from a recent LinkedIn post by IATA Regional Vice President, Asia Pacific, Philip Goh
I came across a statement alleging that airlines are currently “capitalizing on the lack of competition and pent-up demand to recover losses.” This is a sweeping statement made with little understanding of the current situation affecting airlines. There was also a suggestion that “governments must consider liberalizing [aviation]…… while keeping airfares under control,” which is self-contradictory.
Airlines operate in highly competitive environments where passengers have choices. They can choose which airline to fly on. If they do not like an airline’s service or their pricing, they can, and often do, dump the airline for another.
Pricing is a function of demand and supply. Airfares are no different. Where demand is high relative to supply, suppliers have greater pricing power. Conversely, where supply is abundant relative to demand, it favours the buyer. Pent-up demand from a prolonged period of inability to travel coupled with high level of savings during the COVID years is supporting a strong travel appetite. Airlines also had to raise fares to account for sharp increases in fuel prices.
On the supply side, airlines are facing headwinds to put capacity back into the market. The challenges they are facing include aircraft related supply chain issues, shortage of manpower for operations, both flying and on the ground, and insufficient trained personnel at airports.
At IATA’s recent Annual General Meeting in early June, it was announced that aggregated airline industry profits are expected to reach $9.8 billion this year, despite being impacted by high jet fuel prices and inflationary pressures. This will be a great achievement considering that during 2020 to 2022, the industry reported a combined total loss of over $180 billion.
The untrained eye would not imagine that this profit margin is an astonishing 1.2%! In other words, in 2023 airlines across the globe will make an average profit of $2.25 per passenger they carry. In the Asia-Pacific region, airlines will in fact be reporting an average loss per passenger carried of $4.84.
The airline industry’s financial performance remains fragile as it navigates the recovery trajectory. During such times, all aviation and travel related businesses must work together to solve problems, put back seat capacity and bring in more manpower to resolve staffing issues. It is critical to collaborate and tackle common problems in the ultimate interest of serving our customers.
