S&P predicts better summer for Europe’s airlines, but market still fragile
The European aviation industry is heading for a strong summer, with air traffic now expected to reach 60%-70% of 2019 levels in 2022, according to the latest estimates from S&P Global Ratings.
The estimate is up from previous S&P forecasts of 50%-65%.
According to a new report, airlines are benefitting from significant pent-up demand for short-haul leisure trips.
With travel restrictions relating to the pandemic all but lifted, Lufthansa, Ryanair and easyJet are among those boosting capacity, and most rated airlines and airports will likely record passenger volumes exceeding February’s estimates for 2022.
However, S&P warns that in peak season, the current operational disruptions and significant staff shortages will likely weigh on capacity – causing delays, long security queues, and flight cancellations across Europe.
S&P’s 2022 traffic forecast factors in that these challenges will ease over time once staffing levels match passenger volumes.
While demand for flights is bouncing back, S&P says that brewing headwinds suggest the recovery could lose momentum beyond the holiday season or toward the end of 2022, particularly once pent-up demand has been mostly satisfied.
Elevated prices for jet-fuel, which normally represents an airline’s biggest single expense, will weigh on airlines’ profitability and may well result in higher ticket prices.
The steeply rising cost of living and dwindling disposable income may dampen consumer confidence and propensity to travel once pent-up demand is mostly satisfied.
This could, says S&P, slow recovery toward the end of 2022. Indeed, owing to great uncertainty as to how the military conflict in Ukraine might develop, consumer confidence may also deteriorate if the conflict drags on or escalates.
As such, the ratings agency still forecast European airline traffic to reach 70%-85% of 2019 levels in 2023, and full recovery to 2019 levels is not expected until 2024 – with the recovery of corporate travel and long-haul air traffic likely to drag on further.