British Airways, Air France stay upbeat on prospects for 2023

Two of Europe’s largest airline groups gave an upbeat outlook for the rest of the year, saying demand remains strong as leisure travelers continue to book more long-haul journeys.

British Airways parent IAG SA and Air France-KLM both reported better-than-expected second-quarter earnings, driven by robust demand for long-haul and premium leisure travel, even as business travel lags. IAG expects to reach 97% of pre-Covid capacity this year while Air France-KLM expects to be at 95%. 

“For us it’s still going strong,” Air France Chief Financial Officer Steven Zaat said in an interview with Bloomberg Television. “We see more premium traffic. As long as unemployment is not there, this demand will stay,” with a continued mismatch between supply and demand particularly on long-haul travel, he said.

Airlines in Europe are seeing healthy demand for air travel in the rebound from the pandemic as they head into the busy summer holiday season, which has helped drive up ticket prices and boost balance sheets. IAG said business is doing well on both North and South Atlantic routes as customers continue to prioritize holidays, with about 80% of passenger revenue already booked for the third quarter and 30% for the final three months of the year.

IAG rose as much as 2.9% after the earnings report, while Air France-KLM declined as much as 3.7%. Some analysts pointed to a slight miss in the Franco-Dutch company’s figures for revenue-passenger kilometers and available seat miles, two key metrics that help determine air transport demand, as well as disappointing data on capacity.

While both carriers said that there was no sign of weakness in forward bookings, concerns are rising about the longer-term sustainability of demand as consumers struggle amid spiraling inflation and mortgage costs. 

Ryanair Holding Plc, Europe’s biggest discount carrier, this week lowered its full-year traffic forecast and said it may need to cut ticket prices to fill seats this winter as passengers become more cost sensitive. IAG said it continued to be mindful of wider uncertainties that could affect full-year performance.

IAG’s operating profit rose to €1.25 billion ($1.4 billion) in the three months to June 30 from €301 million a year earlier, the London-based company said Friday. Air France’s operating income rose 90% to €733 million, exceeding analyst expectations of €649 million.