Weekend Edition: Flying on Thin Margins
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Why are airline bookings from Canada to the U.S. dropping 70% and what does it mean for the industry?
Air traffic is up this year, according to Flight Radar's flight tracking statistics. There were five percent more commercial flights last week than the same week last year, two-thirds more than they were in 2022 when we were just about seeing off the pandemic. So happy days. Well, except for airlines flying from Canada to the United States, their bookings are reportedly down 70% as Canadians boycott America. So just how damn it's a good idea.
The weekend edition. Incidentally, visitor arrivals into Australia in January were up almost eighteen percent over last year, over two point one million arrivals just in that month, not far off the two point two million in January twenty twenty, just before the pandemic, which was Australia's best month ever. But how does the international airline industry cope if there's a collapse in demand? So this seventy percent drop in bookings from Canada is Is a blow for the United States, for example, because Canada is about a third of US international tourism. So ouch. But it does raise the question how do airlines survive downfalls like this? That's a lot of people not flying. Do they simply reroute? Or could this be another major global disruption for an industry that already operates on very slim margins?
And why do people invest in airlines given those slowly? Margins and all of this uncertainty and volatility. Well, all good questions for John Strickland. He uh lives in the UK, he's an aviation consultant with more than forty years industry experience. He works with airlines, airports, industry partners and investors to help guide them through what must be one of the most volatile industries that there is. And yet, until the last month came along, it seemed that the industry was back on the on the up, didn't it, John? I mean we were growing out of COVID and things were looking positive.
Absolutely right, Phil. Uh I mean the last couple of years out of COVID has been incredible in in the in the positive sense in in many parts of the world. Certainly uh the strongest markets have been uh USA and Europe, and indeed the market between uh those two territories. A Asia has taken uh longer to come back, but pretty well broadly we've seen strong bookings, we've seen reports of uh profitability uh On the up and to be honest, through through those uh forty years of my career, I I haven't seen a kind of combination we've witnessed, which is very full flights and typically pretty high fares. It's normally one or the other. The levers are you uh reduce your price to fill the plane up, or you decide you'd rather get a a better price per passenger and you end up sacrificing uh empty seats going out.
But the airlines uh in the the markets I've mentioned
Well in this last couple of years. So I'm looking at some IATA figures saying that this year actually they reckon well that's until things started to perhaps go wrong. Uh maybe they're not going that badly wrong. But anyway, before all of this they were saying this could be the first trillion dollar year for revenue, which sounds good, but just a three point six percent profit margin, which seems very slight.
Well, no, the the profit margin is low.
How did the post‑COVID recovery lead to unusually high loads and fares?
And certainly the Artrus point uh pointed out below uh so the Artra has pointed out before, uh they've done a a a graph which you may well have seen showing the the depth of losses that airlines uh incur during the period of the pandemic. So the recovery to profitability of of last year and expected for this year, uh, you know, it pales into insignificance by comparison of that margin of around about three and a half percent is really not good enough uh for for long term investment in a capital intensive business when airlines have to order uh new aircraft. Indeed, I would say today, not any new aircraft, they've got to think about how much they're spending on technology, because they've been laggards there as well.
And uh running their businesses efficiently and indeed running them reliably. We've we've heard of numerous outages around the world when uh airlines have been grounded because some system be
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Chapters
8 chapters
1
Why are airline bookings from Canada to the U.S. dropping 70% and what does it mean for the industry?
0:01–3:14
2
How did the post‑COVID recovery lead to unusually high loads and fares?
3:14–7:34
3
What are the implications of a $1 trillion revenue year with only a 3.6 % profit margin?
7:34–10:54
4
How are airlines managing capacity and pricing when demand suddenly falls?
10:54–14:01
5
What role do supply‑chain challenges and tariffs play in Boeing’s and Airbus’s outlook?
14:01–17:41
6
How might China’s emerging aircraft manufacturers reshape the duopoly?
17:41–21:34
7
Why could Qantas’s new nonstop long‑haul routes be a game‑changer?
21:34–25:53
8
What should investors look for when evaluating airline stocks in a low‑margin environment?
25:53–28:19