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As the Worst of the Pandemic Subsides, the Industry Recovers

The COVID-19 pandemic looks to be over in the United States based on the volume of air travel demand, which has been recovering almost nonstop since the mass dissemination of COVID vaccines began in the spring of 2021. While daily passenger traffic at US airports hasn’t yet reached 2019 levels, it has come close on many days in April and May, data from Transportation Security Administration (TSA) checkpoints show.

By summer travel season, we anticipate demand to be even more robust, essentially on the strength of the domestic and leisure travel segments, which have been driving revenue growth since the beginning of the pandemic. As of early May, business travel in the US was still stuck at 31% below pre-pandemic levels, and international travel continued to be stifled by outbreaks of COVID-19 around the world and pandemic travel restrictions. US airlines expect the second quarter to be one of their strongest in a long time after an active April and May.

Exhibit 1: Seven-day average of US corporate and leisure tickets sold versus 2019

While this sounds like good news for US carriers, the boom has come with some difficult-to-solve complications that are preventing airlines from fully capitalizing on the comeback. The busy summer season is only apt to exacerbate developing bottlenecks.

This isn’t only a US problem. European airlines are also having difficulty ramping up to meet demand, and at many airports long check-in and security lines are starting to appear as well as baggage delays.

Needed: more workers

One of the most immediate challenges facing the global aviation industry today is a labor shortage. The shortfall is being felt in every category — from pilot, to baggage handler, to ticket agent, to flight attendant, to aircraft mechanic. Because these workers are responsible for the lives of millions of travelers every day, all must go through extensive background checks, drug testing, and training. It is especially tight for jobs like pilot and mechanic, which also require extensive certification and literally hundreds, if not thousands, of hours of training.

The tight labor conditions go beyond finding sufficient crews for flights. It also reflects staffing problems in the ranks of air traffic controllers, TSA agents, and vendors that help supply airlines and airports.

Flights have been postponed for hours and canceled entirely because carriers have been unable to assemble the appropriate crew and support team at the right airport at the right time. The data reveal a growing problem that started manifesting itself last year. In 2021, the US rate of on-time arrivals within 15 minutes of schedule fell from 86% in February to 75% in July, at the height of the busy summer season. Six of the 10 largest US airlines experienced double-digit drops in on-time performance.

In 2022, on-time performance has been equally disappointing. In February, the latest complete data available, on-time performance for reporting carriers was 76.8% — seven percentage points lower than in November 2021. Already this year, airlines are opting to trim schedules for the upcoming summer vacation season because of the lack of personnel. The summer is when a significant chunk of airline revenue is taken in.

Exhibit 2: Change in US domestic on-time performance, 2021 versus 2019

The growing labor shortfall started making the news regularly in late March just as families were preparing for quick Easter getaways. In the United Kingdom, for example, more than 1,100 flights were canceled in the last week of the month — almost 10 times the number that were cut the same week the year before, according to aviation analytics firm Cirium. In this case, the cancellations were the result of a combination of tight staffing, IT system problems, and a sudden surge in COVID-19 cases that pushed up the absentee rate among airline workers but didn’t slow down air travel demand. The cancellations continued into April at London’s biggest airports. 

Besides aircraft crews, there are also too few people to repair aircraft. A stunning 85% of senior executives in Oliver Wyman’s annual maintenance, repair, and overhaul survey that was released in April ranked difficulty finding new hires as their biggest challenge.

Especially in North America, airlines have been scrambling to find enough pilots after many retired or took early retirement during COVID. Our aviation team recently projected an official shortfall of more than 8,000 pilots in the region by 2023, with regional carriers that serve smaller cities expected to feel the worst of the pinch.

Rising costs

The labor problems threaten to limit revenue growth if carriers are forced to cancel routes or reduce frequency. But they also will make it harder for airlines to show profits as the squeeze is expected to push up labor costs at a time when carriers face significantly higher fuel prices. Labor and fuel are by far the two biggest operating costs for airlines.

In March, following the February 24 Russian invasion of Ukraine, the International Air Transport Association (IATA) put out a statement warning that airline losses were likely to grow in 2022 because of oil prices. Several months before, the group had projected losses of $11.6 billion, but that was “with jet fuel at $78 a barrel and fuel accounting for 20% of costs. As of 4 March, jet fuel is trading at over $140 a barrel,” Willie Walsh, IATA’s director general noted in the release. On May 3, one website quoted a US price for Jet A-1 fuel of over $177 a barrel. The average per-gallon price in March was $3.04 and $3.91 for the month of April.

While the fighting hasn’t posed a direct threat to air travel so far, the conflict and trade sanctions imposed in its wake are placing additional stress on already challenged commodity markets and supply chains. Both Brent and West Texas Intermediate crude oil remain over $100 a barrel. The same inflation has been seen in prices for other commodities vital to aerospace, such as titanium.

Even before the Ukrainian conflict, the aviation industry was plagued with rising operating costs, largely the result of the faster-than-expected rebound from COVID-19 in 2021 and the failure of the labor market and production capacity to keep up. The increase created temporary shortages of everything from semiconductors to cars.

Lagging business travel

Inflation and labor shortages aren’t the only lingering effects of COVID-19. For the travel sector, one of the more painful consequences has been the slow return of the business traveler. By mid-May, there was still more than a 34 percentage-point gap between the recoveries in the leisure and corporate travel segments, only slightly better than the spread that existed toward the end of 2021.

That gap is more reflective of the stunning spike in leisure travel demand than it is of any irretrievable losses in business travel. Starting in late April, leisure began regularly besting its performance in 2019, with the week of May 22 almost 4% higher than the same week pre-pandemic. Corporate travel, on the other hand, has seen a more gradual improvement, stuck at just under 31% below 2019 traffic for the same week in May.

