Podcast: Why 2023 Was A Big Year For Air Transport

Listen in as Aviation Week Network editors Karen Walker, Christine Boynton, David Casey, Jens Flottau and Lori Ranson discuss key industry moments and themes of the year and what they will be watching for in 2024.

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Rush Transcript

Karen Walker:

Hello everyone, and thank you for joining us for Window Seat, our Aviation Week air transport podcast. I'm ATW in Aviation Week Network, Air Transport Editor-in-Chief, Karen Walker, and I'm absolutely delighted to welcome you on board for our final Window Seat of 2023.

And joining me today are some of my colleagues who cover the global air transport industry, Aviation Week Commercial Aviation Executive Editor, Jens Flottau; Routes Editor-in-Chief, David Casey; Aviation Week Air Transport Senior Editor, Christine Boynton; and CAPA Senior Analyst, Americas, Lori Ranson. So welcome everyone. Great to see you all and to be chatting today.

We've all of course had another busy year covering this industry, which on one level never seems to get less crazy, it's just different sorts of crazy each year. But it's mostly been quite a positive picture this year relative to where we've been in more recent years. Again, this group has attended many aviation conferences, events and air shows around the world. It's going to be fun just having a conversation and listening to each of you about some of the key events that have caught your eye through the year and what you're looking out for in 2024.

Jens, can I just start with you and start with aircraft orders because we've seen a lot of those and we've seen some pretty big orders go through the year and going right to the end of the year as well. So what's going on there, Jens?

Jens Flottau:

Yes, as you say, right to the end of the year. Yeah, it's been an astonishingly good year in terms of orders. I just looked at the numbers again until end of November. Airbus came in at over 1300. And it's just narrow bodies. Boeing came in at just under 700 narrowbodies. And the reason I'm looking at narrowbodies is that Lufthansa, my hometown airline, went back to Boeing again and bought a hundred MAXs, which was surprising but also interesting. And I thought very smart because they're becoming too dependent on Airbus. So that rounds up a big year for orders, as we said.

And if you go back to the Dubai Airshow in November, we saw Emirates buying lots of 777Xs, confirming 787s. We also saw a dispute about the Rolls-Royce XWB-97 engines where Tim Clark, the Emirates airline CEO said they're not reliable enough under the harsh conditions in the Middle East.

And if we go further back in the year, we should remember the Indigo orders, Air India orders, 500 aircraft for Indigo, less than that, but still many for Air India. Riyadh Air in Saudi Arabia getting set up with an initial order for 40 787s. Saudia being revived with 40. So it's everywhere.

But my personal highlight of the year was an interview I did with Guillaume Faury, the Airbus CEO, in June. It wasn't a highlight because I was talking to him, but because of what he said. And what he said was that Airbus is looking at developing an A320neo successor. So it's not only about the orders today, but also pitched forward to the mid-thirties when the next generation of aircraft is going to arrive.

Karen Walker:

What struck me on the aircraft side, at least on the positive side, was the real surge again in interest for widebodies. There were also, since the pandemic and once orders started coming, as you said, there's still big numbers coming in for narrowbodies, but for a while there it was almost all the focus was on narrowbodies. And then I think '23, I think we saw a pivot there. And of course that widebody interest is because so many of the markets are now truly open, and that means long haul as well.

Jens Flottau:

Yeah, and as I said, Emirates ordering a large number of 777Xs. And just earlier this month, Turkish buying 50 A350s. So yes, I mean, a year ago that would've been unimaginable to have that level of interest in widebodies that soon after the pandemic. But here we go, the industry is back.

Karen Walker:

Absolutely. So just to take up a little bit on that in terms of what's been happening in markets and the long haul coming back. David, the transatlantic market has been really hot in '23. And I mean, it's interesting because we're now seeing operators putting narrow bodies, long-range narrowbodies, into that market. But the market overall has been hot, yes?

David Casey:

Absolutely, yeah. I mean, it's been incredibly strong for airlines revenue wise as demand has exceeded supply. So I think Delta's president, Glen Hauenstein, recently described it as the most phenomenal summer ever across the Atlantic with record profits on margins on some of those long haul routes. And I think Delta and United in particular have been two that have managed to grab share on that northern Atlantic, which has consolidated post-pandemic. Obviously, we saw Norwegian Shuttle exit the market, and we've seen other competitors that have reduced their fleets.

