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Airline profits sustainability – How long will the party last?

Airlines around the world are reporting exceptional profits.


For the 9 months to September 2023:

  • Lufthansa Group (LHA.DE) reported traffic revenues increased to 22.6 billion Euro, 5% higher than the same period in 2019. EBIT increased 35% for the same period from 2019 to 2023.

  • Air France KLM Group (AF.PA) reported similar good results with flying revenues from network airlines and Transavia growing 12% for the nine months 2023 vs 2019 and pre-tax earnings growing 456%.

  • International Airlines Group S.A. (IAG.MC) reported 14% higher revenues and 15% higher pre-tax earnings.

  • American Airlines Group Inc. (AAL.Nasdaq) also reported passenger and cargo revenues increased 15%, while pre-tax earnings fell 35%

  • Delta Air Lines, Inc. (DAL.NYSE) passenger and cargo revenues increased 14% and pre-tax earnings fell 34%

  • Emirates Airline (www.emirates.com) revenues increased 17% and EBITDA increased 29% (for the full year ending March 2023)

At the same time demand is showing signs of softening and costs are rising. Both variable costs as well as structural costs such as negotiated long term wages. This begs the question - are airline profits sustainable?


Are current airline profits sustainable?


Throughout July and August a wide range of analysts were suggesting airline fares will fall, as was also reported by numerous journalists. But then came along the engine problems and the common sentiment turned to constrained capacity likely keeping fares high. But this has not played out universally.


Combined with robust third quarter earnings, it is important to also note the troubling trends of softening demand.

  • US Domestic fares have fallen double digits with fares over thanksgiving down 14% according to a Reuters report

  • Multiple US domestic carriers have been reporting pricing pressure

  • On 1 November, Delta released “Flight deals you’ll fall for” offering discounted domestic and international fares through January 2024.

  • Statistics Canada reported air transportation prices fell 21.1% year over year in September 2023 versus 2022

  • In a memo send to pilots, FedEx’s (FDX.NYSE) vice president of flight operations wrote “…our Flight Operations are significantly overstaffed. Air cargo demand remains down…”

There are also other pressures

  • Inflation continues to persist

  • Wage increases have not yet made their way into the system and will lead to higher costs for airlines going forward

  • Higher fuel prices continue

  • Eurozone economy shrunk by 0.1% and is at risk of falling into recession

Just this week, Cirium Ascend reported that “… market values and lease rates increased significantly after the latest review … with many vintages seeing double digit percentage increases, particularly for the 787.”

So far airline executives continue to be very optimistic and have been widely quoted referring to robust forward bookings. There seems to be little doubt that the number of people willing to travel remains robust. The real question is whether they are willing to continue paying above long-term trend fares.


Common sense would suggest that pent up demand from the pandemic, plus a new found desire for leisure travel has boosted the sector at a time of lower business travel demand. However, leisure travel is fickle – it is, by its nature, price sensitive. As prices rise, leisure travel usually falls. But more importantly, as the economy weakens, leisure travel demand tends to also soften as expendable cash dries up and other day to day costs take priority.

The party seems to be coming close to an end.

The end seems to have been delayed due to capacity constraints caused by engine problems. It would seem airlines have, once again, been given a gift with such problems allowing capacity to not grow as quickly as planned. Had capacity grown as fast as airlines planned, the reality is likely that airlines’ profits would not be as high as they are. But as the situation normalizes, and cost pressures creep in, airlines will struggle to maintain profits, particularly in the face of decreasing average fares.


Falling fares and rising costs are never a good recipe.

If one considers that the recent period of prolonged inflation was not matched with comparable real increases in average wages, it would seem the boom in leisure travel may have been somewhat financed by savings and credit - neither of which provides confidence that the boom is sustainable. It would seem that the industry is likely headed for a wave of resizing when the boom is over. Those which captured cheap leases during the pandemic will fare better. Those scrambling for aircraft at high costs, combined with 20-40+% wage increases, will likely face some pressure.

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