European airlines set for bumper profits as North Americans take to the skies

North American tourists thronging the streets of Europe’s top destinations are set to fuel healthy earnings for airlines this quarter and beyond as they enjoy travelling after long pandemic lockdowns, analysts and aviation executives said.

With Air France-KLM, Lufthansa, British Airways-owner IAG and others due to report in the coming weeks, analysts are watching to see how much — and for how long — European carriers will benefit from the US demand.

A renewed desire to travel has already led to soaring bookings at American carriers despite rising living costs. Delta Air Lines posted the highest quarterly earnings in its history in the June quarter, fuelled by a 65% jump in revenue from transatlantic flights.

Travel website Kayak said searches for travel to Europe are up 55% from a year ago. While demand tends to slow down after the summer, US airline executives say bookings are extending into autumn.

Analysts also expect a boost for European carriers.

“The greatest upside should be at IAG. As with other network carriers, it benefits from high demand on the North Atlantic [routes],” said Alex Irving, an analyst at Bernstein. “However, the supply picture is also the most improved.”

Virgin Atlantic’s commercial chief Juha Jarvinen said the airline is enjoying “record monthly revenues, as consumers choose to spend on experiences over goods”.

That means the airline continues to expect a return to profitability in 2024, with capacity reaching 10% more than in 2019, before the pandemic.

Winter is coming

Those are positive signals for a sector concerned that the post-pandemic surge in demand — and resulting strong earnings — will lose momentum in autumn as high inflation finally starts to squeeze spending.

If anything, the opposite seems to be true: transatlantic bookings for winter are stronger compared with 2019 levels than summer’s have been, as North American tourists continue to benefit from a favourable exchange rate.

Scheduled seats for the final quarter of 2023 are already 6% higher than in 2019 for routes from North America to Europe, and 18% higher than in 2022, according to data from travel data firm ForwardKeys.

European airlines such as Air France are expanding their winter routes to and from North America on a projected travel boom.

But analysts say it is still too early to know whether other factors such as economic upheaval, changes in oil prices or additional sustainability pressures, will slow the momentum in the second half of the year.

Reuters