Passenger traffic on airlines globally is set to equal or surpass 2019 levels this year, an analysis of the aviation sector by PwC has concluded.
However, recovering from around four years of lost growth arising from disruption brought about by the Covid pandemic will take longer, it believes.
Air freight markets will remain relatively weak, however, with a recovery in volume growth offset by soft rates, the report notes.
Despite that, airline profitability bounced back in 2023 with figures from the the International Air Transport Association (IATA) pointing to further growth this year with an expected cumulative $49 billion in operating profit and a net profit of $23 billion across the sector.
"There is further upside potential from strong demand and robust pricing power," the report concludes.
Airlines in Europe and around the world have been pushing up pricing in recent months on the back of a lack of capacity and strong demand.
Ryanair Group CEO Michael O'Leary has warned that prices are likely to continue to rise in the coming years.
Challenges ahead
Nonetheless, airlines will continue to face operational challenges in 2024, combined with slower yield growth and higher costs, the report concludes.
Labour and debt servicing in particular will create economic headwinds.
Quality and supply chain issues will likely frustrate manufacturers' plans to increase production rates too.
However, the return on invested capital for airlines is expected to approach 5% and there is scope for the airlines to do better than forecast.
"This is a remarkable performance that speaks volumes for the resilience and adaptability of the industry as well as the undisputed global demand and need for air travel," Dick Forsberg, Senior Aviation Finance Consultant, PwC Ireland and author of the report said.
"This outcome is materially ahead of mid-year expectations largely due to the airlines’ ability to pass on cost increases to passengers which, on top of the demand-driven pricing opportunity, resulted in fares that in many markets were 20-30% higher in 2023 than pre-Covid," he added.
The report also notes that 2023 was a stand-out year for aircraft lessors with strong demand for aircraft and substantial improvements in lease rates leading to strong profitability.
Lessors contributed an estimated $40 billion of delivery financing in 2023, with a further $6.5 billion in used aircraft sale and leaseback transactions, the report shows.
