Marie Owens Thomsen is International Air Transport Association (IATA’s) Chief Economist. During IATA’s 78th Annual General Meeting held in Doha, Qatar from June 20 to 21, Marie presented her Economic Outlook report to the assembly saying that the expected airline industry net loss of $9.7 billion this year is “a phenomenal result even if it’s still in the red,” given the historic challenges faced since 2020.
Marie has spent most of her 30-year professional life in various Chief Economist roles for both investment banks and private banks, including HSBC in London, Merrill Lynch in Paris, and Indosuez in Geneva. Outside of the financial sector, Marie worked for IKEA, and she also founded and managed her own company in the equine industry. As a macro economist, Marie seeks to promote a global economy that is prosperous, inclusive, and sustainable, and one in which the air transport sector can flourish and realize its full potential so as to deliver better economic outcomes for all. Capital caught up with her to talk about her report and the airline industry’s future. Excerpts;

Capital: Your report said it is a shocking bounce, why is that?
Marie Owens Thomsen: Well, in every way if we look at the traffic numbers they obviously basically went to zero during the COVID pandemic and that has happened momentarily in the past. For instance, the 9/11 situation was perceived very much as a US problem, not a global problem. But of course when that happened I don’t think the terrorists had even understood what would happen next which is that there was no insurance for airplanes all of a sudden and without insurance we cannot fly.
9/11 halted domestic traffic in the US and that was a really big crisis for the industry, but it was contained to the US. So the COVID-19 crisis has had this peculiarity that it has halted traffic, to varying degrees for sure, but nevertheless, pretty much globally, all of us together have been affected as a whole. Traffic just stopped and never has this transpired to such a huge degree. This has cost us about two years of business.
And as we’ve said, we now think that we will perhaps come back to 2019 level of activity by 2024, which I think is an impressive performance given the severity of the crisis. I hope that everybody will have learned that you cannot just halt economic activity and then think that you can turn it right back on like turning on the light in your house. Thus, although steady, we are on the bounce back track.

Capital: In your report, you said that insurance is mentioned as one of the challenges. How would you describe that?
Marie: Well, for instance, as mentioned 9/11 and the current insurance problem we have is very much related of course to the situation and to the war between Russia and Ukraine. That war has led approximately to 500 airplanes to be stranded in Russia, and those who own them cannot recuperate them.
So we haven’t even started dealing with this insurance problem and historically speaking we have never seen that situation ever before either and insurance companies have not planned for such a hit. They planned for something much smaller.
Therefore, the insurance premiums which have already been paid are insufficient for the insurance companies to face these potential claims, and premiums will have to go up.
I cannot see how anything else could ensue. Now, insurance costs are a small part of all aviation costs. But given that we are hoping to eke out a little bit of a profit the increased insurance costs could be something that prevents us from realizing that profit, hence the inclusion as a challenge.

Capital: Climate change costs and infrastructure costs are rising, this is going have a ripple effect on the Airlines, what are your thoughts on these?
Marie: Absolutely, not only airlines but also other significantly related sectors, in addition to Airlines too. For example the Bangladesh airport is being closed which is a testament of how real those costs are. And of course the industry is struggling to become profitable and with the global situation as the whole, challenges affect the whole of the value chain. I think that’s going to be a challenge on how we can find the money to improve the infrastructure in our whole value chain to such an extent that we can feel confident about the future.
I think there’s a great risk of many airlines airports being affected by climate change, and route disruptions also because of climate change. So the whole value chain is going to be impacted by those increased costs as well going forward. And that’s before we sort of start talking about how much it’s going to cost to go from fossil fuel to sustainable aviation fuel. But nevertheless, I think when you spread all of those costs out over the number of passengers and the horizon whether that’s 2030 or 2050 we as an industry have said that we want to be net zero by 2050. So when you spread the costs out over all our passengers and all those years, I still think that that’s really not the main issue.
The main issue, in my humble opinion, is to get people to coalesce around the same desire to actually make this happen. In a fair way, I would say this is not a Western problem, it is not a southern problem either, but it is indeed a collective one. And we have to find a way of distributing these costs in the best and fairest way possible. That’s really important.

Capital: You mentioned the high inflation rates and low interest rates will help the airline industry, how do you see that panning out?
Marie: So it’s true. This is something that we talk a lot about in economics, nominal or real. So nominal is the price you see and real is the price you see minus the rate of inflation.
For example, if we have 10% inflation daily today thus we pay the additional 10. And if its 11% the next time, we pay the 11 so our purchasing power is diminished because of inflation, which is bad. But the real value then of our debt is also diminished in exactly the same way.
If I have 10% inflation, on whatever horizon and I have borrowed 100, I will only pay back 90 in real terms. So high inflation, and as long as the nominal interest rate is reasonably low you’re actually paid for borrowing money in real terms, thus you still have to have enough nominal earnings. Because if you don’t have any cash, yet you’re going to be in trouble. But as long as you have sufficient cash it remains the case in today’s economy that borrowing is a good thing.
It’s savings that’s being penalized by the rate of inflation. If you got money in your bank account a year from now it’s going to be worth less because of the rate of inflation, but when you borrowed money, then that debt is also going to be smaller. So this is a borrower’s world, not the savers world.

Capital: What is your evaluation of African airlines?
Marie: Well, the situation is obviously complex. But if you look at throughout economic history, economic performance has been very strongly correlated with connectivity. So for millennia, we were all poor because we only had our legs and our horses and our camels to transport us.
And then we had a big improvement in economic performance when people started to build boats and start sailing. And then eventually, we had a big improvement thanks to railroads. And then if you look at the long term chart of GDP per capita you see how the pace increases with the pace of connectivity. So that then translated to global aviation in the Second World War.
So Africa is obviously a continent that struggles with connectivity. And the poorest countries in the world are in Africa, and many of them are landlocked countries, really struggling with connectivity. And I think that, this is a two way project, I would argue for Africa, that governments in Africa should try to promote aviation. And aviation should of course try to orient itself a bit more intra-Africa and I would love to see intra African trade flow increase. It’s a bit absurd to me that many African nations trade more with Europeans or Americans or Chinese than they do amongst themselves. That’s an outlier where in the world economy where everyone else trades more with their neighbors. Why is this not happening in Africa? I think these are issues that are holding the continent back. Otherwise, it’s obviously a fabulous continent with lots of resources. And if we improve connectivity in Africa it would not only benefit airlines obviously, but it could change the outcome for the people living in Africa.