Most large US airlines, meanwhile, still lost money before federal pandemic aid in the third quarter and reined back expectations into the first half of next year. That so much of the industry managed to survive the pandemic, when much of the global fleet was grounded, is an achievement in itself. But returning to anything like pre-pandemic levels will be a long haul.
Accommodative capital markets and government largesse kept the industry on life support through the dark days of Covid. Although the Delta variant held back recovery this summer, especially in flights to and from the UK, the EU’s digital Covid pass helped to support European demand.
The US domestic market, meanwhile, was surprisingly strong. Restrictions are still being eased. The US will reopen for travellers from 33 countries, including the UK and EU, next Monday — marking the return of lucrative transatlantic routes.
Yet though this may release some pent-up demand for flights for holidays and to see loved ones, restrictions are being eased just as airlines go into the northern hemisphere winter — when they struggle, at the best of times, to make money. And the supply chain disruptions and staffing squeeze that are already weighing on broader economic growth are causing particular problems for the airline industry.
Jet fuel prices have more than doubled over the past year. The tight labour market is making life especially difficult for US carriers, many of which encouraged staff to take early retirement or voluntary leave during the pandemic. Now, worker shortages ranging from pilots and cabin staff to baggage handlers and check-in workers is making it hard for carriers to deal with the bounceback in demand.
US carriers have recently had to cancel hundreds of flights as weather disruptions caused cascaded problems thanks to shortages of spare crews and capacity. Similar problems occurred in the summer when demand first sprang back. They have left industry executives puzzling over how many seats they should sell in the holiday period from Thanksgiving to New Year — and passengers hesitating over travel plans.
An added pressure for the industry is that higher-margin business travel is still recovering less quickly than leisure traffic. Uncertainty over whether business travel will ever get back to where it was before Covid, with executives learning to hold meetings by Zoom instead, makes long-range planning especially difficult. Although industry executives are confident leisure demand will rebound strongly, growing consciousness over climate change may yet change consumer habits.
In Europe, the pandemic has reinforced a two-tier industry, which before the pandemic saw a few profitable airlines such as the low-cost carriers and BA owner IAG at the top. The US industry has consolidated around a few successful airlines through mergers, but European governments have been keen to protect their carriers, many of them now heavily indebted, making consolidation hard.
UK and EU regulators are weighing when to reimpose “use it or lose it” rules which force airlines to either use their slots or hand them back. These have been suspended since the start of Covid. Nearly 18 months into the crisis, letting competitive forces loose again could help to rationalise the market.
Cre: Financial Times
Nguyen Mai Huong-COMM
