ISTAT News | 25 January 2022
Jetrader: Global Passenger Markets: A Peek Into the Future
The recovery of passenger travel through the COVID-19 pandemic has been fitful and geographically disparate, characterized not so much by the disease itself but by a diversity of containment strategies and the differences in their evolution over time.
2021 has seen the approval and growing availability of vaccines worldwide. In several jurisdictions we can speak of mass vaccination strategies, but easing of travel restrictions has been hampered by the slow pace of mutual recognition of one territory’s rules by other governments.
Some clear patterns have emerged: Large domestic markets with a single regulatory perimeter of control, such as China and the United States — but equally Russia and India —have been the fastest to recover. In some cases, they saw a return to 2019 levels for a short period before being challenged by the emergence of variants and local or national lockdowns.
Although Europe is largely a single market, it has been subject to a variety of national containment policies that converged only in the summer holiday period with the adoption of a single electronic document for vaccinated passengers. This arrived just in time, given that European carriers are more dependent on the summer season than their peers in other regions.
Long-haul traffic has remained moribund, and air services have been largely underpinned by cargo traffic and the need for the major hubs to maintain connectivity. The decision to open Europe-to-U.S. markets to fully vaccinated travelers from November was greeted by a surge of forward bookings, demonstrating a high level of pent-up demand. This is important in absolute terms as it is the largest long-haul market, but also as an indicator of what may happen as other long-haul markets open up in future.
FIGURE 1: VACCINE ROLLOUT OUTLOOK
(12 years old and up)
Sources: Our World in Data, UN, Airbus Global Market Forecast (Sept. 2021)
Low vaccination rates in some Asia-Pacific countries, coupled with very strict lockdown rules, mean that we have yet to see the beginnings of an international recovery in the region as we go to press. However, we have seen an acceleration of vaccination campaigns in many Asian countries, allowing the progressive abandonment of “Zero Covid” strategies in some countries in favor of selective and controlled reopening.
What of 2022?
It is still too early to cry victory over COVID-19, given the potential emergence of new variants and risks of seasonal resurgence during the northern winter. However, the reduction in hospitalizations and deaths among the vaccinated give cause for hope. The end-of-2021 holiday season will be a telling indicator. If all goes well, we can expect a stronger reopening during 2022 and an even clearer correlation between vaccination coverage and easing of restrictions, which we model coming three to six months after a 70% vaccination threshold is reached. In some Asian countries, that point may not be reached until the second half of 2022.
With that caveat, we still see a clear potential for a very strong summer 2022 travel season in many parts of the world, particularly as confidence returns if any health impacts linked to the reopening are demonstrably manageable at a local level.
At Airbus, we update our traffic recovery corridor (see Figure 2) regularly, but for several months, our top-line message has not changed. We see an aggregated global recovery window from 2023-2025, with domestic travel leading — in some areas already occurring, otherwise from 2022 — followed by regional travel and long-haul travel, which will take the longest to recover. As we revise our modeling of traffic recovery, we now see variations from one month to the next that are within the margins of uncertainty inherent to our scenario assumptions. In some cases, we see these boundaries moving forward in time, but would look to see two to three quarters of continuous improvement in the trend.
FIGURE 2: WORLD TRAFFIC OUTLOOK (RPKS)
(base 100 compared to equivalent month in 2019)
Sources: IATA, FlightRadar24, OAG, SABRE, Airbus Global Market Forecast (September 2021)
Of course, traffic recovery is only the starting point. So far, airline managements worldwide have shown exemplary prudence and discipline, and tough negotiations between different actors in the value chain have nevertheless been built to a large degree on mutual understanding and transparency. Capacity is returning with the initial objective of rebuilding network connectivity. Load factors are strengthening and pricing improvement should follow. But this will not happen overnight. Airlines are carrying huge levels of debt. Further restructurings will happen, and cash will remain critical as operations expand.
The good news is that there is a clear willingness to travel driven strongly by leisure and VFR (visiting friends and relatives) traffic and also a desire to renew and refresh business relationships. However, it is too early to unfasten our seat belts. The future is likely to see changes in the competitive landscape among airlines, as the healthier ones recover faster than others and position themselves to build market share. Equally, we should expect modifications to travel patterns, including a different balance between business and leisure travel, which may take longer to stabilize after the shock of the pandemic, both in terms of passenger numbers and willingness to purchase premium class tickets.
Should we expect a challenge to air travel in the future as significant as the unprecedented pandemic we have seen? The answer is “yes,” although it is less of a shock; we can already see it coming and have opportunities to collectively prepare. I refer, of course, to the impact of climate change, and even though it is more gradual than COVID-19, it is inexorable, and the scale of adaptation and preparation we need brings an urgency no one in this industry can ignore.
Bob Lange is the senior vice president of business analysis and market forecast at Airbus.