By Pearce Hopkins
One of the sectors hit hardest by COVID-19 during 2021 was the aviation industry. Cirium, a team of U.K.-based global aviation analysts, reported that the pandemic effectively devasted international travel, erasing years of growth in this industry: approximately 15 years’ worth of gains in passenger capacity across international travel was lost due to global lockdowns, knocking back recent passenger capacity to levels seen in the mid-2000s. Even by the end of 2021, demand in the aviation industry was not equal to even half of its pre-pandemic level, sitting at roughly 40% of its previous rate. It will take the aviation industry a long time to propel itself back up to the pre-pandemic conditions and return to a more stable economy. So, what are we to expect from the aviation industry in 2022?
‘We are well past the deepest point of the crisis.’ claims Director-General of the International Air Transport Association (IATA), Willie Walsh, ‘While serious issues remain, the path to recovery is coming into view. Aviation is demonstrating its resilience yet again.’ The IATA suggests that prospects for aviation are hopeful looking towards 2022, with circumstances improving as a result of vaccination efforts helping ease the spread of the pandemic. Cirium’s forecast for the future of air travel is also optimistic, suggesting that 2022 has the potential for significant progress to be made in aviation returning to previous levels of operation. Anticipating an industry growth of 47% this year, Cirium believes that, by this year’s end, that global passenger capacity levels could return to those seen in 2015. Such anticipated growth indicates a promising uptake in people travelling worldwide, giving hope to many in the industry that these predictions will come to fruition.
One notable prediction for 2022 is a general increase in air travel prices. Without the need to keep prices low to stimulate consumer demand, airlines will be eager to raise the cost of travel to make up for their losses during the pandemic. Businesses in air travel have already suffered vast losses due to the pandemic. By the end of 2020, the pandemic had been responsible for $140 billion in net losses across aviation worldwide, devasting companies in the industry. Losses were reduced to $52 billion in 2021 and losses in 2022 are expected to sit just below $12 billion. Walsh claims that airlines have been forced to reduce costs wherever they can to sustain the losses of the pandemic and make it out the other side, suggesting that airlines will increase prices as soon as they are able so they can begin to recuperate their losses. Especially given that the demand for air travel this year is expected to far outweigh passenger capacity this summer, it should be no shock to holiday planners that they will be spending more on their travel costs than usual.
Even though the ‘deepest point of the crisis’ may be in the past, both COVID and the travel regulations imposed to reduce the spread of the virus will still loom over the aviation industry this year – although it’s likely that circumstances will continue to improve. The international restrictions introduced as a result of the Omicron variant certainly posed a challenge to the aviation industry, but evidence from the final quarter of 2021 shows that travel was not affected too significantly. Tim Clark, the President of world-renowned airline Emirates, said that Omicron did not dent overall demand for tickets during the winter travel season, illustrating that COVID-19’s hold over the growth of the aviation industry is clearly beginning to weaken. This information implies that new and emerging variants of the coronavirus are unlikely to hinder travel as much as those reported in the early stages of the pandemic. Provided new variants do not lead to increased hospitalisations or prove current vaccines ineffective; international borders should begin to relax their entry restrictions and travel conditions can continue to prosper. It is incredibly unlikely that 2022 will see any full air transport shut-downs.
In terms of business, Cirium anticipates a strong and steady recovery for business-related travel. They suggest that there will be a 36% increase in business travel since last year and that the expected rate of recovery for business travel will be faster than past predictions, defining a promising outlook for business travel in following years. One of the strongest upsides of lockdown was the introduction of business calls over platforms like Zoom or Microsoft Teams, enabling companies, universities, schools and other groups to continue their meetings from home without having to risk worsening the circumstances of the pandemic. With organisations adjusting to accommodate working from home, findings have suggested that this new approach has led to an increase in productivity. A Connect solutions survey discovered that nearly four out five people who chose to work from home at some point during the pandemic saw improvements to their productivity. Furthermore, 30% reported that they were able to get more work done in less time. This enhancement in productivity has led to suggestions that business travel will not make a significant comeback; after all, where is the need for travelling 4 hours for a meeting in Dubai when each party is still able to participate with only a laptop and decent internet connection? Has the new working-from-home climate made business travel redundant? The IBA cooperation argues against this, having seen various incidences of improvements in remote conferencing posing a threat to business travel. They don’t think these changes pose a threat to business travel as in person gatherings will always be preferable, such as the COP26 conference taking place in Glasgow towards the end 2021.
The impacts of the COP26 conference in November 2021 will also likely play out within the aviation industry. The 2050 Net Zero Carbon Emissions pledge acted as a significant pillar for most businesses present at COP26, and this atmosphere has likely folded into the principles of most companies involved in the aviation industry. COP26 has pushed forward the agenda for the use of sustainable aviation fuel. SAF is an alternative to traditional fossil jet fuel that produces far less carbon emissions as it is made from sources like cooking oil, solid waste from homes or plant waste. BP reports that sustainable aviation fuel produces 80% less carbon emissions than fossil-based jet fuel. As well as this, SAF has been proven safe to use and suitable for all aircraft. The main issue preventing SAF from being used more widely across more airlines is the price: since the technologies needed to create SAF are still developing, it remains an expensive alternative to traditional fuels. SAF’s high cost is the main factor preventing more companies from investing in sustainable fuel. BP predicts that, over time, as technologies used to create SAF improve, its prices are expected to go down and more airlines will invest in renewable substitutes.
Geographical regions are expected to perform differently over this coming year. Whilst most regions will still suffer net losses, all regions’ losses are down from 2021. Travel in North America is expected to make the strongest recovery, supported by the lack of restrictions over domestic travel in the United States. North American travel in 2022 is expected to make a profit of nearly $10 billion and is likely the only region that won’t see losses this year. In Europe, airlines are anticipating losses of up to $9 billion this year, but the introduction of the European Digital Covid Certificate should help ease international travel back to pre-COVID conditions. Both Latin American and Middle Eastern airlines will see loses of roughly $4 billion in 2022. Middle Eastern losses are partially dependent upon the lack of connections through the Pacific Asia, a region that is taking its time to open back up. Losses in this region are expected to be at around $2.4 billion this year. Lastly, African airlines will lose $1.5 billion in 2022 due to the low vaccination rates across the continent.
Overall, it’s clear that the effects of the pandemic are casting a dark cloud over the aviation industry and will continue to do so throughout this year. However, progress back to pre-pandemic conditions is going well and hopefully, after what might be an extended delay, the industry will be ready to get back on track and take off again.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.