• Wed. Sep 21st, 2022

Is the pandemic pain finally over for the airline industry?

ByKimberly A. Brochu

May 26, 2022

Flights are returning to pre-pandemic levels, and travel is expected to increase significantly this summer. Leisure and business travel appear to be more popular as Covid restrictions ease around the world and people return to their regular activities. Although the constant increase in fuel prices may dampen the morale of some travelers, flight prices are expected to increase.

For the first time after the pandemic, business flight bookings reached 2019 levels, according to an analysis of 2022 travel from the Mastercard Economics Institute. The report strong points the “major recovery” that is happening due to “pent up Covid-related demand”.

It shows people are booking more long-haul flights, which were just 7% below pre-pandemic levels at the end of April. Meanwhile, there were more short-haul and medium-haul flight sales in April than in the same period of 2019. Overall, an additional 1.5 billion passengers are expected to fly this year, compared to 2021.

Many people have switched to using private modes of transportation to travel in 2021, with friends and families across the United States and other countries opting for road trips due to the uncertainty surrounding the travel constraints. But as closures and other restrictions seem less of a concern, ticket sales for buses, trains and even cruises are increasing. Additionally, people are investing in experiences while traveling, such as restaurants and nightlife, demonstrating a major shift from the Covid trends of the past two years.

As global leisure flight sales increased 25 percent above pre-pandemic levels in April, business travel also appears to be on the rise. Business travelers typically make up about 12% of airline passengers. However, due to high tariffs, they contribute approximately 75% of their profits. So when business travel was disrupted due to Covid, prompting many businesses to reduce business travel expenses after the pandemic, airlines have been significantly short.

Business flight bookings surpassed 2019 levels in March this year, according to Mastercard analysis. This is a huge jump from 2021, which saw business travel total around half of its pre-pandemic level. Airlines have long offered frequent flyer mile and credit card points programs to encourage travelers to stick with them, and now many companies will take these initiatives further to keep business travelers in the skies.

Conversely, budget airlines around the world are bracing for an influx of passengers this summer as the travel trend looks set to continue. In Europe, the low-cost carrier EasyJet is well positioned in a market where people are worried about rising consumer prices. Although it suffered losses during the pandemic, EasyJet now expects to turn a profit heading into the peak season with “solid momentum and optimism”. It expects to reach around 97% of its pre-pandemic occupancy during this period.

EasyJet is, however, taking into account the impact of the rising cost of living on travel after the summer holidays. If people lose their jobs or struggle to meet rising consumer costs for basics, such as food and energy, they may not be able to spend on travel. However, EasyJet CEO Johan Lundgren believes “People who have the ability to prioritize, over the cost of survival, tend to choose vacations over big-ticket items.”

Airlines that successfully weathered the Covid storm should now see a significant increase in revenue in 2022 as they re-booked full flights. However, they must consider the impact of rising fuel prices on the industry, as several airline operators have moved away from budget pricing in the past.

Recent studies have shown that flight prices are rising faster than the price of inflation, which is already skyrocketing in many parts of the world. In the USA, domestic air fares have increased by approximately 40% between January and March, while international fares increased by 25%, according to a ticket sales site.

In addition to rising flight prices, airlines face several other challenges. Many airlines have found themselves in debt as demand plummets during the pandemic. This drop in demand has led airlines around the world to reduce the number of flights and cut staff to cut costs. As demand rises again, airlines must consider increasing flights and establishing new routes to improve profitability. But, as the pandemic has shown, the market is volatile, with any new strain of Covid meaning the potential for lockdowns and travel restrictions, which could do irreparable damage to an industry that is only just beginning to rebound.

An industry analyst and founder of the atmospheric research group Henry Harteveldt Explain “All it takes is a big storm somewhere to derail an airline, and there’s very little wiggle room left within airlines and very little wiggle room for the airline industry as a whole.

With passenger numbers for short, medium and long-haul flights expected to soar this year, airlines must consider the best path to profitability in such a volatile market. Many airline operators are finally recouping some of their losses during the pandemic, however, they must be prepared for dramatic changes in fuel costs and passenger demand in response to rising consumer prices and continued concerns about Covid around the world.

By Felicity Bradstock for Oilprice.com

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