Airlines see return to profit next year

THE airline industry remains likely to return to profit next year, with high employment levels and growth in key economies sustaining demand even as household bills spiral, the head of its main lobby group said.

Carriers should achieve positive earnings in 2023 for the first time since 2019, before the coronavirus pandemic roiled global travel, International Air Transport Association Director General Willie Walsh said in an interview Monday.

“We still see a path to profitability. We’ll review it, but I don’t see a major revision,” Walsh said of the financial projections, which IATA is due to update in briefings next month.

A recovery in passenger traffic should also continue into next year despite economic headwinds, before returning to pre-Covid levels in 2024, Walsh said at the Airlines 2022 conference in London.

The upbeat tone matches IATA’s prediction in June, when Walsh predicted his industry’s return to profitability, particularly as airlines in North America enjoy a strong comeback.

Carriers are expected to post a collective deficit of US$9,7 billion this year, with a bumper summer having failed to make up for losses earlier in 2022 when flights were disrupted by the Omicron variant of the coronavirus, Walsh said, reiterating a forecast first issued in June.

Walsh said that there are still pockets of concern going into 2023. Asian markets, which have lagged behind the global rebound amid continuing Covid curbs, are likely to pick up more, but the recovery of China in particular still depends on the government’s approach to containing the virus, he said.

A slow ramp up in flights at London’s Heathrow airport, combined with the fallout from Brexit, is holding back the UK recovery, he said, while the Netherlands risks squandering a national asset as it caps flights at Amsterdam Schiphol amid an environmentally inspired clampdown. - Bloomberg

THE outlook for credit conditions next year for non- financial companies in Europe, Middle East and Africa is negative, credit rating agency Moody’s said on Monday, as financing conditions degrade and energy and wage costs loom.

After more than a decade of ultra-loose monetary policy, financing conditions are tightening, inflation is rising and the global economy looks poised to fall into its first recession since 2009.

“Higher interest rates will cause financing conditions to deteriorate and will weaken liquidity and credit quality,” Moody’s said.

“This could compel many companies to focus on cash conservation by curtailing shareholder returns and debt-funded M&A.

The agency also pointed to weak consumer sentiment and lower household purchasing power, which will hit demand in 2023 across most consumer-driven sectors and some industrial segments such as chemicals, construction and autos.

“Sectors reliant on discretionary demand will be hit hardest,” Moody’s noted. It however expects telecoms and gaming to be resilient and airlines to continue to recover from the pandemic.

“The conflict between Russia and Ukraine remains a key geopolitical risk,” it added, as Moscow’s cut in gas exports in retaliation for Western sanctions has left Europe and other regions scrambling to plug the energy gap.

Although supply constraints will ease, energy scarcity will keep squeezing margins, the agency said, but high power prices will support credit ratios of oil and gas companies.

It highlighted the possibility of rising wage inflation, which some businesses, including retail, hospitality and leisure, will suffer disproportionately, fuelling tensions in labour relations. - Bloomberg

CHINA signed a landmark US$60 billion agreement for purchases of liquefied natural gas from Qatar, as the world’s second-largest economy looks to bolster its energy security for decades.

Qatar Energy will send Sinopec 4 million tons of LNG a year starting in 2026, the state-controlled companies announced in a virtual ceremony on Monday. The deal will last for 27 years, making it China’s longest LNG supply agreement to date, according to data from BNEF. It’s also one of the country’s biggest in terms of volume.

Countries around the world are rushing to secure the power-plant and heating fuel from major exporters like Qatar and the US, causing prices to climb. The global LNG market is all but maxed out in terms of supply and there is little new production coming online before 2026.

Europe is trying to replace Russian pipeline gas with LNG, though talks with

Qatar have stalled amid reluctance from the likes of Germany to commit to longterm contracts. Many EU governments want to phase out fossil fuels and believe LNG deals would work against their climate goals.

While China’s LNG imports have slumped this year on the government’s strict zero- covid policy, demand is expected to rebound as soon as 2023 and continue growing over the next decade. China was the world’s top LNG importer last year, and its state- owned buyers have been busy signing supply contracts with producers. The gas for Sinopec will come from the North Field East expansion, which will cost Qatar and investors including Shell Plc and Exxon Mobil Corp almost US$30 billion. This is the first supply agreement for the project to boost Qatar’s annual LNG production capacity from 77 million tons to 110 million tonness in three years. - Bloomberg