Kevin O’Toole, Chief Strategy Officer at Cirium

The airline industry is finally back. With the numbers now in for 2023 it is clear that World passenger numbers came close to pre-pandemic levels, ending the year just 3% shy of the 2019 peak. But more significantly, passenger revenues have been hitting highs for the first time in four long years. The question now is how strong this revenue recovery will remain and whether the recovery in demand can translate it into more robust industry profitability.

It is worth remembering the unprecedented nature of this latest industry downturn. The emergence of Covid as a global pandemic early in 2020 took passenger traffic down by 60% and even as demand returned two years later in 2022, traffic remained down by around 27% against pre-pandemic levels. Compare that with the impact of 9/11 in 2001 when world traffic fell by what now looks like a relatively modest 3% at its worst and was back a couple of years later despite the subsequent outbreak of SARS in Asia.

Global passenger traffic & revenues by quarter – 2023

Quarter	Passenger numbers		Passenger revenue		Passenger traffic (RPK)
	vs 2022	vs 2019	vs 2022	vs 2019	vs 2022	vs 2019
Q1	53%	-7%	84%	2%	63%	-11%
Q2	34%	-3%	43%	6%	39%	-6%
Q3	25%	-1%	22%	6%	28%	-2%
Q4	26%	-1%	21%	6%	28%	-1%
Year 2023	33%	-3%	37%	5%	37%	-5%

By contrast this downturn has been longer and deeper than any on record. As a footnote, passenger traffic grew every year even during the Second World War. So, the return of revenues and traffic in 2023 is a welcome sign that the market is finally back to something approaching normality.

Cirium’s Diio FM traffic and fares models show global passenger numbers narrowly beating pre-pandemic levels by the height of the summer in 2023. Although not quite enough to pull ahead for the full year, this was accompanied by a robust recovery in fares. Passenger revenues tracked at new highs throughout much of the year and ended 2023 up 5% on the previous peak. The optimism does come with caveats. Dollar inflation has risen by around 20% in the five years since 2019, so last year’s total remains down in real terms.

Neither is the recovery uniform. Business travel continues to lag, with corporates not only under pressure to manage costs but now also to meet emissions targets.

This shows through in returns from Amadeus and Sabre, where GDS agency bookings continued to trail pre-pandemic levels by around 30% during 2023. While there are other factors at play in reducing GDS levels, the contrast is stark compared with the recovery in passengers boarded.

Long-haul demand has also lagged, perhaps not surprisingly given the restrictions slapped on cross-border travel during the pandemic. Global Revenue Passenger Kilometres (RPK) were down by 5% for 2023 as regional and domestic markets heated up but longer haul lagged.

Leading that regional demand has been the US domestic market, where traffic has gathered pace steadily since Covid restrictions began to lift from the middle of 2022. It was ahead of the 2019 tally for every month in 2023. Passenger numbers ended the year 4% ahead of the previous peak and revenues were up by an impressive 17%.

Western Europe has been following the US market’s upward trajectory, albeit with a lag, since its own somewhat chaotic reopening in the summer of 2022. RPKs were up by 6% within the region as route networks continued to expand and although passenger volumes ended the year still down by 2% against pre-pandemic levels revenue growth was robust, ending the year up by 9%.

The same trajectory is also visible on the bellwether North Atlantic routes linking the US and Western Europe. While passenger traffic was consistently ahead of pre-pandemic levels since the summer season, revenues grew throughout much of the year to end 2023 6% ahead.

While the pace of recovery begins to settle in western markets, Asia-Pacific is only now heading toward ahead. China, at the epicentre of the original Covid outbreak, again pulled on the brakes with a second wave of city lockdowns in the first half of 2022, taking Chinese numbers down again and slowing growth across the region.

Even excluding mainland China and the Indian sub-continent from the calculations, demand has taken time to recover in the rest of East Asia and the Pacific.

Passenger numbers within the region were running at 12% below their 2019 highs, perhaps 6-12 months behind US domestic and intra-European markets. But recovery is taking hold, with revenues on a par with 2019 and fares comfortably ahead.

The ongoing recovery in Asia should help to keep world traffic moving upwards through 2024. The bigger question is perhaps whether airlines will be able to keep supply and demand in balance, especially as the input costs continue to rise. Going into 2024, analysis of the Cirium forward-looking schedule suggests that capacity growth remains modest at around 4% for the year and likely to run a point or two behind demand, as it has during 2023.

That could still change. In previous recovery cycles, such as after 9/11, prospects of demand recovery ignited market share battles that took their toll on industry profits. This time could be different. The industry is more consolidated than it was two decades ago, and is getting more so with Hawaiian Airlines, ITA Airways, SAS and TAP-Air Portugal among those due to join larger groupings. The unprecedented nature of the pandemic, followed by armed conflicts in Europe and the Middle East, plus growing pressure around sustainability, could all damp enthusiasm for adding seats back into an uncertain market. How that plays out in 2024 will be well worth watching.