Chairman of the Board Of Avia Solutions Group Gediminas Ziemelis: Aviation 2022 - passenger capacity shortages, low-cost game changers, and growing Indian market

With the hopes for a recovery in sight, the global aviation sector projects a sharp decline in reported losses in 2022. Evidently, airlines continue to implement expeditious recovery strategies to unhook from the associated financial and operational challenges inflicted by the COVID-19 pandemic since early 2020.

Notably, the current forecasts by the International Air Transport Association (IATA) indicate that the airlines may continue to report net losses in 2022. However, these expected losses will narrow by a significant margin from the $51.8 billion figure reported in the last quarter of FY2021 to $11.6 billion in 2022. Current projections indicate that the industry may experience a boom starting June 2022, given the continued growth in world trade and increasing demand for passenger air travel.

IATA predicts an increase in passenger traffic to 61% of the pre-COVID levels in 2022. Numerically, this implies that the air travel tally could increase to reach a record high of 3.4 billion in 2022. This will have an antithetical effect on air passenger capacity, given that over 1,000 aircraft previously in service before the pandemic may end up in the boneyards after retiring. Adding to this predicament, over 15% of aircraft on ground (AOG) scheduled for maintenance may take a little longer before getting off the ground and resuming service. The shortage in passenger capacity may push the demand for damp leasing between airlines to boost extra-seasonal fleet capacity.

Inspite all airlines following a modest recovery strategy, a global pilot shortage problem will likely emerge, at least in some regions in 2022 or early into 2023. The expected pilot strike in August may aggravate the situation further as the growing demand for passenger flights will force trade unions to go back to their pre-pandemic conditions. Regarding the magnitude, the industry estimates a global pilot shortage of about 34,000 pilots between 2022 and 2025.

The present state of affairs signals that most airlines operating in low-cost domestic market segments may report faster recovery. The move by Indigo Partners – Wizz Air's main shareholder to purchase up to 195 new A321 neo and A321 XLR aircraft indicates how low-cost carriers may become the next game-changers in the foreseeable future. Likewise, Ryanair is in the final stages of purchasing 75 new Boeing 737 MAX 200s, which will enable the company to capitalize on the growing customer base in the low-cost domestic market.

The emergence of new, ultra-low-cost airlines in countries like India could play a considerable role in strengthening the country's aviation industry in 2022. The decision by Akasa Air to order 72 new Boeing 737 MAX could potentially change the already distressed Indian aviation segment. These aircraft will supplement the growing air travel demand for low-cost carriers (LCCs), accounting for over 80% of the aviation market share in India.

Compared to international air travel, the aviation industry may begin to note a new trend towards increased demand for domestic air travel, mainly among leisure travelers. Current projections indicate that the demand for domestic air travel will increase to 93% vis-à-vis pre-pandemic levels. This new record represents a 20% increase in domestic demand among air travelers this year.

Additionally, the IATA expects passenger demand for international air travel to double in 2022 to reach a new high of 44% of pre-pandemic levels. However, this is contingent on the level of vaccination penetration, new COVID-19 variant headwinds, and easing or intensification of restrictions by governments in the aviation sectors.

A report by the Airport Survey Network has revealed that more than 71% of airports have a long waiting list of aircraft scheduled for MRO services in their hangers. This will mean more business for private hangers even in summer, usually considered as the low season for the aviation industry.

If the status quo remains, the air cargo market will experience no relief throughout 2022 and beyond. The freight forwarders have warned that the industry is set to experience an increased demand for air cargo services, which may push airfreight rates higher in 2022. FedEx, Kuhne & Nagel, and other freight forwarders predict a constrained air cargo capacity and slowed capacity recovery, meaning that airlines may take up to 2-3 years to return to "favorable" pricing.

Although the situation is still acrimonious, airline companies are more likely to report continuous improvements in 2022 and the coming years. Many airlines have started to put their affairs to order by addressing the pervasive debt problems and hastening their deleveraging plans. The anticipated phenomenon is that smaller airlines will become thriftier as they try to reduce their capital expenditures in 2022. If global airlines can implement measures to circumvent the stalemate implicated by the new COVID-19 iterations, the odds for plunging to liquidity issues will remain significantly low. However, investors must become cognizant that a successful journey for recovery will entail multi-year efforts that may go beyond 2022 and involve a plenitude of financial volatility in the airline sector.