And actually looking at some stats for the transatlantic, it was actually a record summer in terms of number of flights. We were actually up 3% this summer compared with summer 2019. But as I said, obviously the capacity was lower. And that is, as you said, because we have seen some of those narrowbody operators, so we've seen JetBlue put routes into Paris and Amsterdam this summer, we've seen SAS as well, they've been doing some long haul with A321 long range.

And I think it'll be interesting though to see what happens next year and whether we will be able to push those transatlantic yields up even further because we have had those incredible levels in '23. But I think we're still heading for another very strong year.

It's going to be an interesting year. We've got some interesting new routes that have already announced. So United doing San Francisco-Barcelona, Newark to Faro. JetBlue is going to be further expanding as well, so they're going be routes to Dublin and Edinburgh as well as Boston to Dublin as well. And I think towards the end of the year when we get some XLR deliveries, we might start seeing some new routes coming through for 2025 as well. So it's going to be a really exciting time I think in the transatlantic market.

Karen Walker:

Lori, I know you cover all of the Americas, I'd just like to start off a little bit with you on the Latin American side. Overall of course the good news again is that IATA is forecasting that overall the airlines will return to profit, to a net profit, by the end of this year and continue that into next. But not uniform. And Latin America is one of regions that will still be in the red this year and next. It's still a tough market. But there's been some interesting elements there, developments through the year. I'm particularly thinking Mexico. First of all, FAA upgraded its oversight from category two to one, which has some significant implications for the Mexican market. Can you just talk a little bit about what's been happening in Mexico because some of that has been a bit crazy?

Lori Ranson:

Yeah, that's a good way to describe it. So the safety upgrade was actually a big significant development for Mexican carriers because it had been over two years with them being not able to expand to US markets, transporter markets. Which is one of the most important markets in the world, the Mexico US transporter market. So the upgrade happened in September. And airlines moved quickly to add capacity back to the US. Volaris and Aeromexico focused on adding new markets. Whereas Volaris is adding more frequencies in their existing markets.

So what this does, it gives some relief to the domestic market too. Pricing in the domestic market had been pressured because there was overcapacity due to the fact that they couldn't expand to the US. So hopefully that will give domestic yields a boost.

The big unknown that you know about very well is the government is trying to revive Mexicana and launch Mexicana as a government run airline. I believe the original date for the debut was September. That's been pushed back. I've heard that late December could also be a launch date. Which makes it very difficult because you can't capitalize on demand launching that late in the cycle. So we'll see what happens there and if that creates some sort of disruption in the market next year.

And then I just think overall in Mexico, and you all know this very well, the government has taken a much more active role in the aviation sector compared with probably any other country in the world. So they're running the new Mexico airport, Felipe Ángeles. They had taken over the operation of Mexico City International. They're building a new airport in Tulum. They're capping operations at Mexico City. So a lot happening with the government and how they're overseeing the industry. Of course there's an election next year, I believe it's June, I may be incorrect, but it's next year. And so we'll see what happens if another party comes into power and if this affects what the government is trying to do there. So a lot happening in Mexico.

I should point out Colombia as well, because two airlines exited the market this year. So it was Ultra and Viva, two ultra low cost carriers. And I think a lot of it stemmed from the fact that most airlines in Latin America did not receive government aid, so they were floundering a little bit.

I think that capacity has mostly been back filled by the two largest airlines, LATAM Airlines Colombia, and obviously the largest airline, Avianca. JetSMART which is another pan-South American ultra-low cost carrier group is working to establish a new domestic airline in Colombia. So if that happens next year, we'll have to see if it creates any supply-demand imbalance as these airlines try to stake out their claim in the market.

So yeah, those are the two big things that happened in Latin America in 2023. And some of the uncertainty created by those events is definitely going to carry over into next year.

Karen Walker:

The Mexicana thing, well, it's mind-blowing to try and get your head around what on earth that plan is. For anyone who doesn't know, it's going to be run by the military, owned by the government, they may or may not have planes, they don't seem to have any plan other than reviving the name Mexicana, which is a well-known name. But anyway, as you say, we shall see.

