Airline Industry wrap up – shares soaring, shares grounding and a lot...

Airline Industry wrap up – shares soaring, shares grounding and a lot of turbulence

The airline industry has seen mixed results by many firms, as shares have often been volatile.

As many firms have made it through what has been a tough year of trading across 2019, some have not been so lucky, and here is a round up of the biggest performances across the year.

Looking at the airline industry by firm, this gives us a better picture of how firms performed against tough market conditions, disruptions in supply lines and media image.

Ryanair

In the first quarter, Ryanair (LON: RYA) saw their profits fall by 21% in what was quite an uncharacteristic update from the airline titan.

The Irish low-cost airline said that for its first quarter of the 2020 financial year, profits dropped 21% to €243m, driven by lower fares, higher fuel costs and higher staff costs. Additionally, the budget airline said that average fares dropped 6% over the period.

“Our balance sheet is one of the strongest in the industry with over 60% of our fleet debt free. In May the Board approved a €700m share buyback programme and in Q1 we returned almost €100m to shareholders,” Ryanair’s Michael O’Leary said in a company statement.

“Revenues rose 11% to €2.3bn. A 6% decline in average fare to €36 stimulated 11% traffic growth to 42m guests. The two weakest markets were Germany, where Lufthansa was allowed to buy Air Berlin and is selling this excess capacity at below cost prices, and the UK where Brexit concerns weigh negatively on consumer confidence and spending,” Michael O’Leary added.

From this update, it seemed that this would be a tough start to the year for Ryanair, however recovery was made.

The firm then reported in June that it had seen a growth in passenger numbers of 13% totaling 14.1 million.

Numbers were boosted by an 8% growth at Ryanair, in addition to the 0.6 million passengers from the acquisition of Lauda, a subsidiary of Ryanair Holdings fully acquired at the start of the year.

At the start of October, Ryanair again saw their passenger volumes rise by 8%.

Passenger volumes for the month increased to 14.1 million, up from the 13.1 million figure recorded in 2018.

The most recent figure recorded was Ryanair’s November passenger figures, which again saw an impressive stat amid tough competition.

In the Ryanair division, November traffic rose by 4.0% year-on-year to 10.5 million from 10.1 million and in Lauda, by 67% to 500,000 from 300,000 last year.

It seems that from the results posted, RyanAir made a slow start to 2019, but have sufficed shareholders and senior management continuing to grow and put a foothold on the global market.

Shares in Ryanair trade at €14 (-2.51%) 17/12/19 14:16BST.

Wizz Air

Wizz Air Holding PLC (LON: WIZZ) have been another strong competitor in the airline industry, and certainly 2019 has been a year of success for the Hungarian low-cost airline with its head office in Budapest.

At the start of the year, Wizz Air saw its profit plummet amid rising costs, which alarmed both shareholders and the market.

The Hungarian airline reported a pre-tax profit €1.8 million, compared to €14.6 million a year before.

Cost per available seat kilometre increased by 9.3%, including fuel, whilst it climbed 4.3%. Alongside higher fuel prices, there was also a 22% rise in staff-related costs, with rises in pilot salaries during the quarter, which led to a plan to reduce costs from Wizz Air.

“The Company maintains its net profit guidance range of between €270m and €300m for the full year, where we will be within this range will depend on the extent of March yield pressures which will be affected year-on-year given Easter falls after the financial year-end in April and external factors such as Brexit uncertainty.”

A few months on, Wizz Air announced that they would be expecting their full year profits to be at the upper end of guidance, which showed a strong few months of trading.

The Hungarian airline said that it expects to deliver a net profit for the year in the upper end of its guidance range of €270 million and €300 million. Notably, the firm saw a 22% rise in the number of passengers in May.

Wizz Air have seen their shares volatile, as experienced in November when shares were in red despite lifts to their profit and capacity forecast.

Wizz, which mainly flies to European destinations, said that net profit for the financial year 2020 would be between €335 million euros to €350 million, prior to this the range was €320 million to €350 million.

