Governments bailouts are coming to Europe Governments bailouts are coming to Europe Governments bailouts are coming to Europe

Governments bailouts are coming to Europe

Equities 8 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  In today's equity update we focus on Europe's utility sector which is running into profitability issues over Europe's gas crisis with the German utility Uniper asking for a bailout of EUR 9bn due to higher costs for gas as Gazprom has cut its gas supplies to Europe. In the travel sector, European airliners are experiencing a horrible summer with labour shortages and SAS has recently failed to strike a deal with around 1,000 pilots pushing the airliner into Chapter 11 to negotiate a restructuring in order to get better unit costs. Bailouts are back in Europe.

Uniper and potential nationalisations of the utility sector

Europe’s gas situation was already deteriorating rapidly before Russia’s invasion of Ukraine but after the war it has gone from bad to worse. The 1-month forward natural gas future has galloped to 170 EUR/MWh zooming in on the highs from when the war broke out. These punitive natural gas prices are having a demand destruction in Europe already with emergency plans being enacted in many countries in our to ration gas supplies for the industry if the gas supply from Russia is cut even further. Many industrial stocks in Europe are down recently as the outlook is gloomy.

Gas storage in Europe is still trending well within the past 10 years seasonality pattern suggesting that despite lower supply of gas storage is still rebuilding at the same pace suggesting demand is lower at these high prices. Another recent casualty of Europe’s gas crisis is the German utility company Uniper, which is 75% owned by Finnish Fortum, which is no longer receiving the gas volume from Gazprom that it has contracted (only 40% of its previous gas volume) and as a result the utility is forced to acquire the gap in the spot market at punitively high prices.

Uniper has recent issued a profit warning and cancelled its outlook while seeking a government bailout of as much as €9bn to cover the extra costs. Both E.ON and RWE have less exposure to Russian gas than Uniper but other utilities in Europe could face same issues as Uniper and thus more government bailouts could be on the table in Europe’s utility sector. To preserve gas for its industry, Germany has declared gas emergency level 2 (out of 3) and will allow extending coal fired electricity generation to lower gas intake in its electricity generation.

European utilities vs Uniper | Source: Bloomberg
Europe Gas Storage seasonality plot | Source: Bloomberg
1-month forward natural gas futures | Source: Bloomberg

The pandemic is catching up with the travel sector

SAS failed yesterday to strike a deal with around 1,000 pilots to cut costs and as a consequence the airliner has filed for Chapter 11 bankruptcy in the US which allow SAS to continue to operate while it discusses with its creditors a plan to restructure the business. The European airlines industry was already underperforming before the pandemic, but from an operations point of view SAS had actually got its house in order.

In its fiscal year before the pandemic that ended in October 2019 the airliner generated SEK 3.1bn in operating income down from SEK 4bn the year before and had only SEK 2bn in net debt while modernizing its fleet. The pandemic hit the travel sector hard and SAS went from SEK 46bn in revenue in fiscal year before the pandemic to SEK 20.5bn in the fiscal year ending October 2020 and down to only SEK 14bn in the fiscal year ending October 2021. SAS is expected to generate SEK 32.1bn in revenue in the fiscal year ending October 2022. While this is an impressive rebound relative to other airliners such as Norwegian it is still a shortfall of SEK 14bn in revenue and as a result the airliners economics of scale have been lowered requiring lower operating costs on a unit basis. In addition the increased net debt is reducing overall cash flow generation allowing less cash for investments to upgrade its fleet to make the company more cost competitive.

SAS has only one way out of the dark and that is to drastically cut costs, convert a large part of its debt to equity wiping out existing shareholders, and then raise additional equity with the help of the Scandinavian governments to reduce the net debt situation and invest in newer planes to reduce unit costs. Overall, the SAS story is the story of the European airliner industry that is structurally unhealthy and does not deliver return on invested capital above the cost of capital. With many airports having reached a physical limit, Schiphol in Amsterdam will cut its capacity next year to reduce noise pollution and NOx emissions, and interest rates going higher we expect ticket prices to continue to go up in Europe and many the airport capacity constraint is exactly what the industry needs to become more profitable going forward.
SAS, MSCI Europe Airliners Index, STOXX 600 | Source: Bloomberg

Latest Market Insights

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 07

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
  • The rise of populism: Far-right parties will influence the future

    The disheartening cycle of unresolved geopolitical conflicts, the rise of polarizing political parties, and the stagnation of productivity.

    Read article
  • Investing in China: Navigating Q1 amid economic challenges

    Understand China's political landscape in Q4 2023 and the impact on counter-cyclical initiatives, with a focus on the pivotal Q1 2024.

    Read article

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.