A year ago, many airlines were still burning through cash as some countries were slow to lift coronavirus-related travel restrictions. Now that the borders are fully open, some of those carriers are making big profits.
“This is a huge turnaround given the massive losses we faced just 12 months ago,” said Alan Joyce, CEO of Qantas.
The results are being driven by a combination of pent-up demand from consumers eager to travel after being hampered by coronavirus-related restrictions, plus cost-cutting measures by some airlines during the lows of the pandemic, analysts said. Airlines in many countries also received a big boost from government funds that helped them stay solvent.
One factor in the return to profitability has been consumers’ willingness to pay high airfares. Airlines are still struggling to hire staff and get planes back in the air, limiting the supply of seats and flights and driving up prices. Overbooked maintenance companies, sold-out aircraft leasing companies, spare parts shortages and delays in new aircraft from both Airbus SE and Boeing Co.
restrict airlines as well.
“There wasn’t enough capacity to meet demand,” said Cameron McDonald, chief research and transportation analyst at Australian investment firm E&P. “The only way to control demand is through pricing, and you see very, very high airfares versus historical trends.”
Many of those issues, such as labor shortages, played a role last summer in the US, Canada and Europe, where many airlines reported profits but decided to cut flight schedules in an effort to focus on reliability. In places like London, Amsterdam and Frankfurt, hub airports imposed mandatory restrictions on daily passenger numbers to limit disruptions and cancellations.
While their customers have often been left exhausted by persistent delays, last-minute cancellations and hours of queues at airport security or baggage retrieval, those airlines have benefited.
Recovery has occurred with other airlines in the US and Europe. Delta Airlines Inc.
recorded higher revenues last year than in 2019 due to strong demand, while American Airlines Group Inc.
said fourth-quarter revenue was the highest in the company’s history.
“In particular, we achieved this record revenue while flying 6.1% less capacity than in the fourth quarter of 2019,” Robert Isom, CEO of American Airlines, told investors last month.
In Europe, IAG, which also owns airlines such as Ireland’s Aer Lingus and Madrid-based Iberia, said Friday that revenue was up 173% last year, with operating profit rising by €4.2 billion, equivalent to about $4.45 billion. The company said on Thursday it would buy the remaining 80% of Spanish airline Air Europa for €400 million.
“This is our first full year of returning profits since the start of the pandemic,” Luis Gallego, IAG’s CEO, said Friday, adding that the company expected another increase in earnings this year. “All of our airlines were profitable.”
SHARE YOUR THOUGHTS
What are your prospects for the aviation industry? Join the conversation below.
According to Ben Smith, CEO of the Air France-KLM Group, seats in First Class and Business Class are fuller than before the spread of Covid-19, despite the slow recovery in business travel. He attributed the rise to leisure travelers spending money on some of their first long-haul trips since 2019.
In Asia and the Pacific, airlines have lagged behind that recovery. One of the reasons was that China kept its borders largely closed until strict Covid restrictions were lifted recently. Another was some airlines’ reliance on international routes, compared to places like the US, where airlines were supported by domestic travel unaffected by international border closures.
According to Airports Council International, which represents global airports, passenger volume in the Asia-Pacific region was just 52% of pre-Covid levels last year, compared to 72% globally. The group expects traffic in Asia Pacific to pick up, with a full-year recovery to 2019 levels expected by the end of 2024.
Qantas was boosted by Australia’s strong and lucrative domestic market – the long distances between major cities make air travel a preferred choice for many. Part of the recent turnaround stems from a cost-cutting program that saw thousands of workers laid off, ground handling outsourced, and new aircraft delivery delayed. Qantas also received support from the Australian government during the pandemic.
Some of those moves were controversial. A union sued the airline over its ground handling decision and Qantas has drawn the ire of customers who have complained about delays, cancellations and lost luggage. Mr. Joyce countered concerns about high airfares, noting that Jetstar, the airline’s budget unit, still offers deals on airfares that are about the same price as Uber rides to and from airports.
Despite some airlines’ recent gains, airlines in Asia in general were predicted to post a loss of $6.6 billion by 2023, the International Air Transport Association said in December. Those numbers include Chinese airlines whose performance was expected to be hurt by China’s zero-Covid policy.
While China’s borders are now open, it may take some time for suppressed demand for international air travel from China to recover. Hong Kong’s flagship, Cathay Pacific Airways Ltd.
has suffered a series of losses since the start of the pandemic and does not expect a full recovery of pre-pandemic capacity until late 2024.
Andy Cronin, the CEO of Irish leasing company Avolon Holdings Ltd., one of the world’s largest lessors, said last month he expects the easing of restrictions in China, which accounts for about 40% of all traffic in Asia , will lead to a full recovery of air traffic to 2019 levels by the middle of this year.
Write to Mike Cherney at email@example.com and Benjamin Katz at firstname.lastname@example.org
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
Leave a Reply