Air france-klm: Rising costs and falling demand… Airlines will be under pressure in 2023

(BFM Bourse) – The year 2023 could combine falling demand and rising costs, according to Stifel. The research department recommends only one value for purchase, Fraport, and advises almost all airlines for sale.

The summer of 2022 has been bright for the airline industry in Europe. Despite the many disruptions on all airport platforms due to strikes and staff shortages, demand proved robust, as expected. Paris airports, for example, saw their traffic approach that of 2019, at 88% in August after around 86% in July.

After publishing stunning half-years at the end of July, Air France-KLM anticipates an operating result in the green for the whole of this year, which had not happened to it since 2019. Lufthansa, it expects an adjusted operating profit of more than 500 million euros this year. Symbol of the upturn in this sector, the German state has now sold its stake in the overseas air grouppocketing an overall profit of 760 million euros.

But according to Stifel, the party could soon be over. The research department warns: a “toxic mix” based on falling demand and higher costs awaits all the securities of European airlines and, to a lesser extent, airports (which earn revenues in particular on the take-off and landing fees paid by the companies).

Pent-up request

However, the design office considers that the fall should still go well because “pent-up demand” – in other words, the demand for travel which has not been satisfied due to the health crisis, an effect which plays a full role this year – has not yet fully resolved.

“However, for 2023, we believe the main demand themes will be: recession, cost-of-living inflation and the disappearance of ‘pent-up demand’,” analysts said. of the investment bank, who evoke “a hard awakening” next year.

Companies should in fact experience a negative scissor effect. Because in the face of the very great risks of recession and weak demand, “fuel prices remain stubbornly high”, notes Stifel in particular. In addition, all companies are “virtually” facing potential increases in labor costs, with unions demanding compensation to compensate for inflation and hiring reversing the reductions in staff made during the pandemic, underlines the office of studies.

And Stifel does not think that the companies will be able to continue to increase the prices of their tickets to better absorb these costs, counting on stable prices next year. It may be that this assumption “is still optimistic” because historically “ticket prices have reacted strongly in the event of a recession (for example, -15% in 2009)”, warn its analysts.

The Lufthansa exception

Accordingly, whether it is IAG, the parent company of British Airways, easyJet, Ryanair or Air France-KLM, Stifel advises on the sale of airline securities. The design office makes an exception for Lufthansa, to “keep”, because the group has a solid balance sheet and has succeeded in its transformation in terms of cash generation.

Stifel is a bit more bullish on airports, with advice to “hold on” to Spain’s Aena, Groupe ADP and Zurich Airport and is even for purchase on Fraport, the operator of Frankfurt airport.

Still, not all design offices are necessarily so pessimistic. For example, HSBC and Oddo BHF went back to buying last month on Air France-KLM.

Julien Marion – ©2022 BFM Bourse

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