Aviation Wrap-Up August 2022

As the summer comes to an end, the season closes with some changes in regional performance, concerns over higher airfares, and the focus on the cargo sector’s failure to more rapidly toward digitalization to replace inefficient manual processes.

Western Europe on Top in Airline Capacity Regional Rankings

Western Europe can boast as it takes over the top berth from North America in airline capacity rankings. This switch in rankings between the top leaders can, in part, be attributed to difference in school start-up dates and holidays. It won’t surprise anyone if  North America reclaims its position as the largest regional market. Currently, capacity in Europe is up by 0.5%, while North America is down by 1.3%. Both regions are closer to their pre-pandemic levels; North America at 90% of 2019 levels and Western Europe at 88%. Looking ahead over the next three months, it appears airline capacity will remain relatively stable. Still, there was a 0.4% reduction in capacity despite the fact that most airlines are in control of their planned capacity through the end of 2022. A closer look at other regions reveals how they are performing.

On the good news front, China has resumed more international flights beginning with those to London and other European destinations. In South East Asia, the dependency on connectivity to North East Asia remains a challenge. Southern Africa is at 37% of its pre-pandemic capacity levels owing largely to the collapse of Comair and precipitous fall, but not collapse, of South African Airways though load factors are very high on major city pairings as airfare also continues to rise. Both Central and Western Africa are on an upswing at 11% higher than that of the same week in 2019. Central Asia too is operating ahead of pre-pandemic levels with an 11% positive variance. This reflects the increasing connectivity to this region, most notably from Europe and the Middle East.

How Will Rising Airfare Affect Middle-Class Travelers?

At the same time that major markets are grappling with rising interest rates and the specter of a recession, airfares are rising too. What will that mean for the middle-class who, often are most affected by economic downturns. Are they continuing with their vacation plans or deferring them due to high airfares? It appears affordability is a major factor in deciding whether or not to book a flight and where to go. This was reflected in GlobalData’s Q3 2021 consumer survey which posed the question, “Which factor helps you decide where to go on holiday? to which 55% of European survey respondents replied that “Affordability” was the main deciding factors in choosing a destination.

The International Air Transport Association (IATA) is forecasting a 5.6% increase in airfares globally through the rest of the year. At least one airline executive, Ryanair Group Chief Executive Michael O’Leary, seems to agree, noting that he anticipates summer fares in 2022 to be from 7% to 9% higher than they were prior to the pandemic.

In Europe, where a higher cost of living is diminishing discretionary income and higher jet costs are contributing to increasing fares, many price-sensitive middle-class consumers are holding back on travel plans. Even with the rising airfares, the optimistic tourism industry is predicting that  European tourism will return to pre-pandemic levels by 2025.Not everyone is as optimistic with many believing the government must step in to address the soaring cost of living and high fuel prices.

Digitalization – The Key to the Air Cargo Industry’s Improved Performance

The transition to digital processes is well underway across the aviation industry with passenger airlines, airports and ground handlers adopting advanced technologies to optimize their processes. The air cargo sector, however, remains slow to adopt digitalization.

According to a Chartered Institute of Transport and Logistics UK Aviation Policy paper, the sector has “perhaps not” kept pace with technology made available at the start of the pandemic. The paper cited that, mechanized processes, robotic and AI as key solutions for faster, safer freight airport operations.

In further advocating for digitalization, the paper noted that, “Digitalization provides the opportunity for specialist freight airports to insert services into the supply chain to derive additional revenue streams,” as well as better meet consumer demand for quicker order deliveries.

The paper also cited other ways digitalization would help the air cargo sector, which included:

optimizing air cargo loads by enabling national or global digital twin technology, while achieving higher performance and sustainability. Adopting other aircrafts such as drones and airships, and applying new green technologies such as hydrogen, hybrid and electric, were further noted as ways for the air cargo sector to optimize its processes.

Despite Challenges, 25 Air Cargo Carriers Emerged on Top

The IATA World Air Transport Statistics (WATS) data for 2021 is now out and it reveals the top 25 performing cargo airlines for that year. Leading off the list in rankings from 1 through 10 were: Federal Express (FedEx), Qatar Airways, United Parcel Service (UPS), Emirates, Korean Air, Turkish Airlines, Cargolux, Atlas Air, Cathay Pacific Airways, and China Southern Airlines.

Of these ten airlines, Federal Express repeated its top ranking from 2020, while Qatar moved up one spot, UPS dropped one spot, Emirates held onto its prior ranking, Korean Air moved up one, Turkish Airlines moved up two, Cargolux remained in the same ranking, Atlas Air moved up four, Cathay Pacific dropped four, and China Southern dropped one spot.

Rounding out the “Top 25” list were: China Airlines, Air China, Kalitta Air, AeroLogic, AirBridgeCargo Airlines, Singapore Airlines, Lufthansa, All Nippon Airways, EVA Air,  United Arlines, Asiana Airlines, Ethiopian Airlines, Air France, Etihad Airways, and Polar Air Cargo.

Traffic in scheduled cargo tonne km (CTK) terms increased 18.7% year on year in 2021 compared with the 10.6% decrease in 2020. Leading carriers experienced a 18.8% year on year volume increase. Some airlines, such as FedEx  and Air Nippon benefitted from the rise in e-commerce during the pandemic, while pandemic-related cargo shipments benefitted other airlines such as Qatar. Cargo airline and aircraft lessor Atlas Air, gained in market growth and increased charter demand.

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