Global Airline Recovery Gets Lift From Pickup in China’s Domestic Traffic

Photo credit: China Southern and China's other global airlines are focused on domestic growth as borders remain mostly closed. Flickr / Glenn Beltz

The recovery in global airline traffic continues, boosted most recently by improved trends within China. That’s the chief takeaway from the latest monthly traffic dat for July — published on Wednesday by the International Air Transport Association (IATA).

Globally, passenger traffic is now at 75 percent of pre-crisis levels, the report said. Domestic markets alone are 87 percent recovered, while the figure for international markets is just 68 percent. IATA’s data measures traffic in revenue passenger kilometers (RPKs), which accounts for both passenger volumes and distance flown. That’s a better proxy for industry revenues, which tend to be greater for longer journeys.

In a media briefing, IATA Director General Willie Walsh — who previously ran the parent company of British Airways, Iberia, Aer Lingus, and Vueling — highlighted a “V-shaped recovery” in China’s domestic market. Recall that China was the first airline market hit by the Covid shock in early 2020. But it recovered quickly, and by the summer of 2021, domestic RPKs were running ahead of 2019 levels. Subsequent bouts with Covid variants, however, led to additional travel restrictions that sent air traffic into another steep decline last fall, worsened by lockdowns of Shanghai and other cities this spring. China’s domestic RPKs hit a low point in April before turning upward, with a sharp jump from June to July. By mid-summer, China’s domestic RPKs stood at roughly 70 percent of where they were in 2019.  

On the other hand, China’s international airline market remains severely depressed amid ongoing travel and border restrictions. That’s a big reason, Walsh explained, why global international traffic remains down by nearly a third versus 2019. China will quickly recover once it eases restrictions, IATA believes. “A swift recovery can be expected in this market since every prior easing of travel restrictions has been met with high demand for air travel.”

At least one major domestic market — Brazil — is now larger than it was before the crisis. The same was true of Australia in June though not in July. The U.S., which is the world’s largest domestic market, was just 8 percent smaller in RPK terms, comparing July 2022 versus July 2019. Note that separate more current data from the U.S. Transportation Security Administration last week showed U.S. airport passenger volumes this Labor Day weekend exceeding those of 2019.  

During the IATA media briefing, Walsh described the July traffic trends as “good news,” underscoring the recovery’s continued momentum. Cargo markets remain strong, he added, as do passenger bookings for future travel. Another cause for optimism, said IATA’s chief economist Marie Owens Thomsen, is that inflation should help reduce airline debt burdens — carriers will be repaying their loans, in other words, in money that’s increasingly less valuable. Asked about the industry’s recent operational distress, meanwhile, Walsh suggested that a repeat during the upcoming winter holidays is unlikely. That said, he did criticize some airports — London Heathrow most stridently — for ongoing failures to accommodate demand. As for the labor unrest currently plaguing Lufthansa, Walsh sees that as specific to that airline, not something indicative of an industry-wide problem.

Far more problematic for the industry are high fuel prices, aggravated by an unprecedented spike in refining margins, known as “crack spreads.” Walsh said spreads were around 17% in 2019 but are now hovering around 50 percent. Fuel is the single biggest cost item for most airlines. In some cases, carriers have hedges in place to mitigate the shock. But making matters worse for most is the strong U.S. dollar, the currency in which jet fuel is transacted.   

When will total global air traffic return to pre-crisis levels? IATA’s best guess remains sometime in 2024, with lingering government restrictions on travel the last major impediment. As Thomsen pointed out, though—and as the latest IATA traffic figures make clear—the recovery is evolving at a different pace across different regions. It might take China until 2025 before reaching full recovery. The U.S., on the other hand, might get there as early as next year.