In the news: Travel turbulence

With holidaymakers facing a frustrating summer of flight cancellations and delays, how are insurers, airlines and other travel industry stakeholders faring?
by Eve Reed and Jasmin Southgate  


With the US dollar currently trading at equal value to the euro, Americans could be looking at a great time to travel.

However, flight disruptions and cancellations this summer have made travelling abroad very difficult.

These issues are having a knock-on effect on the global travel insurance sector, and the aviation sector is in chaos. However, some airlines are benefiting from the current situation.

Global travel insurance sector takes a hit

The travel insurance sector has been facing issues since the beginning of the Covid-19 pandemic. The cancellations, delays and lost luggage plaguing the aviation industry have resulted in a “substantial increase in travel insurance losses”, according to a blog post from the credit ratings agency DBRS Morningstar.

The company’s senior vice president and global head of insurance, Marcos Alvarez, is quoted as saying: “We expect that the travel insurance industry will experience combined ratios over 100% due to the increase in insurance losses, making this business line unprofitable for most insurance companies in 2022.” 

However, given a “high degree of diversification” across insurance companies’ business lines, DBRS Morningstar expects that “losses should remain manageable”. And, because of the resurgence in tourism and an "increased awareness among holidaymakers of the need to protect their travel plans”, DBRS Morningstar expects gross premiums to rise to around US$60bn by 2030.

Chaotic aviation industry

The first summer of eased travel restrictions since the Covid-19 pandemic began is already marred by disruption. Ongoing staffing issues and industrial action from airlines in Europe and the UK are impacting consumers’ holiday plans.  

UK airlines including British Airways and EasyJet are cutting summer flight schedules to cope with the issues. In an open letter in June 2022, the Department for Transport and UK Civil Aviation Authority called on airlines to improve “the resilience in the system, planning and scheduling” to avoid repeating “unacceptable scenes” of disruption already endured by passengers. Carriers have been told to cancel flights sooner rather than later. The UK government has also set out a 22-point plan to support the aviation industry and help protect passengers. 

Meanwhile, despite the chaos, Hong Kong’s airline Cathay Pacific Airways has become the “best performing major airline stock in the world”, according to an article in Bloomberg UK. This is despite flying just 2% of the flights it operated before the pandemic, according to an article in Fortune by Nicholas Gordon.

Gordon highlights a few reasons for this. “Analysts point to the revival of Cathay's cargo business, the carrier's ample liquidity, and a long-hoped-for review of Hong Kong's quarantine policy as the factors powering investors' positive sentiment.”

With other airlines struggling, those like Cathay Pacific who are thriving have a greater opportunity to extend their lead in the race to recovery.

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Published: 15 Jul 2022
  • Wealth Management
  • Operations
  • currency exchange volatility
  • US
  • Covid-19
  • economic recovery
  • economy
  • insurance

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