Growth year: Tourists posing on a beach as an airplane prepares to land at the Phuket International Airport in Thailand. Driven by sustained demand, 2024 could be a banner year for airline profits. — AFP
SINGAPORE: Global air travel volume is expected to finally exceed pre-Covid-19 levels in 2024 as the Asia-Pacific region makes a full recovery, say industry observers.
Driven by sustained demand, this could make 2024 a banner year for airline profits.
The industry made a dramatic recovery in 2022 and 2023, bouncing back from record pandemic-era losses to near-2019 levels.
However, persistent supply issues and thin profit margins are among the obstacles to aviation’s strong showing.
Association of Asia-Pacific Airlines (Aapa) director-general Subhas Menon said: “In 2024, air travel recovery will be complete.”
The International Air Transport Association (Iata) forecasts that in 2024, airlines will make US$25.7bil in profits, on the back of a record US$964bil in revenue.
It expects all regions to hit pre-pandemic passenger levels by end-2023 – except for the Asia-Pacific, where full recovery is anticipated in early 2024.
For 2023, global revenue passenger kilometres (RPK) are expected to be 38.4% higher than 2022, but still 4.8% short compared to 2019.
Defined as kilometres travelled by paying passengers, this is a key indicator of passenger demand and airline performance. Iata expects RPK to grow 9.8% in 2024, rising to 4.5% above 2019 levels.
All this is based on a projected 4.7 billion air passengers in 2024, 9% more than the 4.5 billion in 2019.
The strong performance in 2023 bodes well for the coming year, said observers.
Manfred Seah, chief financial officer at aviation gateway services provider Sats, said: “The global passenger travel recovery is encouraging, despite the continuing macroeconomic uncertainties and current geopolitical situation.”
Aapa’s Menon highlighted a trend of discretionary spending going to services such as food and beverage, entertainment and tourism, rather than material goods. He believes this will continue in 2024.
Bertrand Saillet, managing director for travel management company FCM Travel Asia, noted that rising demand has pushed up airfares in Asia.
For the year to date, economy-class fares in the region are up 21%, while business-class fares are 17% higher compared to 2019.
FCM Travel Asia also saw more bookings for corporate travel in November 2023 compared to a year ago, and expects travel demand to continue to grow in 2024.
Economic resilience, too, should continue. Andrew Matters, Iata’s director for policy and economics, highlighted the International Monetary Fund’s projections for global gross domestic product growth of 3% in 2024 and “robust” labour markets, with unemployment rates in many countries at or near record lows.
“I think it’s very clear that there’s pent-up demand, people want to travel,” he said. Strong labour markets mean that “not only do people want to fly, they have also got the means to fly”.
But Iata’s projections are “highly dependent on the continued strong recovery in the China market”.
One downside risk is a poorer-than-expected recovery for China, which would hurt demand. Pre-pandemic, China accounted for a fifth of Asia-Pacific’s flight traffic.
According to Aapa, as at September 2023, China flight traffic was just 54% of 2019 levels. But excluding China, Asia-Pacific volumes had reached 87% of pre-pandemic levels.
Menon noted various factors hindering the recovery of outbound China traffic, including instability in the property market, a weak currency, fewer China students going abroad, as well as rising youth unemployment.
There is also a backlog of passports to be issued and the Chinese government is encouraging domestic spending instead.
Nevertheless, Menon expects China to “grow strongly” in 2024 and thus Asia-Pacific will recover fully, with some markets exceeding 2019 levels.
“China’s recovery is subdued but overall travel to China will grow strongly and Chinese airlines will also partake in this revival,” he said.
However, soaring demand might be constrained by supply, as is the case in 2023. This is expected to continue through 2024 or even 2025, as supply chain issues hinder aircraft deliveries and maintenance.
Iata director-general Willie Walsh said: “(Manufacturers) continue to disappoint not only with delays in the delivery of new aircraft but also getting access to spare parts for aircraft in service.”
Airbus and Boeing have faced supply chain disruptions and production delays. So have engine manufacturers Pratt & Whitney and Rolls-Royce, leading to more maintenance and downtime for aircraft. — The Straits Times/ANN
