Dividends and Airlines forecast strong 2023 travel, but costs may dampen outlook

In the economic texts, you will learn about supply and demand, but the next step is to learn about different demands. People tend to use demand as an all-encompassing word but in reality, there are different demand lines. There is slow growth demand, high growth demand, average demand, pent-up demand and almost everything in-between, which leads to wondering what type of demand does the company believe it has?

In an article by Aishwarya Nair and Abhijith Ganapavaram of Reuters, US airlines expect strong travel demand that drove record 4th quarter revenues to continue, but economic uncertainty and higher labor and operating costs could cloud the rosy outlooks.

Airlines are cashing in as consumers snap up tickets following a pandemic-induced slump. This is pent up demand or people were told not to fly, but then when they could, even though prices increased people flew for both personal and business travel.

American Airlines CEO Robert Isom said post-holiday bookings surged, underpinned by domestic and short-haul international flights. We expect strong demand to continue in 2023 and anticipate further improvements in demand for long-haul international travel this year. (He is talking about 2 different demand levels).

In addition to higher labor costs, there are higher costs of rents (airlines lease or rent landing slots at airports), landing fees. There is also the cost of fuel (similar to consumers buying higher mileage vehicles, so do airlines) expect to rise 1.5 to 4.5%.

Mastercard believes the pent-up demand for travel will diminish going forward.

China’s reopening may boost international travel, but demand remains uncertain and US airlines face challenges cashing in.

Linking to dividend paying stocks, owning these companies you expect them to make profits and reward their shareholders. When the CEO discusses the business, he/she will say demand, your task is what type of demand and how does that translate into profits?

There are more questions than answers, till the next time – to raising questions.


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