articles Ratings /ratings/en/research/articles/221121-europe-s-remarkable-air-passenger-traffic-recovery-faces-a-trickier-2023-12566190 content esgSubNav
In This List

Europe's Remarkable Air Passenger Traffic Recovery Faces A Trickier 2023


Credit FAQ: The Evolving Landscape Facing U.S. Cable Operators


Weak Cash Flow Pressures Ratings For North American Speculative-Grade Health Care Issuers


Instant Insights: Key Takeaways From Our Research


Emerging Markets Real Estate Issuers Stand Their Ground

Europe's Remarkable Air Passenger Traffic Recovery Faces A Trickier 2023

This report does not constitute a rating action.

The recovery in European airline passenger traffic during this summer was remarkable. Pent-up demand for air travel following the pandemic, funded by savings built up during two years of restricted mobility, saw air passenger volumes surge. Europe's leading airlines reported returns to operating profits in the historically strong third quarter as load factors (the extent to which planes are full) and yields (essentially ticket prices) matched and in some cases exceeded pre-pandemic levels. Robust customer bookings and a rebalancing of consumer spending from goods to services drove strong cash generation. Airlines in Turkey outperformed the broader European market as they benefited from staying open to Russia, a weaker Turkish lira, and operational readiness because they did not cut staff as much as many other airlines during the pandemic. Recent trends are encouraging, with leading airlines claiming customer bookings are following a normal seasonal pattern in the run-up to Christmas and expressing cautious optimism regarding 2023 traffic prospects.

Incorporating year-to-date traffic statistics from the International Air Transport Association (IATA) we estimate full-year 2022 European air passenger traffic at 75%-80% of 2019 levels (measured in revenue passenger kilometers; RPKs). This is higher than our June 2022 forecast of 60%-70% but still materially below pre-pandemic levels. That said, our previous estimates for 2023 are broadly unchanged because cost-of-living inflation and rising interest rates are increasingly weighing on consumer confidence and business spending. In 2023, we think traffic will be around or slightly above 2022 levels (or 75%-85% of 2019 levels), with near pre-pandemic levels of traffic reached only by 2024 (see table 1 below and "European Aviation Is Set For A Strong Summer Before Brewing Macro Headwinds Blow In," published June 8, 2022, for our previous forecasts).

The picture for 2023 remains unclear, not least because at present most people make airline bookings within a couple of months of travel. Furthermore, most major European airlines have structurally scaled back, or are still not deploying, their full pre-pandemic capacity (with notable exceptions such as Ryanair and Wizz Air). Under our base case, we think the travel recovery seen this summer will likely lose momentum in 2023, albeit without collapsing unless the conflict in Ukraine or new COVID-19 variants cause unpredictable disruption.

Chart 1


The European airline passenger market has been showing steady trends in recent months (at 80%-82% of pre-pandemic levels over the five months to September 2022), as per IATA.

Table 1

European Airline Traffic: S&P Global Ratings' RPK Estimates, As A Percentage Share Of 2019 Levels
(%) Current estimates versus 2019 actual (%) Previous June 8, 2022 estimates versus 2019 actual
2022F 75-80 60-70
2023F 75-85 70-85
2024F 80-95 80-95
RPK--Revenue Passenger Kilometer (a traffic measure of passengers travelled multiplied by the distance flown). F-forecast. Note, our forecast average for the industry falls within this range (and therefore our forecasts for some companies may fall outside this range for particularly strong or weak issuers). We based our updated expectations on recent air traffic trends; forward-looking guidance from airlines and airports; and information and analysis provided by other sources such as industry trade group IATA. Source: S&P Global Ratings.

The Industry Faces Mounting Headwinds in 2023

While the airline industry is recovering from COVID-19 related mobility restrictions and border closures, it goes into 2023 with downside risks brewing.

Consumer spending on air travel will be under pressure, particularly if ticket prices remain elevated, as macroeconomic conditions deteriorate across Europe.  S&P Global Rating forecasts a sharp slowdown in the European economy in 2023 fueled by increasing inflation and interest rates while energy crises persist. We expect corporates across a wide range of sectors, including airlines, to find it more challenging to pass higher input costs on to end-customers (see "Global Credit Conditions Q4 2022, Darkening Horizons," Sept. 29, 2022). A weak macroeconomic outlook and high economic uncertainty typically dampens consumer and business confidence and related spending. We think that escalating mortgage payments and energy bills will reduce disposable incomes this winter and during 2023.

