Airlines in Europe Face Rising Costs and Delivery Delays

By Joanna Plucinska

LONDON (Reuters) – Europe’s major airlines, including Lufthansa and Air France-KLM, are expected to report another challenging quarter marked by rising costs and limited aircraft availability, with no relief in sight from planemakers Boeing and Airbus.

Despite stable demand, airlines are struggling with high maintenance costs, weather disruptions, air traffic control issues, and ongoing conflicts in the Middle East. Of these, delays in new aircraft deliveries have emerged as the most pressing issue, forcing airlines to operate older and more expensive planes that consume more fuel and impact traffic estimates.

Lufthansa’s CEO Carsten Spohr recently projected a five-year delay on Boeing 777X deliveries, stating, "We don't expect to get them until 2026. And we need them."

The German airline is anticipated to report a third-quarter operating profit of €1.3 billion ($1.4 billion), marking a 9% decline from the previous year, with an operating margin of 12.1% according to an analyst poll.

Lufthansa faces significant losses on its Frankfurt-Beijing route, losing up to $550,000 per flight due to the use of older jets and low passenger numbers. They have yet to respond to Reuters regarding these concerns.

British Airways, under IAG, plans to cancel more long-haul flights due to delays from engine manufacturer Rolls-Royce. Similarly, Air France-KLM is expected to experience a revenue hit in the third quarter as ticket bookings decrease, particularly tied to the Paris Olympics, with results to be reported on Nov. 7.

Thus far, airline shares have seen a decline over the past six months, although there was a slight recovery recently. Investor confidence remains low regarding the overall health of the airline sector, except for IAG, which has seen a substantial share price increase of over 20% due to its strong position in the North Atlantic market and fewer delivery delays. IAG is expected to report an operating profit of €1.78 billion on Nov. 8, an increase of 2% from the previous year.

Bleak Outlook

Looking ahead, several airlines have warned that the worst may be yet to come, predicting that delivery delays could worsen in 2026 due to ongoing supply chain issues affecting production of new aircraft. Despite this, analysts suggest that with fewer available seats, airlines may have the opportunity to charge higher fares if demand remains steady. However, this anticipated benefit may not materialize, as many European and North American carriers are reporting disappointing outcomes.

Neil Glynn, managing director at AIR Control Tower, commented, "Ordinarily, one might expect a lower level of capacity as a result of these delays to boost results in a strong demand environment. Yet most carriers are producing disappointing results."

Additionally, airlines may gain a financial advantage next year from reduced jet fuel prices, contingent on their ability to lower the amount of hedges in place.

($1 = 0.9228 euros)