Aviation industry to reach pre-pandemic levels in 2023

02 March 2022 Consultancy.uk 4 min. read
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The global aviation market has endured a nightmarish two years, thanks to direct limits on travel, and lingering fears around public health and safety in the latter stages of the pandemic. However, a new report suggests the sector is about to return to health, reaching pre-pandemic levels in 2023.

While a significant portion of domestic air travel demand around the world recovered in the last year, research from Oliver Wyman states that the unpredictable nature of Covid-19 is still acting as the industry’s biggest obstacle to business as usual. For example, the rapid spread of Omicron at the end of 2021 meant that a number of challenges prevented the industry from fully bouncing back to the performance of 2019.

The pandemic’s early stages had a catastrophic impact on the aviation industry in 2020, pushing a number of firms begging for multi-billion bailouts, or collapsing into administration

Global airline industry financial performance

As bad as the situation seemed then, however, Oliver Wyman asserts that it actually turned out to be even worse in the long-run. According to the International Air Transport Association (IATA), annual airline losses in 2020 totalled $137.7 billion – 16% higher than the $118.5 billion projected at the end of 2020.

While pockets of demand began to recover in 2021, stabilising these losses partially, the rise of new variants and the continued reluctance of the public to risk travelling, meant that aviation still endured a global net loss of $51.8 billion. This leaves the $26 billion profits of the sector from 2019 still resembling a distant aspiration.

With that being said, airline revenues are expected to make steady progress through 2022 – thanks to falling rates of infection across leading markets such as the US and UK, and the current prevalence of milder strains of the coronavirus. As a result, while short-term margins are expected to remain in the red, global losses for 2022 are forecast at $11.6 billion – before Oliver Wyman anticipates a return to 2019 levels of profit in the following year.

Following the return to stability, meanwhile, the aviation sector looks set for single-digit growth over the following decades. The sector’s gross domestic product looks set to grow most rapidly in the Asia-Pacific region, where the gradual re-opening of society is expected to see aviation GDP rise by 3.7% between 2020 and 2040. This will come from traffic growth of 5% over the same period.

20‐year projections for gross domestic product and traffic growth

In contrast, Europe looks set to see airlines enjoy slower rates of growth. However, proportionally Europe’s GDP growth seems to be lower than its traffic growth. While the continent’s airline traffic will increase by 3.1%, GDP will expand by less than half than that – suggesting airlines in Europe may be failing to cash in on their demand as efficiently as they might. Changing this will be key to not only bounce back from Covid-19, but to prepare for a number of new challenges in the coming decades.

"There is optimism that the industry has turned the corner and is now on an upward trajectory – but the next 10 years will be filled with a multitude of challenges that will test the industry's resilience unlike ever before," Brian Prentice, a partner with Oliver Wyman. "As unimaginably bad as COVID-19 has been for aviation, the challenge of the next decade may be almost as disruptive. The industry needs smart strategies to get itself in a better position by the 2030s."

Alongside future government travel restrictions, and disruption of the supply chain, aviation will increasingly have to reckon with its sustainability impact. This may present an opportunity for the European industry to improve its bottom-line, though. For example, through the last two years, more than 100,000 ghost-flights took place over Europe’s skies. With airport regulations changing to waive the 80% threshold for many airport slots, airlines failed to take advantage of the opportunity to cut down on waste – something which might have helped find important savings while demand was lower, while also down-sizing their carbon footprint.