Geopolitical risks and security are high and could escalate further.  While we understand that so far the conflict in Ukraine has had only a marginal effect on passenger numbers for our rated European airline issuers, the knock-on effects have been felt by airlines in the region. Most notably the energy crisis in Europe has included gas supply disruptions/shortages and a surge in oil and jet fuel prices. Going into 2023, a further escalation of the conflict in Ukraine is a clear risk. Also, the recent terror attack in central Istanbul could dampen demand for travel to Turkey.

Potential new COVID-19 variants could once more discourage travel.  Although the effects of COVID-19 have certainly abated, new variants could once again threaten demand for air travel particularly during the upcoming winter. IATA cites the single most important factor in determining airline profitability and air traffic in general currently is still the presence or absence of travel restrictions (in its IATA Quarterly Chartbook Q3 2022). European travel is now open but mobility restrictions remain in other parts of the world, such as in China with its strict zero-COVID policy.

Cost (wage and jet fuel) inflation is high.  Airlines' biggest costs are staff and fuel. Most European airlines, airports, and related airline service companies heavily cut staff and reduced wages during the pandemic. As pressure intensifies to rebuild both staff and salaries to avoid operational issues next summer, recruiting issues could persist because European unemployment levels remain surprisingly low despite the recessionary environment. That said, most airlines are adjusting capacity downward to ensure operational resilience during the typically loss-making winter period. Jet fuel prices remain high and volatile although our rated airlines are reasonably well-hedged over the near term.

Currency depreciation will continue to pressure costs.  The strong U.S. dollar (which has appreciated about 10% against the euro year-to-date in 2022) will continue to drive high costs for European airlines, particularly as hedges roll off. U.S. dollar-denominated costs are typically for fuel, aircraft, aircraft lease payments, and aircraft maintenance. Currency hedging provides some short-term offset.

The recovery in corporate travel remains uncertain.  While leisure travel led the summer recovery, business travel continued to lag especially at larger corporates. Businesses looking to save money will be more likely to cut costs and evince environmentally supportive travel policies, particularly if airfares remain elevated. Digital technologies continue to replace some in-person meetings, with many people still working remotely for at least part of the week. We estimate business travel is currently at about two-thirds of 2019 levels, but we remain uncertain as to when or if business travel will fully recover to pre-COVID levels. New trends have emerged, such as "bleisure" travel where people blend business and leisure trips more frequently (perhaps taking fewer flights than they would have pre-pandemic).

Ambitious net zero carbon emissions targets could prove costly over the medium to longer term.  The aviation sector has committed to achieving net zero carbon emissions by 2050. IATA says it foresees the introduction of much stronger government policy initiatives, such as incentivizing the production of sustainable aviation fuel (SAF). The EU's Fit for 55 proposals could mandate minimum proportions of SAF (once they become more available at scale), bring a reduction in allowances under the EU Emissions Trading System (EU ETS, a market-based cap-and-trade scheme) and even add an EU-wide fuel tax. We think flying is likely to become more expensive and we expect a structural increase in airfares over the longer term.

Some Positive Factors Should Prevent A Collapse In Demand For Air Travel

Our base case is that demand will be under pressure in 2023 but it will not collapse. Our opinion incorporates the following positive developments.

Pent-up demand is unlikely to yet be fully satisfied.  The post-COVID environment is rather atypical. Although pent-up demand by its very nature does not last forever, we acknowledge that after such long lockdowns and border closures people are still yearning to travel. A particularly buoyant summer in 2022 is unlikely to have fully satisfied demand.

Low and still-falling unemployment rates may help prop up demand for travel.  This is not a typical recession. The EU has a low unemployment rate and consumer spending appears to be rebalancing toward services, away from goods, following the pandemic. If consumers still earn an income, they can decide to take measures to save costs--such as reducing the length of holidays or going to cheaper locations/accommodation--rather than scrapping trips abroad altogether (and so not necessarily reduce the number of flights they take).

Airlines can typically pass-through much of their cost inflation to customers via higher ticket prices if demand-supply conditions are reasonable.  Airlines have a long track record of being able to absorb higher costs, for example when oil prices have spiked, and can reduce their capacity to support higher prices. Unprecedented pent-up demand post-pandemic has further supported their ability to raise prices to high levels, even at Ryanair with its usual load-active/yield-passive strategy. But how much more price-sensitive customers may become, given macroeconomic headwinds, and therefore how demand may be affected, is still uncertain. Usually, low-cost airlines would pick up in a downturn as consumers demand cheaper seats. However, the network airlines would argue that their less-price-sensitive customers will be less affected by this recession.

