According to the IATA’s June 2023 Global Outlook for Air Transport, its long-term view for passenger traffic growth is that global demand for air travel is expected to double from 2019 to 2040. This will see passenger numbers growing at an annual average rate of 3.4%. Origin-destination passengers are projected to increase from c.4 billion in 2019 to just over 8 billion in 2040. In the short-term IATA is of the view that the balance of risks is to the downside, driven by the near-term challenges of higher costs, geopolitical uncertainty, and macroeconomic headwinds. Over the long run, IATA also highlights the uncertainty around climate change and the costs associated with the net zero transition as major concerns for the aviation industry.
With global equity markets focused on the shorter-term with issues such as the inflationary cost pressures, higher airfares and the general macroeconomic headwinds caused by higher interest rates, we have decided to take a step back to think about the biggest challenges faced by the commercial aviation sector over the next decade.
1. Sustainability
The sustainability agenda represents a call to action for the entire commercial aviation sector. Air traffic accounts for c.2% of global CO2 emissions but the journey to net zero in 2050 will require significant investment.
2. SAF scalability
SAF has been identified as the biggest contributor to reducing carbon emissions but there are still significant question marks over the scalability of SAF production.
3. New technology
Once again aerospace engineers will have to deliver what seems impossible with most research focusing on electric propulsion and hydrogen engines.
The Single European Sky ATM Research project aims to contribute to the Single European Skys 10% emissions reduction target.
5. OEM production issues
While supply chain issues are getting all of the headlines now, just to replace an aging fleet with more efficient aircraft the OEM’s will need to increase production meaningfully.
6. Airport congestion
According to IATA there are over 200 Level 3 airports globally, 50% of all passengers depart from a Level 3 airport and 35% of all flights operate between Level 3 airports. Increasing passenger numbers combined with the sustainability agenda will add to the pressure on airports.
7. Pilot shortages
Unless there is a downturn in demand or strenuous efforts by the aviation industry, Oliver Wyman expects global aviation to be short nearly 80,000 pilots by 2032.
8. Industry consolidation, government intervention and new entrants
Given the above a logical assumption is that the industry will continue to consolidate, with the pace of consolidation likely increasing. However, this process will continue to be influenced by the levels of government intervention in the industry. At the same time there remains an insatiable appetite amongst investors to invest in start-ups within the sector.