For Now, Covid Remains a Bigger Drag on Air Transport than War

 - April 7, 2022, 9:05 AM

The lingering effect of the Covid pandemic, for now, is proving more of a drag on air transport recovery than the fallout from the war between Russia and Ukraine, according to IATA’s chief economist Marie Owens Thomsen. “We’ve not seen a massive impact from the war yet [on traffic and demand levels],” she told an April 6 media briefing, while acknowledging some market shifts, such as flights being re-routed to avoid closed airspace, a move that seems to have benefitted the Middle East air transport sector.

IATA does anticipate that final traffic figures for March will show a decline in Russian domestic airline traffic. That could reflect both economic decline in the country and the effect on operations of sanctions blocking the importation of aircraft parts.

The industry group also acknowledged the headaches being inflicted on the aircraft leasing sector as a result of sanctions against Russian carriers. The European Union deadline for lessors to repossess aircraft placed in Russia passed on March 28, and IATA director general Willie Walsh said that the task of recovering the assets has become “very difficult, if not impossible.” However, while conceding that the resulting pressures might prompt further consolidation in the leasing sector, he insisted that lessors generally remain in strong financial health and so the lasting effects could prove limited.

Owens Thomsen elaborated that while leasing companies will see at least a short-term decline in revenues, the loss of assets in Russia will not threaten their solvency. “This part of the world [Russia] is rather a small part of the total [air transport industry], and in terms of the global fleet it is only around 3 percent,” she added while cautioning that the market for aircraft asset-backed securities “could be problematic in the future for that region.”

Other complications have arisen around the process of processing refunds for flights to and from Russia canceled due to the conflict. In March, IATA was still engaged in that process through its billing and settlement plan. However, Walsh told this week’s briefing that the association is not conducting any transactions with sanctioned airlines.

Another direct consequence of the war—spikes in fuel prices—also has begun to bite into airline balance sheets, as Jet A prices for the U.S. East coast, in particular, recently have hit record highs. Walsh said that, based on discussions with member airline CEOs, he expects the increased costs to manifest themselves in rising ticket prices much sooner than has been the case in the past.

Nonetheless, IATA’s latest figures for February 2022 showed a largely strong rebound as Covid restrictions continue to lift in most regions, with the exception of Asia. Total passenger traffic for the month rose 115.9 percent on the same period in 2021, when the pandemic was still applying a firm brake on international travel, but it remained 45.5 percent down on February 2019. Air cargo increased by just 2.9 percent in February, dampened to varying degrees by factors such as limited capacity, inflation, and falling export orders.

Overall, Walsh characterized expectations for March’s figures and beyond as “a mixed bag.” He pointed to still-tightening Covid restrictions in China, and difficulties in other markets such as Japan.

During the briefing, IATA also defended airlines against suggestions recent serious disruption to flights has resulted from a failure to adequately prepare for rising levels of post-Covid demand for flights. Walsh insisted that carriers had no choice but to significantly downsize their payrolls to respond to the extreme drops in revenues during the worst of the pandemic and that the task of adding staff again has been seriously complicated by factors such as long delays with security clearances.