What’s In Store For Europe’s Airlines Next Summer?

The summer of 2022 was a season of contrasts for European airlines. The good news: Demand was strong. On the other hand, disruption and delays meant demand was hard to meet—and, in some cases, impossible.

Airlines are now looking ahead to the summer of 2023. Will the labor issues and staffing shortages that caused this past summer’s chaos be resolved or repeated? As many countries face increasingly dire economic performances, will consumers be drawn to cheap tickets on offer from low-cost carriers (LCC), or will they be put off from traveling altogether?

• Eurocontrol forecasts 92% of 2019 traffic for all of 2023
• Ryanair CEO Michael O’Leary predicts strong demand for LCC flights as consumers tighten belts

Bernstein Research analyst Alex Irving dubbed this past season “the summer of pent-up demand” in a Nov. 14 research note, as high leisure demand—in many cases for travel pushed back by the COVID-19 pandemic coupled with capacity constraints—pushed up short-haul air ticket prices.

Average ticket prices between January and August rose 5% compared with the same period in 2019, according to Eurocontrol.

Bernstein expects fares to remain flat year over year in the summer of 2023 but noted that several factors combined could lead to an increase, a bullish scenario that Ryanair CEO Michael O’Leary recently predicted.

The LCC foresees that as macroeconomic concerns increase and high inflation hits household budgets, consumers will not stop flying altogether but will instead switch from network carriers to LCCs.

“Concerns about the impact of recession and rising consumer price inflation on Ryanair’s business model have been greatly exaggerated in recent months,” O’Leary said on Nov. 7, when the carrier released its first-half results. “As the lowest-cost producer in Europe, we expect to grow strongly in a recession as consumers won’t stop flying, but rather they will become more price-sensitive. Like Aldi, Lidl, Ikea and other price leaders, our very strong post-COVID recovery shows that price will continue to drive market share gains as we add low-cost, more fuel-efficient aircraft to our fleet over the next four years.”

O’Leary noted that many network carriers have cut their short-haul capacity, but Ryanair will offer 10% more seats for the coming winter season than before the pandemic.

Ryanair operated at 115% of pre-COVID capacity this past summer. Conversely, network carriers that had made cuts during the pandemic gave up slots in some cases. Those carriers are still experiencing the knock-on effects on short-haul feeder flights from gaps in their long-haul networks. Network carriers have some catching up to do.

“Our, and most investors,’ base expectation is that summer 2022 will represent a high point in short-haul fares and decline into 2023 as further capacity is restored and the ability to travel is no longer such a novelty,” Bernstein’s Irving wrote. But O’Leary has stated that he expects fares to rise by the mid-to-high single digits year over year next summer. “On one hand, it’s impossible to have sufficient evidence this far out,” Irving wrote. “On the other, he’s been right before.”

Ongoing demand for travel will be contingent on a continued easing of travel restrictions and a willingness among consumers to travel—neither of which are a given in the context of a squeeze on consumers’ budgets. On the capacity side, some LCCs, such as Ryanair and Wizz Air, are growing their fleets. Carriers’ fleets are expected to grow by a net 6% by the summer of 2023 compared with the end of 2019, Bernstein said, and upgauging to larger-capacity aircraft is further increasing the offering.

The ongoing Russia-Ukraine war is also affecting Europe’s short-haul network, as airspace constraints contribute to the pressures on airlines.

All these factors led the Bernstein analysts to predict flat year-over-year summer fares, although if certain fare-hiking circumstances combine, prices could instead increase.

Irving wrote that higher fares were not impossible but that high input costs, high demand and capacity discipline would be needed. He also noted that the latter two rarely occur together.

Eurocontrol’s latest seven-year traffic forecast, published in October, takes into account such factors as weak GDP growth, high inflation, passenger confidence, a trend toward remote meetings instead of business travel, environmental concerns as well as staffing and capacity issues. Its baseline scenario estimates that traffic in the region will reach 92% of 2019 levels in 2023 as a whole; the lowest scenario puts the level at 86%, and the highest at 101%.

Eurocontrol also warned in October that some of the staff shortages experienced this past summer might occur again in 2023, affecting the capacity of airlines and airports.

That, coupled with ongoing high demand—especially for low-cost flights in the face of a possible recession—will likely shape the summer 2023 season for airlines.

Staffing issues at airports seem to have eased, as demand has fallen back following the summer 2022 peak season. Clearly, airport staffing managers know that the problems have not been resolved for good. At Heathrow Airport in London, ground staff have gone on strike over pay. But Amsterdam’s Schiphol Airport, another airport seriously affected by the summer rush, recently highlighted its “stable performance” during the October school vacation season.

Schiphol is investing about €100 million ($104 million) in measures to help solve the staff shortage issue, it said, noting that in collaboration with unions and security companies, it has recently agreed on a social package to improve employment conditions for security officers at the airport, including a wage increase.