European Airlines Fly Into Trouble

Carolyn McCall, chief executive of budget airline easyJet, says the environment for airlines hasn’t been this bad in a decade. ENLARGE
Carolyn McCall, chief executive of budget airline easyJet, says the environment for airlines hasn’t been this bad in a decade. Photo: Agence France-Presse/Getty Images

LONDON—European airlines are flying in unfriendly skies.

For the region’s carriers, 2016 was supposed to be a breeze. Low oil prices were poised to help deliver record profits. Fuel hedges that last year damped the benefit from lower fuel costs had reached more favorable levels.

Instead, terrorism, air-traffic-control strikes and Brexit have caused a sequence of shocks that have hit demand. Airlines have been forced to slash ticket prices to fill planes. Earnings expectations have been scaled back.

The terrorist attack in Nice a week ago—in which a truck driver plowed into revelers, killing at least 84 people—and last weekend’s failed coup in Turkey are the latest events to weigh on bookings. Turkey declared a state of emergency late Wednesday.

Carolyn McCall, chief executive of budget airline easyJet ESYJY -3.82 % PLC, said Thursday that the environment for airlines hasn’t been this bad in a decade.

“You have more terrorist events this year than in any year that anyone can remember,” she said. The attacks have dented consumer confidence, as have air-traffic-control strikes that have canceled thousands of flights across Europe and the sharp fall in sterling, the easyJet boss said.

The airline reported a 2.6% decline in third-quarter sales even as passenger numbers rose 5.8%. Per-seat revenue on a currency adjusted basis fell 8.3%, the Luton, England-based airline said. Ms. McCall said it was too early to assess the impact on pricing from the Nice attack and turmoil in Turkey.

Only hours earlier, Deutsche Lufthansa AG DLAKY -2.37 % , Germany’s largest airline, pulled forward its quarterly earnings announcement to warn profit for the year would fall. It earlier projected a small increase.

Bookings, particularly for long-haul flights, “have declined significantly,” the carrier said late Wednesday. Lufthansa does significant business on flights to Asia, where consumers are typically among the fastest to cancel travel plans in the face of overseas unrest.

The confluence of shocks come at a particularly sensitive time for carriers, the peak summer season when they book most profits. EasyJet had to run seat promotions to fill planes in June and July, the first time the carrier has been forced to take such action, Ms. McCall said.

Shares in Lufthansa were down 8.25% in midmorning Frankfurt trading. EasyJet was 4.7% lower in London. The stocks of other European carriers also slumped.

Investors in European airlines have suffered as the bad news has mounted. Airline stocks were among the hardest hit by the U.K.’s vote last month to exit the European Union, though shares in industries such as consumer products and pharmaceuticals have surged since then.

Shares in easyJet and British Airways ICAGY -2.75 % parent International Consolidated Airlines Group SA fell more than 30% in the wake of the outcome on concern demand would drop and regulatory uncertainty. Within hours of the vote, IAG cut its projection for full-year profit growth.

The fallout isn’t limited to British carriers. Delta Air Lines Inc., DAL -4.39 % the second-largest U.S. carrier by traffic, a week ago said it would cut seats for sale to the U.K. during the winter season in response to Brexit. United Continental Holdings Inc., UAL -3.56 % the No. 3 U.S. carrier by traffic, this week said it would monitor the impact of the vote and make any necessary adjustments.

Budapest, Hungary-based Wizz Air Holdings WIZZ -6.56 % PLC on Wednesday said it would halve growth plans on U.K. routes because of the weakness in the British currency. Michael O’Leary, chief executive of Ryanair Holdings RYAAY -3.24 % PLC, Europe’s largest airline by passengers, said soon after the referendum that Ryanair would put new planes into non-U.K. markets that offered better growth prospects.

EasyJet’s Ms. McCall said she hopes to take advantage of others retrenching and that the airline had no plans to cut capacity in its core U.K. market.

Write to Robert Wall at [email protected] US Business

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