By Anurag Kotoky
(Bloomberg) — More people are flying in more expensive cabins for leisure trips despite airfares rising on surging oil prices and demand, and that’s helped offset a slower recovery in business travel, according to the International Air Transport Association.
“There’s a strong pent-up demand for travel,” IATA Director General Willie Walsh told reporters in Singapore on Monday. “Consumers had disposable income during the two years of the pandemic. People have saved and therefore they are prepared to spend that money.”
A quick recovery is crucial for global aviation, one of the industries hardest hit by the pandemic as governments shut borders and the skies emptied. While travel has started picking up in most markets, some countries, particularly in the Asia-Pacific region, have yet to fully open up.
“It’s clearly disappointing that China is pursuing this Zero Covid approach,” Walsh said. The country is a very “strategically important market where a lot of airlines were looking at growth opportunities. I think airlines will be reassessing that, given the continued closure of the borders in China.”
The war in Ukraine has added another challenge for airlines, as sanctions against Russia have pushed up oil prices, meaning the single-biggest cost item on their balance sheets has become even more of a burden. That has forced airlines globally to raise ticket prices.
“Given the financial performance of airlines, there’s just no way an airline can absorb that additional cost,” Walsh said. “It’s inevitable that those higher oil prices will find their way through to consumers in the form of higher ticket prices.”
Jet fuel now represents as much as 38% of an average airline’s costs, up from 27% in the years leading to 2019, Walsh said. That means fares have also increased by at least 10% in the first three months of this year, he said.
Even then, premium travel — which doesn’t necessarily only mean business travel, but refers to people flying in business and first class — is recovering faster than economy travel, Walsh said.
“It’s principally down to what we call premium leisure, which again supports the idea that consumers have discretionary spend and that they are prepared to spend for a premium experience,” he said. That is “actually one of the more robust segments of the market, because it tends to be robust through the economic cycles, whereas business travel tends to fluctuate with the economic cycles.”
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