The international air travel volume is anticipated to finally overtake the pre-COVID levels in 2024 as the Asia-Pacific region is on the road to making a full recovery, opined industry observers. Pushed due to sustained demand, this can go on to make 2024 a banner year in terms of airline profits.
The sector, apparently, made a dramatic recovery in 2022 as well as 2023, bouncing back from the historic COVID-era losses that neared the 2019 levels.
But the persistent supply challenges as well as the thin profit margins happen to be among the barriers to aviation’s strong showcase.
Major global recovery
As per the director-general of the Association of Asia Pacific Airlines- Aapa, Subhas Menon, the fact is that in 2024, air travel recovery will be complete.
Apparently, the International Air Transport Association- IATA anticipates that in 2024, airlines will go on to make US$25.7 billion in terms of profits, on the backdrop of a record US$964 billion in revenue.
It goes on to anticipate that all regions will hit pre-pandemic passenger levels soon, except for Asia-Pacific, where an entire recovery is stipulated to take place in early 2024.
As the figures would come in, for 2023, the worldwide revenue passenger kilometres- RPK are expected to be 38.4% more than in 2022, but they would be still a 4.8% short as compared to what was seen in 2019.
Defined as the kilometers that happened to be traveled by paying passengers, this happens to be a major indicator of passenger demand along with airline performance. IATA anticipates the RPK to surge 9.8% in 2024, thereby growing to 4.5% more than the 2019 levels.
All this is purely based on the projected 4.7 billion air passengers in 2024, which is 9% more than the 4.5 billion in 2019.
A demand that looks promising
The robust performance when it comes to 2023 bodes pretty well for 2024, opine observers.
Manfred Seah, who happens to be the chief financial officer at aviation gateway services provider Sats: S58 +0.73%, said that the worldwide passenger travel recovery looks encouraging, in spite of the continuing macroeconomic challenges as well as the current geopolitical situation.
Menon from Aapa pointed out a trend of the discretionary spending going to services like food and beverage, entertainment, as well as tourism, rather than material goods. He thinks that this will continue in 2024 as well.
The managing director of one of the travel management companies called FCM Travel Asia, Bertrand Saillet, remarked that the rising demand has flared up the airfares across Asia. Notably, for the year to date, economy-class fares across the region are up 21%, while business-class fares happen to be 17% higher as compared to 2019.
FCM Travel Asia also witnessed more bookings when it came to corporate travel in November 2023 as compared to a year ago and anticipates travel demand to keep surging in 2024.
It is well to be noted that economic resilience, too, should go on. Andrew Matters, director for policy and economics at IATA, underscored the International Monetary Fund’s forecast for global gross domestic product growth of 3% in 2024 and a strong labor market, with unemployment rates in many nations to be at or near record lows.
He opines that it is indeed very clear that there is a pent-up demand, and the fact is that people want to travel. Strong labor markets go on to suggest that not only do people want to fly, but they also happen to be having the means to do so.
The China question
But, apparently, IATA’s projections are mostly dependent on the continued robust recovery in the China market. One downside happens to be a poorer-than-expected China recovery that would go on to hurt demand. Notably, pre-pandemic, China contributed to a fifth of Asia-Pacific’s flight traffic.
As per Aapa, as of September 2023, China flight traffic pegged at 54% of 2019 levels. But, interestingly, apart from China, Asia-Pacific volumes had reached 87% of the pre-pandemic levels.
Menon remarked that there are numerous elements that go on to hinder the recovery of outbound China traffic, which include instability in the property market, a currency that’s weak, fewer Chinese students opting to go abroad, and rising youth unemployment.
There also happens to be a backlog of passports that need to be issued, and the Chinese government is going ahead with encouraging domestic spending.
Nonetheless, Menon anticipates China to grow strongly in 2024, and thereby Asia-Pacific will go on to recover fully, with some markets overtaking the 2019 levels.
He went on to add that China’s recovery looks subdued, but the entire travel to China will surge strongly, and that the Chinese airlines will also play a part in this revival.
Constrained aircraft supply
But, apparently, the soaring demand might as well be constrained by supply, as was the case in 2023. This is all set to continue all throughout 2024 or even the year after that, as the supply chain issues would go on to hinder aircraft deliveries as well as maintenance.
IATA’s director-general, Willie Walsh, opines that the manufacturers happen to be consistently disappointing, not just with delays in the delivery of new aircraft but at the same time with having an access to spare parts for aircraft which is in service.
Airbus as well as Boeing have gone on to face supply chain disruptions along with production delays. So have the engine manufacturers Pratt & Whitney as well as Rolls-Royce, thereby leading to more maintenance along with downtime for the aircraft.
The chief executive officer of Singapore Airlines, Goh Choon Phong : C6L +0.46%, anticipates the airline’s capacity to touch almost 92% of the pre-pandemic levels in December 2023, with the shortfall because of delays in aircraft delivery and parts.
One of the Singapore Airlines spokespersons went on to state that an order of 31 Boeing 777-9 planes, which is scheduled for delivery in 2024, has gone on to get delayed. No particular timeline has been given for the new delivery timing.
It is well to be noted that as of October 2023, Airbus as well as Boeing happen to have massive backlogs of orders, which is a record 8,024 for Airbus as well as a near-record 5,783 when it comes to Boeing.
The vice president of Embraer, the Brazilian aircraft manufacturer, Raul Villaron, said that what they are seeing now happens to be a scarcity of aircraft on the market.
He adds that if one looks at Boeing and Airbus, new deliveries will only begin in 2028 or 2029, and that he expects production as well as supply issues to continue for another two to three years.
Soaring, however, on thin air
The outlook can also go on to get clouded by the airline sector’s thin margins. IATA’s projected net profit margin of 2.7% happens to be far below what investors in industries would go on to anticipate, said Walsh.
There happen to be some airlines that are doing well, but in general, this sector is not recovering the cost of capital. It happens to be struggling at an international level.
Matters from IATA noted that macroeconomic conditions, fuel prices, as well as regional conflicts could go on to continue to dictate the fortunes of the industry in 2024 as well.
For instance, while low unemployment goes on to drive flight demand, it could make it even harder to find skilled manpower as well as put upward pressure on wage costs.
Oil along with fuel prices, which spiked when the Russia-Ukraine war started in 2022, happen to be relatively high, as per Matters. IATA, in all likelihood, anticipates that fuel costs could grow 6.9% to US$914 billion.
However, the observers agree that these factors will go on to hamper but not ground the aviation sector.
All costs, not just fuel, happen to be spiking as well. Inflation, as well as other economic concerns, would go on to hit pockets. But travel demand happens to be resilient, opined Menon.
Matters thinks that one can pretty much stop talking about recovery. It is kind of over, and they are now looking ahead and looking forward.