* ON THE SOAPBOX: John Strickland, Director of JLS Consulting

OUTLOOK FOR 2023 + a reminder of the 2019 airport figures.

Before considering what 2023 might have in store, it’s worth reflecting on the twists and turns that 2022 dealt the airline industry.

The year began with the sector in the grip of the Omicron variant, hopes for an early recovery appeared dashed as it arrived on the scene in the run-up to Christmas 2021.

We couldn’t have predicted then, that once Omicron’s reduced severity was recognised, restrictions in key European countries would fall rapidly during February and March.  With the North Atlantic already open, it was gloves off for pent up demand at least in these markets.

While the threat was already there, we also didn’t know that the Russian invasion of Ukraine would take place in February 2022.  The tragic consequences continue to play out.

Both the removal of travel restrictions and the commencement of war in Ukraine very much shaped what ensued for the rest of the year as far as airlines were concerned.  As a strong and rapid recovery of European and North Atlantic traffic took hold over the spring and the industry attempted to speedily creak back to life, we became painfully aware of widespread manpower challenges in ramping up capacity. Frustration for airlines, airports and customers alike ensued over peak summer months of 2022. Fuel prices rose, Siberian overflights were banned and while Asia began a hesitant reopening, China remained closed.    

Despite the torrid summer, by year end many airlines operating in the European and North Atlantic markets were reporting a return to profitability. Conversely those based in, or serving Asia from Europe, continued to be badly hit with heavy losses.  

So how will 2023 play out? As the New Year begins, the Ukraine war continues with no sign of an early ending. Consumers and household budgets are being squeezed by higher fuel bills and inflationary pressures. The UK economy looks weaker than its peers. There are many unknowns, but in survey after survey we see that people still want holidays and will prioritise them above other discretionary expenditures if they have the means available.

To date, airlines have reported encouraging bookings but it’s only now that the Christmas travel rush is over that we will see if the normal peak booking period for summer travel lives up to hopes. However, even if it falls short of expectations, it would be premature to make a judgement as we continue to see a trend to book later.  This makes it harder to project likely demand levels and plan required manpower.

Ticket prices have been running much higher than pre-Covid, partly as a reflection of increased fuel and staffing costs, but also as customers have increasingly traded up to premium cabins. Whether this trend continues in 2023 will be pivotal to airlines recovering profitability or remaining in the red.  The reality is that a number of economies have grown beyond their 2019 levels whilst airline capacity in some markets, particularly for long-haul, remains at lower levels. This tighter balance of demand and capacity could help airlines weather expected economic slowdown and maintain some pricing power.

The coming months will be nail biting as it becomes clearer how the die is cast, a reduction in travel or a bumper summer, continued high prices or a return to normality.

While performance will vary according to airline and market, I expect to see low-cost carriers continue to perform strongly.  Both Ryanair and Wizzair are expanding their fleets significantly and while easyJet has more cautious capacity plans, all are exposed to large leisure and VFR (visiting friends and relations) markets where they can use their price advantage to strengthen market share even if overall demand shows signs of weakness.

One other area which I would draw attention to is the recent news of China massively reducing its travel restrictions which could lead to a resurgence of Chinese travels into Europe.  With Covid still at high levels in the country it does not come entirely risk free, however.  Another important consideration is that the Siberian overflight ban affects European but not Chinese carriers so creating an adverse competitive imbalance as capacity is restored. The question is whether this is something which European Governments will be keen to negotiate on in their diplomatic relations with China.

Just like last year, 2023 is likely to spring a number of surprises on us. The hope has to be that more of these are of a positive nature. We already have enough challenges to deal with!  


John Strickland
Director of JLS Consulting
www.jlsconsulting.co.uk
@JohnLStrickand

Listen to his podcast Our Future Skies (in partnership with AIG), featuring future focussed interviews with leading airline industry executives.
www.aig.co.uk/business-insurance/landing-pages/our-future-skies

Airport passenger numbers for 2019 - the last full year of air travel + ownership.

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READERS' COMMENT

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Jane Hope, New York

I have not bothered with BA since I prefer Newark but a January round trip is around $650 whilst the same one in May is $2000 plus. The idea of using Points is fine but as that idea grows it will cost the airlines and will be added into the price. If you recall “Green” stamps that bubble burst too.

Jackie Ross, Hemel Hempstead

John is right about ticket prices. I booked BA flights to JFK in May and now find the prices have doubled. And there seems to be less frequency than in the glorious summer of 2019. Jet Blue into the mix might help. Jackie Ross

James Wales, Margate

Fine piece by John but can he, or someone else tell me if European air traffic controllers can take a handover from their Russian equivalents. If the answer is no the Chinese have the same problem as everyone else.