An easing of COVID-19 travel and related restrictions in Asia could boost traffic for European airlines.  According to IATA, the region saw some lifting of travel restrictions only as recently as April 2022 and, as such, international passenger demand in Asia was still just 41.5% of 2019 levels in September 2022 (while other regions were in the 73%-89% range). Although China remains closed to international travel due to its zero-COVID policy, a surge in traffic is expected as the wider region continues to open.

Airlines with U.S. dollar revenues will benefit from U.S. revenues and foreign-exchange translation.  Inbound travel will likely continue to benefit--particularly from U.S. travellers given the strong U.S. dollar--and principally for carriers such as British Airways (owned by IAG) that generate a considerable share of income from Transatlantic routes.

Capacities have been cut across the European airline network and new aircraft deliveries continue to face delays.  We have seen few insolvencies during the pandemic, as European governments gave substantial financial support to airlines. Large national carriers across Europe are still flying but many have cut capacities and airlines appear ready to adjust further if required, which should support yields. Airlines also retain some flexibility to adjust capital spending (delay new aircraft deliveries) if demand is lagging expectations, as they did during the pandemic. We see OEMs Boeing and Airbus struggling to deliver aircraft to schedule, further tightening the supply of seats.

Table 2

Long-Term Issuer Credit Ratings (ICRs) And Outlooks On European Airlines
Entity ICR pre-pandemic, as of Feb. 1, 2020 ICR as of Nov. 21, 2022 Downward notches since Feb. 1, 2020 Business Risk Profile Financial Risk Profile Liquidity Assessment

Ryanair Holdings PLC

BBB+/Stable BBB/Stable -1 Satisfactory Intermediate Strong

easyJet PLC

BBB+/Stable BBB-/Stable -2 Satisfactory Intermediate Exceptional

International Consolidated Airlines Group S.A.

BBB/Stable BB/Stable -3 Satisfactory Aggressive Strong

British Airways PLC

BBB/Stable BB/Stable -3 Fair Aggressive Strong

Deutsche Lufthansa AG

BBB/Stable BB-/Stable -4 Satisfactory Highly Leveraged Adequate

TAP - Transportes Aéreos Portugueses, S.A.

BB-(prelim)/Stable B+/Stable -1 Weak Highly Leveraged Adequate

Turk Hava Yollari A.O.

B+/Stable B/Stable -1 Fair Aggressive Adequate

Pegasus Hava Tasimaciligi Anonim Sirketi*

N/A B/Stable N/A Weak Highly Leveraged Adequate

Air Baltic Corp AS

BB-/Stable B/Negative -2 Weak Highly Leveraged Weak


B+/Stable D -7 Weak Highly Leveraged Weak
*Preliminary ratings assigned April 19, 2021. Source: S&P Global Ratings.

European Airports: Lower Disposable Incomes And Higher Fares Might Curb The Rebound

As disposable incomes diminish and airfares increase, consumers and companies may reconsider their travel plans. This, together with still-lagging business travel volumes and some Asia-Pacific travel restrictions still in place, could also decelerate airports' recoveries. A lot will depend on an individual airport's traffic mix.

Our passenger number estimates are in line with our traffic forecasts in table 3. Overall, competitive domestic airports and those with high short-haul traffic volumes should achieve close to the upper end of the range of (or even exceed) our traffic forecast. Those that depend more on long-haul and business traffic are generally more likely to be at the lower end of the range (or even below) our estimated forecast.

Table 3

European Rated Airports: S&P Global Ratings' Average Passenger Number Estimates, As A Percentage Share Of 2019
(%) Previous estimates Updated estimates
2022F 60 – 70 75 – 80
2023F 70 – 85 75 – 85
2024F 80 – 95 80 – 95
*We forecast revenue for our rated airports based more on our expectations of the absolute number of passengers, while our analysis for airlines is based more on revenue per kilometer. The ranges indicate our expectations for different recovery speeds for each airport based on each one’s characteristics. The ranges do not indicate an average expectation for passenger numbers in Europe. F-forecast. Source: S&P Global Ratings

Our rated European airports benefited from the strong recovery in air passengers in the summer. Beyond October, traffic and bookings for winter indicate a solid fourth calendar quarter and overall traffic for rated airports in 2022 exceeds our previous expectations. Despite a weak start to 2022--when restrictions to curb the Omicron variant were reintroduced and the Russia-Ukraine conflict started--the eventual lifting of restrictions led to a rapid recovery in demand for air travel. Despite concerns that pressure on consumers' disposable incomes may hold back the pace of traffic recovery after the summer, actual traffic has not yet shown signs of weakening. For the rest of year we expect demand to be supported by people visiting friends and relatives during the winter holiday season--the first one (hopefully) without restrictions since 2019. The increase in transatlantic flights between Europe and the U.S. that followed the strengthening of the U.S. dollar, and the gradual reopening of traffic to South-Asia and Oceania, should further support European airports' prospects.

