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Is Pandemic Pain Finally Over For The Airline Industry?

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Flights are rising back to pre-pandemic levels, with trips expected to increase dramatically this summer. Both leisure and business travel appear more popular as Covid restrictions ease worldwide and people resume their regular activities. Although steadily increasing fuel prices could dampen some travelers’ spirits as flight prices look set to go up.

For the first time following the pandemic, business flight bookings have reached 2019 levels, according to a Mastercard Economics Institute 2022 travel analysis. The report highlights the “major recovery” that is taking place as a result of “Covid-related pent-up demand”.

It shows that people are booking more long-haul flights, which stood at just 7 percent lower than pre-pandemic levels at the end of April. Meanwhile, there were more short-haul and medium-haul flight sales in April than in the same period of 2019. Overall, an additional 1.5 billion passengers are expected to take a flight this year, compared to 2021.

Many people shifted to using private modes of transport to travel in 2021, with friends and families across the U.S. and other countries opting for road trips due to the uncertainty around travel constraints. But as lockdowns and other restrictions seem to be less of a worry, ticket sales for buses, trains, and even cruises are increasing. In addition, people are investing in experiences on their travels, such as dining out and nightlife, demonstrating a major shift from the Covid trends of the last two years.

While global flight sales for leisure travel rose 25 percent above pre-pandemic levels in April, business travel also seems to be on the rise. Business travelers typically make up around 12 percent of airline passengers. However, due to high-cost fares, they contribute around 75 percent of their profits. So, when business trips were halted because of Covid, encouraging many companies to reduce business travel spending following the pandemic, airlines missed out significantly.

Bookings for business flights exceeded 2019 levels in March this year, according to the Mastercard analysis. This is a huge jump from 2021, which saw business travel total around half its pre-pandemic level. Airlines have long offered frequent flyer miles and credit card points schemes to encourage travelers to stick with them, and now many companies will be pushing these initiatives further to keep business travelers in the skies.

Conversely, budget airlines worldwide are preparing for an influx of passengers this summer as the travel trend seems set to continue. In Europe, low-cost airline EasyJet is well positioned in a market where people are worried about rising consumer prices. Despite experiencing losses during the pandemic, EasyJet is now expecting to achieve a profit as it approaches peak season with “strong momentum and optimism”. It expects to reach around 97 percent of its pre-pandemic occupancy over this period.

EasyJet does consider, however, the impact of the rising cost of living on travel after the summer holidays. If people lose their jobs or struggle to tackle the rising consumer costs of basics, such as food and energy, they may no longer be able to spend on travel. However, the CEO of EasyJet, Johan Lundgren, believes “people who have the opportunity to prioritize, over the cost of surviving, tend to choose holidays over expensive items.”

The airlines that have managed to weather the Covid storm are now set to see a significant increase in their revenue in 2022, as they have fully booked flights once again. However, they must consider the impact of rising fuel prices on the industry, as several flight operators leave budget pricing in the past.

Recent studies have shown that flight prices are rising faster than the price of inflation, which is already soaring in many parts of the world. In the U.S., domestic airfares increased by around 40 percent between January and March, while international fares rose by 25 percent, according to one ticket sale website.

As well as rising flight prices, airlines have several other challenges to overcome. Many airlines were left in debt as demand plummeted during the pandemic. This demand drop led airlines around the globe to reduce the number of flights and cut staff to reduce costs. As demand rises once again, airlines must consider increasing flights and establishing new routes to improve their profitability. But, as the pandemic showed, the market is volatile, with any new Covid strain meaning the potential for lockdowns and travel restrictions, which could cause irreparable damage to an industry that is only just beginning to bounce back.

An industry analyst and founder of Atmosphere Research Group Henry Harteveldt explains “all it takes is one bad storm somewhere to throw an airline off track, and there is very little wiggle room left within the airlines and very little wiggle room for the airline industry as a whole.

While passenger numbers for short-, medium-, and long-haul flights are set to soar this year, airlines must consider the best path to profitability in such a volatile market. Many flight operators are finally recovering some of their losses from during the pandemic, however, they must be prepared for dramatic shifts in fuel costs and passenger demand in response to rising consumer prices and ongoing Covid worries worldwide.

By Felicity Bradstock for Oilprice.com

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