Projected passenger numbers are expected to reach 4 billion worldwide in 2023. As the global travel and transport industries continue their journey back to pre-pandemic levels of activity, there is reason for optimism. We take a look at some of the key trends and opportunities in the aviation industry in 2023.
There is no doubt that the aviation industry has suffered its most difficult period on record with Covid-19 restrictions grounding the vast majority of worldwide fleets for almost two years. This was closely followed by the war in Ukraine which has led to over $10 billion of aircraft owned by lessors being lost to Russia.
In spite of this, green shoots have emerged again from the sector where passenger numbers are continuing to grow. This is particularly so in emerging markets such as Asia and the Middle East where significant investments are being made to meet increased demand for air travel. There are a number of key considerations however that the entire industry will be focused on for 2023.
Interest rate hikes
The dramatic increase in interest rates which we have seen over the last 12 months has had a significant impact in the aviation space. The higher cost of borrowing has been passed on across the board to lessors and airlines, and in turn to passengers. Higher rates will also lead to higher capital costs and decreased yields and the ability to finance aircraft may be compromised for certain airlines/lessors. Those with stronger financial positions will undoubtedly find themselves with better bargaining power and this will be particularly true for the stronger lessors in cases where airlines themselves do not have the cash flow to purchase aircraft directly. In such cases, bargaining power around lease terms will most certainly lie with the lessors. It is likely that we will see an increase in export credit lending to assist with financing requirements in the short to medium term.
Sustainability
The key word throughout the industry for 2023 will undoubtedly be sustainability. This is a huge issue across all sectors and has become a critical theme in aviation, particularly where we see trends emerging that may link the price of aircraft finance to environmental targets. Following the International Air Transport Association’s commitment to achieve net-zero emissions by 2050 and, as a result of national and international policies around economic, social and governance (ESG), considerable resources are being put into developing new technologies in the area of sustainable aviation fuel (SAF) and to improve the fuel efficiency of new engines. Developments in this area will ultimately benefit airline operators themselves as well as the environment given the rising cost of fuel and so innovations will be welcomed across the entire industry. For this reason, we can expect more collaboration between all stakeholders to provide long term sustainability solutions.
Conclusion
The aviation industry has shown that it can remain resilient in the face of extreme adversity and the future looks bright when we look at passenger demand. The challenge for the sector will be weathering the increased finance costs as a result of the rise in interest rates and adapting quickly to come up with solutions in the sustainability space. The sector has responded on both counts and opportunities for innovation are at the forefront for 2023 and beyond.
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The content of this article is provided for information purposes only and does not constitute legal or other advice.