Three years after the spread of COVID-19 grounded thousands of planes, demand for air travel is rising again, boosted by Beijing’s decision last month to phase out its zero-Covid policy.
In a report on Monday, Avolon, the world’s second-largest aircraft leasing company, predicted that global traffic would return to pre-pandemic levels as early as June this year – months earlier than most people in the industry had predicted.
The International Air Transport Association, which represents global airlines, predicts a full recovery by 2024.
“After a 70% rebound in passenger traffic last year led by … Europe and North America, Asia will drive growth in 2023, helped by the recent reopening of China,” Avolon said.
The data so far show Chinese are returning to travel in the run-up to the Lunar New Year, despite concerns about infections after Beijing lifted restrictions last month. Passenger traffic has increased to 63% of 2019 levels since the start of the annual travel season.
Others are not so optimistic.
“Airlines are not dramatically increasing their frequency to China. It is moving in the right direction, but … it will take some time,” said aviation consultant Bertrand Grabowski.
The crippling effects of COVID-19 bankrupted dozens of airlines and wiped billions of dollars from their balance sheets.
HIGHER PRICES, RENT RENTAL
The industry’s biggest concern now is getting its hands on enough narrow-body planes, the most widely used, to meet demand as battered supply chains slow the delivery of new planes.
Additionally, severe maintenance, repair and overhaul (MRO) bottlenecks frustrate efforts to keep existing aircraft in service or move others out of storage.
“The MRO is absolutely full,” said Grabowski, who added that stored aircraft need extensive checks.
Airlines and leasing companies have publicly lamented the delays in delivery and are believed to be pressuring the aircraft manufacturers for compensation.
Privately, many airline executives acknowledge that the shortage has allowed them to keep airfares higher to rebuild their balance sheets and to assuage fears of a recession.
So are air rents charged by landlords, some of which have increased by double digits on average over the past 12 to 24 months for a variety of reasons, said Rob Morris, global head of consulting at Ascend by Cirium.
Meanwhile, a number of macroeconomic concerns are keeping delegates on their toes ahead of the annual conferences in Dublin, which Airline Economics and Airfinance Journal are holding this week.
Inflation drives up aircraft parts and prices and raises questions about the resilience of travel demand.
With interest rates skyrocketing to fight inflation, leasing companies must pay significantly more to service the heavy debt they have built up from a years-long boom in aircraft orders.
All airlines face volatile oil prices, and those in most emerging markets face a sharp increase in the cost of dollars needed to pay for air fares and fuel.
All this is happening while the industry is figuring out how to implement and pay for the commitments to reach net zero emissions by 2050.
This week’s gathering of more than 2,000 financiers, lessors, investors, airline executives and manufacturers will spark hundreds of private gatherings to seek financial backing for newly delivered aircraft or to find new homes for old ones.
It is an annual ritual for the specialist and largely Irish-based industry, pioneered by the late leasing magnate Tony Ryan, whose empire flourished between the 1970s and 1990s and then rebuilt under the current market leader, AerCap.
Overall, more than half of the global aircraft fleet is controlled by global leasing companies rather than directly by airlines.