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Air traffic seen back to normal by June on China rebound

Bloomberg
Bloomberg • 4 min read
Air traffic seen back to normal by June on China rebound
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China’s reopening to international travel could propel global air traffic back to pre-pandemic levels as soon as June, one of the world’s leading aircraft-leasing firms predicts.

Avolon Holdings, the world’s second-largest jet lessor, said Monday that the aviation sector “is set to thrive in 2023,” with Asia driving the rebound from years of Covid-19 disruption after Europe and North America did so last year.

China’s surprise decision to drop border curbs earlier this month has given the industry a boost following earlier projections for a reopening much later in 2023. Avolon released its outlook at the start of back-to-back leasing conferences in Dublin where other firms also adopted a more upbeat tone.

Speaking on the sidelines of an Airline Economics event in the Irish capital, Boeing Co.’s vice president for commercial marketing, Darren Hulst, said China and Asia represent “the final piece of the puzzle” for the sector’s recovery since they’re so important to global traffic.

Hulst, too, said 2023 should now see a full recovery in passenger traffic, encouraging more carriers to consider their capacity requirements and potentially place aircraft orders, especially in Asia.

“If you look at 2021 and 2022, a lot of companies that made decisions were either in the US or Europe, or leasing companies,” he said. “As we move into this year, you kind of follow where the recovery goes. We’ll probably see some more activity in those regions.”

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Order Impact
Hulst said the return to commercial flying of the 737 Max model in China after a four-year hiatus triggered by two fatal crashes is an encouraging sign and that Boeing will work with customers on resuming deliveries of previously ordered new Max planes.

Air Lease Corp. founder and Chairman Steve Udvar-Hazy told the conference that 2023 should mark the start of a multi-year recovery cycle for aviation, while warning that production issues at Airbus SE and Boeing threaten to put a brake on gains.

He said that Air Lease’s fleet of more than 500 aircraft was fully utilized in the third quarter of last year. The firm faces a shortage of new planes as delivery delays persist into this year as the manufacturers tussle with supply-chain constraints.

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One other key issue will be the ability of airlines to pass on the cost of higher interest rates to customers, Udvar-Hazy said. Fares surged last year as people prioritized travel in wake of coronavirus curbs and lockdowns, but “certain segments of the traveling public will not be able to make as many trips,” he said.

“I think by the end of this year, we’ll be at the peak 2019 levels,” Hazy said of the industry’s recovery, adding that the rebound will depend in part on the direction of interest rates and the impact on economic growth.

Widebody Boost
The reopening of China should provide a much-needed boost to demand for wide-body aircraft, according to Udvar-Hazy. With deliveries stuttering, that should also translate into higher lease rates for used twin aisle jets, Avolon said, predicting a 35% jump in hire costs for the aging original version of the Airbus A330.

China’s re-emergence onto the global aviation scene won’t boost all airlines, Henrik Hololei, the director-general for mobility and transport in the European Commission, told the conference. He highlighted the obstacles to East Asian flights posed by the closure of Russian airspace to carriers from the bloc.

Hololei also said that Beijing’s move to resume travel at a time when domestic Covid-19 cases are escalating has stirred concern at national level, leading to the reintroduction of testing for arrivals. Some nations had sought tougher measures and the requirements represent a compromise, he said.

The International Air Transport Association said in early December that the airline industry would achieve its first post-pandemic profit this year, bolstered mainly by a travel rebound in the US.

The group made the prediction before China loosened its zero-Covid rules and announced the decision on a reopening. IATA Chief Willie Walsh, who appeared at the Airline Economics conference, didn’t refer to the guidance.

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