Airline profitability declines in third quarter – IATA – Manila Bulletin

By EMMIE V. Abadilla

As air cargo activity boomed and passenger traffic gradually improved, pressure on the global airline industry’s operating profitability eased in the third quarter of last year, according to the International Air Transport Association (IATA) Financial Monitor from December 2021 to January 2022.

However, Asia-Pacific airlines posted the weakest operating results overall, with 20% revenue losses due to “very limited international travel to, from and within the region”, says The report.

The IATA report put the industry-wide operating loss at 2.6% of revenue in the July-September period, compared to a loss of 13.6% in the second quarter.

Meanwhile, the global airline stock price index rallied in January 2022 as investors believed the Omicron-related disruptions may have less of an impact on the travel industry than expected.

The global index started 2022 on a high note, rising 5.8% in the first half of January as investors believe the new Omicron variant will lead to fewer hospitalizations than other strains.

But while European airline stocks rose 13.4% in January on renewed optimism about the industry’s recovery, airline stocks in Asia-Pacific fell 0, 5%, reflecting concerns about the impact of a potential US interest rate hike.

The big picture remains: airline stocks continue to trade 30% below pre-crisis levels across all regions.

Jet fuel prices have also rebounded from the Omicron-related decline in December and are currently at their highest level since late 2018.

As with airline stocks, the price rally was fueled by growing optimism about the near-term impact of the Omicron variant on global economic activity, including fuel demand.

In 2021 as a whole, jet fuel and Brent crude oil prices jumped 68% and 63% respectively from 2020 as demand increased as lockdowns eased while OPEC+ supply remained tight .

High fuel prices are adding further pressure on airline operating costs just as travel demand is hit by new travel restrictions and Omicron-related flight cancellations.

This could delay airlines’ financial recovery from the crisis, the IATA report notes.

Overall, industry-wide operating profit improved in the third quarter amid a gradual recovery in air travel.

Taking a closer look at the various sources of passenger revenue, premium class passenger traffic continues to lag the recovery of the economic counterpart.

After the peak of the crisis in April 2020, premiums briefly recovered faster than the economy. This can be partly explained by the fact that premium tickets are becoming relatively cheaper than economy tickets

However, the price advantage has largely disappeared since July 2020 and the economy class recovery has started to outperform.

The performance gap between the two has remained broadly unchanged since then, at 8-10 percentage points.

Additionally, the industry burned cash in Q3 2021, but significantly less than in 2020.

Still, international bookings for future travel have plummeted amid new travel restrictions that will negatively impact some airlines’ cash flow.


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