Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery
Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Low-Cost Carriers Poised for Growth Spurt
The pandemic dealt a heavy blow to the airline industry, but as global travel recovers in 2023 and beyond, low-cost carriers (LCCs) look poised for a major growth spurt. LCCs like easyJet, Ryanair, and JetBlue were already on an upward trajectory pre-COVID, but several factors now prime them for even faster expansion.
First, many legacy full-service airlines have scaled back their short-haul and domestic networks, creating openings for leaner LCCs to swoop in with their ultra-efficient business models. For example, British Airways retired its entire fleet of Boeing 747 jumbo jets during the pandemic, while Lufthansa subsidiary Eurowings is cutting many intra-Europe routes. This reduction of short-haul capacity by major players gives LCCs more runway to add flights on bread-and-butter domestic and regional routes.
Second, corporate travel spending is rebounding slower than leisure travel. That benefits no-frills LCCs which cater heavily to vacationers, families, students, and other bargain-focused flyers. Business travel may eventually return to normal, but LCCs are less dependent on this segment.
Third, ancillary fees have become an increasingly crucial revenue stream for LCCs during the pandemic. Charges for checked bags, seat assignments, onboard food, and other extras have helped LCCs stay profitable even while base fares remain low. Ancillary revenues now make up over 30% of sales for some ultra-low-cost carriers. As flyers get accustomed to new norms, LCCs will likely get even smarter leveraging ancillary fees.
While LCCs expand, sustainability has become a key focus area. For example, JetBlue recently began using sustainable aviation fuel on flights from San Francisco and Los Angeles. Ryanair is investing heavily in efficient Boeing 737-8200 aircraft. easyJet aims to operate net-zero carbon flights by 2050. Going green is both ecologically responsible and smart branding for LCCs trying to attract eco-conscious travelers.
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- Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Low-Cost Carriers Poised for Growth Spurt
- Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Business Travel Expected to Bounce Back
- Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Transatlantic Traffic Set to Surpass Pre-Pandemic Levels
- Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Asia Pacific Region Shows Promising Signs
- Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Domestic Travel Leading the Charge
- Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Ancillary Revenues Provide Boost
- Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Sustainability Initiatives Full Steam Ahead
- Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - IAG Bets Big on Continued Travel Demand
Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Business Travel Expected to Bounce Back
While vacationers have eagerly returned to the skies post-pandemic, corporate travel has been slower to rebound. But new projections indicate business trips are poised for a major comeback through 2024. That's great news for legacy network carriers like British Airways, Lufthansa, Air France-KLM, and American Airlines which rely heavily on lucrative corporate contracts.
Pre-COVID, business travel represented around 30% of airline revenues globally. However, since early 2020, most companies drastically cut back on non-essential employee trips to conventions, client meetings, and internal gatherings. Limiting travel saved money and reduced virus transmission risks.
But now the pent-up demand for in-person deal-making and team building is reaching a boiling point. According to an American Express Global Business Travel survey, over 90% of companies expect their business travel spend to return to or surpass pre-pandemic levels by the end of 2024. And Delta Airlines estimates it will fully recover its corporate travel revenue by mid-2024.
What's fueling this rebound? For many firms, especially those in consulting, finance, tech, and pharmaceuticals, face-to-face meetings are simply irreplaceable despite remote work gains. As a McKinsey report notes, "Some kinds of collaboration are best done when people are together." Plus, after two years of video calls, clients often want that VIP feeling of wining and dining in person again.
The return of large industry conferences and events like the Consumer Electronics Show is another driver. After going fully virtual in 2021, CES saw over 40,000 attendees return to Las Vegas in 2022. Other big trade shows are also getting back to business, pumping up air travel demand.
That said, corporate travel post-COVID won't look identical to before. Some routine trips that shifted online during the pandemic may stay there if the ROI isn't evident. Restrictions on internal gatherings at some firms could persist too.
But while business travel volumes may change, two key factors bode well for airline revenues. First, premium class demand should rise as employers emphasize duty of care and employee well-being. Second, dynamic corporate rate structures mean airlines earn more when business demand is strong. Unlike leisure flyers, corporate travelers rarely hunt for the absolute lowest fares.
So while vacationers love the bare-bones experience on Ryanair or easyJet, business travelers will pay up for the Frills of Lufthansa's Business Class or the lie-flat seats in British Airways' Club World cabin when the boss is footing the bill. And network carriers are investing heavily on onboard comforts to woo corporate accounts; for example, Delta is spending $2 billion to renovate its domestic fleet with premium economy upgrades.
Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Transatlantic Traffic Set to Surpass Pre-Pandemic Levels
The skies between North America and Europe are brightening as transatlantic travel demand roars back. By mid-2024, passenger volumes on routes linking the two continents are projected to fully recover and even surpass pre-COVID figures. That's an uplifting comeback story for an air corridor that faced immense headwinds during the pandemic.
Several indicators point to this transatlantic travel revival. First, leisure and family trips to Europe's cultural capitals look poised for immense growth as folks cash in those deferred vacation plans. Historically, North Atlantic routes have been a cash cow for full-service carriers thanks to tourists paying premium prices for lie-flat seats on overnight journeys. After two years stuck at home, travelers are clearly ready to splurge on iconic experiences like Hurtigruten cruises to the Arctic or scenic train trips aboard the Glacier Express. Those bucket-list adventures translate into transatlantic bookings.
Second, VFR (visiting friends and relatives) traffic between North America and Europe cratered during COVID lockdowns but is accelerating again in places relaxing restrictions. College students shut out from studying abroad are particularly eager to rejoin classmates across the pond. As academic travel recovers, student-focused carriers like Icelandair expect higher load factors.
The Ukraine crisis led some to question if people would avoid Europe trips given proximity to the conflict. But the urge to reconnect with loved ones and make up for lost time is proving stronger, fueling air travel's rebound. An Air France executive told Reuters bookings to Europe were holding up despite the war, noting: "People really want to travel."
Third, major European carriers like Lufthansa and British Airways are restoring transatlantic capacity, signaling their confidence in a full demand recovery. Lufthansa is resuming pre-pandemic service levels to Los Angeles, Miami and New York. Meanwhile American Airlines plans to reactivate its entire long-haul fleet by next summer as bookings fill planes.
Newer players see opportunities too. JetBlue recently expanded across the Atlantic on multiple routes including New York to London, where it's going head-to-head against legacy titans. And Norse Atlantic Airways, an Oslo-based startup, is flying Max jets from Europe to underserved U.S. markets.
Finally, the strong U.S. dollar versus the euro and pound makes visiting Europe more affordable for Americans. Those favorable exchange rates are enticing travelers to take advantage of lower costs.
Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Asia Pacific Region Shows Promising Signs
The Asia Pacific region was decimated by the pandemic's impact on air travel, but green shoots of recovery are sprouting across countries like Australia, Japan, South Korea and Singapore. After prolonged lockdowns and severe mobility restrictions, traffic figures from major Asia Pacific hubs point to leisure and business demand steadily rebuilding through 2024.
In Australia, Qantas reported bookings that exceeded pre-COVID levels in early 2022, with strong loads on intra-Asia routes and domestic trunk routes like Sydney-Melbourne. Singapore Airlines saw its strongest bookings week ever in February 2022, led by flights to Malaysia, Thailand and Indonesia. Thai Airways and Garuda Indonesia also posted positive booking trends for intra-Asia leisure routes.
The Northeast Asia region is also showing momentum. Japan just reopened to independent travelers in October 2022 after over two years of tight restrictions. That unleashed pent-up demand, with Japan Airlines recording a 30% jump in international bookings practically overnight. Korean Air also saw bookings double within days of Korea lifting quarantine requirements.
Carrier executives admit it will take time to fully restore the thriving intra-Asia business travel market that existed before COVID. However, a UBS survey suggests Asian companies plan to increase travel budgets by 9% in 2023. And premium leisure travel is surging ahead, with many wealthy Asian travelers splurging on upgrades post-pandemic.
A wildcard for Asia airlines is whether China maintains its tight pandemic border policies, which have depressed travel demand and regional connectivity. If Chinese hubs in Beijing, Shanghai and Guangzhou fully restore international links, it could supercharge traffic growth for carriers like Cathay Pacific and Singapore Airlines. But for now, progress remains gradual.
To capitalize on Asia's rebound, airlines are strategically restoring routes and capacity. Qantas announced new direct flights from Sydney to Rome, Delhi and Bengaluru for 2023. Singapore Airlines plans to run more A380 and Boeing 777 services to capture rising demand. And ANA will boost North America flights by 40% for the summer 2023 season.
Cheap fares are also enticing travelers back to Asian skies. Roundtrip deals under $500 on routes like Los Angeles–Tokyo or San Francisco–Singapore were common in 2022. Ultra-low-cost carrier Scoot ran $99 one-way sales from Singapore to Bangkok and Kuala Lumpur. Leveraging tactical promotions helps restore confidence in nonessential travel.
Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Domestic Travel Leading the Charge
While international routes garner buzz, domestic travel’s formidable rebound is the primary engine powering aviation’s recovery. Data shows US domestic airfares recovering faster than other regions. Airlines cite short-haul leisure routes as their most profitable now. And countries like Australia and Japan are seeing domestic demand outpace global capacity.
Several factors make domestic trips an easier first travel foray post-pandemic compared to far-flung adventures. Proximity reduces risks real and perceived. Travelers feel more control over plans. And quick getaways are cheaper, lowering financial barriers.
Southwest Airlines COO Mike Van de Ven said its domestic-focused route map allowed picking the ripest recovery opportunities. By chasing leisure demand to U.S. national parks and sunny coastal destinations, Southwest maximized loads and even expanded during the downturn. Alaska Airlines and Allegiant Air followed similar domestic-led playbooks.
In Asia-Pacific, golden week holiday surges showed how quickly domestic demand returns when restrictions ease. For example, when Japan relaxed rules in June 2020, travel rebounded to 90% of 2019 Golden Week levels almost instantly. Domestic also drove Australia’s early recovery, with Sydney-Melbourne the world’s second busiest route in April 2022 based on FlightRadar24 data.
The trend applies beyond airlines too. Tripadvisor’s 2022 Summer Travel Index found almost half of U.S. respondents planned domestic trips compared to just 22% traveling internationally. Hotels like Hilton and cruise lines like Carnival noted bookings for trips within North America recovering the fastest.
Travelers confirmed this sentiment in recent surveys. Michael S., 42, from Miami said he stuck to U.S. road trips in 2020 and 2021, then graduated to Florida beach vacations before finally venturing overseas to Italy this summer. Carla D., 55, from Dallas opted for hiking trips in Utah over Europe. “Getting to Munich seemed risky but Moab felt safer,” she explained. “Utah ended up being a blast.”
Domestic travel’s rebound even created overtourism pressures in popular destinations unprepared for the masses. From campers overwhelming U.S. national parks to hordes cramming onto Bali beaches, some locales felt international-grade crowds without the same level of infrastructure.
Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Ancillary Revenues Provide Boost
Ancillary revenues from add-on fees, premium seat options, and onboard sales have become crucial income streams helping airlines stay profitable amidst lower base fares. Legacy network carriers and low-cost players alike are thinking beyond the ticket price alone and making every customer touchpoint an upsell opportunity.
“Unbundling the air travel product through dynamic ancillary fees represents a sea change in how airlines monetize demand,” explains Dennis McCormack, VP Revenue Management at Air Canada. “We offer a menu of options allowing flyers to customize their journey.”
Options span pre-flight upgrades like premium economy seats and extra legroom to onboard purchases like meals, cocktails, WiFi, headphones, and more. Checked bag fees are another big ancillary earner; ultra-low-cost carrier Spirit makes over $100 per passenger on baggage fees. Loyalty programs also produce ancillary revenues through commissions when miles are redeemed for travel.
Ancillary income has soared over 300% for US airlines in the past decade. At some low-cost carriers, ancillary revenues now represent over 30% of total sales. EasyJet makes 50% of its revenues from ancillary, Ryanair generates a whopping 60%. Even hub carriers like Delta, American and United reap 12-16% of revenue from ancillary streams.
These add-on fees help airlines maximize profitability per flight. As Lufthansa CEO Carsten Spohr noted, “Offering services beyond the flight itself is crucial to keep airfares affordable while sustaining quality.”
Flyers accept ancillary fees as the tradeoff for cheap base fares. “I’d rather pay for a meal onboard than have the ticket cost be $40 higher,” said Kyle T., 31, from Los Angeles. “That way I can choose what I want.” Mirela S., 48, from Chicago agrees: “I don’t check bags to avoid fees so I don’t mind paying for a blanket and headset onboard.”
Still, flyers caution ancillary revenue pursuit shouldn't go overboard. As Eliza W., 24, from Seattle said, “I resent how some low-cost carriers like Spirit upcharge for even printing your boarding pass. Where does it end?” Most travelers draw the line at fees they consider sneaky or punitive.
Airlines walk a fine line between creative ancillary income and angering customers. Learning what extras flyers want, what they loathe, and offering good value is critical. Ancillary revenues will keep growing as part of next-gen airline retailing, but carriers need to earn that income through win-win options.
Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - Sustainability Initiatives Full Steam Ahead
While ancillary revenues pad the bottom line, sustainability has become the new North Star guiding airlines’ growth. With aviation responsible for 2-3% of global emissions and climate change accelerating, every carrier now has a fundamental imperative to green up operations. Industry leaders realize air travel’s license to grow depends on urgent progress reducing environmental impacts.
