beginning to return, alongside growing demand for leisure travel from customers looking for flights and holidays to popular winter-sun destinations including Egypt and Turkey.”


In response to the results, Russ Mould, investment research director at AJ Bell, said the airline industry had been “fidgeting like a bored child stuck indoors” over recent months.

“With countless rules and restrictions to navigate, airlines have been frustrated at not being able to operate in the same way as [they did] pre-pandemic,” he said.

However, he sees reasons for optimism: “It does feel as if the airline sector is at a turning point and there are enough positive signs to take a more positive view of the industry’s outlook.” 


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Air France-KLM

The first quarterly operating profit since the start of the pandemic was a positive surprise, according to Liberum’s Khoo. “Although the recovery in capacity and revenue has continued, the outperformance appears to have been cost-led,” he said.

Khoo suggests that the coming year for the airline, which reported its third-quarter figures at the back end of October, is unclear at this stage.

“While some optimism is warranted, the outlook remains uncertain and the need to recapitalise the balance sheet implies significant equity-dilution risk,” he added.


The low-cost airline’s second-quarter results, announced yesterday (Monday 1 November), were better than Peel Hunt’s Wall Street analyst, Alex Paterson, was expecting.

“Outside of holidays, low fares are needed to stimulate demand and we downgrade full-year 2022 forecasts again to reflect this,” he said.

“Forward bookings are robust,” he points out, “and there are significant opportunities for market-share gains as competitors are operating at much less capacity than pre-pandemic [levels].”

Opportunities in Italy

Paterson says this is particularly the case in Italy, where the national airline, Italia Trasporto Aereo (ITA) has superseded Alitalia, but with a fleet half the size.

“Better fuel hedging means we upgrade full-year 2023 forecasts, raise our TP [target price] from €18 to €19, and reiterate our ‘buy’ rating,” he said.

Now we turn our attention to the other main players in the sector.

Choosing stocks during a recovery

According to Liberum’s Khoo, the recurring theme in the recovery phase in terms of past crises in the airline industry has been low-cost companies gaining market share at the expense of legacy carriers.

“The long-term structural winners have seen accelerated gains in the aftermath of periods of industry turmoil,” he said.

He currently has ‘buy’ recommendations on easyJet and IAG, and a ‘hold’ on Ryanair as its valuation has “largely recovered” to pre-pandemic levels.

“We continue to focus on quality, with higher fuel prices putting weaker cost bases and balance sheets under extra pressure,” he added.

Read more: Ryanair posts quarterly profit for first time since Covid

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With CFDs, you never actually buy or sell the underlying asset that you’ve chosen to trade. You can still benefit if the market moves in your favour, or make a loss if it moves against you.

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Markets in this article

Air France
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Air France
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