The war in Ukraine is an unknown factor, but international air travel is expected to have fully recovered from the Covid-crisis in most regions by mid-2023, with Africa lagging behind until late 2023. That’s the view of four airline bosses at the CAPA Airline Leader Summit in Manchester on April 7. CAPA summit: 'Air travel up for full recovery by summer 2023'. In an opening panel discussion, Sir Tim Clark (Emirates), Tony Douglas (Etihad), Anko van der Werff (SAS), and Allan Kilavuka (Kenya Airways) discussed the current state of the industry. On April 6, IATA reported 115.9 percent higher revenue passenger kilometers (RPKs) in February compared to the same month of 2021 but still down 45.5 percent on 2019. This reflects that air travel has been getting out of the Omicron crisis. Eurocontrol is projecting traffic in Europe to return to 92 percent of 2019 levels by the end of the year. Asked when air travel “will get through the clouds” (clear 100 percent), Tim Clark replied: “If you had asked me that question before the war in Europe, I would have said probably by the end of this year. But what’s going on at the moment, it may be delayed slightly until the summer of 2023.” Tony Douglas is also subscribing to mid-2023. Etihad has been seeing some pretty strong figures in the past month that confirm that recovery is progressing: “In March, our load factors were higher than in 2019. Our first quarter result will show a profit for the first time in our eighteen-year history.” Although traffic in the Middle East has been at the lowest level of all regions, Gulf carriers like Emirates, Etihad, and Qatar Airways have kept the world connected during the pandemic by offering limited networks. Van der Werff hesitant about the recovery As CEO of a European airline, Van der Werff is more hesitant when it comes to when to expect a full recovery. “I would break it down into demand-revenue-profit. On the demand side, Eurocontrol said 80ish percent capacity this summer, next summer 90, and then in 2024 definitely 100 percent if not earlier. Revenues are decent at the moment, but they are still based on 50 percent capacity. Profits will lag.” The SAS boss adds: “But then I still have a summer-winter split. 100 Percent capacity I could see for the summer of 2023, but for the winter season, I just don’t know. Leisure is leading the way, demand closer to home is leading the way, but I am still short on widebodies for the long haul and I don’t see full recovery soon in our part of the world, not at least because we can’t overfly Russia.” Kenya Airlines’ Kilavuka says he is “more optimistic than I was a year ago. Africa is lagging behind the rest of the world because of lower vaccination rates and the state of the economy. I was thinking we would be out at the end of 2024 but I moved forward and now think that demand will probably recover by the end of 2023. But of course subject to things constantly moving. Our November-December last year was very strong and then Omicron happened and our Q1 this year almost collapsed. But when we look at forward bookings now, particularly those for the summer are now very, very strong. Which is an indication that summer bookings next year will be at 100 percent.” Airline consolidation is a way out of the Covid-crisis for Africa and into the future, says Kenya Airways' CEO Allan Kilavuka. (Kenya Airways) Airline consolidation way out for Africa Kilavuka used the occasion to plead for consolidation of the airline industry in Africa. In November, Kenya Airways and South Africa Airlines announced their joint initiative to establish a pan-African airline system to make air travel in Africa more efficient and more affordable. “We have very poor road and rail networks, so we need air travel. Africa accounts for only 2.6 percent of international air traffic and about seventy percent is flown by four carriers. So African carriers have to grow, but we are constrained on equity, from a customer point of view. How do we change that, how do we create the right business model for Africa?” The Kenyan airline boss added that the African industry is very fragmented: “We have so many airlines that aren’t viable. The number is estimated to be between 200 and 300 airlines, some with just one or two aircraft. What we need to do is to consolidate, that is what I am working on. We started conversations with airlines, in particular SAA, with the overall idea to use assets of both airlines, increase connectivity, and have a two or three-hub strategy that will cover this large continent. This will improve options for our customers, reduce unit costs, and debunk the nationalism that we have in Africa. We have to change the model to catalyze growth.” Tim Clark agreed that unlocking various ingredients will bring the continent of Africa and offer ‘golden opportunities, not only for the ones like us (Emirates).” He said he has pleaded for opening South Africa for many years, but found that the government was more restrictive to their own carriers than to other airlines. “You need the champions in the industry to say ‘this is the wrong way to go.’ That will help us navigate through the post-Covid era. Hats off to you if you get it done”, he said to Kilavuka. Airlines still have huge debts to repay While Clark and Douglas share an optimistic view on the long-term position of the industry, Van der Werff is warier: “I am not fully convinced on the future. Yes, we see a rebound, yes, we see pent-up demand, yes, we see premium demand up in Economy or other segments than just corporate. But in essence, this industry as a whole really hasn’t made any money. It is relying on governments. There are so many airlines that have never made a profit. There is an issue with that in the long run as debt taken on has to be repaid.” Van der Werff said that airlines in Europe should have worked harder on consolidation instead of being bailed out by governments. Likewise, the CEO of SAS and previously Avianca, is worried about the long-haul market. “I am short of widebody aircraft, I believe that in the last ten years, the world has produced too many widebody aircraft, which is reflected in the aircraft prices post-Covid. The widebody market has traditionally been one of long-haul connection and premium traffic. I am not negative, but I am certainly not yet positive when I see what is going on with high fuel prices, inflation, the war in Europe, and all elements connected with that.” Van der Werff also wants to stress that the need for decarbonization will hit demand for flying more as he witnesses more and more corporates (in Scandinavia) that want to fly less or not all more just for climate reasons. Sir Tim Clark is worried that single-aisle, long-haul aircraft types like the A321XLR will take up precious slots at congested hub airports. The industry will need the A380 well into the 2030s. (Emirates) Single aisles using up valuable slots As air travel recovers, Sir Tim is worried about not having enough airport slots at big and congested airports, acerbated by the surge in single-aisle long-haul aircraft types like the A321XLR that take up those precious slots. Clark said that one of his biggest worries “is the decline of the A380. Because that, in the ability to meet the hub requirement in the 2030s when you have only limited slots in the premium hubs like Heathrow, Hong Kong, New York or you name it. What are you going to do with a single-aisle, five or six-hour aircraft like the 200-seater A321XLR versus our 600-seater? Slots are going to be a real premium, that slot has huge opportunity costs. The economic multiplier of a larger unit, obviously being full, makes these large aircraft of huge interest in the 2030s.” As he said at a different event in Dubai recently, Clark rued the lost opportunity of not being able to convince Airbus in 2017 to come up with an A380neo that had 12-15 percent better operating costs. “In the future, we are going to need that.”
