European airline brand performance in 2023

Most full year results for the 2023 calendar year have been out for a few weeks already, but before writing this post, I wanted to allow time for the stragglers to catch up and for annual reports to be published, since they often contain additional detail not available in the initial press releases.

In particular, I wanted to look beneath the headline figures for the big European groups and understand the performance of the constituent airline brands that make them up. For that reason, I’m going to be focusing on operating results, as the financial costs are not usually split out by airline.

Before we start looking at performance metrics, let’s orient ourselves on how big these airlines brands are, measured by revenue. Ryanair is very often described as Europe’s biggest airline, and it is on certain metrics like passenger numbers. But because its average fare is so low, when measured by revenue, it is only number five. The number one spot in fact goes to Turkish Airlines with revenue of €19.2 billion. At least that is the case if you consider all the airlines that make up the big European groups separately. On a group basis, Lufthansa Group is number one with €35.4 billion of revenue, with AF-KLM and IAG a close two and three at €30.0 billion and €29.5 billion respectively.

In the chart below I’ve colour coded the airlines that make up the Air France - KLM Group blue, IAG is maroon and Lufthansa Group is gold. I should note that Transavia Netherlands is included in KLM’s numbers and Transavia France is included in Air France’s, so to get the total AF-KLM group you just need to add AF and KLM together.

*Source: Company reports, GridPoint analysis*

Operating profitability

With that out of the way, let’s dive into the operating margins by airline. There is a tendency for commentators to believe that the low-cost airlines always outperform the network airlines. So I’ve coloured the airlines blue for low-cost carriers and red for the others. You can immediately see that there wasn’t any particular pattern - there were good and bad performing airlines in both categories.

Update from April 15th: I just realised that the Turkish operating margin in the chart below of 18.9% is calculated using the airline’s own definition of “Operating Profit”, which includes investment income. On reflection, a more comparable number would be the figure excluding investment income, which would give an operating margin of 13.7%, still close to the top of the league table but promoting Ryanair to number one position.

Source: Company reports, GridPoint analysis
Note: SAS is year to January 2024

In my “End of year review for 2023” post, I predicted a 2023 operating margin for the European carriers of 10.9%. With the benefit of the actual full year figures, it is clear that I was a little too optimistic, with the actual result coming in at 9.5% for these carriers overall. But nevertheless, that was still considerably higher than IATA’s 6.5% 2023 forecast at around the same time, and also well above the 7.1% aggregate performance delivered back in 2019. In fact, many European carriers reported record results.

The good profitability performance was driven by strong unit revenues, well up on 2019 levels. That was true pretty much across the board, but let us take a look at how the unit revenue figures compare from airline to airline.

Unit revenues

I’ve shown the Revenue per ASK (RASK) on the chart below and once again I’ve split the airlines into the two groups, red for network airlines and blue for low cost. RASK is very sensitive to stage length, so I’ve also included that dimension. All other things being equal, RASK should decline with the square root of the stage length, so I’ve also included an average RASK curve for each group. Airlines which are on the curve performed in line with the average for their peer group, adjusted for stage length. Amongst the lowest six performers in terms of margin, Brussels, SAS and Wizz seem to be suffering mainly from a unit revenue problem. The other three (Virgin, Norse and Transavia) look OK when it comes to unit revenues, so their biggest problems seem to lie on the cost side, as we’ll see in a minute.

Unit costs

On the next chart, I’ve shown the same analysis for unit costs, or CASK. Many of the carriers that did best on RASK did worst on CASK, and vice versa. As well as differences in business models, especially cabin configuration differences, the mix of markets matters too. Competitive dynamics usually mean that markets which are structurally higher cost will also tend to be higher yield.

For that reason, high level comparisons of RASK and CASK are fraught with risks of comparing apples and pears. Nevertheless, the relatively high unit costs of Norse, EasyJet, Eurowings and Transavia do stand out in comparison to the other low-cost airlines. And amongst the network carriers, both Air France and KLM do rather jump out. Some of that will be driven by dedicated freighter fleets and third party MRO businesses that add cost but no ASKs. These two also perform well above their peers in terms of unit revenues, but not by enough to fully compensate for the higher unit costs. So whilst their 2023 operating margins were far from the worst, both airlines performed below the European average for the year.

