IATA Warns of Risks in the Aviation Sector Heading to 2023

In recent months, the aviation sector has been steadily recovering in seating capacity and passenger traffic and is expected to return to pre-pandemic levels in the next six months. However, airlines are facing major financial decisions that could determine the future key players of the upcoming years. Geopolitical turmoil is undoubtedly the main concern because it has led to an economic crisis, mainly through rising oil and gas prices. 

Currently, the main factors negatively affecting airlines are ongoing travel restrictions in certain parts of the world, geopolitical turmoil, rising prices, hangover effects from the pandemic and the passenger’s attitude to flying, according to IATA Airlines. These factors are expected to continue affecting airlines, so IATA insists on the need to do more to increase awareness of aviation’s environmental credentials among the public. 

The association forecasts that operational costs will continue to rise, especially labor costs, because of a lack of manpower is pushing wages up and because regulations keeping salaries high are coming into force throughout the world. Although crude oil prices retreated from their peak in June, global energy prices on average continued to rise in August, led mainly by rocketing prices in natural gas, especially in the EU, which saw a 36 percent increase from the previous month, as reported by IATA. 

However, all countries are not equally affected by the increase in energy prices. “Energy weighs less in mature economies’ CPI consumption baskets than in emerging economies. Given mature economies’ lower share of energy in total consumption, energy-price inflation will have a lesser impact on headline inflation in these countries,” said IATA. Lower-income households spend a larger share of their income on basic goods and energy. In emerging economies, the impact of the global energy-price increases on the headline inflation rates is greater. The lower-income countries are not only hit harder by the higher energy prices but also tend to experience currency depreciation due to the elevated CPI inflation.

Risks are expected to continue appearing and many of them will continue to grow outside of the airlines’ control. Even though risks and volatility have become a regular player in the industry, different regions are experiencing different issues. Mexico’s main challenges, for example, include the Federal Aviation Administration's (FAA) downgrade of the Federal Civil Aviation Agency (AFAC) to Category 2. This downgrade has caused Mexican airlines to lose an estimated 65 percent of their revenue, as previously reported by MBN.