In A Good Augury, Industry Restructuring Is Gradually Taking Shape

Although international global travel remains 5.5 per cent below pre-pandemic levels, IATA director general Willie Walsh opines that the gap is “rapidly closing and the current economic headwinds are not deterring people from taking to the skies”. IATA also noted that long-term airline profitability shows that while the industry is exposed to external shocks, it typically returns to profitability “relatively quickly”. Robert Morris, global head of consultancy at Cirium Ascend Consultancy, commented that airlines had one of their best years in 2023. “When you bear in mind that this is the start of the next growth cycle, it is surprising when you look at their finances,” he said. Cirium was expecting the airline industry to exceed IATA’s operating profit forecast for 2024. Many of the larger airlines have worked towards reducing their debt stacks and smooth out their debt maturities to provide comfort to investors and shareholders that they are on a more stable track. Smaller airlines may be struggling with the heightened cost environment but lessors report that most customers are back to paying their lease rentals on time. For all the negative outcomes of the pandemic, air travel demand continues to grow, and consumer trends point to travel and tourism having increasing priority over other forms of discretionary spending.

At the same time, capacity discipline is being imposed on the sector. With OEMs struggling to address supply chain tangles and dealing with other challenges, aircraft deliveries are likely to be depressed for the next few years, though this is not entirely negative. The tightness of air travel supply is supporting fares at healthy levels and restraining the tendency in some segments of the industry towards headlong expansion. On top of this, the sector is engaged in a deep modernization. The pandemic tipped the balance on digitalisation, sending airlines racing to embrace new technologies to solve issues like personnel shortage, price uncertainty and rising demand for product personalisation. Airlines are undergoing a quiet revolution, transforming their digital and physical products to enhance services on the ground and in the air. While airlines took a battering from the global pandemic, the industry, by and large, is emerging more competitive and is demonstrating that it is adept at tackling these problems and quite profitably.

The airport sector is confronted with some of the same challenges as airlines—and some that are uniquely its own. And, of course, some of those challenges will become opportunities. The pandemic still hangs heavily over the airport industry, because during its depths many construction activities were either suspended or cancelled. Unlike airlines, airports need to take a much longer-term viewpoint on strategy and development, especially when it comes to infrastructure. Annual airport traffic data for 2023 may indicate the first “normal” performance since 2019. However, while a closer look at the world’s top 20 airports gives an average passenger growth rate in 2023 versus 2022 of 38.2 per cent, those airports remained 35.9 per cent behind the 2019 figure. The expectation of a turnaround by now were shattered by Russia’s invasion of Ukraine, the ongoing conflict in Gaza and the knock-on effects on supply lines, business and inflation well beyond national borders. All of these have contributed to an ongoing

economic downturn.