Operational challenges limit the altitude for airline travel as demand climbs

Airline reports and bookings indicate that air travel demand remains strong through 2024, despite serving most post-pandemic pent-up demand. Labour markets are still tight, and a positive factor for spending is that purchasing power should recover on the back of rising wages and lower inflation. Figures for the first quarter of 2024 indicate strong growth for revenue passenger kilometres (RPK) compared to the subdued start of 2023. This direction is confirmed by 10% higher global jet fuel consumption until mid-April.

People across the world are seemingly keen to travel and prioritise their trips despite more expensive tickets. And the global population continues to grow. The global branch of the International Air Transport Association expects global airline demand (in RPK) to grow at almost 10% in 2024 compared to the previous year, including the recovery of long-haul journeys. However, the growth figure may end up somewhat lower due to additional supply constraints at Boeing as airlines struggle to accommodate all demand with available seats. Nevertheless, passenger traffic will exceed pre-pandemic levels in the full year of 2024, as also signalled by airports.

Domestic travelling within large countries (40% of the global market) was the area first to recover, with its average already hitting pre-pandemic levels last year. But differences across regions are prevalent. In the US and China, traffic figures started 2024 beyond pre-pandemic levels, while airline travelling in a few large countries – including Australia, which lifted its long-lasting travel restrictions in 2022 – are still on a recovery track. Domestic travelling in India and China will continue to push global airline growth (more on this below). But more importantly, lagging international (and intercontinental) travelling is returning with more strength, and this will propel airline mileages in 2024.

As the world’s largest airline market, the Asia-Pacific region was the only region about to close a noteworthy gap in passenger traffic in early 2024. But since China fully reopened in early 2023, the market has been picking up quickly and large carriers such as Qantas and Cathay Pacific are catching up. The region will be a strong driver of global development in 2024, returning with double digit growth figures as a key growth engine. Without the pandemic plunge, the Asian market would have been even more prominent – and its rebound will therefore likely continue into 2025. Meanwhile, passenger growth rates in both Europe and the US are expected to remain in the low single digits.

Business travelling is one of the reasons why airlines adapted their coverage and networks still look different. Corporate travelling is still highly important for flag carriers such as British Airways (IAG) and slowing their recovery. Nevertheless, its putative demise has been overrated. Video conferences have been widely adopted during the pandemic, but old business habits still return when face to face presence is deemed important. Business travelling is under review among several large corporates adopting CO₂ targets and reporting on business travel emissions, but policies differ.

Increased costs are also a point of corporate attention. Global volumes still hovered at around 70% of pre-pandemic levels in the full year of 2023 – but the recovery is still underway, as pointed out by the Delta airlines corporate survey as well as airline reports. In the meantime, several airlines have adjusted to lower business traffic by offering premium economy class tickets to private consumers to keep seats occupied.

Continental European travelling has eventually recovered faster than expected, which is reflected in passenger figures of low-cost continental carriers such as Ryanair and Wizz Air. Demand is set to remain strong through the summer season, with the Olympics in Paris and the European Championship football in Germany both providing support.

Generally, travellers seem willing to pay higher fares – but significant ticket tax increases imposed by European countries are having at least some dampening effects, especially for low-cost carriers. Germany, for instance, raised its ticket tax for short haul flights by almost a quarter in 2024 to €15.53 and €70.83 for long haul flights.

The number of flights in Europe still hovers below pre-pandemic levels, which illustrates the crackdown on capacity growth (more below). Against this backdrop, operational challenges also play a critical role in keeping capacity afloat. Punctuality is still relatively poor, with just over 65% of European flights departing on time in 2023 compared to almost 73% in 2019. Several European airports and carriers encountered double digit cancellation rates, which also reflects the impact of more extreme weather events.

Despite increased climate awareness, the reality is that few people seem willing to shift away from air travelling – especially the more frequently travelling younger generation. Even in Europe, which is often said to be leading the energy transition and pushes rail on city connections below 750km as an alternative, people don’t seem to restrain their air travel very much regardless of flight shame.

In the Netherlands, for instance, 59.4% of those over 18 and under 35 have travelled by air in 2023, compared to 31.6% of people over 55 and under 75. Just 6.6% of the first group is willing to stop flying, compared to 14.5% of the latter. And those who say they'd reduce air travelling not always do so, a phenomenon known as the ‘say to do gap’. Pricing in the GHG impact could eventually force people to pay for emissions and include this in their decisionmaking. But on a global scale, full emissions pricing (comparable to Europe’s ETS) is still far away.

Airlines ordered new freighters and opted to turn passenger aircrafts into freighters amid soaring demand during the pandemic. It even triggered new players such as container liners CMA CGM, Maersk and MSC to enter the airfreight market. This turned into overcapacity when consumers shifted spending back to services, and intercontinental passenger traffic returned to the market in the run up to 2023 (belly capacity). This also forced highly elevated freight rates to came down. In April 2024, Asia eastbound and westbound rates (Baltic Exchange) still traded 50-70% higher at $4.5-5.5 compared to April 2019. On the other hand, transatlantic rates have slipped below pre-pandemic levels despite years of high inflation. After an extraordinary period, the contribution of aircargo to airlines' profitability dropped, but combining passengers and freight efficiently could still lift profitability in 2024.

The outlook for cyclical airfreight has turned brighter as world trade has picked up. Fast-growing cross border e-commerce (such as via webshops like Alibaba and Temu) supports growth more structurally. Another factor in play is supply chain frictions. As container shipping routes avoided the Red Sea region at the end of 2023, shippers turned to air cargo as a work-around for sensitive shipments. Although this is temporary, supply chains remain vulnerable, meaning that shippers of higher valued containerised products require air cargo as back-up.

Airline demand remains strong all in all. Capacity constraints do continue to provide an ongoing concern for airlines, curbing growth plans and putting operations to the test.