Balancing the risks in uncertain times

ACI World has published its tenth quarterly assessment analysing the impact of the COVID-19 pandemic, its effects on airports, and the path to recovery.

More than two years since the World Health Organization (WHO) declared the COVID-19 outbreak a global pandemic, a certain “normality” has started to emerge thanks to a historic vaccination effort which saw, at the time of publishing, more than 12 billion doses being administered across 184 countries.

This unprecedented vaccination effort is now starting to bear fruits despite some setbacks from the recent Omicron wave. Many countries have followed through on their plans to return to some normality, lifting many health measures, relaxing travel restrictions, and re-opening borders. 

The momentum created by the re-opening had a positive and immediate impact on global air travel demand recovery. Indeed, the summer months of 2022 were expected to be exceptionally strong, many pointing out that it could effectively turn out to be “three summers merged into one.”

As more pandemic restrictions were removed, facilitating the trade in goods, and enabling the manufacturing and services sectors to grow, the performance of the global economy has accelerated, especially since the last few months of 2021. 

The International Monetary Fund (IMF) estimated the global growth of the economy in 2021 to 6.1%. It is, however, expected that the growth will slow down significantly in 2022 and 2023 as the recovery faces multiple headwinds, ranging from new potential variants, high crude oil prices, higher inflation, supply disruptions, or geopolitical conflict and the resulting humanitarian crisis. 

According to the IMF, global growth is expected to moderate to 3.6% in 2022 and 2023, a 0.8 and 0.2 percentage point decrease from its January forecast. High inflation levels are contributing significantly to this global slowdown. Energy and food prices have increased rapidly, disproportionally impacting low-income countries. 

In its April 2022 Economic Outlook, the IMF stressed that “multilateral efforts to respond to the humanitarian crisis, prevent further economic fragmentation, maintain global liquidity, manage debt distress, tackle climate change, and end the pandemic are essential.”

On the vaccine front, the pace of vaccination has continued to accelerate in core emerging markets in the past few months, but many countries continue to fall well short of the commonly recognised threshold for herd immunity. 

Only 18% of the population in low-income countries has received at least one dose of a vaccine while 81% of the high and upper-middle-income countries’ population has received at least one dose. Targeting countries with a low vaccination rate is especially important to prevent the risk of new waves and the formation of new variants.

In this overall context, the quarterly assessment seeks to highlight some key figures in terms of the impacts of the pandemic on airport traffic, and explore pathways to recovery.

1. Airport traffic recovery
The recent momentum created by the lifting of many health measures and the relaxation of most travel restrictions in many European countries and in the Americas has renewed industry optimism. It however exposed even more the uneven recovery as major aviation markets in Asia-Pacific lag behind their Western counterparts as they continue to be in part closed to international traffic. 

Air travel should see an uptick in the second half of 2022, moving the industry closer to its recovery. While many indicators are pointing towards the recovery, the industry is also facing some noteworthy headwinds.

Upside risks
• Pent-up demand: There are clear signs of a surge in air travel demand resulting from a combination of accumulated savings by consumers during the pandemic, vacation deprivation felt by many leisure travellers and the desire to reconnect with families, friends and/or colleagues. Many industry analysts refer to it as “revenge travel,” as passengers rush to take to the skies after being homebound for the last two years.

• Vaccination rate and relaxation of travel restrictions: The acceleration of the easing of travel restrictions, a major hurdle to air transport and in particular international travel, is likely to increase the demand for air travel. Many countries in all regions have put in place plans to lift many, if not all health measures, relax travel restrictions, and re-open borders as a step to return to some normality. Many of the world’s major aviation markets with originating passenger traffic have reached vaccination rates in excess of 70%. In many cases, vaccines serve as the passport to travel in the current context.

Downside risks
• Geopolitical conflicts: The war between Russia and Ukraine contributed to further damage the economy, adding to the global slowdown in 2022. It not only triggered a rise in energy prices affecting the cost of travel, but a humanitarian crisis resulting in millions of refugees and a global food crisis. There are risks of worldwide spill overs to other commodity markets adding to the inflation push.

• Economic downturn: The risk for an economic downturn due to rising interest rates aimed at curbing inflation is ever-present. This coupled with the significant increase in jet fuel prices could weaken and even delay the aviation industry recovery in the short-term by increasing the cost of travel. The IMF expects inflation to remain in 2022, projected to reach 5.7% in advanced economies and 8.7% in emerging markets and developing economies.

• Supply chain disruptions and labour shortage: Supply chain disruption affecting a large range of commodities and services triggered a rapid rise in the price of oil and gas – including jet fuel – as well as a broader transportation crisis. The shortage of shipping containers, clogged seaports, and cross-border shipment disruptions have a direct impact on the health of the global economy.

The rapid growth in demand following the relaxation of travel restrictions has resulted in an unprecedented labour shortage for airports, airlines, and other service providers. 

These shortages have been exacerbated by the pandemic-induced layoffs across the whole aviation ecosystem. Re-hiring has proven to be particularly difficult for the industry as many aviation workers have moved on to careers in other sectors.

• Potential new outbreak: As we saw with the Omicron wave, a less virulent but highly contagious variant can still have a significant impact on the aviation industry. 

However, the propensity for such disruptions diminishes as populations become fully vaccinated and as governments are learning how to manage such outbreaks. The lessons learned from the management of COVID-19 will also help governments and the industry better manage future health events.

In this context, using the latest data from ACI World’s monthly traffic data collections in 2022, new global and regional estimates of the impact of the crisis on passenger traffic are presented.

