In an exclusive interview with Enzo Zangrilli, a long-term aviation executive with 15 years of experience in the aviation industry with former roles at easyJet, Alitalia, Trieste Airport (TRS), and currently the country manager of Italy and Malta at ADB Safegate, we look at 10 trends that are a must-watch in aviation in 2023.
For the past few years, aviation has had to deal with the consequences of several major historical events, including COVID-19, and still up to this day, the full-scale war in Ukraine. In particular, the post-pandemic reality has also been difficult for airlines. Labor shortages impacted operations during the last peak summer travel season and to prevent the situation from happening again, companies are now hiring and restoring wide-body aircraft to prepare for the next cycle of warm weather in the Northern Hemisphere. But a fair amount of uncertainty still lingers, especially as the economic fallout from the war has affected household incomes and savings for several months now.
Still, global economies appear to be turning the corner when it comes to inflation turn the corner on inflation, with the United States (US) Consumer Price Index (CPI) expected to rise to 6.6% Year-on-Year (YoY) in December 2022, a level below the 7.1% index in November 2022. Recently published data by Eurostat, the statistical office of the European Commission, showed that the Harmonized Index of Consumer Prices (HICP) within the Eurozone slowed down to 9.2% YoY in December 2022 compared to November 2022.
As airlines and consumers continue to monitor the well-being of the economy and prepare for the year ahead, there are quite a few trends to keep an eye on throughout 2023 that could have a long-lasting impact on the aviation industry.
1. Hitting the ceiling of business traffic’s recovery
One of the main cash cows for airlines before the pandemic was corporate travelers, whose companies would not hesitate to facilitate deals by sending their sales or account managers on lavish trips across borders and oceans. Now, worsening business conditions, including cost pressures and the emergence of videoconferencing, have dented the recovery of business traffic.
Deloitte, one of the Big Four accounting firms, surveyed 150 corporate travel managers and various executives who were responsible for overseeing travel budgets between February 10 and February 18, 2022. The survey concluded that business travel “did not meet most companies’ expectations in the second half of 2021”, and that companies would spend as much as 55% of 2019 levels for employees to travel on their behalf.
We have seen the recovery of business travel as it currently stands and “a certain portion of business traffic will not come back to the levels we were witnessing before the pandemic,” Enzo Zangrilli told AeroTime during an interview to discuss the trends to watch in aviation in 2023. According to the Italian industry expert, the increasing adoption and continuous development of various teleconferencing tools, as well as cost-cutting measures will be the reality of business travel going forward. “It will take a lot of time to come back to the old levels,” Zangrilli noted. However, there can always be “an element that can disrupt [aviation] in a positive or negative way but if things stay as they are, I believe that we are going to see a good five to six percent drop in business traffic staying for the foreseeable future”.
2. Fewer business travelers means more leisure-oriented cabins
Business travelers have been an integral part of airline revenues. Companies have not shied away from spending their budgets on First Class or Business Class seats. But if business travel continues to lag behind leisure travel, there might be changes coming to the way cabins are configured onboard aircraft.
In the first three quarters of the year in 2019, Delta Air Lines earned a total ticket revenue of $27.9 billion, combining only ticket sales of the main and premium products. Out of that sum, business cabin and premium products revenues were at $11.3 billion, while main cabin earnings stood at $16.6 billion. In 2022, the nine months of the year yielded the US carrier total ticket revenues of $10.2 billion, split between $5.8 billion in the main cabin and $4.3 billion in premium product revenues. This means that in the first nine months of 2019, 40% of Delta’s revenues came from premium products, with the proportion going up to 41.2% by the end of September 2022. However, that was mainly driven by “yield growth in premium products outpacing main cabin” and the fact that airlines, including Delta, which has been used as an example here, have been pushing more expensive cabins onto passengers in order to combat the ever-increasing operating costs.
