GLOBAL air travel volume is expected to finally exceed pre-Covid levels in 2024 as the Asia-Pacific region makes a full recovery, said 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 Covid-era losses to near-2019 levels.

However, persistent supply issues and thin profit margins are among the obstacles to aviation’s strong showing.

Full global recovery

“In 2024, air travel recovery will be complete,” said Subhas Menon, director-general of the Association of Asia Pacific Airlines (Aapa).

The International Air Transport Association (Iata) forecasts that in 2024, airlines will make US$25.7 billion in profits, on the back of a record US$964 billion in revenue.

It expects all regions to hit pre-pandemic passenger levels by end-2023 – except for Asia-Pacific, where full recovery is anticipated in early 2024.

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For 2023, global revenue passenger kilometres (RPK) are expected to be 38.4 per cent higher than 2022, but still 4.8 per cent 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 per cent in 2024, rising to 4.5 per cent above 2019 levels.

All this is based on a projected 4.7 billion air passengers in 2024, 9 per cent more than the 4.5 billion in 2019.

Promising demand

The strong performance in 2023 bodes well for the coming year, said observers.

Manfred Seah, chief financial officer at aviation gateway services provider Sats : S58 0%, 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 that 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 per cent, while business-class fares are 17 per cent 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 per cent 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”.

The China question

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 per cent of 2019 levels. But excluding China, Asia-Pacific volumes had reached 87 per cent 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.

Aircraft supply constrained

However, soaring demand might be constrained by supply, as is the case this year. This is expected to continue through 2024 or even 2025, as supply chain issues hinder aircraft deliveries and maintenance.

“(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,” said Willie Walsh, Iata’s director-general.

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.

Goh Choon Phong, chief executive officer of Singapore Airlines : C6L 0%, expects the airline’s capacity to reach around 92 per cent of pre-pandemic levels this December – with the shortfall due partly to delays in aircraft delivery and parts.

A Singapore Airlines spokesperson said that an order of 31 Boeing 777-9 planes, scheduled for delivery in 2024, has been delayed. No estimate was given for the new delivery timing.

As at October 2023, Airbus and Boeing have massive backlogs of orders – a record 8,024 for Airbus and a near-record 5,783 for Boeing.

“What we are seeing now is a scarcity of aircraft on the market,” said Raul Villaron, vice-president Asia-Pacific for Brazilian aircraft manufacturer Embraer.

“If you look at Boeing and Airbus, new deliveries only start in 2028 or 2029,” he said, adding that he expects production and supply issues to continue for two to three years.

Soaring, but on thin air

The outlook could also be clouded by the airline industry’s thin margins. Iata’s projected net profit margin of 2.7 per cent is “far below” what investors in industries would expect, said Walsh.

“There are some airlines doing well, but in the main, this industry is not recovering its cost of capital. It’s still struggling at a global level,” he said.

Iata’s Matters noted that macroeconomic conditions, fuel prices and regional conflicts could continue to dictate the industry’s fortunes in 2024.

For example, while low unemployment drives flight demand, it could make it harder to find skilled manpower and put upward pressure on wage costs, he said.

Oil and fuel prices, which spiked when the Russia-Ukraine war began in 2022, are still “relatively high”, Matters added. Iata predicts that fuel costs could grow 6.9 per cent to US$914 billion.

Still, observers agree that these factors will hamper but not ground the aviation industry.

“All costs – not just fuel – are also spiking. Inflation and other economic concerns will hit pockets. But travel demand is resilient,” said Menon.

.“I think we can pretty much stop talking about the recovery. The recovery is kind of over, we’re now looking ahead, we’re looking forward,” said Matters.