Is inflation bad for business? In all regions — Europe, North America and elsewhere — prices of goods and services have recorded highly high growth this year. This has led to central banks, including the ECB (European Central Bank), becoming intensely conservative concerning the amount of liquidity in the economy. By increasing benchmark interest rates, these banks want to reduce money sully in the economy, which can thereby lead to a decline in demand and prices. Borrowing has become costlier for people, and existing mortgage holders are witnessing a multifold jump in their interest outgo.
Businesses are usually negatively impacted by macroeconomic disturbances like high inflation, but the travel industry seems to thrive despite wide-ranging pressures. The revenues earned over the past few months by travel companies operating predominantly in Europe shine light on the sector’s revival after the excessively turbulent pandemic phase.
Profits of companies rise.
Amadeus — one of the biggest names worldwide in travel bookings — has reported a whopping nine-fold increase (year-on-year) in its adjusted profit for the third quarter. The company’s CEO sounded very upbeat about capacity expansion and job creation. However, it should also be noted that Amadeus’ booking numbers and adjusted profit have yet to reach the pre-pandemic level.
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Good numbers are not restricted to Amadeus alone, and from Ryanair to Lufthansa to British Airways, recently announced earnings point toward a bolstered travel sector. In the first half of the financial year, low-cost carrier Ryanair earned a record profit of £1.2 billion. The airline also reported that it had hiked ticket prices, but the demand has stayed robust. On the other hand, Lufthansa has lifted its full-year forecast for profits thanks to the doubling of year-on-year revenue in the third quarter. Air France–KLM and British Airways also had a great run in the third quarter.
Inflation is no dampener.
Even though many economists are worried about the damaging effect of rising borrowing costs on demand in the global economy, the travel sector has had a good time. This means that people are willing to spend on travel, no matter the rise in airfare and lodging prices. As predicted by analysts last year, the travel boom is here. However, the sector is forced to operate below capacity due to labour shortages and other supply chain pressures. High fuel prices weigh airlines’ costs, but increased profits show that earnings are more than supporting the cost of operations.
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The road ahead
The sector is upbeat about demand over the coming months. Even though mortgage and other costs have surged and there is an energy crisis in Europe, people do not want to put their travel plans on the back burner. In the UK, there are headlines about the heating vs eating dilemma, but nothing seems to be denting the mood of travellers. What happens next year, when policy rates set by central banks would peak, is a subject of speculation.
Written by: Kalkine Media
