Analysis Reports

This report presents CAPA - Centre for Aviation's annual operating margin ranking for 16 of Europe's leading airline groups for 2024.

Pegasus Airlines, Türkiye's ultra-low cost airline, topped the ranking for the third year running, the best of four groups with a double digit operating margin (down from six groups in 2023). SAS again reported the lowest margin, one of two with an operating loss (whereas it had the only negative result in 2023).

The majority of the 16 groups (12 of them) had lower margins in 2024 than in 2023. However, on the whole, they outperformed other European airlines: 10 of them beat IATA's estimate of the average European airline margin in 2024.

The current expectation among forecasters is that European margins will improve a little in 2025 versus 2024, although the factors driving profits are complex - as ever - and a decline in margins is also a possibility.

Either way, Europe's largest airline groups are likely to continue to fare better than the sector as a whole.

Within the past week or so two key events took place involving London Heathrow Airport.

Firstly, it announced a GBP10 billion investment programme over the next four years - one that will be partly paid for by a hike in landing and other charges.

Secondly, the now majority shareholder Ardian announced the acquisition of another slug of the equity, taking it to almost 33% and putting it as firmly in charge, as was Ferrovial when Heathrow was privatised and stock market delisted in 2006.

Incidentally, that Ardian transaction also kisses goodbye to Ferrovial, to the Canadian pension fund CDPQ (which was also a 'founder investor'), and to the British Universities Superannuation Scheme fund.

But possibly the most interesting comment came from Virgin Atlantic, which complained vociferously - and not for the first time - about Heathrow's expense and 'monopoly power'.

One way of countering that power would be by having another national level hub airport in the UK; it isn't as if comparable countries elsewhere in Europe don't do that.

Successive British governments have tried, and manifestly failed, to establish an economic 'Northern Powerhouse' in the UK to switch attention away from the capital. Now the entire notion has gone to sleep, where it will probably stay for another 20 years.

Nominating a second UK global aviation hub and encouraging airlines to use it would be the best way of awakening a sleeping giant (the north and its engineering, textiles, and associated industries used to be the bread and butter in the UK; not in the south).

This report delves into the 'whys and wherefores' of such a decision, and nominates Manchester as the logical choice.

Wizz Air's 14-Jul-2205 announcement that it would close its Abu Dhabi base from 1-Sep-2025 was not really a surprise. The group had signalled that it would at least scale back the operation, which is a joint venture with Abu Dhabi Development Holding Company.

Now into its fifth year, Wizz Air Abu Dhabi accounts for only c5% of Wizz Air Group seats and aircraft, but it reduced the group's net profit by 15% in FY2025.

Moreover, the joint venture has never reported a positive annual result.

The group will refocus its strategy on its core network in Central and Eastern Europe, after struggling with operational, geopolitical and traffic rights challenges in Abu Dhabi.

It can be argued that much of the rationale for closing Wizz Air Abu Dhabi was foreseeable at the launch of the business. Nevertheless, with little prospect of lifting it to profitability, it is a sensible decision to cut the losses and walk away.

Two bellwethers of the US airline industry - Delta Air Lines and United Airlines - believe that an inflection in demand has occurred, after 1H2025 was mired in political and economic uncertainty.

Many factors are driving the improvement, including growing consumer confidence and a rational supply-demand environment in the US market.

For now, those airlines don't see any signs of a return to stability waning.

Perhaps US consumers have decided the potential for wild swings in diplomatic and economic policy are now just a fact of life, and are opting not to put travel plans on hold.

VINCI Airports, like all operators in the sector, has had its ups and downs over the years. Physical size doesn't protect you from events, and VINCI hasn't always been as big as it is today.

Its biggest problem recently has been that of its majority-owned subsidiary Cambodia Airports, which was all but booted out of the country consequent to the government's dissatisfaction about earnings versus expenditure on the airport estate.

While existing investments remained intact, VINCI was prohibited from bidding for lucrative new airport contracts at Phnom Penh and Siem Reap.

It looked as if the game might be up, but following a high level meeting between French and Cambodian government officials in Jan-2024 VINCI has regained territory. Its work is now capped by an invitation to take on the operational management of the new Phnom Penh Airport; one named Techo Takhmao, and of which the name "honours historical figures and the protective spirit of the region".

But one must not get carried away.

