Desperate to put the coronavirus pandemic behind them, airlines will hold talks on Sunday ahead of a potential summer of chaos with shortages and strikes that could threaten their recovery.
While trade is roaring back to life, representatives from the aviation sector meeting for three days in Qatar have a packed agenda with multiple geopolitical crises including the war in Ukraine and the environment.
Cracks are already showing in the sector’s recovery, though industry figures are optimistic about the future despite the issues.
In the past few weeks, delays and cancellations caused by a lack of staff at airports and strikes for better pay have wreaked havoc upon travellers.
The problems originate with the pandemic when airlines and airports laid off thousands of workers during its worst-ever crisis.
Now, they are scrambling for workers.
Passenger numbers dropped by 60 percent in 2020, and in 2021 it was still down 50 percent. Airlines lost nearly $200 billion over two years.
While some firms in the sector went bankrupt, others — backed often by states — have emerged from the pandemic with profits intact.
European airlines are excited about the prospect for a “beautiful summer”, with some data showing booking rates higher than in 2019. In the United States, the domestic market has almost returned to pre-pandemic levels.
“Airlines are generating cash again, which is a real positive,” said Willie Walsh, head of the International Air Transport Association, during a visit to Paris earlier this month.
The sector’s morale was buoyant after “a very long and barren two years”, he told reporters.
– ‘Not up to speed’ –
The International Air Transport Association (IATA), which represents 290 airlines accounting for 83 percent of global air traffic, will host its annual general meeting in Doha instead of Shanghai after record-high Covid case counts forced it to relocate the forum.
There will be cause for celebration during the event.
In terms of Revenue Passenger Kilometres (RPKs), a measure of total distance flown by paying passengers, activity in April reached 62.8 percent compared with the same month in 2019.
That was the best figure since March 2020.
Domestic routes, meanwhile, hit 74.2 percent in April, better than international markets which reached 56.6 percent compared with the same period in 2019.
After the Easter holidays fiasco at European airports, Walsh admitted “the system is not up to speed”, but vowed the issues would be addressed.
He was hopeful despite the war in Ukraine and its wider impacts, surging inflation and record prices for jet fuel.
Fuel makes up 25 to 30 percent of companies’ spending, and given the still-fragile state of airlines’ balance sheets, higher costs will be passed on to customers to preserve their profits.
But the effects of Russia’s war in Ukraine are already being felt.
European flights to Asia are constrained by long diverted routes to avoid Russian airspace after having slapped heavy sanctions on Moscow.
– Costly decarbonisation –
With inflation eroding people’s purchasing power, higher costs could weaken demand at a time when companies need to make serious investments to cut their carbon dioxide emissions.
The IATA pledged last October to achieve net-zero carbon emissions by 2050.
The issue will be raised at a general assembly meeting of the International Civil Aviation Organization in the autumn, but a deal between countries is far from certain.
The IATA, which expects 10 billion air passengers annually by the middle of the century compared with 4.5 billion in 2019, refuses to consider any restrictions on growth in order to contain the effects of climate change.
Commercial air travel, often the target of environmental activists, is responsible for between 2.5 and 3 percent of global emissions.
Between “cleaner” planes and sustainable fuel, investment worth $1.5 trillion over 30 years is needed to improve the sector’s environmental impact. The costs will be most likely handed down to the customer, again.
Bank of Japan keeps easing policy despite US, Europe rate hikes
The Bank of Japan on Friday stuck to its long-held monetary easing policy even as other central banks around the world hike interest rates to tame inflation.
But it said it would “pay due attention” to foreign exchange markets, a rare comment that comes after the yen hit a 24-year low against the dollar.
In a statement following a two-day policy meeting, the BoJ kept in place its rate of minus 0.1 percent — part of a decade-old action plan aimed at boosting the world’s third-largest economy — bucking pressure to address the impact of a weaker yen.
Its decision runs counter to a global tightening trend to tackle sky-high fuel and food prices linked to the war in Ukraine and supply chain snarls.
Global interest rate hikes have been led by the US Federal Reserve, which this week announced its most aggressive increase in nearly 30 years, and signalled more ahead in a battle to drive down inflation.
The European Central Bank also plans to start a series of rate increases next month, while the Bank of England announced a fifth straight increase on Thursday and Switzerland surprised markets with its own increase, the first since 2007.
The widening chasm between Japanese and US monetary policy has pushed the yen to its lowest level against the dollar since 1998, a cause for increasing concern that even the central bank made reference to.
“It is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices,” the BoJ said, in an unusual reference to forex movements.
After the announcement, one dollar bought 134.23 yen, up from 133.41 yen earlier in the day.
Inflation has been rising for months in the United States and elsewhere as buoyant demand for homes, cars and other goods clashes with supply chain snarls in parts of the world where Covid-19 has been, or remains, a challenge.
The problem got dramatically worse after Russia invaded Ukraine in February and Western nations imposed steep sanctions on Moscow, sending food and fuel prices up at a blistering rate.
