IAG and easyJet offer hope as travel demand remains solid

British Airways owner International Airlines Group and easyJet have predicted bumper profitability over the summer and solid demand for flying this winter, a boost for the airline industry even as the global economic outlook darkens.

The trading updates sent shares in European airlines higher on Thursday, with IAG leading the pack with a rise of 7 per cent.

The Anglo-Spanish airline group, which also owns Aer Lingus and Iberia, said there was “no indication of weakness” in its bookings despite the cost of living crisis, and that they remained “at expected levels for the time of year”.

EasyJet said demand for travel remained “robust”, but warned that economic uncertainty was clouding the outlook as airlines headed into winter.

The low-cost airline’s chief executive Johan Lundgren said bookings looked resilient for the rest of the year, particularly the UK half-term and Christmas holidays.

“We continue to see robust customer demand,” he added. “Clearly there is uncertainty out there, but . . . as we speak now, we have good booking momentum.”

Lundgren said customers “continue to protect their holidays where they can”.

The resilient updates from IAG and easyJet came as investors and analysts have struggled to predict the toll a weakening global economy will have on the rebound in demand for air travel.

No big European airline has reported a decline in bookings, despite steep rises in inflation.

Airline shares have tumbled regardless, as investors price in a difficult winter and rising costs. EasyJet shares have fallen 15 per cent over the past month, taking their drop to more than 52 per cent this year. IAG shares are down 32 per cent year to date.

“Markets have been fearful that cost bases remain elevated and at some stage revenue falls over, but that has not happened yet,” said Stephen Furlong, an analyst at Davy.

Furlong said the looming economic downturn was likely to be offset by the strong pent-up demand for travel, following two years of travel restrictions. “The idea the Covid-induced recovery finished in August is incorrect; it could go on for a year or two, therefore [airlines’] numbers will be better than they should be given the economy,” he said.

Both airlines reported strong trading over the summer months, as passengers flocked back into the skies despite the travel disruption.

IAG said trading in the third quarter “has been better than expected”, with passengers willing to pay higher fares to fly.

It now expects operating profit of about €1.2bn for the three months to September, far exceeding analysts’ expectations of €814mn.

EasyJet also reported a strong performance during the July to September quarter. It forecast earnings of £665mn to £685mn for the three-month period, which Lundgren said was “one of the best quarters in easyJet’s history”.

But the airline also said it expected to report its third straight annual loss this year, with the costs of travel disruption and the drag from the strong dollar offsetting resurgent demand over the summer.

For its financial year ending in September, it has forecast a pre-tax loss of between £170mn and £190mn. It lost more than £1bn in both 2020 and 2021 because of the pandemic.

Widespread travel disruption in the early summer added up to an extra £75mn of costs compared with 2019 figures. It also reported £64mn in foreign exchange costs from the surging dollar; many of its costs are dollar-denominated.

The airline flew 26.3mn seats in the summer quarter, 88 per cent of its 2019 schedule. It expects this to fall to 20mn seats in the final three months of this year, 80 per cent of 2019 levels, partly because of its new and more flexible operating model.