IATA Director-General Willie Walsh is optimistic that air passengers won’t be confronted with widespread travel disruptions for the rest of 2022, specifically during the coming December travel peak. He thinks that airlines and airports have made steps to prevent the chaos that was seen at numerous airports across the world between May-July when staff shortages at airports and air traffic management caused serious delays and cancelations. IATA optimistic Christmas chaos will be averted.
Asked during an online media briefing on September 7 if there are enough staff to prevent more chaos, Walsh said: “I don’t expect a repeat. From the conversations I have had with airline CEOs, none of them have expressed concern around levels of employment or crewing staffing levels they need as they go through the rest of the year.”
He continued: “As I said before, the pace of the recovery took some by surprise and it took time to get people back into the system, particularly given the security checks that needed to be carried out. That was something that had not been factored in. The general environment for employment is very strong, everyone is competing for talent, but I am not hearing any concerns being expressed as we go through the rest of the year and then into the peak Christmas period.”
Some airports, including London Heathrow and Amsterdam Schiphol, have struggled more than others as they are short-staffed, notably in security. Both have extended their capacity cap until October to reduce peak moments. Schiphol suffered from long queues again this Monday and is still urgently needing more staff. Asked if the problems at airports are over, Walsh said: “In most airports, they should be. Heathrow continues to struggle, based on the data they produced for July. It is important to point out that while Heathrow blames airlines, really the problem lies clearly with Heathrow because the security queueing has been appalling. (…) But I think it is going to get better as we go through the rest of the year and we go through a period in Europe when demand for travel eases off.”
At the IATA Annual General Meeting in June, Walsh somewhat downplayed the labor shortages, saying that they were only at some specific airports and during some specific periods.
Passenger traffic continues to recover
July was a month of strong recovery, with passenger traffic measured on passenger revenues kilometers (RPK) up 58.8 percent on July 2021. This means that air travel is now back to 74.6 percent of 2019 levels. The biggest jump was in international traffic, which increased by on average 150.6 percent over July last year. North America and the Middle East were leading the way, with the Asia Pacific including China lagging behind. International RPKs are still at 67.9 percent of 2019 levels.
Domestic traffic saw an increase of 4.1 percent year on year and is now at 86.9 percent of 2019 levels. The strongest markets were Australia (+239.7 percent) and India (+104 percent), with India now exceeding 2019 levels. Brazil has almost recovered to pre-pandemic levels. US domestic, affected by labor shortages, and ATC or weather disruptions, grew by only 0.7 percent. China still suffered from travel restrictions and was at -28.7 percent over July last year, but has done a strong V-shaped recovery since April.
Solid performance for cargo
Cargo is past the sky-high numbers that we have seen a year ago, although the lack of sea shipping capacity still means the airlines are reporting better yields despite flying less volume. In July, demand as in cargo tonne-kilometers (CTK) was down by 9.7 percent over July 2021 and 2.1 percent over June 2022. Capacity as in available cargo-tonne kilometers (ACTK) was up by 3.6 percent but still 7.6 percent below pre-pandemic levels. Overall cargo demand in July was at -3.5 percent of 2019 levels, says IATA, which compares to +2.2 percent that it reported for the first half year of 2022.
Latin America saw the strongest capacity growth at 9.2 percent, but the region is recovering from a long way back since mid-2021. The Middle East reported a 10.9 percent drop in capacity, with Europe even down by 19 percent as a lot of capacity is out of the market as a result of the war in Ukraine.
“July figures show that cargo is still roughly around where it was in 2019, but it is a solid performance”, said Willie Walsh. “You can’t continue to grow. Some specific issues benefitted air freight and will continue to benefit air freight, like disruptions to sea freight.” Belly capacity is still behind since the start of the pandemic, which took out a lot of widebody capacity, but IATA expects this to recover in 2023 as the levels of passenger capacity recover.
Walsh sees strong demand for new and efficient full freighters, but he is less convinced about the business case of converted freighters. “Dedicated freighters from the OEMs do make a lot of sense. You see some passenger and cargo airlines need dedicated freighters. The area where we might a little bit of doubt would be on the conversions, passenger to cargo aircraft. Those aircraft are good but not as efficient as a dedicated freighter, you don’t have the same total cargo capacity. Some of them like the 777 or A330 are clearly not as efficient as freighters that are being or will be produced. There is a market for freighters, but it isn’t a market that every passenger airline will step into.”
Jet crack issues
Although oil prices have come down a bit recently, Walsh continues to be surprised by the so-called jet crack: the difference between the price of jet fuel and that of crude oil. “Last week, the crack was about 50 percent. I looked back over a ten-year period to 2019, when it averaged about 17 percent. As you have seen the price of Brent oil relax a little bit, but jet fuel prices are still very elevated. That will continue to put pressure on airline costs basis through the rest of the year. We had expected the crack spread to come down as more jet fuel would become available, but clearly, demand is stronger than the recovery of jet fuel production.” IATA is seeing that more airlines than before have been hedging fuel costs, which will partly help to dampen the rising prices.
Walsh sees only a limited impact of social unrest with airlines, notably in Europe. There have been strikes at SAS in July, Lufthansa in August, and with Ryanair, easyJet, Brussels Airlines, and Iberia Express this summer too. “The impact isn’t noticeable at an aggregate level. Clearly, it has a significant impact on individual airline performance but not on the market. What tends to happen is that other airlines will provide some recourse to passengers who are directly impacted as a result of strike action. (…) We aren’t seeing a change in the environment or any concern that we will see widespread disruption as a result of industrial action.”
On inflation, which is at its highest level in many countries, Walsh says that higher ticket prices will impact demand, “but at the moment we continue to see strong forward bookings. Many airlines are generating good cash balances as we go through this period. There have been periods with higher inflation than this. You will recall that the industry continued to perform well.” Marie Owens Thomsen, IATA’s economist, added that the low levels of unemployment still mean that more people are earning money, which despite the inflation allows them to spend money on things like traveling.
IATA still upholds the view that the US market will have fully recovered from the pandemic in 2023, but Asia and notably China will not get there until 2025. “Even if our forecast changes a little bit, it will be by a few months to the left or to the right. As a whole, the industry will be regaining the 2019 level in 2024”, said Marie Owens Thomsen.
