Airline markets update – passenger markets are poised to continue recovery

Markets summary 


In 2021 air cargo markets performed well globally while the air passenger markets understandably went through a lot of difficulties as demand for travel dried up. On the other hand, during the month of strict lockdowns, demand for physical goods increased. At the same time, the shipping industry was disrupted by port lockdowns and the increased demand for goods transported in shipping containers, increasing the costs and reducing the overall reliability of shipping transportation. Consequently, in order to ease these disruptions, companies turned to air cargo transport. Even though air cargo is an expensive alternative to shipping, as the container transport costs skyrocketed, air cargo became a relatively cheaper - as well as quicker and more reliable - option.

At the same time, the air passenger market suffered a huge blow due to the COVID-19 pandemic, as at some point international travel even came to an almost complete halt in H1 2020. Ever since the industry has been experiencing a slow, gradual recovery, it has been steady but also fluctuating, depending on new waves and resulting lockdowns. Additionally, the recovery was not uniform across regions. While Europe and the Americas recovered the most, Asia Pacific travel demand was still 65% below 2019 levels in December, as Asian countries opted for very strict lockdown measures. Airlines based in regions with large domestic and short-haul international markets recorded faster traffic improvement on the back of more relaxed travel restrictions. Companies relying on long-haul international traffic or based in regions with elevated travel restrictions lost market share in 2021.

A recent Business Confidence Survey of airline CFOs and Heads of Cargo published by IATA is a very good gauge of what business leaders in the sector expect in the following period. The survey shows that pressure on airline profitability diminished in Q4 2021 and the improvement is expected to continue in the year ahead. A majority of survey participants reported improving passenger and cargo volumes in Q4 2021 which is projected to continue in 2022 as well. However, the airline business leaders were slightly more cautious regarding profitability than a couple of months before, due to the Omicron impact, soaring jet fuel prices, and rising market competition that possibly put pressure on yields.

While the supportive environment for air cargo will very likely remain in place this year (supply disruptions albeit possibly easing, not yet resolved), it will not continue to have the same positive impact on the air cargo companies’ top line as it had in 2021. On the other hand, as the world is slowly leaving the pandemic behind, the expectation is that the tourist season of 2022 will be stronger than the one in 2021 but will remain below pre-pandemic levels. As more passenger capacity comes to the market, the belly hold of airlines will offer more cargo supply, lowering prices, thus pushing down yields, contributing to the worsening profitability metrics of cargo in 2022. Therefore, optimal positioning in the airline sector will probably need to entail less focus on companies with a larger cargo revenue stream and more focus on companies that generate revenue from air passenger traffic.

Within the air passenger traffic space, due to the improving pandemic situation both from a medical and from a restriction perspective, we can count on the improvement of international and long-haul travel figures – the revenue stream that has been the most depressed in the past two years for airlines. Therefore, equity positioning would need to be skewed towards companies with a larger long-haul revenue segment. Even though Omicron still creates uncertainty among airline managers, this will probably not continue to severely impact airline profits in the warmer months as the virus subsides. Additionally, the pandemic is increasingly accepted as an endemic disease and is tackled as such by more and more countries that are also supporting our view of improving air passenger market conditions.

A counteracting factor that should induce caution however is that lower profitability is expected in the passenger space due to more airlines restarting more flights that can hurt the profitability of these companies as price competition kicks in. Thus, passenger yields and load factors of companies should be decisive factors when selecting individual names.


Disclaimer: This article was written by Tamas Jozsa, Research Analyst at Calamatta Cuschieri. For more information visit, The information, view, and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.