“As demand for travel has risen, carriers have been in a strong position to both raise fares and deploy more restrictive inventory management strategies. By limiting the availability of cheaper booking classes, carriers can push travelers into higher fare categories than they might have previously used,” read the Air Monitor 2023 report, prepared by American Express Global Business Travel (Amex GBT), a Business-to-Business (B2B) travel platform and a former subsidiary of American Express. The report noted that business class seat prices between London and New York rose by 11%, while New York – Paris itineraries rose by as much as 33% between July and September 2022 compared to the corresponding period in 2019. Furthermore, Amex GBT pointed out that airlines are moving towards premium leisure, as well as looking for a more direct relationship with their corporate travelers with “initiatives such as online booking tool (OBT) messaging and banner placements or frequent flyer program (FFP) penetration growth as part of the contract; a sign that airlines are looking to strengthen their relationship with the traveler”.
Zangrilli, meanwhile, suggested that narrow-body aircraft will continue to be in high demand, especially as airlines will deploy them on medium-haul routes. “We have seen, in the last five years, what was expected as one of the main disruptors in the business, which was low-cost long-haul, did not really take base,” he noted. Their failure to upend legacy carriers from the transatlantic market will not bode well for their future, especially as business travel continues to lag. As such, we will see aircraft like the Airbus A321 “in a mixed but very agile [cabin] configuration and they [legacy carriers] will concentrate on leisure travelers, which technically, was the target of low-cost long-haul airlines,” Zangrilli added.
United Airlines, for example, which has two different cabin configurations on the Boeing 757-200 (16 Business Class, 153 Economy Class seats) and 757-300 (24 Business, 189 Economy), chose the A321XLR to replace its aging 757s in December 2019. In August 2022, the Chicago, US-based airline’s Senior Vice President of International Network and Alliances, Patrick Quayle, told Executive Traveller that “we will use the A321XLR exclusively for the North Atlantic as well as Latin America”. It will come equipped with a specially designed Polaris seat, United’s Business Class, suited to a narrow-body aircraft. Zangrilli also believes that there is no reason why full-service airlines would not deploy these long-range single-aisle jets on point-to-point routes that are still reliant on business traffic.
3. Legacy carriers will continue to dominate intercontinental routes
Whatever the case might be in terms of business travel going forward, long-haul low-cost is not set to return and overcome the dominance of legacy carriers. That is especially true for traffic between North America and Europe, where long-established airlines have dominated the market for years.
Even before the outbreak of the pandemic, airlines based on the model were not successful. Norwegian, previously the flagship airline of low-cost long-haul flying, failed to financially sustain its operations and re-focused on intra-European flights. Norse Atlantic Airways, the spiritual successor of Norwegian’s long-haul business – using the latter’s aircraft and getting Bjorn Kjos, Norwegian’s former CEO involved – has failed to achieve a profit since its establishment, with a net loss of $51.3 million in H1 2022, following a net loss of $7.2 million in 2021. During the first six months of 2022, it lost $51.8 million, even if it had a passenger load factor of 82%. By fall, however, the load factor began to plummet, and Norse Atlantic Airways ended the year with an average of 62%. The airline began flying in June 2022.
Still, more niche airlines or carriers who already operate the A321LR could survive the downturn of business traffic. JetBlue has continued to expand its presence across the Atlantic with more flights between John F. Kennedy International Airport (JFK) and London Heathrow Airport (LHR), the launch of flights between JFK and Paris Charles De Gaulle International Airport (CDG), as well as a continued presence on flights from/to LHR and London Gatwick Airport (LGW) to Boston Logan International Airport (BOS). However, the airline is not a true low-cost carrier.
Its Airbus A321LR cabin is closer to a full-service carrier’s rather than a no-frills one, such as Norse’s. It includes 22 fully-enclosed Mint suites, and two Mint Studio suites with a bed, a 22” TV, as well as “an extra seat and table—to work, lounge and entertain”, according to the airline’s description.
Then there is La Compagnie, which offers passengers an all-Business Class experience. The French company expanded its route network to include flights from Milan Malpensa Airport (MXP) to Newark Liberty International Airport (EWR) in April 2022, in addition to flights from Paris Orly Airport (ORY) and Nice Côte d’Azur International Airport (NCE) to EWR. However, Zangrilli mentioned that such airlines as La Compagnie must be careful not to overextend themselves because without a feeder network, they “need to select, as the basis of departure, airports in very strong catchment areas”.
