Investor sentiment was already gloomy around the UK aviation industry, now it’s got worse
Thursday 16 Jun 2022 Author: Steven Frazer

The UK’s airline industry is bracing for a huge spike in passenger compensation payouts. Chaos at UK airports continues to see widespread flight cancellations as operators and transport hubs struggle to cope with surging demand as Covid restrictions are lifted.

That casts a cloud over the sector’s earnings outlook. It adds to pressure on share prices for airline operators on top of market concerns about inflation and the ability for consumers to spend on big ticket items like flights and holidays.

Hundreds of flights have been scrapped in recent weeks by airlines and holiday companies including EasyJet (EZJ), British Airways-owner International Consolidated Airlines (IAG), Ryanair (RYA:EN), Wizz Air (WIZZ), TUI (TUI) and Jet2 (JET2:AIM).

EasyJet is reportedly trimming its June flight schedule with ‘pre-emptive cancellations’ of roughly 40 flights per day for the rest of the month. ‘Making these cancellations is not something we take lightly but what’s worse is to cancel our customers’ plans on the day that they are ready to fly,’ said chief operating officer Peter Bellew on 10 June.

Wizz Air’s chief executive József Váradi has warned that air fares were likely to increase by ‘upper single-digits’ between July and September as the industry grapples with multiple issues, including staff shortages, logjams at airports, strikes in Europe and soaring fuel costs.

Data from investment bank Berenberg shows jet fuel per barrel prices have hit their highest in almost 15 years, moving through the $200 level which hasn’t been seen since 2008. According to Berenberg estimates, jet fuel costs will account for around 45% of Wizz Air’s operating costs in the year to March 2023, up from 34% in 2019.

Wizz Air reported a net loss of €642.5 million for the year to 31 March 2022 last week, but said it is planning to grow capacity by more than 30% in the first two quarters of this financial year.

Canaccord Genuity says fewer consumers may fly given inflationary pressures, but those that do will stick to airlines in which they have the most confidence.

It suggests Jet2 is well placed in this regard. While the airline has recently been forced to cancel some flights due to airport chaos, it developed a good reputation during the pandemic for swiftly refunding passengers unable to fly and the company has also been investing in staff to ensure it has the right resources to meet demand.

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