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Revenge travel has taken a new twist. The term was originally coined to describe the travel boom after the pandemic, as consumers revolted against several years of lockdown restrictions. Now holidaymakers are no longer willing to travel at any cost. Unexpectedly poor first-quarter results from Ryanair show air passengers will exact revenge on airlines if they push ticket prices too high.
For investors, this is reason for caution across the sector — even if aircraft delivery delays from the likes of Boeing and Airbus should provide something of a life raft in future years.
Shares in all European airlines sank on Monday after Ryanair reported a 46 per cent drop in quarterly profit after tax to €360mn, missing consensus of €538mn by a wide margin. The main culprit was a 15 per cent drop in average fares to less than €42.
The low-cost airline, and the European sector’s price leader, carried 5.1mn more passengers than the same period a year earlier. But as its chief executive Michael O’Leary said, consumers were prepared to travel “only at a price”. While full-year traffic is still expected to grow 8 per cent to 200mn passengers, Ryanair expects fares in the key summer season to be “materially lower” versus its previous guidance of “flat to modestly up”.
The company’s efforts in recent weekends to limit discounting hadn’t gone down well with customers. As a result, Ryanair will now “aggressively” advertise low fare availability, O’Leary warned.
Given its low cost base, that can only be bad news for rivals. Ryanair had net cash of €1.74bn at the end of June, up 27 per cent.
There were already warning signs. Some US airlines and hotel operators had reported softening leisure demand at the start of 2024. EasyJet in May appeared to soften its language around yields for the summer quarter. Even before Monday, shares in many European airlines were down in 2024. Valuations were already trailing pre-pandemic levels.
Consumers who have yet to book their summer or autumn getaway will relish a price war — although cheaper than expected doesn’t mean rock bottom. Ryanair’s average ticket price in the first quarter was still €6 higher than pre-pandemic.
Ryanair reckons delays from Boeing and Airbus should help the industry in future years as it keeps a lid on capacity.
Even so, the assumption that constrained capacity should support much higher ticket prices now looks shaky. Capacity in Europe in 2024 is still about 5 per cent lower than pre-pandemic levels. Investors should keep their seatbelts on for now.