CAPA: A New Wave Of Industry Restructuring Is Taking Shape

For all the negative outcomes of the pandemic, air travel demand continues to grow, and consumer trends point to travel and tourism having increasing priority over other forms of discretionary spending. Travel, it appears, has become more important to people than ever before.

At the same time, capacity discipline is being imposed on the sector. With OEMs struggling to address supply chain tangles and deal with other challenges, aircraft deliveries are likely to be depressed for the next few years. This is not entirely a negative. The tightness of air travel supply is supporting fares at healthy levels and restraining the tendency in some segments of the industry towards headlong expansion.

On top of this, the sector is engaged in a deep modernization. COVID-19 tipped the balance on digitalization, sending airlines racing to embrace new technologies to solve issues as far ranging as personnel shortages, uncertainty in pricing and increasing demand for product personalization. Airlines are undergoing a quiet revolution, transforming their digital and physical products to enhance services on the ground and in the air.

While airlines took a battering from the global pandemic, the industry at large is emerging fitter and more competitive. This is not to say there aren’t challenges. Airlines remain heavily indebted, profitability is concentrated geographically, and business travel appears to have suffered some structural decline. But the industry is showing it can tackle these problems and do so profitably.

Governments and the media, meanwhile, need to recognize the good news. Air travel is more accessible, more convenient and safer than ever, with more affordable options for service and comfort than at any time in the industry’s history.

AIRPORT INFRASTRUCTURE

The airport sector is confronted with some of the same challenges as airlines—and some that are uniquely its own. And, of course, some of those challenges will become opportunities.

The pandemic still hangs heavily over the airport industry, however, because during its depths many construction activities were suspended or canceled. While airlines can adjust relatively quickly, airports need to take a much longer-term viewpoint on strategy and development, especially when it comes to infrastructure.

Annual airport traffic data for 2023 may indicate the first “normal” performance since 2019. However, while a closer look at the world’s top 20 airports gives an average passenger growth rate in 2023 versus 2022 of 38.2%, those airports remained 35.9% behind the total for 2019.

Fortunes are not equal and there is a great deal of inconsistency as pandemic recovery rates vary considerably between regions, albeit to a lesser extent than in the preceding year.

It might have been hoped that there would be a turnaround by now, but the world is changed by events such as Russia’s invasion of Ukraine, the ongoing conflict in Gaza and the knock-on effects on supply lines, business and inflation well beyond national borders. All of these have contributed to an ongoing economic downturn.

Consequently, while the full impact of the pandemic will take years to play out, in the near term it has reshaped the entire infrastructure industry in four ways: intensifying its focus on operational resilience, the affordability of that infrastructure, the deployment of new technologies, and the need for sustainability.

Those are important reasons why infrastructure investment in both existing and new airports has almost halved since before the pandemic.

The imperative to safeguard the environment is dictating the future trajectory of airport development, emerging as the paramount consideration in all strategic endeavors. Local and national authorities are increasingly prepared to exercise their veto power over expansion initiatives and route development, should these proposals not align with broader environmental objectives. This transition towards eco-centric governance is, in essence, reshaping the foundation on which future airport plans will be laid.

With the industry at such a juncture, breathing room is being created for another wave of industry transformation and structural reform. The last wave—triggered by the need to survive the pandemic—was painful and foisted on the industry. The next wave needs to be more thought out, controlled and mindful of both commercial realities and the need to reconfigure the airline industry to meet its challenges.