De-escalation gives wings to airlines. Stocks on the rise
The normalisation of world traffic would therefore lead to an improvement in revenue expectations, especially with regard to long-haul routes, which have always been the most profitable
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(Il Sole 24 Ore Radiocor)- The truce between the United States and Iran is giving wings to European airline stocks after the sharp falls in recent weeks with the conflict that had pushed oil prices sky-high and closed several airspaces, significantly reducing the companies' range of action. Thus in Frankfurt tonic Deutsche Lufthansa; same script for Air France-Klm in Paris, for Easyjet in London while in Milan for Aeroporto Guglielmo Marconi Di Bologna . Ryanair also traded higher in the pre-market on Wall Street, up 9.32 per cent. On the Istanbul stock exchange, purchases were also made on Turkish Airlines.
The announcement of the truce and the reopening of the Strait of Hormuz brought asignificant reduction in oil prices with Brent and Wti well below USD 100 per barrel.
For airlines, this is very positive news as fuel (jet fuel) is one of the largest cost items; it often accounts for 20-30% of carriers' operating costs. So when oil drops rapidly, the market prices higher margins for the industry. Added to this is the reduction of geopolitical risk. A truce leads to fewer restrictions on flights, fewer diversions or cancellations of connections and consequently a normalisation of international routes. Several airlines, at the outbreak of the conflict, have greatly reduced if not cancelled connections to and from the Middle East; in particular Dubai, Abu Dhabi and Doha, which were the most penalised stopovers. The same applies to the Europe-Asia routes. The normalisation of world traffic would therefore lead to an improvement of expectations on airline revenues, especially on long-haul routes, which have always been the most profitable.
The easing of geopolitical tensions could then give vigour to a series of M&A deals that some airlines have on the table. Beginning with the Tap Air Portugal dossier for which both Lufthansa and Air France have submitted a bid to take over a stake in the Portuguese airline and which is particularly tempting because of its connections to Brazil and Africa.
