There’s an old saying in aviation circles: “If you want to make a small fortune in the airline business, start with a large one.” It’s as if airlines are built to lose money.
In April 2024, the ongoing conflict between Israel and Hamas escalated further when missiles were fired from Iran to Israel, leading to widespread concerns for safety in the region.
But just when it seemed the skies couldn’t get more dangerous, tensions between Israel and Iran flared up, further complicating the region’s geopolitical climate. Iran’s involvement, followed by Israeli attacks in Lebanon, worsened the situation, prompting airlines to reroute their flights again to avoid conflict zones.
As a result, NOTAMs (Notices to Air Missions) were issued, instructing airlines to steer clear of certain airspaces to ensure passenger safety. This disruption was just the latest reminder of how quickly and drastically the aviation industry can be affected by geopolitical events.
Airlines operating in and around the Middle East had already been on high alert since the war in Ukraine re-routed Europe-to-Asia flight paths, and this new layer of tension made the situation even more complicated.
With more airspace closures and longer flight times due to re-routing, costs for carriers increased significantly.
Airlines like Emirates, Qatar Airways, and Turkish Airlines, which rely heavily on their Middle East hubs, were particularly affected, as longer flight paths meant more fuel consumption and higher operating expenses.
Here, I explore a few key factors influencing the cyclical nature of aviation.
1. The Most Unpredictable Cost in the Sky
The war in Ukraine, followed by the Middle Eastern conflicts, had another ripple effect: soaring fuel prices.
The instability in oil-producing regions like Russia and the Middle East has been a key factor in the unpredictability of jet fuel costs, which account for up to 30% of an airline’s operational expenses. In 2022, jet fuel prices spiked by 115% year-over-year, rising to over $160 per barrel.
While the market eventually stabilized, prices were still elevated in 2023, hovering around $98.5 per barrel.
This volatility leaves airlines in a constant juggling act, balancing ticket prices and profitability. Many carriers hedge fuel prices to protect themselves from unexpected increases, but even the best strategies can't entirely shield them from price shocks driven by global events.2. Re-Routing the Skies
The Middle East conflict between Israel and Hamas in late 2023 was another reminder of how vulnerable airlines are to geopolitical tensions.
With airspace over Israel, Lebanon, and parts of the Middle East increasingly becoming no-fly zones, flights between Europe and Asia had to take longer, more fuel-intensive routes.
The earlier conflict in Ukraine had already forced carriers to avoid large swaths of Russian airspace, which had been a key corridor for flights heading from Europe to East Asia.
For airlines like Emirates and Turkish Airlines, which operate major hubs in the region, re-routing flights meant higher costs.
More fuel, longer crew hours, and extended flight times were all part of the equation.
Finnair, which had previously marketed itself as the fastest carrier between Europe and Asia, had to drastically change its route network, hurting profitability (IATA).
3. The Industry’s Dependence on Consumer Confidence
Economic cycles have a huge influence on airline profitability, and 2023 brought its own set of challenges.
Global inflation rates have risen, putting pressure on consumers' disposable income. High inflation discourages discretionary spending, which means leisure travel a key revenue source for airlines—could suffer.
Although the airline industry is projected to turn a $9.8 billion profit in 2023, this is still a far cry from the levels seen before the pandemic (IATA).
Passenger confidence plays a massive role here.
When consumers are worried about their financial futures, the first thing they cut back on is non-essential travel.
Business travel, which still hasn’t fully recovered from its pre-pandemic heights, is also highly sensitive to economic downturns.
Rising costs in other areas, such as accommodation and dining, could reduce the frequency of travel, directly impacting the airline industry’s revenue streams further.
4. Natural Disasters: When Mother Nature Ground Flights
Natural disasters continue to pose significant threats to aviation.
In 2023, hurricanes, wildfires, and snowstorms caused mass cancellations and delays across major airline hubs, from North America to Southeast Asia.
Airlines, airports, and passengers are increasingly affected by weather disruptions, leading to operational chaos.
