Jet delivery delays may slow airlines' recovery as travel demand exceeds capacity: Iata

Imbalance in demand and supply will lead to higher air fares

Willie Walsh at a press briefing during the annual general meeting in Doha. Photo: Iata
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Continuing delays in the delivery of jets by plane makers may be a factor putting pressure on the pandemic-hit airline industry's recovery at a time when travel demand is rebounding, the head of the world's biggest airline trade body has said.

Production problems at Boeing that resulted in the suspension of deliveries of its 787 Dreamliner and the Airbus dispute with Qatar Airways that has halted deliveries of its A350 have left airlines with less capacity to meet growing demand for travel, said Willie Walsh, director general of the International Air Transport Association.

“It will slow down the recovery but that does not necessarily mean it's a bad thing for airlines because what you're going to get is a potential supply and demand imbalance because it's clear demand is strong,” he said.

“And it may be that we won't be able to fulfil the demand with the supply and therefore that could lead to a situation where fares are a little bit higher as a result of that.”

Other supply headwinds such as the shortage of pilots in the US will also be a factor in how fast airlines can recover the capacity that was removed during the pandemic and how quickly the industry grows, he said.

Strong pent-up demand, the lifting of travel restrictions in most markets, low unemployment and expanded personal savings are fuelling a resurgence in demand that will see passenger numbers reach 83 per cent of pre-pandemic levels in 2022, according to Iata's annual outlook.

However, global airlines are now grappling with the fresh challenges of a strong US dollar, higher oil prices, rising inflation and worker shortages following two years of the pandemic.

Mr Walsh described these industry problems as “business as usual” compared to the tough operating conditions during the pandemic that brought travel to a near standstill, forcing airlines to ground aircraft and lay off staff.

“Yes it's a perfect storm but it's sort of strong winds compared to what we've gone through in the past two years,” he said. “So I'm probably putting everything into context relative to what we've just gone through.”

The surge in oil prices to more than $100 is a major concern for airlines as jet fuel makes up about 25 per cent of their total cost base.

But Mr Walsh said he is confident that the oil price rally will not dent the industry's recovery.

“We've seen oil prices high and the industry make profit, we've seen oil prices low and the industry lose money,” Mr Walsh said.

“It's a factor, but it very much depends on how airlines respond to other conditions in the market as well.”

The global airline industry is expected to reduce annual losses to $9.7 billion this year, compared with the October 2021 forecast of an $11.6bn loss. That is an improvement from losses of $137.7bn in 2020 and $42.1bn in 2021.

Industry-wide profitability in 2023 appears within reach, according to Iata's latest forecast.

Middle East airlines' balance sheets are solid enough to mitigate the challenges facing the wider industry, helped by strong air cargo demand, Mr Walsh said.

The reopening of international routes and long-haul flights, in particular, will provide a boost for many regional carriers.

Across the region, net losses are expected to narrow to $1.9bn in 2022, from a $4.7bn loss last year. Demand is expected to reach 79.1 per cent of pre-crisis levels.

Middle East carriers are expected to record a profit in 2023.

“I've spoken to other CEOs in the region, they're very positive about their financial performance, so I can't see any reason why this region won't be profitable in 2023,” Mr Walsh said.

Dubai's Emirates has said it expects to swing to an annual profit in 2023.

Qatar Airways recorded an annual profit in its fiscal year that ended on March 31 on the back of higher cargo volumes and surging passenger traffic. The airline posted a net profit of 5.6 billion Qatari rials ($1.5bn), compared to a loss of 14bn rials a year earlier.

Updated: June 27, 2022, 6:30 AM
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