Budapest-based Wizz Air will continue to tap the low-cost airline business in eastern Europe, securing an advantage on western European rivals including Ryanair, Fitch Ratings has said in a review of European airlines’ recent earnings.
There is already a gap between the financially weak and strong airlines in Europe but the recent slew of earnings show that “now even the larger companies are diverging amid an increasingly challenging market environment”, said the rating firm in its review.
“Wizz Air posted the strongest performance among its peers, with its operating profit rising 25% in (the first quarter) of its financial year... while Lufthansa’s and Air France-KLM’s operating profit dropped by more than 50% (in their first half).
“Ryanair’s (first quarter) performance was affected by challenging market conditions in Germany, Brexit uncertainty, higher fuel and labour costs, and the consolidation of Lauda.”
It said that half-year revenues at British Airways — part of the IAG Group, which also owns Iberia, Aer Lingus, and Vueling — were boosted by North America, while its “operating profit margin of 12% was comparable to that of ultra-low-cost carriers Ryanair and Wizz Air and well above those of network carriers Lufthansa (1.9%) and Air France-KLM (0.7%), demonstrating the increasing disparity among peers”.
Overall, the earnings of European short-haul airlines face the risks of Brexit and potential slowing economies, while “long-haul yields performed well across all regions except for Latin America” at the half-way stage.
Shares in most of the so-called network airlines have fallen in the past year, with Lufthansa down 34% and IAG losing 25% of its value.
Air France-KLM shares have, however, climbed 17% over the same period following an earlier large drop in its share price.
Among the low-cost carriers, Ryanair shares have slid about 31% from a year earlier, but Wizz Air shares are up 2%.
Ryanair said its group-wide passenger numbers, which include Lauda Air, rose 9% to 14.8 million in July.
Meanwhile, Norwegian Air’s revenue per customer grew less than expected in July and the company filled slightly fewer seats than analysts had predicted during the peak summer season.
Its shares closed 5% down at the close in Oslo.
Europe’s third-largest budget carrier has warned that the global grounding since March of the Boeing 737 Max aircraft, which make up 11% of Norwegian’s fleet, may hamper its plans to return to profitability this year.
The company’s yield, a measure of revenue per passenger carried and kilometres, rose in the month but lagged the expectations of analysts.
Norwegian filled 93.5% of its available seats last month, up from 93.0% a year earlier but lagging an average analyst forecast of 93.8%, its monthly traffic data showed.
Norwegian late last year announced plans to curb its rapid capacity growth and cut costs to preserve cash and stem losses from its operations. It has also raised money from shareholders to boost its balance sheet.
“Following a period of significant expansion and investments, the growth is slowing down, which is in line with our strategy of moving from growth to profitability,” interim chief executive Geir Karlsen said.
Norwegian Air, whose founder retired from the post of chief executive last month, has used its low-fare, high-volume model to grab market share from incumbent transatlantic carriers.
- Additional reporting Reuters