John Grant is chief analyst at aviation intelligence organisation OAG
A number of airlines and airports recently released their
third-quarter financial statements, painting a vivid picture of the previous
year and providing an outlook on 2023 industry trends. Here’s what we can
identify by looking at the results.
Q3 exceeded
expectations
Overall, third quarter numbers looked much less alarming for
the industry than anyone might have expected. For a long time, the global
travel industry has been suffering from a long-running staff shortage, which
culminated in this summer's travel chaos.
While this had a significant impact
on all areas, including air travel, hotels, trains, car rental, airports and
customer service, airline and airport financials show less of a setback than we
might have expected. Demand remained high, flights were full due to contracted
capacity, and airlines around the world reported record quarterly revenues
(although they will have record costs to contend with as well).
Following the summer upheaval,
London Heathrow Airport, for example, reported retail revenues of £413 million in the
nine months to 30 September. IAG had in fact anticipated that revenues would be
higher than expected, and their wishes were granted. The case was similar for
Air France-KLM and Lufthansa.
Lufthansa’s Q2 2022 turnover was €8.5 billion, nearly
three times higher than their Q2 2021 turnover of €3.2 billion. The
improved performance was based upon a 118 per cent increase in Available Seat Kilometres
(ASKs) as the
carrier's long-haul network returned closer to normality this year.
For Air France-KLM, their Q2
results showed an increase in profit of €165 million in comparison to their 2022 Q1
results. This was against a backdrop of continuing capacity and resource
challenges for the business in both Amsterdam and Paris and a series of Air
Traffic Control strikes that particularly damaged the performance of Air France.
Geopolitical tensions had a major effect
The impact of
the geopolitical situation is also evident from Q3 results. Russia’s war in Ukraine, in particular, had a significant negative influence on fuel prices.
For IAG, this was still not enough to heavily impact financial performance in
the long term – it may not show up in medium-term earnings and IAG may be able
to reallocate some capacity elsewhere, especially when resources are scarce.
Flight time was also affected by airspace bans. In general, we can see an
increase of one to two hours of flight time particularly for European airlines
flying to long-haul destinations like Japan or Singapore.
Consequently,
low-cost carriers such as Ryanair produced outstanding mid-term results. This
comes primarily from the fact that we see people moving to low-cost carriers
amongst the growing economic uncertainty, a trend we expect to see continue
well into 2023.
Ryanair benefitted from the summer chaos and the negative
impact it had on competitors, given that they had availability of staff and
resources and were quicker to respond. It is also important to note that their
carriers were flying from secondary airports and were not trapped at Gatwick or
Heathrow where resources were scarce during the summer.
Moving ahead in 2023
The next big
question is what the winter season will be like, paving the way for 2023. IAG,
for instance, expects bookings to remain strong, but we must remember that this
is all a matter of comparison.
The true benchmark, of course, is 2019 and the
pre-Covid era. IAG could have 15 per cent fewer bookings in 2023 and still be ahead of
the curve because they will most likely have 20 per cent less capacity. Along with
booking numbers, factors such as resources, recruitment drives, and long-haul
network plans will be important in the coming year.
Some industry thought leaders
express a sense of pessimism going into 2023, but overall, I expect strong
headwinds in the aviation industry. Of course, corporate travel is still not
what it once was, especially as corporates face increasing economic pressure.
Consumer confidence is also low, with anxiety over rising inflation, gas and
electricity prices, and global political situations. With this in mind, we will
continue to see a predilection towards low-cost carriers who have already
largely won the capacity battle for pan-European air space.
Some premium
airlines, such as IAG airlines, including British Airways, have reduced their European
itineraries. While historically British Airways had around eight daily flights
between London and Paris, for example, this is likely going to be closer to five according
to our OAG data.
Having said that, travel is once
again an important part of our lives, and people are generally enthusiastic
about regaining their freedom, even if there remain some travel-related
challenges. We have reason to believe that the uptick seen from 2021 to 2022
will continue into 2023, taking the industry, and travel, one step closer to
what it once was.