4. Consolidation of alliances and code sharing and interline agreements
Consolidation has been a hot topic for the past few years, particularly during the pandemic, when dwindling revenues and lower demand for travel kept many airline executives on their toes. A post-pandemic world was supposed to be a facilitator of consolidation but, barring a few cases, airline mergers have largely not materialized.
The saga of who would eventually end up with Spirit Airlines’ fleet and network finally ended in October 2022, when shareholders of Spirit Airlines approved a deal that would see the carrier integrated into JetBlue’s operations. Frontier Airlines was the first to initiate a merger with Spirit in February 2022. Shortly after, JetBlue put in an all-cash offer that was worth $800 million more compared to Frontier’s cash-and-stock offer. Another airline merger has been developing in South America, where Colombia’s Avianca and Brazil’s Gol Linhas Aereas have looked to form a common holding company. The Colombian carrier also indicated that, following the approval of anti-trust regulators, it would acquire two low-cost carriers, Viva Air Colombia and Sky Airline. Colombian authorities have not yet approved the Viva Air acquisition, while in August 2022, Avianca indicated that it had a convertible loan in a minority position in Sky Airline.
What we might also see throughout the year is the consolidation of alliances, code sharing, and interline agreements, with airlines looking to combine forces to expand their networks without investing too much capital into aircraft and the associated operating costs.
Zangrilli believes that the main players of the industry “will try to consolidate and push as many airlines [as possible] into that alliance”, while at the same time, “small, weaker financial companies will try to maintain flexibility”. Italy-based ITA Airways, which is the continuation of Alitalia, is a great example of this because it “has done an incredible number of code sharing with every man and his dog in the last 12 months,” Zangrilli continued, adding that the Italian airline wanted to expand its intercontinental route network, but “A, they did not have the aircraft available, as they are still on order and B, they did not have the financial power to open new routes.”
He continued: “But still they made agreements with companies they did not even consider before and now they have opened a lot of code sharing [agreements] with a good strong number of airlines, which is a good way to do business, by the way.”
Whether it is sustainable in the long-term remains to be seen once the large alliances begin to recover.
Meanwhile, interline agreements made headlines as Southwest Airlines experienced an operational meltdown between Christmas and New Year’s Eve.
Does that mean that in order to open more routes and protect consumers, even low-cost carriers will begin to investigate interline agreements?
“I don’t think so,” Zangrilli said. “Low-cost companies base their success on simplicity. They cannot afford complex financial business models. They need to sell tickets on their internet website, they need to maximize the trend, and they are not really interested in talking to other companies to feed their aircraft or to buy seats on other aircraft.”
5. Low-cost carriers will be stronger than ever
While profitable long-haul flying has been out of reach for low-cost carriers for some time now, they have been the dominant force on shorter routes.
The problem, from the perspective of full-service carriers, has only been exacerbated in the past few years, with fuel and other costs skyrocketing throughout 2022 and continuing into 2023.
The cost base for low-cost carriers has always been lower because they have operated much younger fleets that, in turn, means lower fuel-related expenses. Furthermore, huge bulk orders can come with lower capital expenditure per aircraft that trickle down to the profit/loss line in an airline’s annual financial report, which means that low-cost carriers are much more flexible in their operations. Naturally, their model has risks, which was exemplified by the Southwest Airlines operational meltdown during the holidays. Aircraft do not typically return to their original airport and instead, continue to zig-zag across an airline’s route network before returning to their base at the end of the day. A single delay can cause a domino effect impacting passengers across several airports.
And even if legacy carriers have the advantage that they can maintain short-haul routes to feed their intercontinental networks with the protection of the slot system, “on point-to-point [routes], they will be penalized continuously by the competition of the [low-cost] airlines,” Zangrilli said. Passengers now have the ability to book their own itineraries, something that could also affect short-haul flight demand for legacy carriers. “Today, passengers are smarter,” Zangrilli added.
