Airlines turn market favourites as Covid forces business rejig

Bloomberg

Unloved during the pandemic with their business paralysed almost overnight, airlines
that cut back to survive the crisis are now blowing through profit forecasts and luring back investors.
Virgin Australia, so financially frail when Covid-19 hit in 2020 that it folded in weeks, has undergone a remarkable transformation under new owner Bain Capital and plans to relist in Sydney.
Ryanair Holdings Plc returned to profit in the quarter through December and sees no end to its lucrative run. American Airlines Group Inc has a simpler fleet and focuses on the most profitable flights.
These and other freshly streamlined carriers are capitalising on a surge in travel since virus restrictions fell away. The International Civil Aviation Organization expects passenger demand to recover to pre-Covid levels on most routes this quarter and then to about 3% higher than 2019 levels by year-end.
“Aviation is investible again,” said Jun Bei Liu, a portfolio manager at Tribeca Investment Partners in Sydney who oversees A$1.2 billion ($822 million) in funds. “Asian airlines are going to go through the roof.”
The reopening of China, the largest outbound travel market before the pandemic, should drive a fresh traffic rebound in and out of favored destinations like the US, Japan and Singapore. In Hong Kong, hammered by China’s shutdown, Cathay Pacific Airways Ltd will this year make its first profit since 2019, according to analyst forecasts.
It’s an extraordinary turnaround for an industry that suffered losses approaching $200 billion over the past three years. Tens of thousands of pilots, flight crew, ground workers and back-office staff lost their jobs, while facilities in Californian and central Australian deserts filled up with unwanted aircraft.
Carriers will generate profits of $4.7 billion in 2023, according to the International Air Transport Association. While that’s a fraction of the $26.4 billion airlines made in 2019, key financial ratios indicate the industry is on its soundest footing in years.
The ability to repay debt using earnings, for example, is back to pre-pandemic levels and will strengthen through 2025, according to data compiled by Bloomberg. That means airlines are more able to weather periodic demand shocks, like the one that undid Virgin Australia, and less likely to default.
Reporting record fourth-quarter revenue last month, American Airlines CEO Robert Isom said navigating the pandemic had made the carrier more efficient. “This is our best-ever post-holiday booking period,” he said. “We expect the strong demand environment to continue in 2023.”