The celebrity World and his dog have jumped on the announcement without noticing the small print. VINCI will only be in a management role; it will still be a state airport - and VINCI will not only have zero financial input, but also no construction role either.

It is there to develop business, simple as that.

VINCI will be on notice for how it handles the management of the new airport, which opens in Sep-2025. Big traffic gains will be expected.

It will still be glad to be back, where it could be argued that it all started for VINCI in 1995 when it signed a contract through Cambodia Airports for the airports of Phnom Penh and Siem Reap.

The confidence of aviation labour organisations to claim a greater share of industry profits when margins rise appears to be lower than it was before the COVID-19 crisis.

Historically, the number of news articles on the CAPA - Centre for Aviation website mentioning the word 'strike' has broadly followed the rise and fall of airline industry operating profit margins.

However, the number of CAPA - Centre for Aviation 'strike' articles has not increased in line with margins in the aftermath of the COVID-19 pandemic.

Moreover, in spite of IATA's forecast of a slight margin improvement in 2025, the number of articles halved in 1H2025 versus the same period of last year 2024.

It's been broadly a year since Argentina's President Javier Milei introduced changes to liberalise the country's aviation sector while also forging Open Skies agreements with numerous countries.

Airlines have definitely taken advantage of opportunities stemming from the changes, which is reflected in Argentina's system seat growth.

More international growth, intra-regional and long haul, is on the horizon.

One of Mr Milei's other goals, the privatisation of the state-owned airline Aerolineas Argentinas, has not occurred. And while it is tough to see investors stepping forward in the near future, there are some signs that the airline's financial state is improving.

Those conversant with the multiple runway airports that are hubs in North America, Europe, and to a lesser degree in Asia Pacific, might be led to believe that a single-runway airport is most likely to be found in a small regional city, or an off-the-beaten-track vacation destination.

But that is far from the truth.

Europe's 10th and 12th busiest airports figure in the Top 3 in the list of 46 of the busiest single-runway airports globally, here, along with Asia Pacific's own 14th busiest.

London, the busiest and most complex aviation city hub in the world, has three entries, while the busiest of the lot there manages to make do with two, shining a light on the peculiar way in which the UK handles flight activity in its capital city.

Meanwhile, there is a single 'low cost' airport in the list, suggesting that those airports that specialise in that model will never grow to any significant size, while one of only two identifiable vacation airports (with more inward traffic than outward) secures the 12th place in the listing.

There are many takeaways from this list, but the main one is that the cost of an additional runway, which will never bring in additional traffic rapidly, is always a very long term investment; maybe, in many cases - too much to bear, and therefore to justify.

The Russian national civil airport system is need of investment, and never more so than now. There is actually a fair amount of domestic private sector activity there through companies like Novaport, Airports of Regions and Basic Element/Basel Aero.

But the story lies in the singular failure of any foreign 'western' operator/investor (apart from Changi Airport International which took equity in 2017 in Vladivostok Knevichi Airport) to stay the course there.

Fraport was the first globally significant company to take a stake in a Russian airport, in 2010, but within the last three years it has withdrawn from operational activity at Saint Petersburg Pulkovo Airport following the Russian invasion of Ukraine, and latterly has been expunged entirely as Pulkovo was renationalised.

Now it is the turn of Moscow's Domodedovo Airport, which for some time was controlled by the 'private sector', and mainly in the form of a single Russian individual.

No foreign companies were formally involved, but since Jan-2025 the management there (which has long been under state scrutiny) was accused of permitting such involvement clandestinely - and in the Kremlin that meant it was a case of Goodnight Vienna.

The end came when it was announced that Domodedovo was under state control, with effect 20-Jun-2025.

This raises two questions.

Firstly, what is the state going to do to rescue an airport that is in serious decline? One that would be a welcome challenge to a western investor.

And secondly, what future is there at all for foreign investors, assuming the war ends.

Probably none, by the look of it.

Two significant strategic developments in early Jul-2025 demonstrate how far SAS has progressed since the COVID-19 pandemic crisis forced it into a major restructuring programme in 2020.

Firstly, SAS announced an order for 45 new generation Embraer E195-E2s, plus 10 options. This is its largest order direct from an OEM since 1996.

Secondly, Air France-KLM announced that it will increase its stake in SAS from 19.9% to 60.5% (subject to regulatory approval).

These two announcements signal growing confidence about SAS' future, both on its own part and on the part of its main airline partner and shareholder.