“They don’t care, necessarily, to have a trip from Nantes, France to Sao Paolo, Brazil with Air France. They can fly [on a] low-cost to Paris and from Paris, self-embark on a direct long-haul flight. So digital processes and digital approaches have favored the creativity of the passengers to save money, but also to be more flexible in booking flights,” Zangrilli continued.
Flights from Nantes to Paris would come under France’s new regulations banning domestic short-haul flights that are otherwise linked by a train service that takes fewer than 2.5 hours. “That is a very interesting phenomenon in France, which might have a fallout also in other European nations,” Zangrilli noted.
6. Low-cost carriers will grow in primary airports
Another crucial difference between the likes of Air France, Lufthansa, and such airlines as easyJet, Ryanair, or Wizz Air, is that these carriers operate at different airports. Full-service operators have their hubs at primary airports, such as London Heathrow Airport (LHR), Paris Charles De Gaulle International Airport (CDG), and Frankfurt Airport (FRA) among others, while low-cost carriers choose alternatives such as London Luton Airport (LTN), Paris Beauvais Airport (BVA), or Frankfurt-Hahn Airport (HHN).
However, with the pandemic eliminating a lot of traffic across the board, regional airports, with their focus on leisure passengers, managed to regain that traffic quite quickly. According to the latest traffic report from Airports Council International (ACI) Europe, which was published on December 8, 2022, for the month of October 2022, “the performance of regional and smaller airports kept improving markedly – with these airports almost achieving a full passenger traffic recovery (-0.6% for airports with less than 10 million passengers per annum when compared to October 2019)”. Comparatively speaking, the large hubs “did not progress further towards a full recovery: October passenger traffic volumes remained at -17.1% below pre-pandemic (October 2019) levels” the ACI report added.
But do low-cost carriers need to expand in mainline airports or, vice versa, do these airports need more no-frills airlines?
For the largest hubs on the continent, “they do have to. They do have to attract airlines, even low-cost ones,” Zangrilli explained. “At the end of the day, a 30-40% gap in traffic compared to 2020 cannot be afforded by intercontinental airports for their revenues,” he continued.
That, in turn, creates a problem for these hubs because they were not designed with a typical low-cost carrier passenger in mind.
“These airports, like Paris Charles De Gaulle or Milan Linate have a fantastic mix of luxurious shops, such as Prada, Gucci, and others, selling bags for €2,000 ($2,168). Can a Ryanair passenger afford those kinds of prices?” Zangrilli observed. “Intercontinental airports will have to be dramatically effective in reacting to the change in passenger trends because that has a terrible impact on their non-aviation revenues. Ultimately, in 10 years, or 15 years, do they want to see their own airport’s mix being 50% low-cost carriers’ passengers? They do not unless they completely change their business model,” explained Zangrilli. “But it is a mixed bag. They need to fill the slots, and aprons, they need to have aircraft landing and departing, but not completely kill their non-aviation revenues,” he concluded.
That does not mean that low-cost carriers will expand their operations across all major hubs in Europe, as some remain difficult territories to conquer. For example, when asked during the latest EUROCONTROL Aviation StraightTalk Live whether the low-cost carrier was ready to set up operations at LHR, Ryanair’s three executives, including the notoriously outspoken Chief Executive Michael O’Leary, unanimously answered “no.”
“What makes Ryanair work and what makes us so good is that we get the aircraft up and down up over six times a day, every single one. That aircraft utilization allows us to bring more passengers at lower fares and grow the business,” said Neal McMahon, Director of Operations at Ryanair during the same StraightTalk Live event. “If we started going into Orly, Charles De Gaulle, Heathrow, you would not get that aircraft utilization, you would get your costs going up, your fares would have to rise, and you would not be able to grow,” McMahon added.
Other low-cost carriers are still keen to grow at large airports, as seen with Wizz Air’s ambitious plans for growth at London Gatwick Airport (LGW). While Ryanair operates a few routes from there, the Hungarian operator acquired 15 daily slot pairs from Norwegian Air Shuttle at LGW and added four Airbus A321neo to its base there in December 2021.
“Acquiring airport slots at Gatwick Airport will enable us to enhance our presence and competitive position in the London market. We continue to develop our business in the United Kingdom and remain committed to making air travel affordable for all,” József Váradi, the CEO of Wizz Air, commented at the time.
