The fact that the corona pandemic has hit the aviation industry particularly hard can best be illustrated by the following figure: In the past three years, the industry has made a loss of almost 190 billion US dollars. That’s more than it had earned in decades before, including the boom years from 2010 to 2019. 85 airlines have gone out of business since the pandemic began. But now a trend reversal is in sight: According to a forecast by the International Air Transport Association (IATA), the industry expects to be in the black again in 2023 for the first time since 2019.
“The recovery is strong,” says IATA boss Willie Walsh. “I’m basically optimistic. And I think we shouldn’t worry too much.” It is true that the many corona-related travel restrictions are in the past, with the big exception of China. Demand is currently around 74 percent of 2019, with extremely high ticket prices. However, after Corona, the industry transitioned almost seamlessly into the next crisis: high inflation, high fuel costs and the war in Ukraine.
According to IATA, airlines will report net profits of $4.7 billion again in 2023, which corresponds to a margin of 0.6 percent. American airlines will be by far the most profitable ($11.4 billion profit). They benefit from the large domestic market, where demand has come back much earlier. In Europe, on the other hand, it is still enough to make a minimal profit of around 600 million dollars. Airlines across Asia will remain in the red overall – many governments have maintained travel restrictions here longer than elsewhere. They still apply in China today – but Walsh assumes that this will probably change over the course of the next year, which should also give a significant boost to growth there. On the other hand, the profits depend primarily on the price of oil: the airlines had expected an average price of around $62 for kerosene at the beginning of 2022, and it ended up being $103. For 2023, they calculate an average of even 111 dollars.
According to IATA, air transport demand will return to 2019 levels in 2024. For chief economist Marie Owens Thomsen, it is important that the unemployment rate in many countries is still very low, so many people can continue to travel despite inflation. If significantly more people were to lose their jobs, it would have an impact on the industry. The strong demand has continued of late, even though airlines have charged historically high ticket prices. They were also able to do this because the supply, i.e. the number of aircraft used, is still significantly lower than three years ago.
Walsh does not assume that the upcoming wave of Christmas travel will lead to the same chaotic conditions as last summer, when airports and airlines were overwhelmed by the influx of passengers. Long queues had formed at the security checkpoints, and the airlines had to streamline their programs in order to fly reliably again instead of having to cancel hundreds of connections every day. Walsh believes that most airports now have the situation better under control, with the exception of Amsterdam and London Heathrow.
The engines are missing spare parts
IATA initiatives to get passengers on board through airports faster and more conveniently slowed down the pandemic. Among other things, the world airline association would introduce electronic identification of suitcases, eliminating the paper tags that have been used for decades to state the passenger’s name, flight number and destination, so that the luggage lands on the correct aircraft. According to IATA, the “baggage tags” that are printed out every year are enough for a band that winds twice around the world. The airline association also demands that airports use better scanners at security checks. Machines in which passengers no longer have to take liquids and electronic devices out of their pockets are far from being used everywhere. Among other things, they can already be found at Munich Airport.
The industry is also feeling bottlenecks because of the aircraft manufacturers: Airbus and Boeing are far from being able to keep their delivery commitments to airlines and leasing companies. “The airline bosses are extremely frustrated,” says Walsh. “They plan with the planes and have staff available, but nobody gives them a delivery guarantee.” It will be interesting to see how this affects the relationship with the aircraft manufacturers.
Airbus often delivers its short and medium-haul aircraft with a delay of months. On Tuesday, Airbus received its forecast for the production ramp-up, which is now to take place more slowly and therefore takes longer. Boeing has similar problems and builds far fewer 737 MAX and 787 than intended. There are some internal reasons for this, but manufacturers are often waiting for parts from their suppliers and are unable to finish building the machines. Airlines, too, often have to leave machines on the ground at the moment because there is a lack of spare parts, especially for the engines. “I didn’t realize how big the problem really was,” says Walsh.