GLOBAL commercial air travel demand reached 90% of pre-COVID levels in May 2023, according to Bain & Company’s Air Traffic Demand Forecast Model. The complete rebound is anticipated in the first half of 2024, primarily driven by the resumption of Chinese air travel. However, current recovery trends may be dampened by the evolving macroeconomic environment. A potential recession and rising inflationary pressure could adversely affect leisure travelers’ disposable income in the next two years and delay full air travel recovery.
The outlook for the business travel segment is less optimistic, with full recovery unlikely to happen before 2027. International business travel was hit the hardest by the pandemic and is expected to take longer to recover, as many companies significantly reduced business travel and shifted to online meetings to optimize costs and efficiency. According to a recent Bain & Company survey, a majority of airline executives believe video calls will reduce business travel by at least 11% to 20% in the next decade. Furthermore, the rising importance of the environmental, social, and governance (ESG) agenda has intensified companies’ efforts to reduce their carbon footprint, adding another headwind for business travel recovery.
In Asia, overall traffic recovery is lagging slightly behind global averages. Air travel within the region is expected to recover closer to the end of 2024, while international traffic flows are generally expected to take longer to rebound. For example, traffic from Asia to Europe is forecast to recover only in 2025.
In Southeast Asia, the picture is similar to the broader Asian region: Traffic gradually recovers but falls behind the global pace. For example, in Thailand, both domestic and international travel returned only to 76% of pre-pandemic levels in May. Interestingly, passenger traffic is shifting toward more low-cost destinations, with a gradual increase in number of travelers to Thailand from India and China. Previously, passengers from these countries mostly arrived from major cities such as Hong Kong; however, recently, more disparate cities like Chengdu or Kunming have become a growing source of passenger arrivals. This trend is mainly driven by the increased connectivity and accessibility of travel resulting from the expanding operations of low-cost carriers from these destinations.
As air traffic steadily recovers, airlines continue actively adapting to the new normal. Market data shows a gradual shift toward smaller and more efficient aircraft types compared to the pre-COVID period. For example, Singapore’s arriving scheduled capacity served by Airbus A350, A321, and Boeing 787 had increased by 50% in May compared to pre-pandemic levels, while the capacity served by larger Airbus A380 and Boeing 777 shrunk by over 40% during the same period.
Most carriers have already undertaken significant cost transformation programs to survive the pandemic. However, the airline industry is notorious for its low profitability, and focusing only on cost efficiency is often not enough to ensure positive financial results. Therefore, sales and revenue management become key priorities for many airlines to ensure profitability amid traffic recovery and further operations ramp-up. Bain & Company’s experience shows that full-service carriers may achieve a profitability uplift of up to 3% within 12 to 18 months by focusing on commercial excellence. For this reason, commercial excellence is expected to become a priority for many airlines in the next few years to ensure sustainable financial results in the post-pandemic era.
Alexey Semakov is a senior manager and expert in Airlines, Logistics, and Transportation practice at Bain & Company, based in Singapore. Allan Schulte is a partner and head of Asia-Pacific Airlines, Logistics, and Transportation at Bain & Company, based in Bangkok.
