The aviation industry is one of the many sectors that constitute an important element towards global economic development. It supports the rise in connectivity between cities and countries to enable the flow of goods, people, capital, and technology. With this, it is certain that the airline sector plays a fundamental role in society, but it also has its own fair share of challenges. From the COVID-19 pandemic, which remains one of the worst crises in the history of commercial aviation, to climate change, there are innumerable issues this sector has been facing in the past few years.
Yet, after the initial negative impacts of the COVID-19 outbreak, the aviation market outlook has improved to a notable extent. The pandemic propelled cargo and logistics operations apace with e-commerce. According to the latest report released by the International Air Transport Association (IATA), cargo’s share in total airline revenue had more than tripled between 2016 and 2021, going from 11.4% to 40.3% of total revenue. Air cargo has, however, benefited from a rare and significant relative price advantage over maritime cargo since 2021.
Here are some of the challenges that the aviation industry will experience over the coming years:
1)Fuel Cost & Efficiency
The availability and costs of aviation fuel remain one of the major economic factors affecting the airline industry for decades. Spike in jet fuel prices has a direct influence on the financial portfolio of airline firms. In 2021, the expenditure on airline fuel increased by almost 30% due to the easing of travel restrictions and the initial recovery in global passenger demand. As the Russia-Ukraine conflict has prompted oil price variations, it is estimated that the share of fuel in total operational costs from 2022 could be significantly higher than that in 2021.
The high fuel prices are seemingly not affecting people’s need to travel to a large extent. However, once consumers have filled their travel deficit, this relation between price insensitivity and demand could diminish in 2023. Airlines might find it more challenging to manage the increase in fuel prices with respect to demand.
2)Aftermath of the COVID-19 pandemic:
The pandemic was among the greatest challenges the aviation companies ever faced, with its impacts continuing even after travel restrictions are lifted in many parts of the world. According to the IATA report, the pandemic erased essentially 20 years of gains in passenger traffic in one sudden blow. The report forecasts that by 2040, air traffic would still be 6% below IATA’s pre-pandemic forecast, highlighting the long-lasting effect of the COVID-19 crisis.
3)Russia-Ukraine conflict
The conflict between Russia and Ukraine has brought along the imposition of various sanctions and the creation of a few no-fly zones, which has created challenges for the aviation sector. The impact of the conflict is especially felt by specific trading partners and across key markets. The start of the Russia-Ukraine war in 2022 prompted a surge in global oil prices, with Brent crude oil trading at $120/b in June 2022. Though, the opportunity to find alternative sources of fuel and destination markets will help to offset some of these potential impacts over the next few years.
4)Sector-wide Unemployment
As per the IATA, the aviation industry is expected to increase employment this year to rebuild its workforce following significant job losses observed in 2020. Despite this, total employment is expected to remain below the pre-pandemic level, presenting a challenge for the industry. The reason behind this is the time required to recruit, train, and undertake the necessary security checks & other requirements before the staff is job ready.
In some cases, employment delays may work as a constraint on the ability of airlines to meet passenger demand. In countries where the economic recovery from the pandemic has been swift and the unemployment rate is low, tight labor markets and a shortage of skilled workforce are likely to create barriers to the industry.
5)Airline Infrastructure
Airport infrastructure such as runways, hotels, terminals, concourses, shopping centers, and lounges are needed to consistently be upgraded to cope with the rise in the number of air passengers. To maintain the reputation of the airline and remain ahead of the competition, aircraft are needed to be periodically upgraded and maintained, while onsite amenities such as aircraft ground handling systems are also required to be renovated. Doing so certainly has its advantages, but consistent upgrades can have a significant impact on an airline company’s finances and create challenges for the aviation market.
6)Global Congestion
Air congestion and passenger traffic are a few other challenges faced by the aviation market, which seem to have no quick solution, at least in the immediate future. Airports nowadays are often crowded, and flight delays have turned out to become a regular thing. Most flights these days seem full, and terminals are always congested, with the rise in the number of air passengers constituting a major factor.
According to estimates, the Asia?Pacific region is expected to add around 2.5 billion passenger journeys per year by 2040. It represents the significant sector opportunities across regional developing economies. Although carriers continue to try and make trips seamless for passengers, congestion will continue to remain a viable challenge for the aviation industry.
7)Cyber-attacks Emerge
Cybercrime remains a clear and present danger to the aviation sector which cannot be ignored. The sector is witnessing a rising tide of cyber-attacks and a surge in the levels of risk, as criminals, hackers, and cyber-attackers look to use vulnerabilities, cause chaos, and steal capital at the expense of passengers and the aviation sector.
According to a report published by Eurocontrol, airlines are an irresistible target for cybercriminals with around EUR 1 billion lost from fraud websites every year. The report states that cyber-attacks are up in all threat categories, with a 530% year-on-year rise from 2019 to 2020 in incidents across the aviation industry, and with airlines targeted in 61% of all 2020 aviation cyber-attacks. Moreover, there were around 62 ransomware cyber-attacks on aviation stakeholders in 2020, equating to a once-a-week attack, and in 2021 new records were set with USD 50 million worth demands made.
8)Climate Change
Climate change and environmental issues certainly remain among the key challenges faced by the airline industry. Since commercial aviation is responsible for a significant percentage of carbon emissions, the industry is under significant pressure to take measures to reduce the environmental impact of air travel.
Rising sea levels and the incidence of extreme weather events are some other key factors indicating the need for sustainability in the sector. The commitment of international agencies toward net-zero CO2 emissions by 2050 is of existential importance to the industry and to the prospects of realizing a future global economic model.
Air transport plays a vital role in global supply chains, especially for international trade in manufactured goods. Trade has however been interrupted by the Russia-Ukraine war and before that by COVID-19 lockdowns. Even so, authorities have estimated that merchandise trade volumes were to increase by 3% in 2022, recovering after a sharp rebound in 2021. The value of international trade shipped by air also is forecast to be around USD 8.2 trillion in 2022, up from USD 7.5 trillion in 2021. Meanwhile, tourists traveling by air are forecast to spend USD 672 billion – a sizeable increase on 2021, but still only around 80% of the pre-crisis level.