“London is the single biggest travel market in the world, and I don’t think this is going to change any time soon, no matter what happens to the country, what happens throughout Brexit.

Finally, at a similar time to Ryanair Wizz Air also released their November passenger figures, which impressed the market.

Wizz Air reported a November capacity increase of 27% to 3.2 million from 2.6 million, while load factor rose 92.8% to 91.2%.

Available seat kilometres was up by 21% to 5.2 million from 4.3 million and revenue passenger kilometres grew by 4.9 million from 3.9 million in November 2018.

On a rolling annual basis, capacity is up 15% to 41.8 million, total passengers up by 17% to 39.1 million with load factor up 1.3 percentage points to 93.6%.

The verdict for Wizz Air is one of positivity, and certainly shareholders can remain optimistic for 2020.

Wizz Air announced that it would be adding 11 new routes, including four in Poland, two in Ukraine and one in the UK.

Additionally, the firm said yesterday that it would be expanding into Armenia in order to widen their consumer base.

Shares in Wizz Air trade at 3,994p (-0.88%). 17/12/19 14:24BST.

easyJet

Next up is easyJet (LON: EZJ) who have maybe seen more turbulence than their other two rivals.

The year did not start off easy for easyJet, who noted that the issues of drone flying at Gatwick airport cost the firm £15 million.

“With 82,000 customers disrupted we were disappointed it took such a long time to resolve. It was a criminal act, an illegal activity, and to some extent, you can’t always protect yourself from that,” said Johan Lundgren, the chief executive.

“We can never guarantee these things won’t happen again but the airports now are better prepared – Gatwick has acquired the sound system that is in place and there is general readiness and preparedness in place by the authorities,” he added.

At the start of April, the firm gave another update to the market saying that it had seen its outlook weakened by Brexit complications.

The company said in a statement that whilst the results from the first half will be in line with expectations, Brexit uncertainty is causing a weaker customer demand in the market. As a result, easyJet’s outlook for the second half of its financial year is more cautious, which sent an alarm to shareholders.

The most recent update that easyJet had given was in November, and this was one which would have worried both shareholders and senior management.

The firm announced that its headline profit before tax had plunged compared to the year prior.

EasyJet revealed that headline profit before tax declined 26% to £427 million. The airline emphazised, however, that this figure does lie towards the top end of its £420-430 million guidance range.

For the year ending 30 September, passenger numbers grew by 8.6% to 96.1 million.

“We have also invested in tackling disruption for our customers through our Operational Resilience programme, which has reduced cancellations by 46% and lowered delays of 3 hours or more by 24% year on year,” EasyJet’s Chief Executive continued.

To conclude on easyJet, 2019 has not been the easiest year for the firm in an environment where competitors have made gains.

However, shareholders can remain optimistic as the firm has seen itself flirt within the FTSE 100 list.

As it was reported at the start of December, Hiscox (LON: HSX) are set to drop out of the elite FTSE100 and Easyjet were the bookmakers likely candidate to replace them.

A few other mentions do have to be made when considering the airline industry this year.

Thomas Cook – a tribute

The biggest headline probably comes from Thomas Cook (LON:TCG) when the firm saw itself internally collapse at the end of September.

“News of Thomas Cook’s collapse is deeply saddening for the company’s employees and customers, and we appreciate that more than 150,000 people currently abroad will be anxious about how they will now return to the UK,” Richard Moriarty, Chief Executive of the UK Civil Aviation Authority, commented in a statement.

However, this was expected as the firm had been under intense pressure to survive. The firm did report in May that it had seen a £1.5 billion loss and that it was set to close 21 stores placing 300 jobs at risk.

Reactions hit social media after the collapse and TUI (LON: TUI) offered their condolences.

