Airlines defy gravity as economic gloom fails to bring them down to earth
Airlines are defying gravity. The global economy is weak and inflation is fuelling a cost of living crisis, yet there is an apparently relentless demand for flying across the world. Low cost airlines in Europe are touting record booking sprees, US carriers cannot find enough planes to meet demand, and Air India has decided now is the time to place one of the biggest aircraft orders in history. Even Primark has been in on the act, trumpeting strong sales of luggage and beachwear this week. Adding to the exuberance, passengers are swallowing high ticket prices, helping to drive major airlines back into profit and leading Ryanair boss Michael O’Leary, the poster child of the bargain fare, to declare the era of the ultra-cheap flight is over. This startling resilience has wrongfooted investors, who sold airline shares in the second half of last year as the economic outlook darkened, safe in the knowledge that carriers have never been completely immune to the rhythms of the wider economy. The industry’s fortunes are typically closely linked to GDP growth and economic cycles, and for months it has felt like some executives and analysts have been on tenterhooks waiting for the first cracks in demand to appear. Yet there are signs air travel could have more room to grow. Most obviously, this is not a normal environment. The pandemic has not dented demand for foreign holidays, however pleasant those staycations were. If anything it has increased it. Or as O’Leary put it at the height of the crisis: “Everyone who has been trapped and gone on holiday to Bognor Regis will want to go to Portugal, Italy and Greece.” Moreover, as analysts at Barclays note, the majority of air travel is undertaken by wealthier travellers anyway, typically people who take multiple trips per year, meaning the industry’s key consumers are insulated from the worst of the cost of living crisis. Put bluntly: a significant portion of the population, many of whom will have been badly hit by inflation, rarely flew anyway. More than a third of people in the UK did not take a foreign holiday at all in 2019, according to ABTA, the travel association. In contrast, fortunate higher earners are still sitting on savings built up during the pandemic. Analysts at Morgan Stanley in January calculated US households spent roughly 30% of their $2.7t “excess savings” in 2022, leaving a considerable buffer against inflation. For now, these factors powering the pent up demand for leisure travel seem strong. But even if these fade, airlines still have two types of traveller to fall back on.<br/>
https://portal.staralliance.com/cms/news/hot-topics/2023-03-02/general/airlines-defy-gravity-as-economic-gloom-fails-to-bring-them-down-to-earth
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Airlines defy gravity as economic gloom fails to bring them down to earth
Airlines are defying gravity. The global economy is weak and inflation is fuelling a cost of living crisis, yet there is an apparently relentless demand for flying across the world. Low cost airlines in Europe are touting record booking sprees, US carriers cannot find enough planes to meet demand, and Air India has decided now is the time to place one of the biggest aircraft orders in history. Even Primark has been in on the act, trumpeting strong sales of luggage and beachwear this week. Adding to the exuberance, passengers are swallowing high ticket prices, helping to drive major airlines back into profit and leading Ryanair boss Michael O’Leary, the poster child of the bargain fare, to declare the era of the ultra-cheap flight is over. This startling resilience has wrongfooted investors, who sold airline shares in the second half of last year as the economic outlook darkened, safe in the knowledge that carriers have never been completely immune to the rhythms of the wider economy. The industry’s fortunes are typically closely linked to GDP growth and economic cycles, and for months it has felt like some executives and analysts have been on tenterhooks waiting for the first cracks in demand to appear. Yet there are signs air travel could have more room to grow. Most obviously, this is not a normal environment. The pandemic has not dented demand for foreign holidays, however pleasant those staycations were. If anything it has increased it. Or as O’Leary put it at the height of the crisis: “Everyone who has been trapped and gone on holiday to Bognor Regis will want to go to Portugal, Italy and Greece.” Moreover, as analysts at Barclays note, the majority of air travel is undertaken by wealthier travellers anyway, typically people who take multiple trips per year, meaning the industry’s key consumers are insulated from the worst of the cost of living crisis. Put bluntly: a significant portion of the population, many of whom will have been badly hit by inflation, rarely flew anyway. More than a third of people in the UK did not take a foreign holiday at all in 2019, according to ABTA, the travel association. In contrast, fortunate higher earners are still sitting on savings built up during the pandemic. Analysts at Morgan Stanley in January calculated US households spent roughly 30% of their $2.7t “excess savings” in 2022, leaving a considerable buffer against inflation. For now, these factors powering the pent up demand for leisure travel seem strong. But even if these fade, airlines still have two types of traveller to fall back on.<br/>
