A resilient airline industry emerges but not without its challenges

20 January, 2022

The aviation sector and its customers are highly resilient. Despite the pandemic, recovery is now underway across much of the world and we expect this to continue to gather momentum as the travelling public regain confidence and COVID-19 moves from pandemic to endemic. This is according to our 'Aviation Industry Outlook 2022' authored by Dick Forsberg, Senior Aviation Finance Consultant, PwC Ireland, published today.

The report highlights the following key 2022 predictions for the airline industry:

  • Most of the world will transition to treating COVID-19 as endemic rather than a pandemic
  • Orders and deliveries of new fleet will both increase, ending 2022 close to pre-COVID-19 levels
  • Lessors will once again finance over 50% of new deliveries
  • Further lessor platform consolidation and acquisitions will occur and several new entrant lessors will launch
  • The combination of a strong US Dollar, rising interest rates, inflation and oil price increases will create headwinds
  • Sustainability will remain a driving force for airlines, Original Equipment Manufacturers (OEMs), investors and financiers, becoming more widely embedded in company strategies and policies
An aerial photo of a commercial airplane taxiing on a terminal runway.

The report reveals that with the various COVID-19 restrictions, passenger numbers only rebounded by an estimated 18% in 2021 from 2020 levels and were still only barely half of the pre-COVID-19 numbers. Unsurprisingly, there were wide regional variations, with North American Revenue Passenger Kilometers recovering by 72% and Asia Pacific traffic dropping by a further 10% at the extremes.

Passenger numbers may not recover to pre-COVID-19 levels until 2025 or later

The International Air Travel Association's (IATA) outlook for 2022 forecasts a 50% increase in passenger numbers from 2021 levels. Assuming a continued reduction in the severity of future COVID-19 variants, recovery for global passenger numbers to return to pre-COVID-19 levels is predicted to be between 2023 and 2025. However, if the underlying industry growth trend of 4% - 4.5% per annum is applied, this would leave passenger traffic some 10% below pre-COVID-19 expectations by 2025 and defer the "full" recovery until later in the decade. According to IATA, an industry net loss of US$51.8 billion is estimated in 2021 and a further loss of US$11.6 billion in 2022 is expected.

Dick Forsberg, Senior Aviation Finance Consultant, PwC Ireland and author of the report said: "It is clear that when COVID-19 passes, passenger response will be immediate and strong – people will seek to return to the skies as soon as they are physically and legally able and feel safe to do so. For example, travellers were quick to respond when restrictions were eased, such as when the USA removed barriers to inbound travel for 34 countries, including the EU, in November 2021".

"The majority of the traffic recovery seen to date has involved leisure travel, including vacations and visiting friends and relatives. The recovery in business travel remains more problematic, particularly for high-yield long-haul passengers, where full-service network carriers often depend on their premium fares and have invested heavily in business class cabins. Airlines will therefore need to modify their product offerings, with expanded Premium Economy cabins replacing some business class capacity to accommodate price-conscious business travellers".

Survival rate higher than expected but debt levels will continue to present challenges

The report reveals that despite all of the COVID-19 headwinds over the past 20 months, the survival rate of the airline industry has been higher than initially expected, with "only" 64 airline failures, including 30 that have ceased operations, 15 currently in restructuring and 19 that have already emerged. The fall-out would have been considerably greater without the extraordinary levels of government support that have been made available to airlines since the start of the pandemic – well over $200 billion in total. The exceptional levels of indebtedness taken on by airlines will continue to present challenges that may yet trigger failures or need to be addressed through restructuring.

Other key findings from the Outlook

Lessors: unprecedented levels of debt to strengthen lessor share of fleet financing

At the end of 2021, 22% of the total lessor delivered fleet was listed as inactive in Ascend by Cirium's Fleets Analyzer database, compared to 32% a year earlier. At the end of 2021 compared to the previous year, the proportion of lessor aircraft on the ground had also fallen to 8.4% from more than 30% - a reduction of around 70%. The unprecedented levels of indebtedness taken on by airlines during the pandemic will likely keep the lessor share of fleet financing above 50% for some years to come. Further consolidation is likely as lessors work through their challenges, along with new entrant investors seeking part of the action.

Original Equipment Manufacturers (OEMs): Deliveries well below pre-COVID-19 levels

The report notes that whilst 2020 represented the weakest year on record for net commercial orders, coming in at minus 124, 2021 saw a substantial resurgence in demand. We see airlines, many of which have shed inefficient capacity over the past 18 months, having moved to secure new delivery slots. Total deliveries increased by 30% in 2021, but are also still well below pre-COVID-19 levels.

The money: emergence of alternative non-bank lenders

We are seeing some aviation banks returning to the market, but funding gaps exist. There is an emergence of alternative non-bank lenders that have identified a preferred risk/reward profile in structured loans rather than direct asset investments. The capital markets are also still open for business with substantial quantities of investor liquidity actively seeking opportunities in the sector.

ESG: more expensive air fares in the future

The report notes that ESG and sustainability are top challenges for the industry. The sheer scale of the industry today means that the sustainability impact will be spread over decades rather than years. Sustainable fuels are being developed that will be available in scale to bridge the inevitable technology gap between current fossil-fuel powered aircraft and future generations of electric, hydrogen and other options. The level of research and investment in these green alternatives has continued to increase throughout the pandemic and a number of high profile initiatives have been adopted by airlines, lessors and OEMs in recent months.

Yvonne Thompson, Leader, PwC Ireland Aviation Finance Advisory Services Practice commented: "Embedding ESG and sustainability will inevitably result in a financial cost to the industry as new technologies are developed. Whilst the additional cost will primarily be borne by industry stakeholders initially, they will over time trickle down to customers, leading to more expensive air fares in the future.

"Financiers and investors are also placing increasing weight on the environmental credentials of their customers and business partners, with under-performance potentially resulting in reduced access to funding and/or higher pricing. For example, PwC's Global Investor survey recently revealed that 49% of global investors would sell their investment if a company is not demonstrating that it is taking sufficient action on addressing ESG issues".


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Johanna Dehaene

Corporate Communications, PwC Ireland (Republic of)

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