Here are 3 risk factors affecting airlines globally in 2022
War in Ukraine, interest rate hikes, and COVID-19 are the three major factors affecting airlines in Nigeria and globally in 2022.
This was disclosed by IATA in its recent outlook, which was shared with Nairametrics.
According to the report, the factors will further have an impact on the growth of the industry and may slow the recent growth witnessed.
What IATA is saying about the 2022 outlook
War in Ukraine
- It stated, “The impact of the war in Ukraine on aviation pales compared with the unfolding humanitarian tragedy. The outlook assumes that the war in Ukraine will not escalate beyond its borders. Among the many negative impacts of an escalation for aviation, rising fuel costs and a dampening demand due to lowered consumer sentiment would be paramount.
- Passenger: Combined, the Russian international market, Ukraine, Belarus, and Moldova accounted for 2.3% of global traffic in 2021. In addition, about 7% of international passenger traffic (RPK) would normally transit Russian airspace (2021 data), which is now closed to many operators, mostly on long-haul routes between Asia and Europe or North America. There are significantly higher costs for re-routing for those carriers affected.
- Cargo: Just under 1% of global freight traffic originated in or is transited through Russia and Ukraine. The greater impact is in the specialized area of heavy-weight cargo where Russia and Ukraine are the market leaders, and the corresponding capacity loss will be difficult to replace. And about 19% of international cargo shipments (CTKs) transits through Russian airspace (2021 data). Carriers impacted by sanctions face higher costs for re-routing.
Interest rates
- “Interest rates are rising as central banks combat inflation. Aside from those carrying debt (who will see inflation devaluing their debts), inflation is harmful and has the economic dampening effect of a tax by reducing purchasing power. There is a downside risk to this outlook should inflation continue to rise, and central banks continue to hike interest rates.
- “Moreover, the record strength of the US dollar, if it continues, will have a negative impact as a strong US dollar is growth dampening in general. It increases the local-currency price of all USD-denominated debt, and adds to the burden of paying for USD-denominated fuel imports as well.”
Covid-19
- The underlying demand for travel is strong. But government responses to COVID-19 ignored World Health Organization advice that border closures are not an effective means of controlling the spread of a virus. The outlook assumes that strong and growing population immunity to COVID-19 means there will not be a repeat of these policy mistakes. There is, however, downside risk should governments return to knee-jerk border-closing responses to future outbreaks.
- “Governments must have learned their lessons from the COVID-19 crisis. Border closures create economic pain but deliver little in terms of controlling the spread of the virus. With high levels of population immunity, advanced treatment methods, and surveillance procedures, the risks of COVID-19 can be managed. At present, there are no circumstances where the human and economic costs of further COVID-19 border closures could be justified,” said Willie Walsh, IATA’s Director-General.
- “China’s domestic market alone accounted for about 10% of global traffic in 2019. This outlook assumes a gradual easing of COVID-19 restrictions in the second half of 2022. An earlier move away from China’s zero COVID policy would, of course, improve the outlook for the industry. A prolonged implementation of the COVID-19 policy will continue to depress the world’s second-largest domestic market and wreak havoc with global supply chains,” it added.
