On an upward trajectory: How the regional aviation industry is charting its recovery

Last month’s images of queues disrupting operations at UK’s prominent airports and the subsequent calls to cap passenger numbers by the country’s aviation authorities may not have gone down well with airlines and travellers, but in the larger – and probably brighter – picture, are indicative of the rapid recovery of the global aviation industry.

The International Air Transport Association (IATA) forecasts that 2022 will be a promising year for the aviation industry, as demand for travel returns, and industry-wide profitability is possible by 2023. The North American market is already expected to deliver a profit of $8.8bn by the end of this year. Industry losses are expected to reduce to $9.7bn (compared to the previous estimate of a loss of $11.6bn) for a net loss margin of -1.2 per cent. This is a huge improvement from losses of $137.7bn (-36 per cent net margin) in 2020 and $42.1bn (-8.3 per cent net margin) in 2021.

Driven by strong pent-up demand, eased travel restrictions, and growing employment rates, passenger numbers will reach 83 per cent of pre-pandemic levels this year. Cargo volumes are expected to reach a record high of 68.4 million tonnes in 2022.

“Airlines are resilient. People are flying in ever greater numbers, and cargo is performing well against a backdrop of growing economic uncertainty,” says Willie Walsh, IATA’s director general. “It is a time for optimism, even if there are still challenges on costs, particularly fuel, and some lingering restrictions in a few key markets.”

Growth drivers
As people return to travel, flying revenues are rising. But now airlines are faced with the challenge of keeping costs under control if they want to see top-line growth. IATA’s improved financial outlook comes from pegging costs to a 44 per cent rise while revenues increase by 55 per cent. “As the industry returns to more normal levels of production and with high fuel costs likely to stay for a while, profitability will depend on continued cost control. And that encompasses the value chain. Our suppliers, including airports and air navigation service providers, need to be as focused on controlling costs as their customers to support the industry’s recovery,” adds Walsh.

According to IATA, industry revenues will reach $782bn (an increase of 54.5 per cent compared to 2021), 93.3 per cent of 2019 levels. A total of 33.8 million flights are expected to take oš this year, which is 86.9 per cent of 2019 levels (38.9 million flights). Passenger revenues will double from 2021 levels, standing at $498m. Scheduled passenger numbers are expected to reach 3.8 billion, with revenue passenger kilometres (RPKs) growing 97.6 per cent compared with 2021,
reaching 82.4 per cent of 2019 traffic.

As pent-up demand is released with the easing of travel restrictions, yields are expected to rise by 5.6 per cent. The outlook for cargo is buoyant too, aiming to rake in $191bn in revenues. The industry expects to carry a record-high of over 68 million tonnes of cargo by the end of this year.

It won’t only be revenues that will rise this year. Goaded by the rise in fuel prices, the crisis in Ukraine, and general inflation, the industry’s overall expenses are also expected to surge by 44 per cent from 2021, touching $796m. Fuel will be the industry’s highest expense, accounting for 24 per cent (based on an expected average price for Brent crude of $101.2 per barrel and $125.5 for jet kerosene) of overall costs. This year, the high spread between crude and jet fuel prices has been well above historical norms due to capacity restraints at refineries and will continue to remain elevated in 2023 if further investments are not made in this sector.

The situation will push airlines to improve their fuel efficiency through the use of more efficient aircraft and operations. Labour was named as the second highest operational cost for airlines by IATA. As the industry rebuilds, direct employment in the sector is expected to reach 2.7 million, an increase of 4.3 per cent from 2021. However, this is still below 2019’s 2.93 million jobs. The time required to recruit, train, complete security and background checks, and perform other necessary processes before staff is “job-ready” is presenting a challenge for the industry in 2022. In some cases, employment delays may act as a constraint on an airline’s ability to meet passenger demand.

Regional focus
Middle East airlines will heave a sigh of relief as international routes and long-haul flights make a comeback this year. Region-wide, net losses are expected to narrow to $1.9bn in 2022, compared to losses of $4.7bn last year. Demand (revenue passenger kilometres or RPKs) is expected to reach 79.1 per cent of pre-crisis (2019) levels, and capacity 80.5 per cent.

For the financial year ending March 31 2022, Dubai carrier, Emirates Airline’s total revenue increased by 91 per cent to Dhs59.2bn ($16.1bn) from last year. The airline carried 19.6 million passengers (up by 199 per cent) in 2021-22. Emirates SkyCargo reported a revenue of Dhs21.7bn ($5.9bn), an increase of 27 per cent over last year. The Emirates Group posted a revenue of Dhs66.2bn ($18.1bn), marking an increase of 86 per cent over the 2020-2021 results. This summer, the airline expects to fly over half a million passengers out of Dubai.

Similarly, flydubai is expecting three million passengers to travel across its network from July to September, marking the period as the busiest summer in the airline’s history. An average of 8,500 departures per month are scheduled across flydubai’s network of 102 destinations, which exceeds prepandemic levels.

“Our agility and preparedness, strong business model, and the scheduled aircraft deliveries this year will see that we are well placed to overcome the challenges through which we as an industry continue to navigate. We look forward to an
exceptional summer of connecting people, opening up underserved markets, and providing our customers with more options to travel,” says Ghaith Al Ghaith, CEO at flydubai. The airline has already added frequency on some of its popular routes and will also be adding four new aircraft to its fleet this month.