Now, Christine, turning to the US. You've actually been monitoring one of the biggest stories through this year, which is the proposed merger of JetBlue and Spirit Airlines, low-cost carrier Spirit, which ended up getting into a legal battle. And you've been in the courts in Boston through that. Tell us a little bit about that. And I would love to just, because you've got the ... the airline executives were there in that court as this merger is being challenged by the Department of Justice, so I'd love to just hear a little bit of your personal feeling from watching that.

Christine Boynton:

Sure. JetBlue and Spirit, they've actually wrapped up their antitrust trial of course at the beginning of the month. Their main arguments really centered around their ability to compete with the big four US airlines. And some of the arguments that Spirit was making was really regarding its ability to grow as is. They made some pretty strong statements about their financial performance and really the way forward without a merger.

Both airlines also made a point to say they'd been exploring mergers with other airlines as early as 2016, 2017, and those considerations took a pause during the pandemic. But yeah, it was interesting to hear the question that the judge had for both airlines. He asked about divestiture several times, he questioned attorneys for the DOJ, "What if I were to approve this deal with additional divestiture conditions? What could that look like?" And the DOJ pushed back very strongly that there is really no way in their word to maintain competition in the marketplace without just nixing the deal entirely. So yeah, it was an interesting couple of weeks of court proceedings for sure.

Karen Walker:

And as you say, I thought the judge then was really posing the issue because Spirit has been in the red for several consecutive quarters now. And the judge said, "But what happens if I don't allow this to happen and Spirit goes belly up?" I think were his actual words. "Well, what's that going to do for competition?" And then of course we had the big surprise in December, another proposed merger. So tell us a little bit about that.

Christine Boynton:

Sure. So Alaska announced on a Sunday evening that they had a merger agreement with Hawaiian Airlines. So it remains to be seen whether that will receive any government pushback. They did talk about they only have overlap in 12 markets. I believe the number was 12. It remains to be seen how the government will receive that proposed deal. It did take them eight months I believe to file suit against JetBlue and Spirit. So it could be a while yet. But yeah, that's the newest. And I guess the very latest in that story is Alaska flight attendants this morning announced that they intend to vote on a potential strike action in the new year. So we'll see what comes of that.

Karen Walker:

These things in the industry never go without some sort of labor action as well. Jens, just to go back to you, I mean, so we're seeing, potentially as we go into next year, we're seeing potentially another set of consolidation in the US. What's been happening on that front in Europe?

Jens Flottau:

A lot. But nothing has really been finished. Lufthansa has announced that it wants to take over a 41% stake in ITA Airways. It has just submitted its application to the European Commission. Everyone more or less expects this to go through phase one and phase two. So it's going to be a lengthy approval process. That won't be finished before probably the middle of next year. But it can be extended if it's in phase two.

That raises the question whether ITA Airways has the funds to stay independent that long and survive. Remains to be seen. On the positive side, 2023 went really well for everyone including ITA Airways. So they may have more reserves than they initially planned.

There are other cases, IAG is trying to take over Air Europa, the Spanish airline. That too has to go through European Commission approval. To me it's a bit of a long shot given that IAG already owns Iberia, the largest Spanish airline. So we'll see. And that would obviously strengthen the Madrid hub a lot further.

Then there's the Air France-KLM Group investment in SAS, another airline that's been struggling for years. And finally TAP Air Portugal is up for sale. That process has been held up in a government crisis in Portugal. So it seems that that is delayed. But ultimately people expect it to happen. And all three of the big ones are going to be interested, Lufthansa Group, Air France-KLM and IAG have all said they're interested. So that will be a particularly interesting case. So I mean, the short answer to your question is a lot is happening over here.

Karen Walker:

Yeah, absolutely. And similar to in the Americas, a lot that we are going to be seeing where this falls out I suspect in '24. There will be some answers and probably some not answers going into '24 on those.

Meanwhile, I was very happy to spend quite a bit of time in Asia this year. David, I know you did too with the Routes events there. We had CAPA event of course, Lori, well, several CAPA events there. Which was all really about how the Asia-Pacific market, it's also coming back strongly now, lagged behind other regions. Dependent of course on travel restrictions being lifted from the pandemic.

