OAG chief analyst John Grant assesses threats and opportunities following recent financial results
Recently, a number of airlines and airports have released their Q3 financial statements, painting a vivid picture of the past year and providing an outlook on 2023 industry trends.
The global travel industry has been suffering from a long-running staff shortage for a long time, which really came to a head in this summer’s travel chaos. While this impacted all areas, including air travel, hotels, trains, car hire, airports and customer services very heavily, airline and airport financials show less of a setback than we might have expected.
Demand remained high, flights were full due to constrained capacity, and so airlines around the world are claiming record revenues for the quarter (although they will have record costs to contend with as well). Heathrow airport, for instance, reported retail revenues of £413 million in the nine months ending September 30, following the summer chaos this year.
IAG had in reality anticipated revenues to be ahead of previous expectations, and their hopes were fulfilled.
The next big question is the winter season and what that might look like. IAG is expecting bookings to remain strong, but it is all a question of measurement and comparison —the real benchmark, of course, is 2019 and the pre-Covid era.
IAG could have 15% fewer bookings than in 2019, and still be ahead of the curve since they will in all likelihood have about 20% less capacity over that time. Alongside booking numbers, issues around resources, recruitment drives and plans for the long-haul network will also remain important factors in the next year.
The influence of the geopolitical situation is also evident from Q3 results. Namely, the Russia-Ukraine War had an enormous impact on the price of fuel. In terms of revenue and network performance, it was a small piece of the pie for IAG—it may not show up in medium-term earnings and IAG may be able to reallocate some capacity elsewhere, especially when resources are scarce.
In terms of overflight costs, this seems to be adding around an hour to two hours of flight time, particularly when it comes to European airlines reaching long-haul destinations such as Japan or Singapore.
Strong headwinds
For the aviation industry, I expect strong headwinds despite the bullish pitch from US airline CEOs and other thought leaders in the industry. Of course, corporate travel is still not what it was, or has not yet returned in the way we had expected, as corporations find themselves under growing economic pressure.
Consumer confidence is also low, with concerns around inflation, the cost of gas, and electricity, and to a lesser extent the political situations around the world. Having said that, travel is once again an integral part of our lives and people are generally enthusiastic about regaining their freedom even if it remains challenging to do so.
Going forward, the greatest concern for carriers like BA will be how they contend with the growing low-cost carrier presence and its growing market share in Europe. Regardless, the key takeaway is that we have good reason to be optimistic about Q4 across the industry.