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The global airline industry has always been resilient, weathering numerous challenges over the years.
However, the Covid-19 pandemic presented a unique and unprecedented crisis that sent shockwaves through the industry. As the world begins to emerge from the pandemic, it's essential to analyze how the airline industry has adapted and transformed during this turbulent period.
Overview:
The International Air Transport Association (IATA) has announced an expected strengthening of airline industry profitability in an upgrade of its outlook for 2023. The highlights include the following:
Airline industry net profits are expected to reach $9.8 billion in 2023 (1.2% net profit margin) which is more than double the previous forecast of $4.7 billion (December 2022).
Airline industry operating profits are expected to reach $22.4 billion in 2023, much improved over the December forecast of a $3.2 billion operating profit. It is also more than double the $10.1 billion operating profit estimated for 2022.
Some 4.35 billion people are expected to travel in 2023, which is closing in on the 4.54 billion who flew in 2019.
Cargo volumes are expected to be 57.8 million tonnes, which has slipped below the 61.5 million tonnes carried in 2019 with a sharp slowing of international trade volumes.
Total revenues are expected to grow 9.7% year over year to $803 billion. This is the first time that industry revenues will top the $800 billion mark since 2019 ($838 billion).
Expense growth is expected to be contained to an 8.1% annual increase.
“Airline financial performance in 2023 is beating expectations. Stronger profitability is supported by several positive developments. China lifted COVID-19 restrictions earlier in the year than anticipated.
Cargo revenues remain above pre-pandemic levels even though volumes have not.
And, on the cost side, there is some relief. Jet fuel prices, although still high, have moderated over the first half of the year,” said Willie Walsh, IATA’s Director General.
The return to net profitability, even with a 1.2% net profit margin, is a major achievement.
The initial impact:
The first wave of the pandemic hit the airline industry hard. With travel restrictions, lockdowns, and fear of transmission, demand for air travel plummeted. Airlines grounded their fleets, leading to unprecedented financial losses. Governments worldwide stepped in with bailouts and financial assistance to prevent widespread bankruptcies.
Survival strategies:
Cost-cutting measures: Airlines implemented strict cost-cutting measures, including staff layoffs, route suspensions, and the retirement of older, less fuel-efficient aircraft. Some airliners made passengers pay for services like meals, which were served free in the past. Excess luggage also attracted higher fees as well. Some tickets were non-refundable. And passengers had to be very careful with which kind of tickets they purchased. Every fine detail must be read, understood, and known to the passengers. No friendly or flexible terms existed for customers. At best, they were limited.
These measures were essential for financial survival but came at a human cost.
Health and safety protocols:
To regain public trust, airlines prioritized stringent health and safety measures. Mask mandates, enhanced cleaning protocols, and contactless services became the norm.
Fleet optimization:
Airlines used the crisis as an opportunity to optimize their fleets. They retired older aircraft, making way for more fuel-efficient and environmentally friendly options. This move aligns with the industry's growing commitment to sustainability.
Digital transformation:
The pandemic accelerated the adoption of digital technologies. Airlines invested in online booking systems, contactless check-in, and customer service chatbots to minimize physical contact.
Changing travel patterns:
The pandemic reshaped travel patterns and priorities. Business travel, traditionally a significant revenue source for airlines, faced a significant decline as remote work and virtual meetings became the norm. On the flip side, leisure travel, particularly to domestic and outdoor destinations, experienced a resurgence. Airlines adjusted their routes and marketing strategies accordingly.
Sustainability and environmental concerns:
The post-Covid-19 era brought increased scrutiny of the airline industry's environmental impact. Airlines pledged to reduce emissions and embrace sustainable practices. This includes investing in cleaner technologies, sustainable aviation fuels, and carbon offset programs. Passengers are increasingly conscious of their carbon footprint when flying, leading to growing demand for eco-friendly travel options.
Consolidation and competition:
The pandemic accelerated consolidation in the industry, with some airlines merging or forming alliances to survive. This has led to increased competition on some routes, potentially benefiting passengers with lower fares and improved services. However, it also raises concerns about reduced options and potential monopolies in certain markets.
Government regulations:
Governments and aviation authorities introduced new regulations to address health and safety concerns. These include requirements for Covid-19 testing, vaccination passports, and quarantine rules. The complexity and inconsistency of these regulations pose challenges for both airlines and passengers, making it crucial for the industry to adapt and advocate for standardized, transparent rules.
The future of the airline industry:
The airline industry has shown remarkable resilience in the face of the Covid-19 pandemic. While challenges remain, there are reasons for optimism. Vaccination campaigns are progressing, borders have reopened, and travel demand is gradually returning.
For example, last year, in 2022, I was able to travel to England to visit my old school, the University of Northampton, and also visit family in Ghana. My work colleagues this year have vacationed in Iceland and Greece at an affordable price, with nice accommodations, food, and entertainment.
However, it is believed that the industry must remain agile and responsive to evolving circumstances.
The post-Covid-19 era presents an opportunity for the airline industry to reinvent itself. Sustainability, digital innovation, and customer-centric strategies will be key drivers of success. For example, Air France is offering round trips to Paris in August and September 2023 for about $900. Air Canada is also offering affordable prices to popular destinations in Cuba, Mexico, Dominican Republic, Jamaica, etc.
However, a seasoned analyst and a senior nurse in Los Angeles, California: USA: Mrs Bridget Boateng argued that "The airline industry has recovered and now ripping people off post covid and it's getting worse. They are getting so greedy. Last Dec, I paid $2500 to go to Ghana. I am trying to go back this Dec, and they are quoting me $3800 - $4500... how why? They barely serve you any good food on board and charge for any little luggage. It's ridiculous... They are getting too greedy, making all that profit at the expense of poor travelers."
While Squadron Leader Richard Ayigbe (RTD) - a very experienced and excellent pilot argued that " the increased operational cost likely to affect airlines is the war in Ukraine and pockets of conflicts around Africa (Sudan and Niger come to mind) as the airlines have to circumnavigate these areas which would increase their fuel cost and carbon footprint."
Nonetheless, it is important to argue that airlines that are prioritizing safety, environmental responsibility, and passenger convenience are likely to thrive in this new landscape.
Conclusion:
The COVID-19 pandemic brought the global airline industry to its knees, but it is now on a path to recovery. Adaptability and innovation have been the industry's lifelines, enabling it to navigate through unprecedented challenges. As the world reopens, the airline industry's ability to evolve and meet changing traveler expectations will determine its long-term success.
While the journey ahead remains a little challenging, the skies are clearing for a revitalized and resilient airline industry in the post-COVID-19 era. With increasing profits announced by IATA for the industry in 2023, the future looks bright with great expectations.
