Optimism mounts over recovery of airline industry

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This is an audio transcript of the FT News Briefing podcast episode: Optimism mounts over recovery of airline industry

Marc Filippino
Hello from the Financial Times, today is Tuesday August 3. This is your FT News Briefing.

Wildfires in North America are hurting companies’ carbon emission targets. Goldman Sachs to cut back on gangbuster asset management activities. In addition, the airline industry is recovering after being hit hard by the pandemic. But are the good times here to stay?

Philippe Georgiadis
One of the key issues will really be business travel. How many of those plane trips are going to be replaced by virtual conferences, which worked so well during the crisis. And obviously that will be a big problem for the airlines.

Marc Filippino
I’m Marc Filippino and this is the news you need to start your day.

When it comes to tackling climate change, forests are important not only because they absorb carbon dioxide, but also because large companies buy forests to offset their own emissions in order to meet their targets. net zero. But recent wildfires in North America make the reliability of this approach questionable. Just take two forestry projects bought by Microsoft and BP which recently caught fire. The FT’s Camila Hodgson says we could see more of this happening too.

Camille Hodgson
This is something that really worries people. As climate change accelerates, forest fires are likely to become more frequent and also more intense in some parts of the world. And that includes the west coast of the United States, where many offset projects are based. So the concern is that there will be more forests that will be burnt and that will mean that more compensation projects will be impacted.

Marc Filippino
So, Camilla, have Microsoft and BP figured out what to do next?

Camille Hodgson
No, I think it’s still early enough to assess the extent of the damage and what to do about it. I think it is worth mentioning that the offset projects will contribute part of the credits they generate to what is called a buffer pool, which functions as a sort of insurance mechanism. And that means that in the event of a fire or if a project for some other reason does not provide all of the carbon benefits it claims, then the credits that are in the buffer pool can be canceled for those two projects that have been affected. in the USA. The problem is, in the event of a truly extreme fire, the buffer pool might not be large enough to cover all the damage, especially if you see damage on multiple projects.

Marc Filippino
Buying forests and just offsetting in general are incredibly popular tools for businesses trying to craft a net zero game plan. Will forest fires and climate change have an impact on their approach?

Camille Hodgson
Yes, I think companies are increasingly aware of the various pitfalls associated with compensation. There has been a lot of criticism of offsetting in general over the years, not only because of things like forest fires or the issues that can arise, but also more substantially over the type of some of the fundamentals related to the issue. how these projects are carried out and how you calculate the carbon savings. So there is a lot of discussion at the moment about how best to use them when appropriate. People will say that best practice is something like a company that cuts emissions as much as possible. And if there are any residual emissions that for some reason they just can’t get rid of, then at this point it may be appropriate to buy offsets to offset. But it’s really an unregulated space at the moment, and it’s not the format that all businesses will choose to use. Some will be more strict about it than others.

Marc Filippino
Camilla Hodgson is the FT’s climate reporter.

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Marc Filippino
Goldman Sachs realized $ 5.1 billion in asset management fees in the last quarter, largely due to investments the bank made with its own capital. It was a record for Goldman, but it could be as good as it gets for the bank for a while. Goldman is trying to cut its own investments by almost 20%. Instead, he wants to earn more asset management fees by investing money for clients such as pension funds and high net worth individuals. This decision aims to please two types of people: investors and regulators. Goldman hopes these strategies will raise its stock price for investors, and he hopes this will lower regulators’ capital requirements. This second is a big deal for Goldman. The Federal Reserve requires Goldman to hold a greater amount of capital relative to risk-weighted assets than other US banks.

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Marc Filippino
The Delta variant of the coronavirus has resulted in many restrictions being reinstated. Several states have introduced vaccine requirements for state employees and other places have reinstated rules requiring the wearing of masks. But the Delta variant did not dampen the enthusiasm of airline executives. You remember, airlines were one of the worst sectors hit by the pandemic, but there has been a slow recovery underway in much of the industry. Philip Georgiadis is the FT’s acting transport correspondent and he spoke with industry leaders to gauge their level of optimism. He joins me now in discussing it. So, Philip, do we know how much airlines have lost since the pandemic? More or less blocked international travel?

