By EMMIE V. Abadilla
As the air cargo business boomed and passenger traffic gradually improved, the 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)'s December 2021 to January 2022 Financial Monitor.
However, Asia Pacific airlines showed the weakest operating results in aggregate, with 20 percent of revenues lost due to "very restricted international travel to, from, and within the region", the report stated.
The IATA report placed industry-wide operating loss at 2.6 percent of revenues over the July-September period, compared with a 13.6 percent loss in Q2.
Meanwhile the global airline share price index picked up in January 2022 amid investors’ confidence that Omicron-related disruptions might have a smaller impact on the travel industry than previously expected.
The global index started the year 2022 on a positive note, rising by 5.8 percent in the first half of January as investors believed the new Omicron variant will lead to fewer hospitalizations than other strains.
But while shares of European airlines rose 13.4 percent in January due to renewed optimism about the industry’s recovery, airline stocks in Asia Pacific fell by 0.5 percent, reflecting concerns about the impact of a potential interest rate hike in the US.
The bigger picture remains: airline stocks continue to trade 30 percent below pre-crisis level in all regions.
Jet fuel prices also rebounded from the Omicron-related dip in December and are currently at the highest level since late-2018.
As with airline stocks, the price recovery has been driven by rising optimism about the short-lived impact of the Omicron variant on global economic activity, including fuel demand.
In 2021 as a whole, jet fuel and Brent crude oil prices surged by 68 percent and 63 percent respectively compared with 2020, as demand increased with easing lockdowns while OPEC+ supply remained tight.
The elevated fuel price is adding extra pressure on airlines’ operating costs just at the time when travel demand is being hit by renewed travel restrictions and Omicron-related flight cancellations.
This might delay airlines’ financial recovery from the crisis, the IATA report noted.
Overall, industry-wide operating income improved in Q3 amid gradual air travel recovery.
Taking a closer look at different sources of passenger revenues, premium class passenger traffic continues to lag the recovery in the economy counterpart.
Following the peak of the crisis in April 2020, premium was briefly recovering faster than economy. This can be partly explained by premium tickets becoming relatively less expensive than economy tickets
However, the price advantage has largely disappeared since July 2020 and the economy class recovery started to outperform.
The performance gap between the two has been broadly unchanged since then, at 8-10 percentage points.
Furthermore, the industry burned cash in Q3 2021, but significantly less than in 2020.
Still, international bookings for future travel have been falling amid new travel restrictions which will negatively impact some airlines’ cashflow.