(BFM Stock Exchange) – 2023 could combine falling demand and rising costs, according to Stifel. The research department recommends only one stock to buy, Fraport, and advises almost all airlines to sell.
The summer of 2022 was bright for the aviation industry in Europe. Despite numerous disruptions to all airport platforms due to strikes and staff shortages, demand proved strong, as expected. Paris airports, for example, saw their traffic close to that of 2019, at 88 percent in August after around 86 percent in July.
After posting stunning half-year results at the end of July, Air France-KLM is forecasting an operating profit in the green for the full year, which it hasn’t seen since 2019. Lufthansa, for its part, expects an adjusted operating profit of roughly 500 million euros this year. years. A symbol of the rise in this sector, the German state has now sold its stake in the airline group across the Rhine, realizing a total profit of 760 million euros.
But according to Stifel, the party could soon be over. The research department warns: a “toxic mix” based on falling demand and higher costs awaits all the securities of European airlines and, to a lesser extent, airports (which generate income especially from the take-off and landing fees paid by the companies).
However, the planning bureau believes that the decline should still go well because “stagnant demand” – in other words, demand for travel that is not being met due to the health crisis, an effect that is playing a full role this year – has not yet been fully resolved.
“However, for 2023, we believe the main demand themes will be: recession, cost-of-living inflation and the disappearance of ‘pent-up demand,'” said the investment bank’s analysts, who are causing a “hard awakening” next year.
Companies should actually experience a negative scissor effect. Because, in the face of very high risks of recession and weak demand, “fuel prices remain stubbornly high”, notes Stifel in particular. In addition, all companies “virtually” face potential increases in labor costs, with unions seeking compensation to compensate for inflation and hiring to offset pandemic layoffs, the Office of Studies underscored.
And Stifel doesn’t think companies will be able to continue raising their fares to better absorb these costs, counting on stable fares next year. Perhaps this assumption is “still optimistic” because historically “fare prices have reacted strongly in the event of a recession (for example, -15% in 2009),” the analysts warn.
The exception is Lufthansa
Accordingly, whether it is IAG, the parent company of British Airways, easyJet, Ryanair or Air France-KLM, Stifel advises on the sale of airline securities. The design office makes an exception for Lufthansa, to “keep”, because the group has a solid balance sheet and has succeeded in its transformation in terms of cash generation.
Stifel is slightly more bullish on airports, with “hold” advice on Spain’s Aena, Groupe ADP and Zurich Airport, and is even long on Frankfurt airport operator Fraport.
However, not all design offices are necessarily so pessimistic. For example, HSBC and Oddo BHF returned to buy Air France-KLM last month.
Julien Marion – ©2022 BFM Bourse