Airlines Schrodinger's Cat: Trying to ground forecasts, valuation for low-cost airlines

For the European aviation industry as a whole we expect 2021 volumes may recover 2/3rd of 2020’s lost traffic volumes. However, we believe low cost carriers will not only recover lost volumes but attempt to show growth on 2019 levels.

16 Apr 2020

Traffic versus prior period – low cost carriers

Source: UBS Estimates

The figure shows UBS's estimates of quarterly traffic for the time period of 2Q 2020 through 1Q 2020. For all of 2020, UBS estimates airline traffic to be lower versus 2019 until rising in early 2021.

Aviation backdrop and forecast uncertainty persists

The European aviation industry remains in a precarious position with the framework under which it has historically operated changing, namely (1) Interaction with airports, eg Fees and slots (2) Interaction with customers, eg Refunds/EU261 (3) Interaction with employees, eg social contributions/furlough (4) Interaction with funding source, eg deferrals on payments and European Commissions Temporary Framework on State Aid and (5) A situation where for most part the sky is closed (6) Capacity outlook. Furthermore, volatility and uncertainty persists to model inputs such as oil and currency.

Authorized clients of UBS Investment Bank can log in to UBS Neo to read the full report.