Airlines shares drop as companies brace for turbulence

LONDON (Reuters) – Shares in British Airways owner and Air France-KLM dropped on Thursday as concerns over costs, supplies of new jets, and geopolitical risks overshadowed strong 2023 results.

As consumers continue to prioritize travel in the wake of the pandemic, European airlines are reporting strong summer bookings. But high jet fuel prices, global flashpoints and wage talks are clouding prospects.

Case in point: despite record revenues for 2023 as a whole, Air France-KLM swung to an unexpected loss in the last quarter, hit by higher costs and disruptions caused by conflict in the Middle East, sending its shares down as much as 10.7%.

Analysts are also worried whether manufacturers will be able to keep up with strong demand for new planes amid ongoing supply chain problems, and particularly as Boeing grapples with quality issues and a regulatory crackdown following the blowout of a panel on one of its MAX 9 jets during a flight on January 5.

“The problem is not selling the tickets. We can sell every seat we want,” said Air France-KLM finance chief Steven Zaat, adding the problem was having enough capacity.

Even IAG, which more than doubled its operating profit last year and gave a positive outlook for 2024, saw its shares turn negative to trade down 1% in the afternoon.

“Concerns over aircraft availability and demand in some of its key markets, alongside stickier than expected inflation in Europe, have overshadowed what were some generally positive results,” said John Moore, senior investment manager at RBC Brewin Dolphin.

“It may not be the market response the company anticipated, but IAG is on a much surer footing nonetheless.”

In another example of possible clouds on the horizon, analysts and investors have told Reuters that Lufthansa will likely miss its 2024 profit margin goal as the German airline seeks to agree new, higher pay deals to end prolonged strikes.

IAG CEO Luis Gallego said the Middle East conflict had impacted mostly corporate demand in the last quarter of 2023 and the first quarter of 2024, but that was expected to recover.

Unlike other airlines, IAG, which also owns Iberia, said it was not concerned over capacity for the year to come and was not expecting delays in Boeing deliveries this year.

Gallego said that if the certification of Boeing’s 737 MAX 10 was slowed down, IAG could convert to other variants.

“For the time being we aren’t worried. We are sure they’ll fix the situation,” he told a press call.