But the biggest single factor in that is China. Finally, China lifted its restrictions. So we're not seeing things back relative to where other regions are, but we are seeing that movement big time now. But what I would say is, so there's a lot of ... everybody's watching China and how and where that capacity is coming back. But the other big watch if you like is Air India, the Indian market generally, but Air India. Jens referenced this, Air India placed a big order. They're doing this merger with Vistara, that's going to play out in '24 definitely.

We've been talking about this, Jens, haven't we? How many decades have we've been talking about when will Air India really, really be a significant player in the market? And the changes that are going on there may well actually be the foundation for that change and for the Indian market in general.

David, can I just come back to you on the airport side. Obviously a lot of this was tied to capacity restrictions related to the environment, and we will talk about sustainability in a minute. Big news being what happened at Schiphol. Can you just talk a little to that?

David Casey:

Yeah, of course. So in Europe this year, we did see public and political mood on aviation, it seemed to be hardening. And as you say, in Amsterdam in the Netherlands, the Dutch government's efforts to reduce the number of flights from 500,000 per year to 460,000 per year. It was set to come into force at the start of the northern summer 2024 season until an unexpected U-turn just days before the Netherlands general election in November. So that decision to abandon the cap followed real intense pressure from airlines, so KLM, Delta, but also from the US government as well. Including an order from the US Transportation Department indicating that the capacity reduction would be unfair, discriminatory and anti-competitive for carriers.

But there does seem to be that push towards limiting capacity. And we are seeing more political influence over that. So in France as well this year we saw the ban on short-haul flights come into effect where the high-speed rail journey exists.

And we're also seeing government impose more taxes. So in the Netherlands, they actually increased their air passenger tax. And in Denmark as well they're having talks to introduce a new tax on domestic and international services, which could see ... I think it's about $57 onto the cost of a long-haul flight by the end of the decade. Now in Denmark, ministers are saying it's going to support aviation's green transition, although a large portion of the funds is actually going to go towards state pensions, so old age pensioners are going to benefit from that. It's an interesting case and it'll be interesting to see what happens, whether that actually gets through in 2024.

Karen Walker:

So the Schiphol move by the Dutch government, David, that was related to noise, not carbon emissions. But as you say, we're now seeing the restrictions coming in that are related to emissions as well. But of course sustainability was just a huge issue across the industry. I mean, it's been growing, but my feeling was that '23 was probably when the true seriousness of what it means to the industry really was coming to the fore.

Jens, you were at lots of these events that were talking about this. What was your thoughts there and where this is going to take us in '24?

Jens Flottau:

Yeah, I mean, thinking back to the IATA event, the annual media day that they do in December, you were there, I was there. And one of the big topics there was the charges and costs that are coming up for the airlines basically now. And rising very quickly next year with billions for CORSIA, for the emissions trading system in Europe.

Germany just came out with the idea of a domestic fuel tax that's going to be added to, as I said, domestic flights. It seems to have been killed by now, but I'm sure the government will find another way of charging the airlines more. So there's literally billions in extra costs for airlines to manage.

At the same time, staff production isn't growing fast enough. Again, IATA has presented some figures that show that investment in new production facilities isn't nearly where it should be. Yet at the same time we have government mandates or European Commission mandates for certain thresholds to be met as early as 2025 that airlines will likely not be able to meet just because there isn't enough staff around. So they're all in a very, very tough place. And as you say, the pressure is just mounting.

Karen Walker:

Yeah, you're right. I just got the feeling this year that that's where ... it was really clear, they're caught in a vice of the pressure to be sustainable is growing and it's attached with fines and money and all the rest of it. But the solutions are just often, even if they're known, they're just not there. Lori, what was your feeling on the sustainability and where we're going with that?

Lori Ranson:

I was at a CAPA event in Abu Dhabi last month, there was an environmental panel. And I think the industry is really struggling to communicate that it has made some progress, and communicate the attempts that it's making. And there's a big debate on how to do that. And I don't think the industry has unified on this topic very well. And I think going forward, the industry has to figure out a way to unify and have one message about its progress.

I also just feel like more broadly this was the year that the industry thought, oh well, 2050, I don't know if we're going to meet that target or not. And I really think there were some hard realizations that were made in that regard.

So yeah, the challenges aren't going anywhere, but I think there's a debate in the industry on how to communicate what the industry is actually doing to move toward these goals that the industry realizes are going to be very hard to meet.

