The period from 2020 to 2023 is the "lost four years" for the global aviation industry. After suffering the ruthless impact of the epidemic, the global aviation industry has finally returned to its pre-epidemic state after nearly four years. This week, global airline capacity is expected to finally exceed corresponding levels in 2019, according to aviation analytics firm Cirium. Despite this, airlines are still facing a series of problems, such as the unsatisfactory pace of aviation demand recovery, aircraft supply shortages and increasing competition.
Global air capacity has returned to pre-pandemic levels, a moment that marks a major milestone in the post-pandemic recovery that has plunged the world's $1.17 trillion travel market into an unprecedented existential crisis - with widespread border closures forcing airlines to ground their fleets and pushing the industry to the brink of collapse. The long aftermath, from travel lockdowns and airline understaffing to fitful reopenings due to the coronavirus, has weakened the industry's finances. When travelers emerging from home quarantine finally broke free last summer, airlines and airports were unprepared, disrupting flight schedules and causing chaos in terminals.
A return to pre-pandemic flight capacity – the number of seats on offer multiplied by distance flown – reflects airlines’ resilience and ability to adapt to changing conditions. Still, in many ways it has become a tougher industry: flying demand has not fully recovered in some parts of the country. Second, airlines have been struggling with ongoing aircraft supply bottlenecks, a vexing legacy of the pandemic. Additionally, Russian airspace is now closed to many Western airlines, adding to the list of post-pandemic challenges.
According to the International Air Transport Association, airline industry profits this year will be less than 40% of 2019 levels. Business travel has still not fully resumed, and it’s unclear when, or if, it will resume. With prospects for a recovery in business travel uncertain, operators are doing whatever they can to profit from the fading leisure-retaliation travel boom. Adding insult to injury, jet delivery delays and engine problems have clouded growth prospects, while labor, jet fuel and debt-servicing costs are mounting.
"Industry revenue is back to 2019 levels, but costs are 18% or 19% higher than 2019 levels. Wages are up 35.40%, which is crazy. I've seen this before, and it's unsustainable," said Helane Becker, U.S. aviation analyst at TDCowen.
Aviation demand has not yet fully recovered
And as the world's largest source of outbound tourists in 2019, Chinese tourists have just begun to return to the world stage. China was one of the first markets to close its borders at the beginning of 2020 and one of the last to relax international travel restrictions at the beginning of this year. Nonetheless, the recovery of tourism will benefit domestically first. In August this year, restrictions on group travel to overseas destinations such as Australia, the United States, and the United Kingdom were just lifted.
So far, the problems caused by the epidemic have not been completely resolved, and the travel of Chinese tourists has not yet fully returned to pre-epidemic levels. Similarly, China's inbound and outbound tourism has not fully recovered to pre-epidemic levels due to factors such as visa troubles, inconvenient payment systems, and lack of flights. Julia Simpson, CEO of the World Travel and Tourism Council, said in an interview on September 19 that it may take another year for China’s cross-border tourism to fully recover.
OAG, which tracks aviation industry trends, said passenger traffic between China and the United States and Canada in September was about one-tenth of pre-pandemic levels. A big factor is that due to geopolitical tensions, the number of weekly flights between China and the United States will increase to 24 by the end of October. Before COVID-19, there were an average of 340 flights per week between the two countries.
Outbound travel from France and Japan is also bleak, although Thailand has seen an increase in tourist numbers after temporarily relaxing visa rules for Chinese tourists. John Grant, chief analyst at OAG, said that Thailand is one of the popular destinations that may benefit from China's lifting of the ban on group tours.
Another major reason why the international recovery of the aviation industry lagged behind the domestic market was the Russian-Ukrainian war. U.S. and European airlines can no longer fly to Russia or pass through Russian airspace on their way to Asia, increasing costs and lengthening routes. However, Chinese, Middle Eastern and Indian airlines are exempt from the Russian ban. Guillaume Faury, chief executive of aircraft manufacturer Airbus, said at an event in the United States on September 12: "This is no longer a level playing field. Every airline has a different situation to deal with."
As of September, global cross-border capacity was down 8% from 2019, according to Cirium. Transatlantic traffic has returned to pre-COVID-19 levels, while transpacific and Europe-to-Asia traffic fell by 31% and 17% respectively. Major U.S. and European airlines have had to redeploy aircraft to other routes.
Asian routes Finnair CEO Topi Manner told an event in London that flight times to destinations such as Japan, South Korea and China have increased by 30-40%. He said the airline retained just a third of its foothold in Asia while refocusing on the United States, the Middle East and India. British Airways, once the second largest operator of flights to China, now offers nearly 40% fewer seats on these routes than before COVID-19, according to Cirium data.