TUI commented: “On Monday 23 September 2019, our competitor Thomas Cook UK Plc and associated UK entities entered into compulsory liquidation. TUI is preparing measures to support. Where TUI customers are booked on Thomas Cook Airlines flights and these are no longer operated, replacement flights will be offered. We are currently assessing the short term impact of Thomas Cook’s insolvency under the current circumstances, on the final week of our FY19 financial result.”

“Our vertically integrated business model proves to be resilient, even in this challenging market environment. Our Holiday Experiences business continues to deliver strong results. Meanwhile, ourMarkets & Airlines business faces a number of ongoing external challenges such as the grounding of the 737 MAX aircraft, airline overcapacities and continued Brexit uncertainty. The Summer 2019 season is however closing out in line with expectations and we therefore reiterate FY19 underlying EBITA guidance stated in our ad hoc announcement of March 2019 of approximately up to minus 26% compared with underlying EBITA rebased in FY18 of EUR1,177m.” as the firm reached its conclusion.

Shares of TUI trade at 976p (-1.41%). 17/12/19 15:10BST.

Following the collapse of Thomas Cook, Hays Travel agreed to acquire 555 Thomas Cook (LON:TCG) stores around Britain.

The country’s largest independent travel agent will also provide re-employment opportunities to a “significant number” of Thomas Cook’s retail workers.

Hays Travel said in a statement that up to 2,500 jobs at the collapsed travel company could be saved as a result of the deal.

“This is an extremely positive outcome, and we are delighted to have secured this agreement,” Jim Tucker, Partner at KPMG and Joint Special Manager of Thomas Cook’s Retail division, commented on the deal.

“It provides re-employment opportunities for a significant number of former Thomas Cook employees, and secures the future of retail sites up and down the UK high street,” Jim Tucker continued.

“We are pleased to have achieved this in a short time frame and in the context of a complex liquidation process, which is testament to a lot of hard work from a number of parties.”

“Over the weeks ahead, we will work closely with Hays Travel and landlords to ensure a smooth transition of the store estate.”

Fastjet

Additionally, Fastjet PLC (LON: FJET) have been fighting to stay afloat in an increasing tough market.

Fastjet had a relatively positive start to 2019, as the firm saw its shares in green following marginal 2019 profit forecasts.

During the first quarter of the year, Fastjet saw the group record an underlying net operating loss of around $200,000 on revenue of $9.5 million.

This proved an improvement from the $7.8 million loss reported on revenue of $13.8 million during the final quarter of 2018.

This optimism was followed through in July, when the firm seemed to be on track to produce a string of good results.

The Company’s revenues grew from little under $14.5 million to over $19.7 million; revenues from Fastjet Zimbabwe grew 19% to $12.1 million. Losses after tax narrowed from $14.6 million to just under $4.5 million.

Further, the Group announced that operating expenses were down $0.7 million on-year, and revenue per passenger was up 38% on the previous year.

Commenting on the results, Chief Executive Officer Nico Bezuidenhout said,

“It is pleasing to note the improved results for the first half, seasonally the weakest period of the year, as they illustrate the positive impact the Company’s stabilisation efforts have had on the financial performance of the business.”

“Key metrics such as revenue per available seat kilometre showed a year-on-year improvement of 39% in H1 2019; this is now 140% higher than the corresponding period in 2016.”

At the end of November, Fastjet appeared to be in a slump as the firm saw shares crash as it pondered the prospect of selling its Zimbabwe operations.

The firm said that it was considering selling its Zimbabwe operations in a restructuring deal. Fastjet added that profitability remained elusive amid Mozambique issues and tough market conditions.

On October 21, Fastjet announced it suspended flight operations in Mozambique amid “ongoing supply and demand challenges”.

During the first six months of 2019, revenue from Mozambique had fallen to $2 million from $4 million the year prior.

The firm said that the Zimbabwe sale would also relieve Fastjet off $5.4 million in debt and $3.2 million in future aircraft orders.

Fastjet have seen a very turbulent 2019, and at the moment it does seem to be on the path to recovery after a positive first half of the year.

