First Covid, now cost of living looms large for travel industry

Financial pressures are looming as the biggest threat to the travel industry’s remarkable recovery with passenger loads already shrinking in Europe.

Financial concerns are looming as the biggest threat to the travel industry’s recovery as cost of living replaces health as the major deterrent to holidays abroad.

The Deloitte research coincided with reports that European airlines were already seeing lighter passenger loads as fears of a global recession grew.

Analysis by the CAPA Centre for Aviation showed low cost carriers Ryanair and Wizz Air recorded seat factors below 2019 levels in August and worse in September.

According to Deloitte, financial concerns were now the top reason for residents opting to stay at home. Although six out of ten were planning a holiday, only one in eight intended to go overseas in coming months.

Cost of living concerns were flagged by analysts as a potential risk factor for Qantas in the wake of the airline’s update on Thursday, when it disclosed that it was expecting profits of $1.3bn in the six months to December 31.

Barrenjoey analyst Matt Ryan said the market was concerned about the impact of a slowdown in consumer spending.

He pointed to the increase in Qantas’s market cap on Thursday on the back of the profit guidance, which was less than improvement in the net debt position.

Any cooling in demand was likely to see the airline extend capacity constraints into 2023, keeping upward pressure on fares. “We have capacity at 80 per cent of pre-Covid levels in the 2023 financial year while demand is closer to 100 per cent,” said Mr Ryan.

“In our view, this should give Qantas some leverage to absorb a potential slowdown and given the lead time coming into a slowdown, the company is better placed to deal with this slowdown than in prior periods.”

Citi analyst Samuel Seow also observed that Qantas had pared back capacity further than previously flagged, falling from 102 per cent in June to 94 per cent of pre-pandemic level.

In its international business, Qantas was targeting a return to 69 per cent of 2019 capacity by mid-2023 instead of 75 per cent.

Passenger numbers reported by Sydney and Melbourne Airports fell around 6 per cent from July to August, following from holiday chaos and reductions in flying by Qantas and Virgin Australia. As a result of those cutbacks, the Melbourne-Sydney route was no longer in the world’s top five, overtaken by routes in Japan, Vietnam and Saudi Arabia.

A Virgin Australia spokeswoman said demand across the airline’s entire network was “consistently high”. “This is really positive for aviation and the travel and tourism industries, and we remain committed to providing incredible value and choice to Australians,” said the spokeswoman.

Bureau of Infrastructure, Transport and Regional Economics data showed the most popular destinations out of Australia, based on passenger loads were Europe, the UK and Middle East, as well as New Zealand and Bali.

Flights that were not so full were typically to New Caledonia, Brunei and the Solomon Islands.