The aviation industry has witnessed a robust recovery from the pandemic, regaining profitability as a result of rising demand that has exceeded pre-pandemic levels in many markets.
According to airlines.iata.org, this resurgence in demand has propelled air traffic beyond the levels seen in 2019, marking a significant milestone in the industry’s post-pandemic recovery journey.
In her presentation at the World Cargo Symposium, Marie Owens Thomsen, IATA’s Chief Economist and SVP Sustainability, pointed out, though, that 2024’s estimated profitability in excess of $25 billion works out at just $5.5 per passenger.
“The industry is still not robust,” she said. “That is why air cargo is such an important pillar going forward.”
In brief, air cargo is increasing market share, growing key trade lanes, and boosting capacity. Moreover, air cargo rates remain strong although they have dropped from 2022 highs. The sector’s growth is outpacing the rise in merchandise trade and a key Asia-North America trade lane is growing rapidly. Although capacity is being driven by belly space on passenger flights, there will be a notable uptick in dedicated freighter service in 2024.
Combined with the difficulties in the maritime industry, these factors are making air cargo an extremely competitive proposition. In fact, there is a clear correlation between air cargo rates and ocean freight reliability. When maritime is struggling, shippers quickly shift to air cargo.
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But challenges remain. Arguably most noteworthy is the fact that some 4.2 billion people representing about 70% of global GDP will be affected by elections in 2024. Unexpected outcomes and radical policy changes will doubtless occur, and this makes for a nervous business community.
Also in 2024, it is likely that oil and gas extraction will reach record levels. Despite this, fuel prices and the crack spread are expected to remain high. The crack spread is likely to have found a new equilibrium due to a lack refining capacity, meaning it will not drop to pre-pandemic levels in the foreseeable future. All this activity must be set against increasing awareness of climate change, which will also affect fuel prices going forward.
In terms of finance, there are record debt levels whether it is countries, corporations or households. Global GDP remains at 3%, however, and the recessions predicted for 2023 did not materialize in large part because global unemployment is at or near historic lows. The tight labor markets are good news for consumer incomes and that is a positive for the global economy.
US inflation, meanwhile, is still above its target level at 3.1%. Interest rates will therefore likely be higher than expected for most of the year, making the cost of borrowing more expensive. The US dollar is strong, which will affect many carriers with costs in dollars and income in other currencies.
“All regions expected to post a positive operating margin in 2024,” Thomsen concluded. “Air cargo will be extremely important in delivering those results.”
Thomsen went on chair a panel on factors affecting the air cargo market. This noted that trade agreements and facilitation processes are developing rapidly. Greater protectionist measures, tighter security requirements, and concerns over the sustainability of trade, are all hampering growth.
But, as Alina Fetisova, Trade Facilitation Programme Officer, International Trade Centre, pointed out, policies are often misguided. In terms of sustainability, for example, distance is not a greater predictor of the carbon footprint. Flowers in Europe use greenhouses but in Africa or South America that isn’t necessary and so, even factoring in the flight, growing flowers in sunnier climes and transporting them is the most sustainable way forward.