Aviation consultant John Strickland said that the UK was one of the largest destinations for Chinese tourists before the epidemic. As tourist groups go overseas again, Chinese airlines are seeking to capitalize on this demand; Chinese airlines are not subject to the Russian airspace ban and "have less fuel expenditure and shorter flight times." One destination where Chinese airlines are regaining control of demand is also the United Kingdom. By taking advantage of the convenience of entering Russian airspace, many Chinese airlines are offering more seats than before the epidemic.
Although capacity has been restored, passengers are not filling all seats. Bookings from China to the UK in September were around 43% of 2019 levels, according to data from VisitBritain. This is up from 6% in January.
Competition among airlines increases and they are looking to expand their scale
In Europe, Ryanair (RYAAY.US) and Wizz Air are increasing competition and rapidly expanding their fleets after the epidemic. The same goes for American airlines Spirit Airlines (SAVE.US) and JetBlue Airways (JBLU.US). “Their streamlined operating model, with minimal reliance on connectivity traffic and multiple operating bases in many countries, allows them to stay ahead of legacy operators and, where possible, time their capacity growth to coincide with market openings,” Grant said.
In addition to adding aircraft, stronger airlines are also consolidating. In the United States, JetBlue Airways is seeking to acquire Spirit Airlines, which would make it the fifth-largest U.S. airline in terms of domestic passenger traffic. Europe's three largest airline groups, Air France-KLM, British Airways parent IAGSA and Deutsche Lufthansa AG, are adding weaker rivals to their portfolios.
In India's fast-growing aviation market, low-cost airline IndiGo is strengthening its dominant position by acquiring operations from weaker airlines. The resurrected Air India Ltd. has acquired all shares of AirAsia India and plans to acquire Vistara, a joint venture between Tata Group and Singapore Airlines Ltd.
Airlines face plane shortage
Airlines that ordered aircraft before the pandemic were more likely to see growth. Boeing's (BA) production has fallen behind due to the grounding of the 737 Max in 2019, and neither Boeing nor Airbus have returned to earlier production levels. Wait times for new planes have increased and airlines have been racing to place orders and secure delivery times beyond the end of the decade.
Supply constraints left over from the pandemic, coupled with recent jet engine problems, have slowed deliveries and caused airlines to idle planes for repairs. The result is a lack of available aircraft, hampering capacity growth and forcing older aircraft to remain in the fleet longer. Rob Morris, director of consultancy AscendbyCirium, said: "Airlines are unable to get new aircraft as quickly as planned. This has also created a shortage of second-hand aircraft."
Cirium data shows that the number of aircraft in the global fleet that are 20 years old and above has increased by 25%, while the number of aircraft that are less than 10 years old has decreased by 2.7%. Overall, the average age of commercial airliners was 10.8 years, compared with 10 years in 2019.
Aging aircraft will hinder the aviation industry's goal of achieving net-zero carbon dioxide emissions by 2050. While production of new-generation, more efficient jets remains below pre-pandemic levels, air traffic has returned to 2019 levels, underscoring the difficult road to sustainable carbon emissions. According to Cirium, global flight capacity is expected to grow at an annual rate of 3.6% between 2019 and 2041, while CO2 emissions will rise at a rate of 2.7% rather than fall.
Changing this trend will require expensive alternatives to aviation kerosene. Cirium noted that this would pass on CO2 emissions costs to passengers, which would create another potential drag on demand growth. The cooling demand has brought new challenges. After peaking in May 2022, U.S. airfares have fallen below 2019 levels - even as cost inflation takes an increasing toll on profits. According to the U.S. Consumer Price Index, fares in August were down about 5.3% from the same period in 2019.
This is a problem for airlines as fuel prices and labor costs are rising. Airlines including Delta Air Lines (DAL) and American Airlines Group (AAL) have lowered their profit forecasts in recent weeks. In Europe, airlines are already discounting tickets as demand heads into autumn. Analysis of Cirium data shows that while prices on short-haul routes are mixed, fares on popular long-haul routes remain strong.
Still, Guliz Ozturk, chief executive of Turkish budget airline PegASUSHavaTasiMaciligiAS, said the "revenge" travel was over, but that didn't mean demand was declining. While consumers have become more price-sensitive, they are still traveling, extending the summer travel season into the typically slow months of October and November. "Looking ahead, the demand is there," Ozturk said.