https://oilprice.com-By Tsvetana Paraskova
- As oil prices soared well above $100 after Russia’s invasion of Ukraine, the airline industry was bracing for demand destruction as jet fuel prices climbed.
- Following two years of COVID-related restrictions, however, it seems that an insatiable desire to travel is countering the higher prices.
- With oil prices now falling back slightly and restrictions being lifted around the world, the future looks bright for airlines.
The aviation industry is shaking off two years of COVID-related restrictions on travel as strong pent-up leisure and business travel demand makes airlines optimistic that they are on track to hit 2019 levels, despite soaring jet fuel costs amid the oil price spike.
America’s domestic flight bookings are back to pre-pandemic levels, and U.S. airports screened last week the highest number of passengers since the Thanksgiving weekend of 2021, pointing to a strong recovery in airline travel after the Omicron wave subsided.
Yet, just as demand rebounds, the airlines are facing the highest jet fuel costs in years after international crude oil prices rallied above $100 a barrel this month.
Most airlines, however, are confident that the pent-up demand for leisure travel – including on international flights – will be strong and customers will be willing to pay more for airfares after two years of restrictions on travel.
“The past few weeks have seen a dramatic shift by many governments around the world to ease or remove COVID-19-related travel restrictions and requirements as the disease enters its endemic phase. It’s vital that this process continue and even accelerate, to more quickly restore damaged global supply chains and enable people to resume their lives,” Willie Walsh, Director General of the International Air Transport Association (IATA), said last week.
IATA’s chief acknowledged that “Absorbing such a massive hit on costs just as the industry is struggling to cut losses as it emerges from the two-year COVID-19 crisis is a huge challenge.”
Most U.S. airlines believe that strong demand and record bookings will offset the increased fuel costs.
Demand for domestic leisure travel, which represents 40 percent of American Airlines’ business, “is higher than it has ever been,” CEO Dour Parker told the J.P. Morgan 2022 Industrials Conference this week.
Delta Air Lines said at the same conference that average daily ticket sales last week were above 2019 levels.
“We’re seeing an increase in demand that is really unparalleled,” Delta Air Lines President Glen Hauenstein said as carried by The Wall Street Journal.
Delta Air Lines CEO Ed Bastian chimed in with, “We’ve not seen a stronger demand … in my career.”
United Airlines, for its part, sees a solid rebound in business travel—faster than expected.
International travel is also rebounding, with many countries dropping a lot of the previous COVID-related restrictions. JetBlue’s CEO told the J.P. Morgan conference that there was a “spectacular” rebound in the U.S. to UK travel demand.
Overall, U.S. air carriers at the J.P. Morgan 2022 conference were optimistic that strong travel demand would offset the massive hike in fuel costs, which are the second-largest expense item for airlines after personnel.
Carriers will be raising fares, but they are confident that strong bookings will offset the higher fuel costs.
“We have heard from numerous airlines in our recent trips that leisure demand is ‘insatiable’ and pricing is showing larger gains,” Bank of America analyst Andrew Didora wrote in a report this week carried by Forbes.
Case in point, Transportation Security Administration officers screened 2,297,374 people at airport security checkpoints nationwide on March 11—the highest number of passengers since the Sunday after Thanksgiving 2021, TSA Public Affairs spokesperson Lisa Farbstein said.
In February 2022, U.S. domestic flight bookings returned to pre-COVID levels, the Adobe Digital Economy Index showed on Tuesday. Actual bookings were up by 4 percent over 2019 levels, while revenue was 6 percent higher, due to inflation in ticket prices, according to the analysis.
“This is a major turning point, and it shows a level of consumer confidence we’ve not seen in many months,” said Vivek Pandya, lead analyst, Adobe Digital Insights.
By Tsvetana Paraskova for Oilprice.com