Karen Walker:

Yeah, absolutely. I mean, we could talk forever, but I'd just like to just do a quick round of each of you, if you could just say what's the thing that you're most interested in, that's going to most have your eye in 2024? David, could we start with you?

David Casey:

I don't know if it's whether I'm necessarily most interested, but I think one thing that is a real positive that I'm looking forward to in 2024 is that we're going to set a new benchmark. So I think we're reaching the end of '23 now, and we've seen really strong demand for travel globally. Obviously the huge problems that blighted the summer of '22 have really reduced and the industry is now ever closer to completing its post-pandemic traffic recovery. So I think next year we're going to see capacity levels outstrip 2019 levels, and that's despite some of the Pratt & Whitney engine issues and barring any other major shocks to the industry. And the forecast at the minute is that passenger volumes will be 9.4 billion, which will surpass the 9.2 billion that we saw in 2019. So I think we're now finally in a position where we've got that new benchmark and we can stop looking back to 2019, this is actually a new normal and we can actually work forward now from 2024 onwards.

Karen Walker:

Very good point. I think we are just approaching that turning corner where we're no longer making every reference to pre-pandemic levels and 2019. Christine, what's going to grab you in '24?

Christine Boynton:

Well, I'd say certainly the fate of both of the proposed mergers that are pending at the moment. But then I'd also say a major theme of 2023 was labor, contract negotiations. Each of the big four reached agreements with their pilots with significant increases in pay, but also quality of life benefits, scheduling, that sort of thing. So I'll be interested to see what happens with of course the flight attendant groups, which most remain in negotiations.

Karen Walker:

Yeah, absolutely. Lori, what's going to take your attention?

Lori Ranson:

Probably two things. I'm very interested in ULCC performance in the US in 2024 because it's been very weak this year. And we don't know if this is due to permanent changes in demand, if consumers are not enthusiastic about the business model anymore. So that's going to be interesting to watch. And then just Mexico, because you can't not watch it, it's hard to walk away from.

Karen Walker:

It's like watching a soap opera, isn't it, literally is like a soap opera. It would make a great storyline for ... maybe we should move into another business, Lori, and write a soap opera for the Mexican airline industry. It's going to be better than The Crown. Jens, what's going to catch your attention?

Jens Flottau:

Maybe it's another soap opera, it's aircraft production. Because we've seen this massive demand, I talked about the orders earlier, now all these aircraft have to be built. And very, very soon. Aircraft talking about a rate of 75 in '26. They're at somewhat like 44 on average this year. So there's a long way to go. Also for Boeing on the 737 MAX. So I'm going to be watching very, very closely next year what's happening in terms of production rates.

Karen Walker:

That's a really good point to bring up because of course given all the supply chain issues that we've been seeing just really not getting any better through '23. And across the ... I mean, everybody's been looking at the engine side of course, but it's still aircraft, it's still cabins and seats and everything down to ...

When I was in Singapore for AAPA, the CEO at Thai Airways made an incredibly interesting comment that just stunned the audience. When we were talking about supply chain issues and how it's affecting the airlines. And he brought up an example of just how deep this goes. They've had to close off bathrooms in planes or just not have a plane available because of a shortage of, you know those little taps in the little bathroom sinks, the tap that is supposed to just automatically pour water when you ... it's got a sensor. And they've got a shortage of whatever it is that operates that sensor. And so it's all the way through. So I think you're right, Jens, keep an eye on that.

Jens Flottau:

And I have an anecdote as well. Lufthansa is putting out its first A350s with the new Allegris cabin, the upgraded business class and economy and first class. Well, the first five aircraft will come without a first class. It'll be empty except a row of economy seats for safety reasons up there in the front cabin because the seats can't be certified.

Karen Walker:

Correct. So you're right, there's a contradiction here, huge aircraft numbers, and yet we're still seeing all these supply chain issues. Yeah, absolutely.

Well, like I said, we could talk forever on this. It's certainly been, like I say, another fascinating year. And I'm sure it's going to be a very, very busy year for all of us in '24. Jens, David, Lori and Christine, thank you so much for your time today. I've enjoyed that conversation. Thank you also to our producer, Cory Hitt. And of course a huge thank you to our listeners for following Window Seat through this year. Here's wishing you all a very happy holidays and good travels in 2024.