Extra efforts will have to be made to turn fortunes around or 2020 could see a very tough year of trading for the airline.

Shares in Fastjet trade at 0.19p (-11.63%). 17/12/19 14:39BST.

International Airlines Group

A firm also worth mentioning is International Airlines Group (IAG) who posted a second quarter operating profit of €960 million before exceptional items in their second quarter.

“In Q2 we’re reporting an operating profit of €960 million before exceptional items, up from €900 million last year,” Willie Walsh, IAG Chief Executive Officer, said in a company statement.

“Despite fuel cost headwinds, we delivered a good performance. At constant currency, fuel unit costs were up 6.3 per cent while passenger unit revenue increased 1.1 per cent, benefitting from the timing of Easter,” Willie Walsh continued.

“This highlights, once again, that our unique structure and diverse brand portfolio underpins our financial resilience and ability to deliver robust results”.

Later in the year IAG saw their Q3 profits bruised by BA strikes.

International Airlines Group said that the industrial action by the pilots, in addition to other disruption, impacted operating profit by €155 million during the quarter.

“In quarter 3 we’re reporting an operating profit of €1,425 million before exceptional items, down from €1,530 million last year,” Willie Walsh, IAG Chief Executive Officer, said in a company statement.

“These are good underlying results. As we said in September, our performance has been affected by industrial action by pilots’ union BALPA and other disruption including threatened strikes by Heathrow airport employees,” the Chief Executive Officer continued.

The firm announced in November that it would be purchasing rival Europa Air, which caught shareholders attention in a deal worth €1 billion, giving IAG further exposure into the Spanish market.

Having carried 11.8 million passengers with its fleet of 66 aircraft during 2018, the Spanish private airline achieved full-year revenue of €2.1 billion and an operating profit of €100 million.

The acquisition has only just entered its initial phases, and completion is expected in the second half of 2020.

Iberia chief executive Luis Gallego said: “This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs. Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes and the possibility to become a gateway between Asia and Latin America.”

Finally, IAG ended the year on a modest note, when the firm cut its medium term profit and capacity expectations.

The heavyweight airline company scaled back profit and capacity forecasts for the next three years, hitting its outlook for earnings per share but potentially providing relief for rivals in a weak global economy.

IAG said available seat kilometres, a measure of passenger-carrying capacity, was estimated to grow by 3.4% a year between 2020 and 2022, compared to a previous forecast of 6% growth a year for the 2019-2023 period.

The airline group, which also owns Iberia, Aer Lingus and Vueling, said the capacity growth cut would lower its forecast for growth in earnings per share  to 10%+ a year from a previous forecast of 12%+ a year.

IAG have seen a quieter year compared to rivals, but have been hit by political action and strikes, however this seems to be a relatively stable year for the firm. With the strong figures produced mostly all across 2019, coupled with some new acquisitions there is much optimism going into 2020.

Shares of IAG slipped 2.09% on Tuesday to 626p. 17/12/19 15:10BST.

Conclusion

Certainly the airline industry has seen turbulence, some brilliant moments and some gloomy ones too.

2019 has arguably been one of the toughest years not just for the airline industry but for all firms, with Brexit negotiations continuing to dominate news headlines.

The additional issues of US China relations and political tensions in Hong Kong have not made matters any better, however there is reason for firms to remain optimistic for 2020.

With the ongoing supply issues at Boeing (NYSE: BA) which have caused a halting of production of their 737 MAX aircrafts, this will give airline businesses something to ponder over.

Boeing made this announcement this week, and gave the following comments.

“Boeing will continue to assess production decisions based on the timing and conditions of return to service, which will be based on regulatory approvals and may vary by jurisdiction.”

However, there has been a continued domination from  industry leaders such as Ryanair who have enticed customers with their dierse operational base coupled with their low costs, and it looks like Ryanair are far from finished.

Once political and economic tensions are eased up, firms may see a more sustained period of successful trading in 2020.