2024: A Return to 
Normal?  Nov/Dec 2023

After four years of the catastrophic crisis of the Covid-19 pandemic, the world’s airline industry is finally approaching recovery to the level of activity seen in 2019: the latest IATA estimates suggests that total passenger numbers in 2023 will only have been 4.8% below pre-pandemic levels, with load factors at 82% on a par; and that forecast passenger numbers in 2024, of 4.7bn, should exceed 2019 levels by 4.5%. Is everything back to the status quo ante pestem?

In December, IATA made a major revision to its annual forecast of the airline industry’s financial performance from the version it presented to the group’s AGM in June. Traffic was performing better than earlier expected, and IATA estimates that the global industry will have carried 4.3bn pax in 2023, 22% higher than the year before and 94% of the level in 2019, having in its previous forecast in June expected a 12% shortfall. With the opening of border restrictions, long haul traffic grew faster and demand in RPK is estimated to have grown by 38%. IATA expects a further increase in passenger numbers in 2024 of 10% to 4.7bn — 4% higher than the previous record in 2019, but 7% below what we might have expected from the long term trend (see graph).

Passenger yields have also been stronger than anticipated, with an estimated year-on-year increase of 6% — it had earlier thought that yields would decline by 1%. Passenger revenues are estimated to have reached $642bn, 47% up on the year before and 5% higher than 2019. Cargo is another story (see below).

The organisation has consequently raised its financial forecasts. Industry revenues in 2023 may approach $900bn, 22% higher than prior year levels, 11% higher than it previously estimated; and 7% higher than in 2019. It increased its estimate of 2023 operating profits threefold to $40.7bn, and net profits by $13.5bn to $23.3bn. This compares with results of $43.2bn and $26.4bn at the respective levels in 2019.

For 2024 its initial forecast shows a return to almost normal conditions: a near 10% increase in RPKs and passenger numbers, passenger yields 1.8% higher, cargo demand up by 4% but yields down by 21% (leaving cargo yields 11% higher than in 2019), total revenues up by 7.6% to approach $1tn; and an operating profit of $49.3bn reflecting a 5% operating margin.

Roller-coasting Fares

Fares have seen a roller-coaster ride since the start of the pandemic.

The “normal” condition in the airline industry (and one of the principal determinants of its growth) is for air fares to fall in real terms — between 2004 and 2019 fares (including taxes and fees) declined by an average annual 4.3% (and over 5% a year for the five years to end 2019).

According to data published recently in the Financial Times (see graph), there was an initial strong spike in fare increases at the start of the pandemic (perhaps relating to the rapid grounding of aircraft and travellers' eagerness for repatriation). Through much of 2020 and 2021, fares plummeted by 20-30% before rebounding as domestic markets recovered. But with the gradual reopening of borders from the beginning of 2022 there was a massive 30-40% jump in the cost of tickets. (This co-incidentally was a period that saw jet fuel prices reach a record high of $172/bbl, as well as US inflation rising towards 10%).

Year-on-year growth has been dissipating through 2023, although fares are on average substantially higher than in 2019. The Financial Times notes that economy fares on popular routes such as London-New York JFK, at $343 one-way (ex taxes and fees), are 19% higher than pre-pandemic (although the demise of Norwegian may have something to do with it); and Singapore-Sydney is $100 more expensive, or 30% higher.

This has been reflected in recent published results — particularly of the US and European airlines — which have shown unit revenues far outstrip pre-pandemic levels. Many have been reporting record quarterly revenues and profits (excluding a poor summer season for US LCCs, mainly reflecting heavy competition on point-to-point routes).

Airlines have faced criticism, particularly in Europe. Italy tried (illegally) to impose price caps on some island routes. The EU Commission said in November that it would be investigating why, according to the Financial Times, “airlines had pushed up fares by 30% over the summer creating bumper profits”.

One might have thought that Brussels would understand the laws of supply and demand. Fares have risen because of the strength of “pent-up” demand, increases in non-controllable costs (air traffic control, airport charges) combined with a lack of capacity — supply chain issues limiting the delivery of new aircraft and restoration of parked equipment to working order, let alone the P&W geared turbofan problems grounding A320s.

According to IATA’s estimates, the global average one-way fare in 2023 could have been $150, 14% higher than in 2019 in nominal terms but 11% lower in real terms: and in real terms 55% lower than at the peak of the previous cycle in 2008.