Are we in a recession?
It’s a complicated question, but considering the fact that every month a new jobs report shows that unemployment continues to decrease, the answer is ultimately a “no,” even as inflation remains a stubborn guest who won’t leave the party already.
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The post-covid rebuilding era is a strange one, what some have dubbed a “vibes-cession,” based on the premise that the economy is fine for some people, but not so great for people in, say, tech.
There are consistent fears that a recession may be on the way…but it’s also possible the Biden Administration and the Federal Reserve might land the plane correctly. Ultimately, it takes humility to admit that no one knows the future.
But if we are in a recession, then, well, executives in the airline industry don’t seem to mind.
The Airline Industry Says Their Consumers Are Fine
At the recent IATA (International Air Transport Association) Annual General Meeting in Istanbul, United Airlines CEO Scott Kirby “In the U.S., we’re in a business recession, and consumer is just fine, consumer is strong.”
The issue is that profit margins are getting smaller and smaller for many large companies, owing to labor costs, increasing competition for consumer’s attention and many other factors, leading to layoffs in many fields and accusations of “greed flation.”
For example, executives from American Airlines, Delta Air Lines, and United noted that business travel revenue from large accounts has dropped in the U.S. at between 75 and 80 percent of pro-covid 2019 levels based on comments from executives at American Airlines, Delta Air Lines, and United. The reasons for this are manifold, but they ultimately come from companies cutting back on their travel budget and the fact that remote meetings are now easier than ever.
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But even though corporate demand is down, consumer demand is going great. People just want to travel now that covid is (basically) over, and the IATA upped its outlook for the year to $22.4 billion in operating profits, a whopping seven-fold increase from the $3.2 billion forecast made in December.
With travel demand remaining strong and fuel prices coming down, 2023 passenger traffic is expected to come in just 4 percent below the 2019 pre-pandemic peak.
“If we’re in the middle of a recession, this is the best recession the airline industry has ever seen,” United Chief Commercial Officer Andrew Nocella said. He added that United “remains optimistic” about hitting its full-year pre-tax margin target of roughly 9 percent.
But still, the Airbus and Boeing delays in getting airlines their latest crafts continue to cause a headache for the industry, leading to a limited supply of seats, and the industry is still suffering from a shortage of pilots and other essential workers, and there’s no way to quickly fix that situation. And there are consistent signs that consumer travel may have, in fact, already peaked
Emirates President Tim Clark notes that “for the next nine months we’re full. But, what happens in 2024 is anyone’s guess.”
