Air travel picks up but staff shortages could hinder recovery

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News this morning that Lufthansa is back in the black is one of the biggest signs to date of the bounceback in global air travel.

The German carrier beat analysts’ expectations as it recorded a quarterly profit for the first time since the pandemic began of €17m. Although passenger numbers of 19.6m were less than half pre-crisis levels, new bookings were back at 80 per cent of pre-pandemic norms and follow encouraging figures last week from Air France-KLM.

Lufthansa said next Monday’s planned reopening of US borders had triggered a boom in demand but cautioned that the recovery was fragile: it still expects to operate just 70 per cent of its pre-pandemic capacity in 2022.

The airline was also able to profit from the jump in demand for air freight as bottlenecks cramp activity at the world’s ports. The amount of cargo carried via German airports has been growing at a double digit rate every month. Maersk, the world’s largest container shipping group, said yesterday it was buying a German air freight specialist to capitalise on the demand, as it announced bumper third-quarter results thanks to the surge in freight rates caused by the global supply chain crisis.

Not all segments of the air travel industry are bouncing back as quickly. Airlines are having problems coaxing back first-class passengers and business travellers who can generate up to 75 per cent of airline revenues on some international flights. Some have abandoned commercial aircraft altogether after using private jets during the pandemic.

Airlines are also aware that the current trend towards easing international travel restrictions could easily be reversed if Covid infections continue to spread.

US business chiefs, exasperated by tough travel restrictions, warned this week of an expat exodus from China, which has enforced more than 18 months of strict border controls, including three-week quarantine stays and fewer visas for business people and their families. A worsening outbreak of the Delta variant of coronavirus has led Beijing to reintroduce local lockdowns and travel bans, as well as advising citizens to stockpile food.

Airlines in the US also face strong headwinds from labour shortages affecting pilots, flight attendants, gate agents, baggage handlers and customer service staff. Carriers have already had to cancel a record number of flights ahead of the lucrative travel period between Thanksgiving and New Year’s Day.

The other threat to air travel is an existential one.

Against the backdrop of the critical climate summit in Glasgow, green campaigners are questioning whether some forms of air transport, such as business and short-haul, should be encouraged at all. The UK, even as it prepared to host the COP26 meeting, announced last week it would cut taxes for domestic flights. Although most aviation emissions come from international flights, green campaigners argue people should be nudged towards low-carbon alternatives such as trains, rather than flying.

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Need to know: the economy

The US Federal Reserve said it would begin scaling back its $120bn monthly bond-buying programme this month, the culmination of months of debate among Fed officials about the level of support the world’s largest economy needed as inflationary pressures increase.

The FT Editorial Board says it is not time yet for the Bank of England to raise UK interest rates but that it should cease asset purchases and stop reinvesting maturing bonds. The bank’s Monetary Policy Committee will announce its decision tomorrow. You can quiz our capital markets team on what’s next for central banks, bonds and interest rates in our readers’ Q&A on Friday.

Eurozone unemployment has dropped to pre-pandemic levels as economic recovery leaves many businesses struggling with staff shortages. The jobless rate fell from 8.6 per cent to 7.4 per cent in September. All eyes now turn to the monthly US jobs report on Friday: we will have all the details in that evening’s newsletter.

Latest for the UK and Europe

Business activity in UK services jumped sharply in October, according to new PMI data from IHS/Markit. The survey showed a strong increase in inflationary pressures with input costs hitting a record high, putting extra pressure on the Bank of England ahead of its interest rate decision tomorrow. PMI data also show the services in the US hit record highs.

Another aspect of the UK economy that is definitely firing on all cylinders is the housing market: Nationwide reported today that the average UK property price has increased by more than £30,000 since the start of the pandemic, with the average property price now above £250,000 for the first time. Housebuyers’ ardour however is likely to be cooled by a probable rise in borrowing rates as lenders respond to accelerating inflation.

Romania is in serious crisis as political infighting intensifies against a backdrop of the highest Covid infection rates in Europe and some of the highest energy prices in the EU.

Global latest

The UN announced a new short-term lending market for African bonds, a move that should help developing countries seriously lower their borrowing costs. The liquidity and sustainability facility will allow investors to use African debt issued in foreign currencies in repo transactions, which enable access to funding by exchanging bonds for cash.

The Reserve Bank of Australia became one of the first large central banks to tighten monetary policy to keep inflation under control. The RBA said it would no longer try to keep the yield on three-year bonds at 0.1 per cent, after a week of turmoil in bond markets during which yields soared after the RBA declined to defend its cap.

Need to know: business

Ikea, the world’s largest furniture group, warned next year would be “more difficult” than 2021 as costs and supply problems mounted. The company said profits would fall for two successive years and prices would need to be raised for the first time since 2019.

US pharma giant Pfizer more than doubled its forecast for Covid-19 vaccine sales to $36bn this year and expects strong business next year too as booster shots and jabs for children are rolled out. Said one analyst: “Pfizer are already dominating the Covid vaccine race and are likely to consolidate their position in the coming months. They have consistently outflanked their rivals, and they did it all without tangible government support — hats off.” 

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Coal miners are benefiting from the surge in the price of thermal coal, used in power stations to generate electricity. Shareholders at some companies can expect large profits this year and possibly into the future as demand in Asia strengthens and banks refuse to finance new coal mines. Rising oil and gas prices have propelled a sharp rise in quarterly profits at BP. “When the market is strong, when oil prices are strong and when gas prices are strong, this is literally a cash machine,” chief executive Bernard Looney told the Financial Times.

Ernst & Young became the latest of the big accounting groups to report gains from the flurry of M&A activity as companies sought advice on reorganising in response to the pandemic. Its UK partners this year received a record share of profits of £749,000 each.

The World of Work

Would a puppy party tempt you back to the office? The new edition of our Working It podcast discusses the weird and wonderful world of staff perks.

And if puppies aren’t your thing, how about a nice roof garden? Joshua Chaffin delves into how companies such as Google are designing work places to help people connect with nature.

As a Road to Recovery reader you will no doubt be familiar with the effects of the lorry driver shortage. But could you cut it as a trucker? Chief UK business correspondent Daniel Thomas climbs into the passenger seat for a 13-hour shift.

Get the latest worldwide picture with our vaccine tracker

And finally…

Thinking of an autumn break? Check out our Globetrotter city guides covering everything from where to find the best pasta in London to Rome’s top spots for live music.