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Strong pent-up demand seen in passenger segment; outlook rosy for air cargo

Wednesday، 22 June 2022 10:20 PM

The huge demand for freighters that was seen during the pandemic will continue, Boeing chief executive David Calhoun said and noted efficiency and sustainability are key to the success of the aviation industry as a whole.
Participating in Bloomberg's Qatar Economic Forum in Doha on Wednesday, Calhoun said the demand for freighters was not impacted at all during the pandemic.
“It was a remarkable fact. The cargo hold in many passenger airplanes were filled and flew with very few passengers. We see that demand continuing for quite some time. So, in our own view that demand is going to continue for a long time.”
Asked whether some sort of recession will maintain a balance between supply and demand, Calhoun said, I won’t be championing a recession – on the other hand, I have no doubt that some slowdown will be helpful in creating some sort of stability that we need to respond to the demand in aviation, which is still significant.”
“Of course, it is not going to affect all the industries equally. In the areas and in the skills where we compete with other industries- software development, data analytics, computational work etc, the answer is… probably will help in some ways the bubble that seems to want to burst in the growth world. In the US it is already being felt by our team with respect to interest levels and staffing up- the things that we have to do. But it is unique to those skills.”
Boeing expects supply chain problems to persist almost until the end of 2023, led by labour shortages at mid-tier and smaller suppliers, partly due to the faster-than-expected return of demand.
Last month, Boeing said the production of its 737 aircraft had been slowed by shortages of a single type of wiring connector, while some of its airline customers had been forced to cancel flights due to a lack of staff in the post-pandemic recovery.
Calhoun said Boeing had a big, complicated supply chain with lots of fragility in it, leading to problems when there were delays.
"It's been a real issue for both manufacturers and will probably stay that way in my view almost to the end of next year," Calhoun said.
"And the biggest restraint of all for that mid-tier set of suppliers and sub-tier set of suppliers is labour availability, do we have a workforce," he said.
"The shift from demand to now supply issues ... is remarkable, the speed with which it happened," the Boeing chief executive said.
Asked how the demand to fly can be managed with high fuel costs, Calhoun said: “I believe two things work on aircraft demand. One is the efficiency of the airplane itself. I think the other subject that has become as important as the efficiency of the airplanes is the emissions of the airplane.
“Every new airplane, either it replaces or displaces an old airplane – is roughly 20-40% more efficient – therefore less emissions than the plane it is replacing. So that in itself is one of the biggest leverages for the industry to get ahead of the emissions.”
He said efficiency and emissions are important. Sustainable aviation fuel (SAF) is also important.
“By 2030, every aircraft we deliver will be capable of running on SAF.”
That’s where the biggest improvement will come. Again it will depend on displacement rates. You have to displace old with new.”
In the panel session, Luis Gallego, chief executive officer of International Airlines Group said: “We have very strong pent-up demand now. Bookings for the rest of the year, particularly during the holiday period are pretty smart. We still see good demand, high number of bookings.”
On managing the demand and fuel price, Gallego said: “We are used to handle crises in aviation. We always have one. I think we have the ability to adjust capacity to the demand…I think we have the flexibility. During the pandemic, we have stopped flying the 747s, and other bigger aircraft. We adjusted capacity to the demand.
“The configuration we have now in the aircraft is tailored to meet the demands of the summer rush. We see strong leisure demand. But with the Ukraine situation and the high fuel price, we need to see how things evolve.
“In 2019, fuel represented 26% of our total costs. Now we have in a hedged position for the rest of the year at 30%.”
In Doha, the International Air Transport Association (IATA) said overall traveller numbers are expected to reach 4bn in 2024 (counting multi-sector connecting trips as one passenger), exceeding pre-Covid-19 levels (103% of the 2019 total).
Expectations for the shape of the near-term recovery have shifted slightly, reflecting the evolution of government-imposed travel restrictions in some markets. The overall picture presented in the latest update to IATA’s long-term forecast, however, is unchanged from what was expected in November, prior to the Omicron variant.
Industry-wide profitability in 2023 appears within reach with North America already expected to deliver an $8.8bn profit in 2022.

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