Aviation Wrap-Up September 2023

The month of September saw multiple sectors in the aviation industry making significant progress. Low-cost carriers, now operating one-third of the world’s scheduled flights, continue to grow and gain market share. Air cargo carriers, which had been struggling to regain their footing for over a year, seemed to have turned a corner based on narrowing declines and an increasing airfreight rate index. For their part, airports continue to drive their sustainability missions in new and broader ways.

Low-Cost Carriers Taking Flight

Over the past year, low-cost carriers (LCCs) rose to the challenges and opportunities presented by the COVID-19 pandemic. Some such as Wizz Air and Indigo took the pandemic downtime as an opportunity to evaluate their markets and develop new strategies. Others assessed their fleets, expanding them in order to facilitate their market growth. These so-called budget airlines keep ticket prices down by subscribing to a no-frills approach (e.g., single aircraft fleets, no inflight meals, or charges for drinks and food as an optional service, reduced baggage allowances, etc.). They also follow a business model through which they generate up to approximately 50% of their revenues from ancillary products purchased by passengers. Their strategies are working. Of the 811 scheduled airlines,102 are LCCs. According to Available Seat Kilometers (ASKs), 80% of all flying is handled by just 13% of all airlines. Of this 13%, 29 LCCs are represented reflecting their strong global presence.

Dominating the LCC category is the world’s largest LCC, Southwest. It is based in the United States in North America where there and in Europe, 8 of the Top 10 LCCs are based. Southwest provides 11% of global ASKs. Ryanair, based in Ireland, follows closely at 10% of ASKs. IndiGo, based in India, which has achieved rapid growth, is now the 4th largest LCC,  and Lion Air, based in Indonesia, holds the 10th spot. Regionally speaking, while North America and Europe may have the most LCCs on the Top 10 list, South Asia, including India, can boast the highest market penetration by LCCs which handled 63% of all seats in the 12 months leading to August 2023.

As for managing their routes, LCCs vigorously assess the profitability of different routes within the context of their whole network. When routes are underperforming, LCCs remove them from their schedule. Airports too are carefully selected with LCCs often using secondary airports which offer less congestion although they are often situated away from major cities, but also lower airport charges as airport expenses for upgraded terminals and boarding gates are not incurred.

Several LCCs have been successful operating across multiple markets. Ryanair, EasyJet and Wizzair are good examples of LCCs which cover locations in Scandinavia, as well as Central, Eastern, and Southern Europe, close to the Middle East. Similarly, Air Arabia and Air Asia also have based in multiple countries enabling them to maximize their networks within those countries’ bi-lateral agreements.

By deploying effective strategies and adopting advanced technologies, LCCs are well-positioned to continue their steady growth and expansion.

After some ups and downs, it´s looking brighter for the air cargo market.

Firmer Air Cargo Market

In the latest weekly numbers from TAC Index, the overall BAI airfreight rate index had increased by 4.8% over the prior seven days. Additionally, the year-on-year decline that same week was 38.5% compared to the previous weeks 44.4%. These performance measurements point to a firmer air cargo market as do other metrics.

Pre-order bookings for some major product launches (e.g., the new iPhone) are increasing in time for a strong peak season and air cargo market into Q1 2024. In China, the period leading up to the Golden Week, saw index for outbound Hong Kong routes increasing 2.1% week on week. There is some speculation the certain forwarders, in particular those involved heavily in e-commerce, and who did not secure adequate capacity may be challenged and forced to incur higher rates in the upcoming weeks.

There was an increase of 5.9% in rates coming out of Shanghai and with improvement to North America and Europe. Within routes from Asia to the  U.S. and Europe, market demand for airfreight capacity is rising. Countries such as Thailand, Vietnam, Singapore and Malaysia in Southeast Asia are benefitting from rising consumer electronics and semiconductor demands. Concurrently, e-commerce and new product launches are driving higher demand levels in China and Hong Kong. With capacity affected by the activity in these high-volume routes passing through three primary gateways (i.e., HKG, PVG and TPE), there is the expectation that longer transit time and rising rate levels will be experienced.

What’s Next for Airport Sustainability?

Airports have been making excellent strides in sustainability. According to Alexandre de joybert, Director of Sustainability at ACI Europe, over 500 airports across the world are now accredited through the Airport Carbon Accreditation program, the only global sustainability standard for airports. They are addressing their carbon footprints at one of six levels with the program’s framework. This is quite impressive given that when the program was launched in 2009,just 12 Europe airports were participating. It is even more significant when you consider the hurdles airports have had to overcome during the pandemic and now in the post-pandemic period also impacted by rising inflation, geopolitical factors, and climate change events. These impacts, however, have further strengthened the airports’ commitment to reducing their CO2 emissions.

The Airport Carbon Accreditation Report 2021-2022 noted that accredited airports reduced their CO2 emission between May 2021 and May 2022 by more than half. Additionally, 900,0000 tons of CO2 emissions were saved from entering the atmosphere as a result of airport investments in reliable carbon credits.

With their sustainability performance, these accredited airports are now serving as platforms for third party reductions with the goal to further reduce CO2 emissions. From the Airport Carbon Accreditation program’s Level 3, airports are required to provide evidence of their effective partnerships with companies active on their premises. As the central congregating place for aviation operations, airports realize their responsibility to the surrounding communities in which they are based to foster broader sustainability in accordance with the net zero emissions goals set forth by the GHG Protocol. The ACI EUROPE resolution, the backbone of that goal, was launched with 100 airports, but has since grown to 273 participating airports representing Europe’s busiest hubs.

Airports will still have to grapple with double-digit inflation depleting revenues and labor shortages as they continue to advance their goal to reduce CO2 emissions and move towards net zero emissions. They will continue to adopt new technologies and make necessary infrastructure changes to support decarbonization.

>> What lessons do you think the third quarter of 2023 has left for the industry? Let us know your thoughts in the comments!




























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