Slow and fragile recovery in the global airline markets

In a response to curb the spread of Omicron, and due to the rapid increase in the number of cases, some countries increased restrictive measures regarding international travel or went into lockdown

On a global scale, the financials of passenger airlines have been on their way to recovery to pre-pandemic levels though in December 2021 industry-wide revenue passenger-kilometres (RPKs) are still 49.4% below October 2019 values. For clarity, Revenue Passenger Kilometer (RPK) is a very important airline industry metric that shows the number of kilometers travelled by passengers. It is calculated as the number of paying passengers multiplied by the total distance traveled.

However, the appearance of the new Omicron variant presented yet another global scale threat against the industry’s comeback. In fact, airline share prices fell sharply in late November as the new COVID variant spooked the markets with its contagion rate and its possible ability to circumvent the protection of vaccines. Since then, airline stocks have been rather volatile, reflecting the market’s uncertainty towards the future. Thus overall, the recovery in airlines’ share prices has been stalling. As of December 2021, airline stocks were on average 37% below pre-crisis levels while wider equity markets (e.g. the FTSE All World index) have risen by c. 30% since the start of the crisis on average.

IATA recently published their latest Airlines Financial Monitor containing the most up-to-date financial figures about the airline industry. It states that in the third quarter, the passenger sub-industry participants performed better, net losses diminished, but performance greatly differed from region to region. North American, European, and Latin American airlines reported improvements, and countries with larger domestic markets like Brazil and the U.S. fared better. Short-haul European routes also showed good improvement as international travel within Europe picked up and thus contributed to the better results. While the recovery in the Asia Pacific region was lagging behind due to the very stringent COVID prevention measures.

In a response to curb the spread of Omicron, and due to the rapid increase in the number of cases in the Northern Hemisphere, some countries increased restrictive measures regarding international travel or went into lockdown like the Netherlands or Austria. Therefore, travelers naturally became more careful, and a lot of non-essential trips possibly got cancelled or will not be taking place. Indeed, the initial data shows that passenger bookings for future travel fell steeply across domestic and in particular international routes since late November, which is currently considered to be short-term downward pressure on the airline markets. In case the restrictive measures must stay in place for longer, that might disrupt the recovering passenger revenue stream on more prolonged time scales.

Another factor to consider is jet fuel prices, a major input cost for airline companies. The increased level of oil and jet fuel prices have presented headwinds to the industry throughout 2021. Following the Omicron fear, oil markets corrected somewhat although prices have remained above pre-pandemic 2019 levels, not helping the airline companies’ cost lines immensely. In case the restrictions will last longer though, jet fuel prices can go lower, assisting the airlines from a cost perspective.

The industry’s net cash flow from operating activities significantly improved in Q3 2021 vs. the same quarter of 2020 (-0.9% of revenues vs. -49.3%). European airlines on average performed very well from a CFO perspective, having the highest positive net cash flow –proof that Intra-European travel experienced a robust pickup in Q3. Companies in other regions continued to burn cash though.

Sooner or later the world will leave the pandemic behind, and air travel will inevitably thrive. Thus, the current, still relatively depressed valuation of airline stocks will probably present good entry opportunities for investors in the following period. More negative news might push airline stock prices lower still.

Though, as the stock market is always forward-looking, stock valuations will probably start to price in a better performance before airline companies are out of the woods.

Disclaimer: This article was issued by Tamas Jozsa, Research Analyst at Calamatta Cuschieri. For more information visit, The information, view, and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.