Global aviation industry turning a corner, but not without some challenges - PwC 2023 Aviation Industry Review & Outlook

16 January, 2023

  • Global passenger numbers set to return to 2019 levels within the next 24 months

  • Achieving net zero carbon by 2050 will be extremely challenging - scaling SAF requires urgent focus 

  • Lessor financing will require US$350 billion of liquidity over next 5 years - opportunities have never been greater

An airplane on a runway

A long period of financial restructuring lies ahead for the aviation industry. At the same time passenger demand is expected to return another very strong year of growth in 2023, with the reopening of China to inbound and outbound travel creating a travel surge that will substantially offset the economic headwinds faced in other parts of the world.

A 21% increase in revenue paying passenger per kilometre (RPKs) this year, followed by 17% in 2024 will take traffic levels above 2019 levels, bringing forward the recovery horizon by 12 months compared to earlier expectations. IATA is predicting a modest industry profit of US $4.7billion in 2023, generating a very fragile margin, with Asia and Latin America remaining unprofitable and Europe barely breaking even. However, airline results in 2024 are likely to be much stronger. This is according to PwC’s ‘2023 Aviation Industry Review & Outlook’‘ authored by Dick Forsberg, Senior Aviation Finance Consultant, PwC Ireland, published today.  

The report highlights the following key 2023 predictions for the airline industry:

  • Inflation will gradually abate during the year, but interest rates will remain elevated until 2024.
  • More aviation lenders and investors will include ESG performance metrics in their transaction analysis.
  • Aircraft orders will remain buoyant, supported by Asian growth and fleet efficiency needs.
  • China’s domestic passenger traffic will surge in 2023, with Chinese international traffic recovering up to 65% of pre-COVID volume. 
  • COVID testing for passengers arriving from China around the world will be widely imposed, without materially impacting demand.
  • China’s passenger recovery will offset the impact of recessionary headwinds in Europe and North America.
  • Original Equipment Manufacturing (OEM) supply chain issues will improve only slowly, resulting in further delivery shortfalls.
  • Boeing will achieve certification of the MAX7, but the MAX10 will slip into 2024.

Dick Forsberg, Senior Aviation Finance Consultant, PwC Ireland and author of the report, said: “Uncertainty has always made financiers and investors nervous and the continued conflict between Russia and Ukraine, plus growing Chinese militarism in the sea and air around Taiwan, suggests that much of 2023 will continue to be overshadowed by uncertainty. As the airline industry looks forward to taking delivery of more than US$100 billion of new aircraft this year, lessors, lenders, investors and rating agencies will need to look beyond the near-term to ensure that sufficient and affordable liquidity is available for deployment.”

According to the report, the industry backlog of almost 14,000 aircraft represents around ten years’ production, with little availability until the latter part of the decade. However, supply chain disruption will remain an issue for much of 2023, creating delivery shortfalls that will require further granular customer management but provide opportunities for lessors.

2022 saw passenger numbers rebound by more than 55% with an airfare hike of 23%

The report reveals that global passenger numbers rebounded in 2022 by more than 55% according to IATA, with revenue paying passenger kilometre (RPKs) up by almost 70% reflecting the return of international travel. 

Air fares increased 23% on average in 2022 compared to 2021, according to IATA. Whilst inflation may have now peaked, it will remain at historically high levels for much of 2023, impacting airline input costs, trade flows and disposable incomes.The impact of a strong US dollar is felt mostly in emerging markets, through higher debt servicing costs and, for airlines reliant on local currency revenues, in higher fuel and asset ownership costs.

The level of parked or inactive fleets continued to decline in 2022, with 19% of the passenger fleet inactive at the end of December 2022 compared to 22% a year earlier. Overall, air freight volumes declined by 8% in 2022 following a 22% rebound in 2021.

The report highlights that the airline industry reduced its annual net losses below US$7 billion in 2022, according to IATA although North America was the only region where airlines made a net profit (of US$10bn). Asian carriers lost US$10billion, Europe US$3billion and Latin America US$2billion. Total airline losses over the three years of COVID exceed US$186 billion, with the industry receiving over US$220 billion in financial support from governments over the period.

Lessors entered 2022 with the majority of their lease restructurings completed. As most airlines’ revenue streams are now back on track, lessor profitability has been largely restored. 

Achieving net zero carbon by 2050 will be extremely challenging - scaling SAF production requires urgent focus 

Achieving a net-zero emissions industry by 2050, which is the commitment made by IATA on behalf of its member airlines, is extremely challenging. For example, the ability of new forms of energy for propulsion (electric, hydrogen, etc) to move the dial on global airline emissions will not become meaningful until 2040 at the earliest.  

Dick Forsberg commented: “It is clear that Sustainable Aviation Fuel (SAF) can deliver the largest benefit of the four elements (technology, SAF, offsets, operational measures) that will all be required to achieve the net zero ambition over the next 27 years. However, the ability to scale up production and make SAF an affordable alternative is far from reality. The ability to blend any SAF product with kerosene close to the 50% maximum currently mandated for safety reasons is unlikely to be met for at least a decade unless there is a step change in production capability.” 

2023 will be another very strong year for passenger recovery 

China’s sudden reversal of its zero-COVID policy seems set to underpin a further year of very strong passenger recovery in 2023. However, the risk of re-igniting a global wave of new COVID infections will see many countries reimpose testing and vaccination requirements for Chinese arrivals, potentially slowing the Asian recovery. 

Global passenger numbers should still return to near 2019 levels within the next 24 months. Airlines will continue to return parked fleets to service to meet the demand, but in 2023 will still face bottlenecks for Maintenance, Repair and Overhaul (MRO) and engine shop capacity, replicating many of the problems encountered during 2022. 

The acute shortage of personnel needed to provide essential infrastructure support (pilots, airport security, handling services, etc) during COVID will be substantially alleviated during 2023, but pilot shortages remain a longer-term concern. OEM supply chain challenges will add to the near-term capacity shortages, as the war in Ukraine, Russia’s ability to disrupt fuel and food supplies and China’s intentions for Taiwan will remain significant factors during the coming year. 

Lessor financing will require $350 billion of liquidity over next 5 years - opportunities have never been greater

Yvonne Thompson, PwC Ireland’s Aviation Finance Leader, said: “From 2024, a return to relative political, economic and air transport equilibrium is anticipated, with demand growth settling back into historical patterns. Many airlines will need considerably longer to restructure, but will continue to need new generation aircraft deliveries, both to meet their growth plans and to improve their ESG metrics, which will become increasingly important in the eyes of both travellers and financiers”. 

“Whilst high inflation and interest rates act as headwinds to economic activity, higher inflation will also help to support aircraft values while the impact of increased interest rates on lessors is mitigated by their linkage to lease rates.  In our view, lessor financing will require more than $350 billion of liquidity over the next five years with opportunities for investing never being greater.  

“As we welcome the industry to Dublin this week for the largest annual gathering of airlines, aircraft leasing executives and other industry participants, we look forward to continuing to support and work with our clients and other stakeholders in this fantastic industry.  

“As the global capital for aviation finance, the Irish aviation industry will also have to continue to play its role in ensuring a sustainable future which is the 'challenge of the century'. This will require the entire breadth of industry players to think beyond the normal and act now to ensure they deliver inclusive, responsible and lasting success. We look forward to continuing the conversation in Dublin this week.”


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Johanna Dehaene

Corporate Communications, PwC Ireland (Republic of)

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