The recovery of activity has been so quick that some airports found themselves inadequately prepared for the influx of passengers and so experienced operational difficulties especially during the summer. These problems, particularly related to border security and luggage handling, prevented some airports from fully benefitting from the recovery. A lack of sufficiently trained staff at airports led some, such as Schiphol, Heathrow, and Gatwick, to introduce daily caps on either passenger or flight numbers. Even so, passengers faced long queues at the airports that were widely publicised and had reputational implications. While the airports have worked hard to resolve these constraints--Heathrow and Gatwick for example have since lifted their capacity caps--we cannot exclude the risk of further difficulties during the winter when adverse weather may also come into play. Ultimately, these problems took root during the pandemic when European airports, particularly those with limited domestic flights, halted operations for a long period and considerably downsized their staff. The U.S. on the other hand, with a much higher proportion of domestic flights, started its recovery sooner, and was somewhat less exposed to the challenges of a sudden surge in demand.

Chart 2


Regulatory Support And Balance Sheet Flexibility Will Be Key To Airports' Credit Profiles

Our rated airports face rising costs, mostly driven by hiring new staff to meet growing passenger demand at terminals. Utility costs are also rising, with higher water, gas, and electricity usage, as passenger numbers are higher. However, we note that generally these costs represent 10% or less of airports' cost structures and, in some cases, these costs are at least partially hedged until 2024. We still believe that airports operating under favorable regulations that allow the pass-through of real-cost inflation via higher tariffs will be better placed to withstand macroeconomic headwinds.

As interest rates rise worldwide, airports will face higher interest costs on refinancings or newly issued debt. If this is not adequately captured under regulatory frameworks, such that costs of capital are properly remunerated, airports' credit metrics could weaken. Investment plans and timing flexibility for their execution will also play an important role in airports' cash outflows. Many airports deferred investments at the start of the pandemic. Airports with investment plans that are more focused on airport maintenance rather than on expansion should generally have greater financial flexibility, while those with a less flexible time horizon to deliver on investments committed during the regulatory period will be under greater pressure.

Overall, most of the rated European airports have a negative ratings bias indicated either by a negative outlook or a CreditWatch negative placement. In our view, each airport's credit metrics recovery will vary depending on business and financial characteristics and regulatory circumstances.

Table 4

Long-Term Issuer Credit Ratings (ICRs) And Outlooks On European Airports
Entity Country ICRs on Nov. 21, 2022 Business Risk Profile Financial Risk Profile Liquidity Assessment

Flughafen Zurich AG

Switzerland A+/Negative/-- Strong Modest Strong

NATS (En Route) PLC

U.K. A+/Negative/-- Strong Intermediate Adequate

Aeroports de Paris

France A/Negative/-- Excellent Significant Adequate

Avinor AS

Norway A/Negative/A-1 Strong Aggressive Adequate

Royal Schiphol Group N.V.

Netherlands A-/Stable/A-2 Excellent Aggressive Adequate

daa PLC

Ireland A-/Negative/A-2 Strong Intermediate Strong

Heathrow Funding Ltd. Class A

U.K. BBB+/Watch Neg Excellent Highly Leveraged Strong

Heathrow Funding Ltd. Class B

U.K. BBB-/Watch Neg Excellent Highly Leveraged Strong

Aeroporti di Roma SpA

Italy BBB/Stable/A-2 Strong Intermediate Adequate

Gatwick Funding Ltd.

U.K. BBB/Negative Strong Aggressive Adequate
Source: S&P Global Ratings

Related Research

Primary Credit Analysts:Rachel J Gerrish, CA, London + 44 20 7176 6680;
Izabela Listowska, Frankfurt + 49 693 399 9127;
Vinicius Ferreira, London + 44 20 7176 6111;
Secondary Contacts:Gonzalo Cantabrana Fernandez, Madrid + 34 91 389 6955;
Philip A Baggaley, CFA, New York + 1 (212) 438 7683;
Stuart M Clements, London + 44 20 7176 7012;
Sebastian Sundvik, London + 44 20 7176 8600;

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back