European airlines' summer gloom. More equity needed

Premium Analysis

The first three months of the summer season is usually the second best quarter for European airline revenue and profit.

Not so in 2020. The coronavirus pandemic has given European airlines their worst quarter in living memory.

Eight groups have reported 2Q2020 results so far: the top five of Lufthansa, IAG, Air France-KLM, Ryanair and easyJet; plus Wizz Air, Finnair and Icelandair.

Aggregate ASKs of the eight groups plummeted by 94.5% year-on-year, and revenue dropped by 85.9%. However, combined operating costs fell by only 64.2%. Their operating result plunged from a profit of EUR2.6 billion in 2Q2019 to a loss of EUR5.4 billion in 2Q2020 (1.6 times revenue).

The most important financial metric in a crisis is cash. Operating free cash flow (cash from operations less capex) generated by the eight was minus EUR6.9 billion. They have remained liquid thanks to state aid (particularly Lufthansa and Air France-KLM), strong opening cash balances (Wizz Air, Ryanair, easyJet), lines of credit and asset sales.

However, liquidity fell over the quarter and cash burn may grow as capacity returns. Expect more European airlines to seek fresh equity capital.

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