Airfare will continue to rise in 2022

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As pessimistic are the outlook for inflation and the economy, so promising is this period for the tourism industry, according to statements made by Radu Puiu, Financial Analyst at the brokerage house on international stock exchanges XTB Romania.

Pandemic of coronavirus it has strongly affected the tourism industry, but also the air transport industry. After two years, the travel industry seems ready to leave those negative times.

According to the International Air Transport Association (IATA), international air travel has recovered strongly this year, with the exception of the Asia-Pacific region, which "lags significantly behind". The industry could return to pre-pandemic figures in 2023, a year earlier than previously forecast.

But all this return of the tourism industry comes bundled with more expensive plane tickets. The IATA chairman said that the recovery in passenger traffic is accelerating and that, on average, the industry could now return to pre-pandemic figures in 2023, one year earlier than previously forecast.

He noted that high oil prices and travel disruptions caused by the lack of labor have so far not discouraged travelers, even though the price of oil has led to a 10% increase in fares. Unfortunately, airfare will continue to rise in 2022 due to the global economic imbalance.

There is an imbalance between the rates of return depending on the region. Europe is in strong demand for aircraft fuel as more and more people prepare for their holidays this summer.

The region absorbed more than 13 million barrels of aircraft fuel in May, the largest monthly import in October 2020, according to Vortexa Ltd. data compiled by Bloomberg. Consumption is expected to rise this summer amid easing restrictions and growing consumer demand.

Demand for aircraft from Western Europe is forecast to increase by 17% from the end of May to the end of August, reaching a peak of 1,26 million barrels per day in the last month, according to the BloombergNEF forecast, which is based on on flight schedules.

According to Eurocontrol data, Europe's air traffic is still at about 86% of the pre-pandemic level in 2019 for this time of year. In an April forecast, the organization's baseline scenario was for this figure to rise to 89% in August and 92% by the end of the year.

While domestic passenger traffic has made considerable progress in the Asia Pacific region, with restrictions easing in some countries, international traffic, which is the main source of revenue for airports in terms of commercial passenger spending, has largely stagnated. the cause of geopolitical restrictions and tensions.

In addition, China plays a key role in the region as most airports in Southeast Asia and Australia are heavily dependent on Chinese travel. The reopening of international air travel to and from China will not only accelerate growth in the region but also boost the industry globally.

During the fourth quarter of 2021, aircraft fuel costs already accounted for 24% of total spending. operating hours of the airlines, and this will increase even more. Even if oil prices moderate in the rest of 2022, the results will be affected and this complicates the return to profitability for many airlines this year.

The extent to which airlines are affected depends on fuel hedging strategies. In general, low-cost carriers apply higher hedging rates than traditional carriers, which means that the impact for 2022 will be mitigated. Traditional carriers usually accept a higher risk in terms of fuel, with lower hedging rates. This means that higher kerosene prices tend to affect them more.

There is also a difference between European and American airlines, the US ones tend to bear the risk (southwestern airlines using hedging are an exception).

However, the situation is not entirely "pink". The tourism industry is facing a shortage of staff, companies that laid off employees or lost them to other sectors during the pandemic, struggling to make up for the gap as bookings began to grow.

This truth has been translated into reality in the UK, where more problems have arisen at the airport as the population prepares for an extended weekend in the context of a two-day holiday.

High oil prices pose another threat, with the director of RYANAIR Holdings recently warning that, if they remain high, there will be fuel surcharges from some of Europe's leading airlines this year.

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