A strong end to 2024

Both Air France - KLM and Lufthansa released their 2024 results this morning, which means we now have the full set of results for the big European airlines. I've haven’t had time to do much in-depth analysis, but I thought I should do a bit of a “data dump” of how the “big 7” stacked up.

A quick comment on the colour scheme for the charts in this article, I’ve shown the network carriers in blue and the low-cost carriers in yellow. Any resulting resemblance to the flag of Ukraine is entirely deliberate.

Let’s start with the bottom line, pre-tax profits for the year. IAG comes top of the pile here by some margin with profits of €3.8 billion. Turkish also did well, in part thanks to $1.7 billion of income from investment activities (excluded from operating profit, but included here). At the other extreme was Wizz, who have had a troubled year on multiple fronts. Air France - KLM do quite badly on this metric too, thanks to a stretched balance sheet. It is perhaps not a surprise that the management presentation giving the highlights of the year didn’t even mention profit before tax. They focused instead on operating profits, where they do better as we will see shortly.

Ranking based on absolute pre-tax profits favours the larger carriers of course, so let’s show the figures normalised for revenue, also known as the pre-tax profit margin. The ranking stays much the same, but Ryanair rises to the top and easyJet moves up the order to “middle of the pack”.

One of the reasons Ryanair does so well on pre-tax margins is that they have a rock solid balance sheet with very little debt and lots of cash, an inheritance from decades of strong profitability. Looking at profitability before interest costs is less influenced by the “sins of the past” and is perhaps a better measure of how well the airline performed during the year.

Switching to operating margins for the full year, IAG regains top spot and both Wizz and Air France - KLM move up the rankings, although neither challenge the leaders. Lufthansa sinks to bottom of the pile. It really did not have a good year.

Several of the carriers had issues early in the year. IAG had strikes at Aer Lingus and Lufthansa had strikes too. Ryanair had a spat with the online travel agents. AF-KLM had operational issues at Schiphol and their business was impacted by the Olympics. Many of the airlines had issues caused by aircraft delivery delays and engine problems. So it is also interesting to compare performance in the last quarter of the year.

The first thing I have to say is that there is a big seasonality effect here. Leisure focused airlines do hugely better in the summer season, when people are on holiday. Business focused airlines get a benefit when people are at work (although that is usually not enough to fully compensate for weakness in their leisure revenues). So it is not a surprise that the weakest performance in absolute terms was from the low-cost carriers, with a much higher leisure mix.

IAG’s performance in Q4 was quite astonishing really. In what is normally one of the weaker quarters of the year, it actually managed to beat its full year margin. IAG’s low-cost carrier Vueling delivered an operating margin of 10.2% in the quarter, nine points of margin better than low-cost leader Ryanair.

OK, this is all getting a little boring, with the same carriers winning everything. So we need to start handing out the prizes for “most improved”. Surely that will mix things up?

Well, yes and no. Wizz do indeed move up from last place to first. Their Q4 performance in 2023 was really that bad. But second place is once again IAG. As I said earlier, the Q4 performance was really quite astonishing.

Profit performance versus last year was heavily driven by passenger revenues. You can see this from the passenger revenue per ASK compared to last year (next chart). All the big Western European network carriers commented on the strength of the North Atlantic in Q4, especially the premium traffic. IAG has the highest weighting to that market and undoubtedly benefited from it. Lufthansa’s weakest region was Asia, where IAG has the least exposure.

Given that we’ve finally found a measure where Ryanair features at the bottom of the league table, I think this is a good point to finish. Don’t get me wrong, I’m a big Ryanair fan from an investor perspective. They grew 11% VLY during the quarter, so that will have had quite a bit to do with the poor revenue performance. But I think we all like to see someone else winning the prizes from time to time.

A quick round-up of European airline results for 2024

A strong end to 2024

Stonking full year results from IAG