World
• For the full year 2021, the COVID-19 outbreak removed 4.6 billion passengers compared to 2019, representing a loss of 50.3% of global passenger traffic. Over the first two years of the pandemic, the COVID-19 outbreak reduced the number of passengers at the world’s airports by
10.2 billion.

• Global passenger traffic is expected to improve significantly in 2022 to reach 77% of what it was in 2019, with traffic for 2022 totalling 7.1 billion.

• Full recovery to 2019 levels at the global level is forecast for 2024. 

Asia-Pacific
• The early momentum of the Asia-Pacific region was severely dampened in the second half of 2021 by a resurgence of COVID-19 and the re-establishment of travel restrictions in the region. The region ended the year 2021 at only 43.5% of its 2019 level.

• While some countries in Asia-Pacific have re-opened to vaccinated travellers, the international passenger market is not expected to see significant improvement before the second half of 2022. 

The region is expected to have the slowest recovery, reaching only 62% of 2019 levels in 2022. Full year recovery to 2019 levels is expected by the end of 2024 but could slip to 2025 if certain countries lag in lifting the remaining of their COVID-19 restrictions.

The Middle East
• The Middle East remained the most impacted region in 2021, despite some improvement in the second half of 2021, reaching only 41.6% of its 2019 level by year end.

• The region’s high dependence on international travel and connectivity, both of which are recovering much more slowly than domestic travel, will continue to impact its recovery in 2022. The region is expected to reach 67% of 2019 levels by year end and fully recover only in late 2024.

2. Medium-term global passenger traffic projection
Much uncertainty still surrounds the recovery of the aviation industry, especially in the medium to long-term. Projecting the path to recovery at this point is still an exercise requiring prudence. 

Adding to the uncertainty related to vaccination mainly in emerging and developing countries and the risk of a fall/winter outbreak, we now need to add geopolitical conflict and related humanitarian crises, and the real potential for a strong economic downturn and looming recession. Those risks could dampen or delay the recovery.

Despite the downside risks, the industry remains confident that the potential for a recovery to 2019 levels within two or three years is foreseeable. There is no doubt that many people are eager to resume travelling and the early summer 2022 volumes are a testament to it.

With the combination of “vacation deprivation” and an upsurge in confidence in air travel provided by increased vaccination rates and safety measures, the relaxation of travel restrictions will help boost the propensity for air travel and fuel the industry’s recovery. 

And with many countries taking steps towards the return to a certain normality, lifting almost all the health measures and travel restrictions, ACI expects a jump in air travel demand in the second half of 2022.

Three scenarios in assessing the potential recovery trajectory were considered, using the following assumptions.

Current scenario:
• It assumes effective vaccine distribution and adoption in emerging and developing countries in 2022.

• The scenario takes into account the impact of Omicron in Q1 2022.

• This projection assumes growing consumer confidence in the resumption of travel in 2022, high but controlled inflation, and a limited chance for recession.

• It presumes a reasonable airline fleet recovery and ongoing relaxation of international travel restrictions.

• It assumes also that the supply cannot fully satisfy the demand for air travel.

•  It posits that additional infection waves are possible in 2022 but they would be either contained and limited to specific regions or have less impact on air travel demand as the world is increasingly learning to “live with COVID-19.”

Optimistic scenario:
• It assumes effective vaccine distribution and adoption in emerging and developing countries in 2022.

• This scenario also assumes growing consumer confidence in the resumption of travel in 2022, that inflation will remain under control with minimal impact of an economic downturn on aviation.

• It also assumes a reasonable airline fleet recovery and ongoing relaxation of international travel restrictions.

• It assumes that the supply will satisfy most of the demand for air travel.

• It posits that additional infection waves are possible in 2022 but they would be either contained and limited to specific regions or have less impact on air travel demand as the world is increasingly learning to “live with COVID-19.”

Pessimistic scenario:

• This scenario considers still limited vaccine access, especially in many emerging and developing countries.

• It assumes that the fear of travelling, testing and quarantine requirements are present or reimposed among passengers in certain markets, that economic weakness is exacerbated with a substantial risk of recession, and that airline fleet recovery is slow.

• It presumes also that supply won’t be able to satisfy a significant portion of the demand for air travel.

• It posits that additional waves of infections are likely and could spread to multiple regions, and difficulties would exist in containing the spread of new variants. New waves of infection would affect both vaccinated and unvaccinated populations.

Under those assumptions, ACI World forecasts the following regarding the recovery of airport passenger traffic:

• Under the current projection, accounting for the slower than expected first quarter of 2022 due to the Omicron wave, global passenger traffic is expected to reach 2019 levels in late 2023 with the full-year recovery to 2019 levels in 2024. 

The overall recovery will mainly be driven by the recovery of domestic passenger traffic but will be hampered by the recovery stagnation in Asia-Pacific and a slower recovery in global international travel (globally, domestic traffic accounted for 58% of total passenger traffic in 2019).

• Global domestic passenger traffic is still expected to reach 2019 levels in late 2023 with full-year 2023 traffic at par with 2019 levels. However, global international passenger traffic will require almost one more year to recover and will reach 2019 levels only by the second half of 2024. Full-year recovery to 2019 levels will only happen in 2025 for international passenger traffic.

• At the country-market level, markets having significant domestic traffic are expected to recover to pre-COVID-19 levels in mid-2023 to late-2023. 

• Markets with significant shares of international traffic are unlikely to return to 2019 levels until 2024, some having even to wait until 2025. 

• Due to the uneven availability of vaccines, geopolitical conflict and the resulting humanitarian crisis as well as the worsening economic outlook, some country-markets – especially emerging and developing economies – will probably not reach 2019 passenger levels before 2025 or
2026, especially those markets reliant on international traffic.