The aviation industry continues to face production capacity challenges

The industry is struggling with the increase in fees and operating costs, the rising inflation in the world and the prices of jet fuel which have reached a peak compared to recent years. In addition, the impact of the war between Russia and Ukraine

The complexity of the tourism and aviation industry. Photography Depositphotos

At the end of August, it became clear that the aviation industry continued to face in 2022 the challenges of production capacity, the increase in input prices such as fees and operations, the rising inflation in the world and the prices of jet fuel that reached a peak compared to the past years. The war between Russia and Ukraine also has an effect. As a result, the airlines have not yet returned to full activity as they were before the outbreak of the Corona crisis, and therefore there are congestions at the airports, difficulty in locating luggage and delays on the part of the airlines.

It is also not clear what the profit and loss results of the airlines will be at the end of the third quarter of 2022. On the one hand, the demands have increased by huge multiples, on the other hand, the expenses have increased in a fairly similar ratio. Therefore, it is very possible that many airlines will show losses at the end of the quarter.

Operational planning is built on the basis of past data

Beyond the fact that it is very difficult to manage companies and airports on an ongoing basis, there is another major problem that their operational planning is built on the basis of past data, which are often not correct in the present, both when demand for flights increases, or vice versa when demand decreases. For example: during the corona epidemic, skilled workers were laid off, and when the demand for flights skyrocketed enormously, the operation of ports and airlines suffered due to a lack of personnel.

There is not enough room for trolley luggage in the cabin

In light of the reports of lost luggage, many passengers arrive at airports with trolley luggage, hoping to store it in the luggage compartments of the planes. But since there is not enough space for everyone, the trolley luggage is taken down to store it in the belly of the plane. A procedure that takes a lot of time and creates an additional delay at the time of take-off, and a chain reaction of delays in the operational activity of the airline.

A slowdown in economic activity

Bank of Israel Reported that at the global level, there is a slowdown in the rate of economic activity, among other things because of the war in Ukraine and the slowdown in economic activity in China due to the increase in morbidity there. All of these increased the inflationary pressures in the world and accelerated restraint measures taken by many central banks and the growth forecasts went down. At the same time, the inflation indices in the world stood at a higher level than the targets of the central banks in the various countries. In addition to the tricks of the foreign exchange market: as of August 31 of this year, the dollar rose relative to the shekel by 0.8% and traded around NIS 3.33, and the euro rose by 0.6% and traded at NIS 3.33.

The foreign exchange market. Photography Depositphotos

Global output has shrunk

In July of this year it published The International Monetary Fund, that global output shrank in the second quarter of 2022, due to recession in China and Russia, while consumer spending in the US was below expectations. Several shocks hit a global economy that had already been weakened by the pandemic: higher-than-expected inflation in the world – especially in the US and large European economies, which led to tighter financial conditions and to which were added the negative effects of the war in Ukraine.

According to the fund, global inflation rose due to an increase in food and energy prices and a continuous supply-demand imbalance, and therefore it is expected to reach 6.6% in advanced economies and 9.5% in emerging and developing markets in 2022. It is also expected that the monetary policy against inflation in 2023 will bite into global output, which will only grow by 2.9%.

In light of this, the International Monetary Fund predicts that there will be a slowdown in growth from 6.1% in 2021 to 3.2% in 2022. Lower growth means a reduction in the purchasing power of households and excessive strictness in countries on monetary policy.

A plane is parked waiting for passengers. freepik

The impact on civil aviation

In August of this year, the International Civil Aviation Organization of the United Nations (ICAO) assessed the impact of the Corona virus and the economic changes on civil aviation and international passenger traffic in 2022 compared to traffic in 2019:

  • A total reduction of 28% to 31% of the seats offered by the airlines.
  • A total reduction of 580 to 639 million passengers (a decrease of 31% to 35%).
  • An estimated loss of $109 to $121 billion in gross operating revenue for the airlines.

Forecast of the International Airlines Organization – IATA which was given in June, even before the effects of inflation and the decline in growth:

  • Global demand for air passengers continued a strong recovery, with revenue per passenger km (RPK) increasing in June this year by 76.2% compared to June 2021.
  • In June, passenger occupancy in the aviation industry was approximately 82.4%, which is an increase over 80% for the first time since January 2020.
  • Looking ahead, the monthly opening of Asian markets will provide renewed impetus to the global passenger recovery, while inflation and higher interest rates later will begin to dampen demand for air travel.
Airplanes are parked at the airport. Photography Depositphotos

Israeli aviation

Israeli airlines ended the first half of 2022 with a positive net profit:

Al Al Ended the first half of the year with a net profit of 100.34 million dollars, after completing the receipt of most of the amounts as agreed in the agreements with the state and the controlling owner and other factors, in cumulative amounts of approximately 600 million dollars.

Israir Group Ended the first half with a net profit of $6.499 million, compared to a loss of $9.487 million in the first half of 2021. In June, the company completed a public offering of approximately 22.5 million shares and thereby raised approximately NIS 25 million. The company also received a loan in the amount of NIS 75 million, with a state guarantee of 75%.

sky It is a private company, with the cooperation of the company’s employees (through the Strawberry Corporation), and therefore does not publish profit and loss statements on the stock exchange.

Abbreviated address for this article: https://www.ias.co.il?p=127829

Source: IAS by www.ias.co.il.

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