The Pathway to Recovery
It has been more than 1 year since the pandemic started. Travel restrictions, including quarantines in most countries, have killed demand for commercial flights. There is some relief to be found in various parts of the world now that vaccinations have begun, but the road to recovery for airlines will take several years. Domestic markets certainly will improve faster than international travel. Remote work is likely to remain in some form post-pandemic, so it will take a while for business travel to recover. Meanwhile, leisure trips or visits to relatives will rebound first, as people normally want to travel for holiday and see their family as soon as they can.
The Airlines Market Overview
The Report from IATA shows that North American airlines are best placed to take advantage of the rapid vaccination boost to domestic travel in the US, as well as the strong economy driving air cargo demand. European carriers are highly dependent on international passenger revenues. Along with testing, vaccines will play an important role in reopening international travel. Asia-Pacific benefits from the strength of the Chinese domestic market recovery, as well as the relative importance of air cargo to the region. Middle Eastern carriers will benefit from relatively rapid vaccination rates on home markets, however, with continued travel restrictions on many of the routes to emerging economies that are served through Gulf hub connections. Latin American carriers are advantaged by having almost half of their revenue being generated on domestic markets, especially in Brazil. African carriers will see slow vaccination rates limit international travel. Relatively weak economic growth will also limit the extent of pent-up demand.
The Air Cargo is a bright spot.
Air cargo demand is expected to continue growing through 2021 by 13.1% over 2020. This puts the cargo business in positive territory compared to pre-crisis levels (2020 saw a full-year decline of 9.1% compared to 2019). Before the pandemic, cargo typically made up around 12% of the sector’s total revenue, that percentage tripled last year. Many airlines are converting passenger aircraft to increase the cargo capacity and to take the advantage of the high demand in the market, while most commercial aircraft are still on the ground. However, this trend is not sustainable. Moving forward, understanding how passenger demand could recover will indicate how much belly capacity will be available for air cargo. Being able to efficiently plan that into air cargo operations will be a key element for overall recovery.
Dynamic movement in the Regional Market
Compared to the international commercial aviation market, the regional market has been less severely impacted by the pandemic. Since 2020, we have seen a dynamic movement from the airlines in searching for leasing deals and buying regional aircraft such as ATR42/72 and EMB170/190. The market for E190 and E195 is attractive because those aircraft models fill a gap between the Boeing 737-300 and smaller ATR72. The demand for E-Jets continues picking up. ATR has also become very attractive in the market for the vital connectivity that regional air travel has offered throughout the crisis, especially for underserved regions where land infrastructure is not a practical choice.
In short, although it will take a couple more years to fully recover, we still have a strong reason to believe there is light at the end of the tunnel. Hopefully, things can only get better from now on.