Major airlines said at their earnings release in October that consumer demand for travel would continue. Many airlines have pointed out that passenger traffic has returned to or close to pre-epidemic levels. Given the rise in air ticket prices, revenues and profits are expected to be stronger by the end of 2022 than in 2019.$U.S. Global Jets Etf (JETS.FTOLD.US)$Share prices have risen more than 11% in the past month, and positive results and forecasts for continued demand from major airlines are accelerating sharply.

Zhitong Financial APP learned that$Delta Air Lines (DAL.US)$"the recovery in tourism continues as consumer demand shifts to experience and corporate and international demand improves," CEO Ed Bastian said on Oct. 13. "

$United Airlines (UAL.US)$Chief executive Scott Kirby says demand is likely to remain high "permanently" because of telecommuting.$American Airlines (AAL.US)$Expressing support for this, the company posted record revenue in the third quarter and expects demand to continue until the end of the year.$Southwest Airlines (LUV.US)$Despite the unusually strong passenger traffic in the fourth quarter, leisure and business demand are expected to improve in turn, it said.

Tamilomo, chief financial officer of Southwest Airlines, said on October 27: "We are concerned about the risks of the economy and recession, and we want to monitor the environment to see if there will be any significant impact on travel demand as we enter 2023. Similarly, we do not see any obvious impact today. "

$Spirit Airlines (SAVE.US)$和$Frontier Group (ULCC.US)$Low-cost airlines and other low-cost airlines have proposed the same trend, all pointing to "structural changes" in leisure travel demand. This demand trajectory has also penetrated into Alaska Airlines Group, Hawaii Holdings,$JetBlue Airways (JBLU.US)$Smaller regional airlines such as Allegiant Travel and Sky Western Airlines.

Consumers in continental Europe are more likely to feel the effects of inflation than Americans, but demand remains flexible.$Deutsche Lufthansa AG Sponsored ADR (DLAKY.US)$、$easyJet plc Sponsored ADR (ESYJY.US)$And the International United Aviation Group said that the demand for winter tourism continues, even struggling with capacity problems.$AIR FRANCE-KLM (AFRAF.US)$Confidence in the need for continental and transatlantic air travel was also expressed.

International Aviation Group summed up market sentiment in a statement: "bookings are expected to remain at the level expected for the same period this year, with no sign of weakness, so as of today, our expectations for the fourth quarter remain unchanged."

Unsustainable demand?

The market is worried that consumer demand will reach a tipping point in the future. For example, ticket prices in the United States rose 42.9% year-on-year and 0.8% month-on-month compared with September 2022. Although capacity is limited, prices remain high and capacity is still difficult to return to pre-epidemic levels, and capacity is also a concern for airports. In addition, energy prices remain uncertain in the long run, as the geopolitical factors driving up prices are unlikely to ease in the short term.

So whether consumers hit by macroeconomic conditions will still be keen to travel at higher and higher prices, while these ports are still plagued by understaffing, not to mention the pilot contract problems that many large airlines in the United States and Europe may face.

The number of Americans planning to travel around Thanksgiving fell by 11%, mainly because of economic concerns, according to Deloitte. Potential flight delays and travel uncertainty are considered secondary factors hampering consumers. Older Americans have shown greater enthusiasm for travel, but now they are flinching again. Only 22% of Americans aged 55 and older plan to travel, down from 36% in 2021.

But these problems may not be enough for investors to abandon the aviation industry altogether, as every airline is grappling with potential volatility in capacity, demand and labour. Jamie Baker, a small motorcycle analyst, advised customers in his assessment of major US airlines: "Delta is leading the industry in profit margins and new revenue initiatives, while United's transformation plan seems to be working. It has won the confidence of investors, but we think American Airlines ranks third in revenue and its ancillary business also lags behind other airlines."

The performance reviews and improvements in the third quarter are reminiscent of the first quarter. United CEO Scott Kirby announced in mid-April: "the current demand environment is the strongest in my 30 years in the aviation industry, and the second quarter will be a historic turning point for our business." These optimistic forecasts do come true, but that doesn't mean there will be more room for stock prices to rise in the fourth quarter. In fact, this seems to be a "sell" moment, as most major aviation stocks peaked during the earnings season at the end of April.

However, in the view of some optimistic analysts, this similarity may be divided. Ravi Shank, an analyst at Morgan Stanley, points out that improved operational reliability, depressed valuations and still resilient revenue trends this summer are all reasons for optimism. In addition, widespread pessimism has left a huge upside for the market. "maybe the bear market will become a self-fulfilling prophecy, and fears of a bear market will eventually lead to a bear market, but we believe that a market that cares about fundamentals will focus on the earnings trajectory in 2023 rather than based on actual guidance."