Global airport passenger traffic should recover to 92% of pre-pandemic figures in 2023 and hit 2019 levels by 2024, driven mainly by domestic travel. That’s according to Airports Council International (ACI) World in its latest outlook for global travel, released on 22 February. International travel is forecast to recover by 2025, added the association.

The positive outlook follows a sharp rebound in 2022, when global passenger traffic reached 6.6 billion, or 71.7% of 2019 levels, up from 50.5% a year earlier. The recovery in 2022 was mainly driven by Latin America & Caribbean and North America, with a surge in travel demand in Europe. Growth in Asia Pacific was below the global average.

Taking a big picture view of how 2023 will shape up, ACI World said that demand for leisure travel will likely remain strong in the first half, but noted that growth levels may be more subdued later in the year as the effects of higher interest rates are felt across economies.

Covid-19 surges and its variants continue to pose a challenge for seamless international travel, especially amid “knee-jerk reactions” by a number of governments, said ACI. This was apparent with the recent reintroduction of testing requirements for travellers from China in certain states. Despite a number of headwinds, added ACI, the opening up of Chinese aviation markets represents a “positive shift in the path to recovery”.

Recovery patterns will remain uneven in 2023, according to ACI.

“Africa, with continued reliance on international travel, continues to be vulnerable to external shocks. That said, a recovery is still expected by 2024 for the continent. The Asia Pacific markets continue to make a comeback especially with the opening of China, although the re-imposition of travel restrictions may represent a near-term challenge. While the region continues to see the largest surge in travel with the late removal of restrictions, it lags other markets in terms of reaching 2019 volumes.”

With the conflict in Ukraine seeming unlikely to end in 2023, the economic impacts on air transport will continue to be felt in European markets and globally. Hubs in Southeast Europe and the Middle East have already experienced “the substitution effect” resulting from the impact of closed airspace and flight bans with Russia in 2022. “With the loss of connectivity in parts of Europe on certain routes, the diversion towards these hubs has in turn boosted international traffic numbers in these other regions.”

The Americas is home to several markets with passenger numbers reaching 2019 levels for a full recovery. Mexico and Colombia have already surpassed pre-pandemic traffic numbers. North American markets are expected to come close to 2019 traffic numbers by the end of 2023, whereas markets in Latin America and the Caribbean have “a good chance” at surpassing 2019 levels in 2023, added ACI.

ACI also analysed several upside and downside factors that bear on its latest forecasts.

Upside risks

Low unemployment rates in major economies Unemployment rates remain historically low, which supports demand for air travel. Low levels of unemployment in the broader population and rising real incomes increase the propensity to travel. OECD countries observed an overall unemployment rate of 4.9% in December 2022, among the lowest on record.

However, some analysts argue that this may be short lived as central banks continue to tame inflation with higher interest rates, thereby contracting economies, ACI added.

Strong traveller sentiment The surge in travel following the lifting of restrictions in 2022 continues to spill over into 2023. The combination of low unemployment rates, accumulated savings by consumers during the pandemic, vacation deprivation felt by many leisure travellers, and the desire to reconnect with families, friends and/or colleagues continue to support the recovery.

Although some analysts observe that the demand surge will be transitory, traveller sentiment was strong in the last quarters of 2022. The recent Airport Service Quality (ASQ) Global Traveller Survey, covering 4,125 respondents across 30 countries, revealed that 86% of respondents plan to travel by air in 2023. This is the highest intention to travel score since the beginning of the pandemic. That said, as macroeconomic factors take hold, a change in traveller sentiment may be observed in 2023, in line with an overall weakening of consumer confidence, ACI added.

Reopening of China China’s opening up represents a big positive indicator for global air travel recovery, with this market having been the largest contributor to global passenger traffic growth before the pandemic. From 2009 to 2019, China contributed a 15.7% share to global growth out of all countries across the globe. Inbound and outbound international passenger traffic represented 4.4% of global traffic and 16.3% of Asia Pacific in 2019.

ACI noted: “Even with the recent surge in COVID-19 cases, and the recent imposition of test requirements for passengers travelling between China and dozens of countries, the weighting of this market plays an important role in the global recovery.”

Downside risks

Inflation and interest rates Among the G20 countries, inflation soared at some of the highest levels in decades reaching over 9% in the later months of 2022 for the group of countries. To ensure price stability and tame aggregate demand from additional inflationary pressures, there is an ongoing and systematic tightening of global monetary policy.

According to Reuters, central banks overseeing the ten most traded currencies globally delivered 2,700 basis points of tightening in 54 rate hikes in 2022. These aggressive moves will take time to cool off economies and dampen economic activity – there is typically between a 12- and 24-month lag between interest rate hikes and the resultant impact across economies. Many analysts suggest that the inflation rate has already peaked and will subside in 2023 based on the monetary tightening measures.

Jet fuel prices and air fares Even with the downward trend on jet fuel prices in the last quarter of 2022, jet fuel prices remain high compared to previous years. Industry indices of air fares also show the significant percentage increases of double-digit proportions in 2022 compared to previous years. The drivers of the increases in air fares is largely a function of rises in the major cost items such as jet fuel and personnel costs. With a potential economic slowdown, prices are expected to ease and stabilise.

Geopolitical conflicts and slowing economies The conflict between Russia and Ukraine further weakened the global economy, disrupting trade and driving a slowdown in 2022. It not only elicited a rise in energy prices affecting the cost of travel but also triggered a humanitarian crisis resulting in refugees and a global food crisis.

The International Monetary Fund (IMF) estimated growth of +3.4% in 2022 for the world’s real GDP. Subdued global GDP growth is expected in 2023 at +2.9% with weakness felt primarily across advanced economies (+1.2%). Euro area economies are particularly vulnerable in the current context, and this will show up in weakened output. Emerging Market and Developing Economies are forecast to have higher levels of economic growth at +4%.

Consumer and business confidence Despite a strong labour market, consumers are becoming more pessimistic in their views regarding the economy, noted ACI. The OECD’s Consumer Confidence Index provides insights into future developments of households’ consumption and saving, based upon answers regarding their expected financial situation, their sentiment about the general economic situation, unemployment and capability of savings.

Any value below 100 for the index signals a pessimistic attitude towards the economy. In the later months of 2022, it was the lowest it has been in years at 96. Similarly, the Business Confidence Index is based on opinion surveys regarding developments in production, orders, and stocks of finished goods in the industry sector. Used to anticipate turning points in economic activity, the latest index shows a downward trend below 100 with a value of 98.

Trade and supply chains The Purchasing Manager Index (PMI) is based on IHS Markit and JPMorgan Chase’s snapshot of the health of manufacturing across the world and captures market conditions, through the lens of purchasing managers as they invest in inventories to meet future demand.

A value above 50 for the index shows expansion whereas a value below signifies a contraction. The latest results in early 2023 show a value just slightly below 50. Linked to this is trade and the demand for air cargo volumes, which provide insights into new export orders by air, especially for high value-added goods.