Philippe Georgiadis
Many. It’s hard, really, to think of an industry that has been hit the hardest by the pandemic and all the travel restrictions. A rough figure would be roughly, the world’s airlines lost around $ 125 billion last year, and the Iata trade body estimates they are on the verge of losing an additional $ 50 billion this year. So it’s getting better. Nonetheless, these are huge losses for an industry which suffers from a profitability problem under normal circumstances. But that outlook really differs globally largely from the stringency of travel restrictions and the slight upturn in travel over the past six months or so.

Marc Filippino
Yes, let’s talk about the recovery. Where do we see the most promising signs right now?

Philippe Georgiadis
Much of it correlates with countries that are lucky enough to have high vaccination rates. And on top of that, strong domestic markets, which of course means people don’t have to cross borders when they fly. The United States is leading the way. Its domestic market has really roared back this year. I was just looking at the data of about two million passengers a day going through US airports right now. And it is not far from the levels of 2019. And the situation is also improving a little in Europe. The EU introduced a digital health pass in early July, leading to a rebound in travel. When you talk to airlines like Ryanair or easyJet they say they are really seeing a really strong recovery in Europe in short haul leisure, basically people are taking a summer vacation or taking that trip. to see their family that they could postpone for more than a year. There is a kind of recovery in the UK that hasn’t been helped by ever-changing travel rules. There are also expensive tests that people have to take every time they come back to the UK. So people are starting to travel, but it’s much slower than in the European Union.

Marc Filippino
What about long-term passenger demand? Do people in the industry believe things will return to pre-pandemic levels once all travel restrictions are completely relaxed? Or are they planning something different here?

Philippe Georgiadis
Well, for a year now, airline bosses have insisted that travel demand will not be dampened by the crisis once we get out of it. Once those travel restrictions are lifted, they insist that things will come back. And in fact, they’re pretty excited that bookings are starting to prove it. I guess one of the key issues will really be business travel. How many of these air travel are going to be replaced by virtual conferences, which worked so well during the crisis? And obviously it would be a big problem for the airlines if even a small part of it was lost because they are so profitable on it. CFOs are likely to be budget conscious, and businesses are also increasingly aware of climate change. So there are a lot of questions for the industry, but for now, I think executives will hang on to any positivity and any sign of green leaves they can find.

Marc Filippino
Yes, I want to talk a little more about the post-pandemic industry. You know, it might be a long way off with the Delta variant, but you know, if that day comes, what the airlines might be like, Phil?

Philippe Georgiadis
Well I think it’s hard to overestimate the seismic shock this has been to the industry. It is the greatest crisis of all time. So I guess one of the key issues will be consolidation, especially in Europe. Will the stronger players with a good track record and low costs seek to grow at the expense of their weaker rivals? And if you talk to someone like Michael O’Leary, the very optimistic CEO of Ryanair, he will tell you that Europe will follow the United States and you will have a consolidation and you will end up with four or five major players. I guess another issue is profitability, because the industry has taken on this huge debt and it will be struggling with the balance sheet for some time to come.

Marc Filippino
Philip Georgiadis is the acting transport correspondent of the FT. Thanks, Philippe.

Philippe Georgiadis
Thank you.

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Marc Filippino
And before we go, El Salvador is set to become the first country in the world to allow Bitcoin to pay for everything, we mean everything – haircuts, taxes, groceries. But the International Monetary Fund says there are concerns with a country using cryptocurrencies. The IMF wrote in a recent blog post that the widespread use of cryptocurrencies would threaten macroeconomic stability. They also warn that crypto could harm a country’s financial integrity as it is often used for shady business. Now, the IMF didn’t call El Salvador by name in this blog post, but it is in talks with the country about a $ 1 billion loan. And that suggests that El Salvador’s switch to crypto could complicate matters.

You can read more about all of these stories at FT.com. This has been your daily FT News briefing. Make sure to come back tomorrow for the latest business news.

This transcript was generated automatically. If by any chance there is an error, please send the details for correction to: [email protected]. We will do our best to make the change as soon as possible.


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