Most Asian markets on recession fears, Bank of Japan in focus
Asian markets mostly fell Friday after another hefty drop in New York and Europe as central bank interest rates hikes to counter soaring inflation fan fears of a recession.
All eyes are now on a Bank of Japan decision later in the day, with speculation that officials could finally begin to shift from their ultra-loose policies that have left it trailing most of its peers and sent the yen tumbling more than 13 percent this year.
Gone is the optimism that flowed through trading floors immediately after the Federal Reserve on Wednesday announced its biggest rate increase for 28 years as global finance chiefs followed suit, putting a squeeze on dealers’ ability to borrow.
Markets have been tumbling for months as traders contemplate the end of the era of cheap cash that sent valuations to record or multi-year highs, with inflation at levels not seen in decades owing to a surge in energy and food prices.
The Bank of England on Thursday lifted rates for a fifth straight time to their highest since 2009 during the financial crisis, just as the Swiss central bank shocked markets by unveiling its own half-point increase — its first rise in 15 years.
The European Central Bank has also signalled it will announce a hike soon.
Equities plunged as expectations for recession continue to rise. The Dow ended below 30,000 for the first time in more than a year and the S&P 500 is now at its lowest since December 2020.
With rates rising everywhere else, pressure is building on the Bank of Japan to move away from its policy of keeping its foot on yields.
While officials in Tokyo insist that low rates are still needed to nurture a struggling economy, there is “a building expectation that the Bank of Japan will need to amend their policy stance closer to some version of normal”, said Benjamin Jeffery and Ian Lyngen, strategists at BMO Capital Markets.
Observers said traders were struggling to work out what officials will do, though there is a feeling they will make some concessions with inflation at an eight-year high as energy prices spike in the commodity-poor country.
And while the yen dipped slightly against the dollar Friday it was off the 24-year lows touched earlier in the week.
Stephen Innes at SPI Asset Management said: “No central bankers worth their weight would put inflation-fighting credentials on the line and import higher energy inflation via a weaker currency.”
He added that “in what is a highly ominous signal for stock market investors, given the broader index’s sensitivity to rising bond yields… the global race to hike rates is nowhere near the finishing line”.
In early trade, Tokyo, Sydney, Seoul, Singapore, Wellington, Taipei, Manila and Jakarta were all in the red, though Hong Kong and Shanghai were slightly higher after steep losses on Thursday.
– Key figures at around 0230 GMT –
Tokyo – Nikkei 225: DOWN 2.2 percent at 25,858.50 (break)
Hong Kong – Hang Seng Index: UP 1.0 percent at 21,063.11
Shanghai – Composite: UP 0.5 percent at 3,300.72
Dollar/yen: UP at 133.37 yen from 132.14 yen late Thursday
Euro/dollar: DOWN at $1.0532 from $1.0550
Pound/dollar: DOWN at $1.2320 from $1.2350
Euro/pound: UP at 85.48 pence from 85.40 pence
West Texas Intermediate: DOWN 0.5 percent at $116.96
Brent North Sea crude: DOWN 0.5 percent at $119.24 per barrel
New York – Dow: DOWN 2.4 percent at 29,927.07 (close)
London – FTSE 100: DOWN 3.1 percent at 7,044.98 (close)
— Bloomberg News contributed to this story —
US baby formula plant again halts production due to flooding
Abbott Nutrition has once again shut down a baby formula plant, this time due to heavy rains and flooding, less than two weeks after it reopened to try and mitigate a crippling US shortage.
The facility in Sturgis, Michigan resumed production on June 4, only to close down again earlier this week so the company could assess rain damage.
Severe thunderstorms that battered southwestern Michigan on Monday resulted in “high winds, hail, power outages and flood damage,” as well as “flooding in parts of the city, including areas of our plant,” Abbott said in a statement posted to their website Wednesday night.
“As a result, Abbott has stopped production of its EleCare specialty formula that was underway to assess damage caused by the storm and clean and re-sanitize the plant,” the statement said.
“This will likely delay production and distribution of new product for a few weeks.”
The plant, a major producer of formula, shut down in February and issued a product recall after the death of two babies raised concerns over contamination.
That worsened to a widespread forumla shortage caused by supply issues, which was particularly concerning to parents of infants with allergies or with certain metabolic conditions, who desperately scoured stores and online sources for the specialized formulas.
The crisis prompted President Joe Biden last month to bring in formula from Europe on commercial planes contracted by the US military. He also invoked the Defense Production Act to give baby formula manufacturers first priority in supplies.
Abbott, which controls about 40 percent of the US baby food market, had announced its hypoallergenic EleCare formula and should be back on store shelves around June 20.
In the statement Wednesday, the manufacturer assured consumers that it had “ample existing supply” of EleCare and most of its other specialty formulas to meet demand until production could resume again.
The formula shortage, coming at a time when soaring inflation and supply-chain delays have fanned a growing sense of unease among many American families, and Biden critics have seized on the situation to question the competence of his administration.
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