Marie Owens Thomsen, IATA’s new Chief Economist, tells Chris Goater that airline business models must evolve to meet the new normal.

What attracted you to the economics of the airline sector?

Throughout economic history, trade, mobility, and connectivity have been fundamental drivers of a sustainable and inclusive global economy with improved economic outcomes for all.

The advent of civil aviation played a key role in the spectacular progress the world experienced in the 20th century. Now, we are confronting two systemic and unprecedented challenges: climate change and the COVID-19 pandemic. We have seen the damage done to connectivity, supply chains, and inclusivity. I can only conclude that our collective future economic success depends upon allowing aviation to realize its full potential.

 

What are the key financial trends to look out for in the near term?

One major consequence of the pandemic is that world debt has risen to historic highs. Governments’ finances will continue to be strained by the need to build greater resilience in our economies and to finance the transition to a sustainable growth model. This is likely to lead to higher taxes.

On the monetary side, we are already experiencing spikes in prices, and this will probably be an intermittent feature of our economy going forward. Commodity prices and notably those necessary for the energy transition will grind higher. Nominal interest rates will have to rise, though real interest rates can be expected to remain low for a prolonged period, as was the case in the wake of the Second World War, a period similarly characterised by high levels of debt.

The 21st century is facing unprecedented and turbulent global challenges. The blue skies we can perceive on the horizon relate to energy transition and the lure of energy abundance. We have arguably gone as far as we can today in our energy-constrained world. Just imagine what we could achieve if energy were sustainable, abundant, cheap, and accessible to all.

 

What are the longer-term economic challenges facing the industry?

The most fundamental challenge for airlines and the industry is to evolve the structure of the sector and the individual business models in such a way as to allow its members to deliver regular profits.

It is quite astonishing that we have a systemically important sector, aviation, in our global economy that is organized in such a way as to make this very difficult. Clearly, business models are already evolving. Airports are turning into retail venues, airlines lease rather than own aircraft, and airlines’ loyalty programs are something akin to financial institutions. Our aim in IATA Economics is to be able to shed light on all these, and many more, such fundamental developments.

 

Which particular data and analysis produced by the IATA economics team do you think is most useful for our members in their planning?

Our most popular output are the passenger and cargo forecasts. Airlines’ financial performance is also a staple output. We will strive to add depth and breadth to these over time, to provide insights into our industry not only through the business cycle but also including the longer-term structural issues affecting the sector and its role in the global economy.

 

Credit | Sam Kerr
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