7. Even more dramatic seasonality on the short/medium-haul segment
Winter has always been a low point for airlines, even before the pandemic. For example, per US Bureau of Transportation Statistics (BTS) data, there were 99.2 million passengers systemwide in July 2019. In February 2019, the number was as low as 72 million, while local and foreign airlines carried 76.8 million passengers during the previous month. The same trend could be observed in Europe. If there were 460,250 commercial flights in the EU in February 2019, the number rose to as much as 703,242 in July 2019, with flight numbers declining monthly for the remainder of the year, according to Eurostat data.
The pandemic worsened the situation, particularly between 2020 and 2022, when winter saw the peak of COVID-19 cases and subsequently, travel limitations. Uncertainty will carry over, and legacy airlines, who could lose even more demand for intercontinental travel, must “cull routes, cull frequencies and, maximize revenues on routes that work,” Zangrilli said. Airports, in turn, will need to put their money where their mouth is and, while Zangrilli is not advocating “nurturing or drugging the market by necessarily paying airlines to fly into the airport”, the two parties need to cooperate because “airlines cannot fly indiscriminately in the winter, as the demand drops,” Zangrilli said.
Could we see carriers parking aircraft en masse during the low-demand months, repeating what we saw during the peak months on the COVID-19 pandemic? “Not probably on that massive scale,” Zangrilli said, adding that the industry still “need to be ready and flexible to expect that kind of potential approach again.”
“Flexibility is the word of the day for airlines and airports,” Zangrilli added.
Climate change can also change the way airlines plan their winter routes, as longer summers and less snow will have an impact on traditional leisure routes. “I am not a weatherman, but I can tell you that less snow is creating big problems in traditional skiing-focused airports,” Zangrilli noted, adding that it might still be a too early to monitor this as one of the big aviation trends for the short-term future.
Still, seasonality means that legacy carriers are looking to ensure proper cash flow throughout the coldest months of the year with fuel hedging, focusing on frequency selections, being innovative with ancillary revenues – even if traditional airlines have not been the most innovative recently – and cutting costs.
8. Local state enterprises will replace regional airports when negotiating with airlines
Although regional airports were the quickest to recover traffic in Europe, life has not been easy for them, as rising operating costs have affected them as well.
“Many airports are struggling to see the light financially […]. Doncaster Sheffield Airport (DSA) is an incredible example,” Zangrilli explained. “I do not think I remember if I have seen in my career in aviation an airport closing, and it did.” He went on to mention the fact that DSA’s closure might have been the result of the local political situation as, typically, local regional partners are very strong in defending airports even if they are loss-making. “Now is the moment where those political parties need to put in creative solutions to run airports,” Zangrilli added. DSA was a privately-owned airport in the UK, which was deemed financially unviable in November 2022. Recently, the owners rejected a bid from Doncaster Council to buy the airport’s site.
“Regional airports will have to specialize more and more in leisure traffic, business [traffic], as we said before, is struggling. Leisure traffic, and development of the incoming traffic, most of the time in niche catchment areas, will have to be maximized. These guys will need to be smart,” Zangrilli said, commenting on the current situation of regional airports.
Working in cooperation with authorities, including local tourist boards, might be the way forward. Without a system with different actors around regional airports, there is a “risk to really never recover enough,” Zangrilli added.
He continued: “We need to see systems put in place with tourist boards, political authorities of that specific region, and airports together to really attract airlines. And if that means finding funds for incentive and marketing agreements, so be it. That is a good recipe that works. Of course, it means making public funds available to airlines. And these need to be subject to a regulated approach and a fair and transparent approach – however that works.”
The difficulty for these airports will be to navigate the ever-growing popularity of rail traffic on intra-Europe city pairs, meaning that regional airports will become part of a transportation hub of a certain region, which also includes bus, rail, and other mass transit options. “That is a trend that is going to stay and, as we mentioned before with the French example, if you are too close between airports, you do not fly,” Zangrilli said. “But again, there is such a big number of passengers prevailing and willing to fly. Regional airports need to demonstrate their capability to attract passengers,” he added.