On a positive note, several major carriers are now projecting a recovery in corporate travel by the end of the year. And while the corporate travel segment has recovered at a slower pace than leisure, the once-prevalent fear that a chunk of business travel might never return because of the ease of videoconferencing has dissipated.

The business segment matters to airlines because it is by far the most profitable and generates a large chunk of revenue. Executives tend to fly business or first class and are often unable to take advantage of discounts, even in economy class, because of the short notice before many trips.

International travel is another segment still affected by COVID-19. Currently, demand is lagging behind the recovery in domestic travel because of ongoing travel restrictions in many countries requiring quarantine and vaccination. China, for instance, is still instituting lockdowns because of the severity of recent outbreaks of cases of COVID variants. The most optimistic news on the international front recently was the easing of lockdowns in Shanghai.

Full bellies                        

One bright spot for airlines has been cargo, which has become a substantial contributor to both the top and bottom lines. It was the only aviation revenue stream that exceeded pre-pandemic levels during COVID.

Air freight has historically represented a tiny, but highly valued portion of total global cargo volume. In 2021 and this year, air freight has been expanding. That growth in volume is primarily thanks to a spike in e-commerce volume, more demand for overnight delivery, and shortages of truck drivers that have pushed shippers to consider other modes.

Airlines were also more eager to chase the business as shipping rates for air cargo rose, pushed up by a shortage in cargo capacity and personnel. The higher rates provided airlines with incentive to find as much cargo capacity as they could. Cargo load factors soared, and the resulting jump in yields was substantial. In 2021, cargo capacity grew 16%, while demand grew 18%. The rising demand and limited capacity resulted in a record number of passenger-to-freighter (P2F) conversions.

Airline cargo would probably grow even faster if transoceanic travel, which relies on widebodies, were doing better. More widebody aircraft would increase belly cargo capacity, which currently remains in short supply.

Net zero headaches

On the horizon, aviation will also have to worry about the global push for net zero emissions by 2050. More than any other transportation mode, the goal is problematic for aviation at least into the mid-2030s, when breakthrough technology currently under development may allow the industry to eliminate or at least significantly reduce its dependence on fossil fuels.

In the meantime, aviation faces the prospect of rising emissions based on an anticipated growth in demand for air travel at a time when the rest of the global economy is being told it needs to cut its emissions in half by 2030. Based on Oliver Wyman’s Global Fleet and MRO Market Forecast 2022-2032, the global fleet is expected to expand to more than 38,000 aircraft by 2032, up from its current size of 25,500. More aircraft mean more travel, which means more emissions.

To try to shrink their carbon footprints, airlines will need to look to sustainable aviation fuel (SAF) to reduce their emissions. SAF, which is made from used cooking oil and other bio-based feedstock, is 80% less carbon-intensive than conventional jet fuel. But there isn’t nearly enough capacity, either existing or planned, to allow the global fleet to switch even 10% of its fuel consumption to SAF. Oliver Wyman reckons global carriers would have to incorporate about 15% SAF in their fuel mix just to break even on emissions by 2030.

While the quest for net zero is likely to put a strain on aviation as 2030 approaches, the current outlook for the industry is certainly better than it was a year ago, even with outbreaks of COVID-19 continuing. After two bumpy years since the pandemic first sent the global economy into a tailspin, airlines are looking at the prospects of increasing demand and revenue. But given the labor shortages and rising fuel prices, airlines will still have to bring their A game if they want to convert the hunger to fly places into profits. 

How the Airline Fuel Cost Simulator Works

The “Airline Fuel Cost Simulator” analyzes the impact of rising and falling crude oil pricing on aircraft trip costs and passenger fares. The simulator uses current spot pricing from the US Energy Information Administration combined with typical US narrowbody operations from US DOT Form 41 data.

While there are starting assumptions for each input, users may adjust each box based on their personal assumptions to see the overall impact. By inputting user assumptions about the price of a barrel of crude oil, the passenger load factor, and/or the percentage of the cost of fuel that will be passed along to passengers, the simulator can tell a user the fuel cost percentage per passenger on a sample average flight.  The fares are representative of typical narrowbody operations in the US, but the relative impact would be similar elsewhere in the world flying narrowbody fleets. The simulator is illustrative only, and actual results will vary by airline.  


Source: US EIA

Current crude oil spot price: $ per barrel

Crude oil cost per barrel

Load factor

Pass through to passenger

2019 actuals Current crude Estimated
Crude oil per barrel $64.72
Cost per gallon $2.01
Average seats per trip 166 166 166
Passengers per trip 142
Fuel cost per passenger $30.12
Fuel cost per trip $4,291.76
Load factor 85.70%
Cost per passenger differential
Segment fare differential

About the report

This year’s in-depth report covers a range of aviation industry-specific economic and performance data as well as global capacity during the pandemic. For our 2022 AEA, we expanded our report to be more global in nature, reflecting the worldwide impact of COVID-19 and demand recovery, and included forward looking commentary. The analysis outlines major macro-economic trends, the impact of the recent geo-political situation with the war in Ukraine, and carrier restart and recovery efforts in light of labor tightness and fuel cost escalation. It also covers the expansion of cargo revenues.

The report also includes analyses on:

·   Capacity changes and available seat miles

·   Regional domestic and international in service capacity

·   Schedule change impact on capacity

·   Employment changes

·   Revenue per available seat mile (RASM)

·   Cost per available seat mile (CASM)

·   Load factors

·   Operating profit

·   Global cargo capacity and demand