Demand for air travel is back but challenges remain

Dhoha: While the demand for air travel has increased and airlines adding the capacity, airports are taking time to meet the resurge in demand.

This was revealed at the Annual General meeting of the International The International Air Transport Association (IATA) in Doha on Tuesday.

The the demand for air travel is expected to return to pre-pandemic levels in 2023 as countries ease all restrictions.

It was also impact of the current oil prices will be temporary and ticket rates have been impacted as airports tried to make up for losses from travel bans.

IATA also said that the Industry losses are expected to reduce to -$9.7 billion (improved from the October 2021 forecast for an $1.6 billion loss) for a net loss margin of -1.2%. Efficiency gains and improving yields are helping airlines to reduce losses even with rising labor and fuel costs (the latter driven by a +40% increase in the world oil price and a widening crack spread this year).

Industry optimism and commitment to emissions reductions are evident in the expected net delivery of over 1,200 aircraft in 2022.

Strong pent-up demand, the lifting of travel restrictions in most markets, low unemployment in most countries, and expanded personal savings are fueling a resurgence in demand that will see passenger numbers reach 83% of pre-pandemic levels in 2019.

“Airlines are resilient. People are flying in ever greater numbers. And cargo is performing well against a backdrop of growing economic uncertainty. Losses will be cut to $9.7 billion this year and profitability is on the horizon for 2023. It is a time for optimism, even if there are still challenges on costs, particularly fuel, and some lingering restrictions in a few key markets,” said Willie Walsh, IATA’s Director General.

Revenues are rising as COVID-19 restrictions ease and people return to travel. The challenge for 2022 is to keep costs under control.

“The reduction in losses is the result of hard work to keep costs under control as the industry ramps up. The improvement in the financial outlook comes from holding costs to a 44% increase while revenues increased 55%. As the industry returns to more normal levels of production and with high fuel costs likely to stay for a while, profitability will depend on continued cost control. And that encompasses the value chain. Our suppliers, including airports and air navigation service providers, need to be as focused on controlling costs as their customers to support the industry’s recovery,” Walsh said.

Passenger revenues are expected to account for $498 billion of industry revenues, more than double the $239 billion generated in 2021. Scheduled passenger numbers are expected to reach 3.8 billion, with revenue passenger kilometers (RPKs) growing 97.6% compared with 2021, reaching 82.4% of 2019 traffic. As pent-up demand is released with the easing of travel restrictions, yields are expected to rise 5.6%. That follows a yield evolution of -9.1% in 2020 and +3.8% in 2021.

At $192 billion, fuel is the industry’s largest cost item in 2022 (24% of overall costs, up from 19% in 2021). This is based on an expected average price for Brent crude of $101.2/barrel and $125.5 for jet kerosene. Airlines are expected to consume 321billion liters of fuel in 2022 compared with the 359 billion liters consumed in 2019.

Labor is the second highest operational cost item for airlines. Direct employment in the sector is expected to reach 2.7 million, up 4.3% on 2021 as the industry rebuilds from the significant decline in activity in 2020. Employment is still, however, somewhat below the 2.93 million jobs in 2019 and is expected to remain below this level for some time. Unit labor costs are expected to be 12.2 cents/available tonne kilometer (ATK) in 2022, which is essentially back to 2019 levels.

The underlying demand for travel is strong. But government responses to COVID-19 ignored World Health Organization advice that border closures are not an effective means of controlling the spread of a virus. The outlook assumes that strong and growing population immunity to COVID-19 means there will not be a repeat of these policy mistakes. There is, however, downside risk should governments return to knee-jerk border-closing responses to future .”