High fares, economic worries could weigh on airline recovery

Pent-up demand from the pandemic means consumers are weathering high airfares, but when summer ends and inflation and interest rate rises begin to bite, there are growing questions over whether the appetite for travel is sustainable.

Global airlines are now expected to post a Us$9.7-billion loss in 2022, a sharp improvement from a revised US$42.1 billion loss in 2021, the International Air Transport Association (IATA) said on Monday, and to possibly claw their way back to profit in 2023.

But earnings remain well short of pre-pandemic levels as highly indebted carriers grapple with fresh challenges from rising fuel costs and high wages bills that they are attempting to pass on to consumers in the form of higher fares.

“We have a certain degree of insensitivity to prices this year,” IATA chief economist Marie Owens Thomsen said, citing high household savings rates and pentup travel demand. “That could fade into next year.”

Industry leaders gathering at IATA’S meeting in Doha said bookings generally looked very strong for the next few months, but there was less certainty beyond that.

“The demand is pent up. It is revenge travel,” Malaysia Airlines CEO Izham Ismail said. “Airfares have gone up tremendously. It is not only in Malaysia or Malaysia Airlines — it is throughout the industry globally. If the price continues to be high the demand will taper off.”

IATA forecasts yields, a proxy for airfares, will rise by 5.6 per cent this year globally.

Hawaiian Airlines CEO Peter Ingram said demand from the U.S. mainland and Canada was “incredibly robust,” with capacity running around 15 per cent above pre-pandemic levels.

“But as we look at the demand right now, we aren’t really seeing any effects,” he said. “That’s not to say we won’t see some as the year goes on. But right now, all the demand indicators are very strong.”

Air New Zealand CEO Greg Foran said fares at his airline were now running 20 per cent to 25 per cent above PRE-COVID levels, in part to cover fuel prices that have more than doubled.