The upcoming FIFA World Cup in Qatar is also a major number booster for the airline which has launched ‘Match Day Shuttle’ flights between Dubai and Doha. The shuttle flights are being offered in partnership with Qatar Airways and other partner GCC national carriers and will provide football fans with convenient travel options to the matches that will take place from 21 November to 18 December 2022.

On the freight front, Emirates SkyCargo reopened its hub at Dubai World Central (DWC) in March this year, after a hiatus of almost two years. The reactivation is in response to the growth of Emirates’ passenger network and operations, as well as the progressive increase in cargo volumes. In a related development, Dubai International (DXB) airport raised its annual passenger traffic forecast for 2022 to 58.3 million, from an earlier projection of 57 million. Passenger traffic in the first three months of the year clocked in at 13.6 million – double the number during the same period last year.

The airport’s performance is a “direct outcome of Dubai’s clear strategy and efforts to restore international air connectivity and mobility, and lead the global aviation industry out of an unprecedented crisis”, says Paul Griffiths, chief executive of Dubai Airports. The UAE’s national carrier, Etihad Airways posted a record-breaking core operating profit of $296m in the first half of 2022, compared to a $392m loss in the same period last year. The airline carried 4.02 million passengers (three million more than the same period last year) and passenger revenues reached $1.25bn in H1 2022. Cargo operations saw a 6 per cent revenue growth at $802m for the same period. The airline is now geared up for a busy summer.

In June 2022, Etihad announced that it was ready to welcome 2.7 million passengers across its network of which 1.4 million would depart from its hub at Abu Dhabi International Airport. Mohammad Al Bulooki, chief operating officer, Etihad Aviation Group, said: “As travel rebounds from the impact of the global pandemic, Etihad has witnessed a vast increase in bookings over recent weeks. With summer holidays upon us and to manage the increase in passenger numbers, Etihad has bolstered operations both locally and across our global network to ensure guests enjoy a seamless airport and flight experience.”

Neighbouring Saudi Arabia has announced ambitious plans for its aviation sector, as it continues its privatisation drive. As per the National Aviation Sector Strategy announced by the General Authority of Civil Aviation (GACA), Saudi Arabia will boost its tourism market through increased connections to over 250 destinations around the world, reaching 330 million passengers. At last month’s Farnborough International Airshow (FIA), Saudi Arabia announced that it would slash airport charges by almost 35 per cent at its Riyadh, Jeddah, and Dammam
airports. The reductions will be implemented later in the year.

Preparations are also in place to launch a new national airline. Based at the King Khalid International Airport in Riyadh, the new carrier will play a central role in the country’s plan to kick-start its “golden era of travel” and transform it into one of the leading aviation hubs in the Middle East. Additionally, Saudi Arabia is seeking to position itself as a cargo hub.

At the FIA, GACA invited private companies such as Amazon, Alibaba and DHL to ramp up their operations and infrastructure, create local partnerships, and set up freight-forwarding and warehousing activities in the kingdom. The advance into air cargo and logistics is in line with Saudi Arabia’s Vision 2030 framework to reduce its dependence on oil and diversify its economy and aims to accelerate the capacity of the kingdom’s air cargo sector to more than 4.5 million tonnes per year by the end of the decade as part of a $100bn plan to enlarge the aviation sector.

Further afield, Qatar Airways is preparing to launch more routes this year. The airline returned to profitability in 2021 – the first time since 2017 – reporting a net profit of $1.54bn. For this year, the airline plans to continue its strategic investments in other airlines, which include International Airlines Group (25.1 per cent), Cathay Pacific (9.99 per cent), LATAM (10 per cent), and China Southern Airlines (3.62 per cent).

Steered by agile and fit-for-purpose operations across all business areas, the Group generated a strong EBITDA margin of 34 per cent at QAR 17.7bn ($4.9bn), higher than the previous year’s EBITDA by QAR11.8bn ($3.2bn). Despite the pandemic, Qatar Airways grew to more than 140 destinations in 2021/22. The airline opened new routes as well as resumed operations in its key markets across Europe, Africa, the Middle East and Asia. Qatar Airways Cargo (QAC) remained one of the leading player in the world as its revenue experienced an impressive growth of 25 per cent over last year. It was named among the top leading cargo airlines in the world by the IATA World Air Statistics 2021 report, coming in at number three position with 13.74 billion CTK (cargo-tonne-kilometres). QAC transported more than 600 million doses
of the Covid-19 vaccine, over the course of the pandemic up to June 2022.

For this year, the airline plans to continue its strategic investments in other airlines, which include International Airlines Group (25.1 per cent), Cathay Pacifi c (9.99 per cent), LATAM (10 per cent), and China Southern Airlines (3.62 per cent). Saudi Arabian Airlines (SAUDIA) climbed up by 13.1 per cent in the annual Brand Finance Top 50 airlines annual report, a review of the most valuable and strongest airline brands worldwide, in June 2022. Achieving an ‘A’ brand rating, SAUDIA was rated the ‘fastest growing airline brand’ in the Middle East. The airline attributed the surge in brand performance to overall growth in its route network; expansion to new markets; growth in passenger numbers, and enhancements in the onboard product, lounges, and guest services.

Given the spate of positive news coming out of the Middle East’s aviation sector, it is evident the industry is well on its way to recovery, underlined by enhanced passenger numbers, cargo and an increase in fleet sizes.