For example, Hurricane Idalia in 2023 led to significant losses in the U.S. domestic airline industry due to flight cancellations and airport shutdowns.
Beyond short-term disruptions, natural disasters can have long-term impacts on tourism, which directly affects airlines as well.
Regions hit by hurricanes or wildfires often see a drop in visitors, reducing demand for flights and impacting profitability for months, if not years.
5. Aircraft Delivery Delays: When Patience Isn’t an Option
The aircraft supply chain has been disrupted by internal manufacturing issues.
Boeing, once a dominant player in the global aviation market, has faced significant quality control issues with its 737 MAX and 787 Dreamliner programs.
These problems resulted in production delays, FAA scrutiny, and widespread cancellations of aircraft orders.
For instance, Boeing’s production of the 737 MAX was halted multiple times between 2020 and 2023 due to various quality and safety concerns, leading to billions in lost revenue and a severe blow to its reputation.
In contrast, Airbus has seized the opportunity to gain market share.
Many airlines that cancelled their orders with Boeing have turned to Airbus to fulfill their fleet expansion needs.
According to 2023 data, Airbus saw a 10% increase in orders, particularly for its A320neo and A350 models, as airlines sought more reliable alternatives to Boeing’s troubled offerings.
For example, Qatar Airways, which had disputes with Boeing over delivery timelines, shifted its orders to Airbus, further boosting the European manufacturer's backlog.
These supply chain issues highlight the cyclical challenges faced by the industry.
When airlines are unable to receive new, fuel-efficient planes, they are forced to operate older, less efficient aircraft, exacerbating fuel costs during a time of high fuel prices.
This delay in fleet modernization adds another layer of complexity to an industry already navigating geopolitical and economic volatility.
6. When the Workforce Grounds You
Labor strikes have long been a thorn in the side of the airline industry. In 2023, a wave of strikes across Europe—by pilots, air traffic controllers, and ground crew—disrupted thousands of flights during the busy summer season (IATA).
Airlines had to cancel or delay flights, costing them millions in lost revenue, compensation claims, and reputational damage. This situation has become a recurring issue, especially in Europe, where unions wield significant power.
In addition to strikes, labor shortages, particularly in the U.S., continue to be a major challenge. Many experienced pilots and crew members who left during the pandemic haven’t returned, leaving airlines scrambling to fill these critical positions. The training and certification processes for pilots and other crew take time, and in the interim, airlines are forced to cut back on schedules.
7. The Elephant in the Room
The COVID-19 pandemic was the single biggest shock the airline industry has ever faced.
While most of the world has moved on, its lingering impact is still being felt. Global air traffic remains below 2019 levels, and while leisure travel has largely recovered, business travel—a critical profit driver for airlines—has not. It’s estimated that the pandemic cost the global airline industry over $183 billion (IATA).
New health protocols, enhanced sanitation, and more flexible booking policies have become the norm. While these measures are necessary, they also add to operational costs, eating into profit margins.
The future of travel looks more domestic, with airlines focusing on short-haul and regional routes to capitalize on changing consumer preferences.
What Lies Ahead in the Cyclical Nature of the Airline Industry?
Predicting the future of the airline industry is like trying to forecast the weather a year in advance—there are just too many variables.
The current global conflicts, fuel price volatility, labor shortages, and economic uncertainty all point to one thing: the airline industry’s profitability will continue to be highly cyclical and volatile in the near term.
However, the airline industry has shown remarkable resilience in the face of adversity.
Despite the challenges, in response to the question: will the general aviation survive? there’s room for cautious optimism.
Airlines that can adapt by investing in more fuel-efficient aircraft, diversifying their route networks, and embracing digital transformation will likely see profits return.
The industry is expected to turn a modest profit of $9.8 billion in 2023, signaling a slow but steady recovery (IATA).
Long-term profitability will rely on several key factors previously mentioned. If well-managed, the airline industry has the potential to soar once again. Yet, as history reminds us, turbulence is always just beyond the horizon.
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