One way of attracting airlines and passengers is by working with regional authorities to connect the small airports to intermodal systems. “Build a train station near the airport to facilitate the enlargement of catchment areas because it is vital for them to get passengers from every single possible area to entice airlines to fly there,” Zangrilli explained.
9. Sustainability will remain on the agenda
Governments across the globe have aimed to reduce the number of emissions from every industry and aviation is no exception. According to a brief by the Climate Action Network (CAN) and International Coalition for Sustainable Aviation (ICSA), published by the United Nations Framework Convention on Climate Change (UNFCCC), the industry’s “emissions are 2.1% of the global share, but when non-CO2 effects are included, aviation contributes an estimated 4.9% to the global warming problem”.
Thus, as lawmakers aim to comply with the legally binding Paris Agreement and limit global warming, aviation must also play a part. While the future is exciting, with battery-powered and hydrogen propulsion technologies being researched by aircraft manufacturers, airlines must also reduce their emissions in the short term. One of the ways to do so is Sustainable Aviation Fuel (SAF), as “a 100 percent substitution of aviation fuel with SAF could reduce 63 percent of the baseline CO2 emissions from international flights in 2050,” according to the International Civil Aviation Organization’s (ICAO) estimates. One of the main benefits of SAF is that it can be used as a “drop-in” solution, meaning no changes to the current distribution systems or aircraft engines will need to be made.
Challenges remain to mass adoption of the SAF, including the current production capacity. According to the European Union Aviation Safety Agency (EASA), the current supply of combustible is less than 0.05% of the total jet fuel use in the EU. However, EU airports will have to comply with a minimum blending mandate of 2% by 2025, gradually increasing to 63% in 2050 to continue reducing the emissions of the sector in the future.
“Can aviation actors be the only ones to make those initiatives work? No, they cannot,” Zangrilli said. “If you look at SAF, the main change that needs to happen to reach zero emissions by 2025 is not in the hands of aviation actors.”
Other industries, namely those that help produce the fuel, will have to convert many of the traditional refineries to help aviation reduce its emissions over the coming years, which will be “a tremendous effort,” Zangrilli said. “To do that, these guys will have to be convinced that aviation will grow, that there will be enough buyers, and governments will have to enact imposing laws to buy and fly only with sustainable aviation fuel,” he continued.
The Italian executive also noted that industry executives, including those leading airports, need to be very careful about their commitments to the goal of reducing emissions to a net zero by 2050. “You cannot talk about that unless you have on your back, at a political level, a clear movement, which has a clear action plan to transform these ideas in sustainable industrial changes,” Zangrilli said.
10. Urban Air Mobility
One of the industries that airlines have been investing in over the past few years is Urban Air Mobility and various electric Vertical Take-off and Landing (VTOL) solutions. Some of the biggest carriers in the world have ordered or committed to ordering VTOLs in large numbers, including American Airlines and United Airlines.
However, Zangrilli remains cynical. “Have you noticed something?” he said. “We started talking about this new technology, which is very interesting, during COVID.” He finds that the vehicles are “very interesting toys”, but they will not be moving millions of passengers annually nor will they revolutionize the fundamentals of the aviation industry. Still, they will stimulate urban economies and regulators, which will have to find a way to include eVTOLs in our current air systems without compromising safety.
And while they will drive investments into airports, the question is whether airlines that like to keep their costs low will appreciate when these costs are pushed onto them. Airports will have to develop infrastructure for eVTOLs, which is no easy feat, considering the complexity of air traffic around airfields. Nevertheless, everything that improves mobility is welcome, but we still need to observe how financially viable this is for “airlines, airports, and other operators in this system,” Zangrilli noted.
And the Italian executive hopes that this will not become the focus of the industry going forward, “because we have much bigger worries to be concerned about.”
“As I always say, by 2050, the real challenge will not be emissions. The real challenge will be to maintain the aviation industry as we know it now, without dramatic cuts, dramatic layoffs of people, and without companies going bust. This requires a lot of concentrated effort on cooperating on initiatives that are measurable and reasonable,” Zangrilli concluded.