The recovery will make the lack of personnel and investment in technology more noticeable
The airlines are optimistic. The revival in demand had already sent EasyJet’s stock up 40% since early January, even before quarterly results on Wednesday lifted it another 10%. But investors should not settle back in their seats.
Good vibes aren’t that surprising. Ryanair had already predicted that the industry could raise fares again by the summer. Lufthansa, which has just come out of the public bailout, raised its outlook in December. As for EasyJet, it managed to generate 36% more revenue per seat than in the first quarter of 2022, well above expectations, and posted much lower losses. It says it will return to net profit in 2023, and that it will beat current forecasts.
Still, after Wednesday’s hike, EasyJet is trading at 15 times consensus on 2024 net profit, €290 million; it exceeds the pre-pandemic average, which suggests that the good news is already discounted. It is worth noting that the IATA employers have predicted that the sector will obtain a net profit in 2023 of 4,300 million, the first since 2019. But the profit then was 26,400 million, with a margin of 3.1%. The 0.6% forecast now means that airlines have very little room to maneuver if something goes wrong.
It is worrisome, given the recent and notorious technological failures, such as that of Southwest Airlines or that of the US FDA. There is still a lack of personnel and technological investment. The industry’s old problems with its outdated computer systems worsened when the pandemic led to the loss of 2.3 million jobs. Europe also suffered delays, cancellations and lost luggage in the summer, particularly the prolonged chaos at Schiphol (Amsterdam). Air restrictions in Eastern Europe don’t help either.
According to Sergio Colella, European head of SITA, the aerospace technology consortium, the rapid recovery, coupled with technology needs and severe staff shortages, is creating enormous operational stress. Improvements will not be noticeable overnight.
It’s hard to know which airlines might bear the brunt of disruptions, delays and increased capital investment. But the return to profitability has not yet arrived. The sector as a whole seems vulnerable to all kinds of turmoil.