Wizz can claim the prize for the lowest reported unit cost per ASK, although on a stage length adjusted basis, I would still give the win to Ryanair.

Sustainability metrics

Given the rising importance of sustainability, I thought I would take a break from looking at financial figures and see how the airlines compared on those metrics.

The single most important measure is probably CO2 emissions, usually expressed on a per passenger kilometre basis. Not every airline in my comparison group reports those figures, and some that do so report only with a big lag. We have 2023 figures for Lufthansa Group as a whole, but the most recent figures we have for the constituent airlines are from 2022. I’ve been able to calculate the figure myself for some of the missing airlines, but I’m still left with many gaps where there just isn’t enough information to do so.

I’ve shown the figures for the airlines where I have the data on the following chart. Like unit cost figures, there will be something of a stage length effect, with longer stage lengths reducing fuel use per kilometre, at least up to a point. Cabin configurations also matter a lot too - the big premium carriers like LHG and BA will undoubtedly be impacted by that. Also influential will be fleet mix - bigger, newer aircraft will drive down the emissions per passenger. High seat factors and flying to less congested airports also help. Wizz does well on all those factors and together they contribute to making them the undisputed winner on this emissions intensity metric.

Whilst Wizz’s emissions per passenger mile are the lowest amongst this group, they are also by some margin the fastest growing carrier, so their absolute emissions are going up fast. The same is true to a lesser extent of Ryanair. With a limited stock of new efficient aircraft to go round, there is an argument that overall emissions would be lower if new aircraft are used to replace existing older aircraft at the “legacy” carriers, rather than being used to add new flying at Wizz or Ryanair.

For my part, I think it is important to look at both absolute emissions and emissions intensity. An issue as complex as climate change is not going to be solved by focusing on any single metric.

Sustainable Aviation Fuel (SAF)

A huge part of the industry’s plans for getting to net-zero comes from SAF and so the final metric I want to look at is the level of SAF usage.

Unfortunately, the standard of reporting here is far worse than it is for emissions intensity. Almost every carrier reports their future SAF targets for 2030, with 10% being the default target, in line with industry decarbonisation roadmaps. Ryanair is unusual in having a 2030 target of 12.5%. Lufthansa Group doesn’t seem to have an explicit target for SAF usage, preferring to view SAF as a means to an end in delivering its overall carbon reduction plans, rather than something to explicitly set targets for.

There are “SAF leaderboards” available which track media announcements of SAF off-take agreements by airline and use those to produce rankings of airlines based on volumes of SAF procured. But using those statistics to compare airlines is potentially quite misleading, as the phasing of the deliveries in these multi-year deals is never very clear, and the likelihood that the announced SAF volumes will materialise can also be very variable.

As SAF volumes start to rise, tracking actual SAF usage will become an increasingly important test of how seriously airlines are taking that element of their sustainability agenda. It can be tempting for airlines to wait for others to take the early risks and costs of building up SAF supply, in the belief that they can wait for prices to fall as technology improves and production scale increases. The counter to that is the risk of being left without supply, in an environment where European regulators plan to impose fines on airlines which fail to meet the mandatory SAF usage targets.

For the European airlines in 2023, I’ve only been able to find SAF usage figures for four. AF-KLM is out in front here, with 1% of fuel use from SAF in 2023. IAG wasn’t far behind at 0.66%. Both were well ahead of IATA’s estimate of the global average for 2023 of 0.2%. Finnair were slightly ahead at 0.24% and Virgin slightly below at 0.15%, notwithstanding the huge amount of PR they obtained from mounting the world’s first 100% SAF commercial flight during the year.

Roll on 2024

It is hard to believe that we are already over a quarter of the way through 2024 and we will soon get to see the first reports of Q1 performance. For the most part, I think airlines are still in fairly confident mood and share prices have been rising in recent days as the analysts realise that the healthy 2023 performance may be more sustainable than they feared.

One thing that I won’t be sorry to say goodbye to are the endless comparisons against 2019. Whilst it may still be occasionally useful to look back, it is clear that with 2023 we finally have a new solid reference point to compare against when looking at performance going forward.

Let’s hope that 2024 will manage to beat our new reference.

A comparison of European airline results for 2023