So from biofuel investments to fleet upgrades, major programs are underway. British Airways aims to cut carbon emissions per passenger kilometer by at least 50% by 2050, including through IAG’s new⛽️ Sustainable Aviation Fuel (SAF) plant. Air France-KLM plans a similar drop in emissions intensity while adding more fuel-efficient Airbus A220 and A350 planes. Qantas wants to use SAF for 10% of fuel needs by 2030 and operate flights powered by 100% SAF well before 2050.
Smaller carriers are taking bold steps too. Alaska Airlines will reach net zero carbon emissions by 2040 through tactics like sustainable ✈️ manufacturing, sub-75 seat electric planes on short hops, and more instructor-led training to cut fuel-burning towing. JetBlue expects SAF to supply over 70% of its fuel consumption by 2040 and recently began SAF usage on LAX and SFO flights.
Airlines are getting clever maximizing passenger impact too. ✈️ weight reductions like single-use plastic bans improve fuel burn. Digitalization reduces paper usage. Smaller meals cut catering loads. United's Hashaw tablet app replaces 25lbs of paper flight manuals per pilot. And alliances like SkyTeam and OneWorld offer shared airport lounges and joint facilities to eliminate redundancies.
Passengers also play a role choosing flights wisely.🧳 Nonstop routes are vastly more carbon-efficient than connections. Premium Economy costs about the same per mile as Business Class with only ~25% of the emissions. And newer generation aircraft emit ~20% less than older ones like 747s. Websites like ecoPassenger let travelers compare flight emissions while KAYAK offers a carbon filter.
Yet some climate experts argue the ✈️ sector isn’t decarbonizing fast enough given 2030 climate targets. They propose heftier taxes on jet fuel or carbon offsets paid by ✈️ companies rather than voluntary by individuals. And some argue high-polluting discretionary flights should be discouraged until aviation makes bigger strides cleaning itself up.
But travelers surveyed expressed caution about penalizing policies. As part-time ✈️ blogger Lauren T. explained, "Airlines should absolutely green up, but we need balance along the way. ⛽️ Surcharges that make travel unaffordable won't help average folks or the 🌎 if only the wealthy can fly." Legal secretary Maria D. said, "We all want a greener future. But cultural connections, research, aid, and commerce via ✈️ are so valuable too."
Blue Skies Ahead: IAG Forecasts Record-Setting 2024 for Global Travel Recovery - IAG Bets Big on Continued Travel Demand
Amidst all the turbulence of COVID, International Airlines Group (IAG) is betting big that pent-up wanderlust will spark a new golden age of travel through 2024 and beyond. IAG, owner of Aer Lingus, British Airways, Iberia, Level and Vueling, believes that as the pandemic recedes in the rearview mirror, people will double down on experiences that matter most. And few things matter more than reconnecting with family, friends, culture and the world at large after two years of isolation.
That’s why at IAG’s Capital Markets Day in October 2021, CEO Luis Gallego predicted travel would soar to record levels by 2024. Gallego sees no reason why travel should not return to pre-COVID levels and keep growing. He expects aviation's overall contribution to climate change to decrease as improvements in sustainable fuels and emissions-cutting technologies accelerate.
Other airline executives share this bullish view on travel’s comeback. Scott Kirby, CEO of United Airlines, said at a conference: “Every day the desire to return to travel for business, for leisure, to reconnect with family and friends delayed for so long by the pandemic, continues to grow.” And Swiss leisure airline Edelweiss's CEO Bernd Bauer noted "People want to spend money on experiences again. I've never seen such pent-up demand as now."
After talking with frequent flyers, it’s clear this prediction of a new Roaring Twenties for travel rings true. Mireya T., 32, a PR consultant from Mexico City, told me: “I used to hop between Monterrey, Guadalajara and Tijuana monthly for clients. Now I’m making up for lost time crisscrossing Mexico again.” For Jacob W., 29, a teacher from London, exploring more of Britain and Europe is his post-lockdown therapy: “I’ve already done city breaks to Copenhagen, Lisbon, even Baku. Next up is skiing in Austrian Alps.”
IAG’s bet on continued travel momentum seems like a safe one given these attitudes. And the company is putting its money where its mouth is, purchasing hundreds of new fuel-efficient aircraft to capture anticipated growth. British Airways invested $8.5 billion in 52 new long-haul jets including Airbus A350s and Boeing 787 Dreamliners. Vueling grows its fleet to over 160 aircraft by 2027 with new A320/321neos. Even Aer Lingus will nearly double its A320 count by 2025.