Air-travel demand is recovering faster than many predicted but rising inflation coupled with a depletion of people's "Covid savings" could cause the market to slow down later this year, BK Associates managing director Pooja Gardemal suggested during a recent ISTAT webinar. Labour shortages are another "major problem" facing the industry, Gardemal said during the 28 June webinar, although Ascend by Cirium head of valuations George Dimitroff sees a silver lining when it comes to capacity discipline. "Some of the staffing problems may work in favour of the airlines because it's helping them maintain some capacity discipline," says Dimitroff, noting that cancelling flights gives airlines "better pricing power". However, airline costs could also increase "as they have to pay people more to retain them", he adds, and there may only be a limited window in which passengers are willing or able to pay higher airfares, as the price of groceries and energy bills continues to rise.
Gardemal points to "Covid savings" built up by people during the pandemic when they were forced to stay at home, noting that this extra money combined with a pent-up desire to travel has resulted in high demand for flights this summer. But as the cost of living rises and these savings start to run out, demand could begin to wane. "Later this year and next year I think we're going to see a change there. People will start to slow down and next summer there will be a rationalisation," says Gardemal. "At a certain point, this starts to affect demand." Rising interest rates have had a mixed effect on the aircraft leasing market. While higher rates are "not great for those in the business of debt", Gardemal says they do help lease rates. When taking into account the "huge slowdown" in the aircraft asset-backed securities (ABS) market, rate rises are "more detrimental than good for our industry", she notes.
Dimitroff agrees that ABS transactions are "suddenly not looking as attractive as a method of financing", but says that for "conventional lessors" without a strong focus on selling into the ABS market, rate rises are "a positive". In the current environment, he adds, paying an extra $20,000 to $30,000 a month in rent is worth it for airlines because of the savings they will achieve through operating newer-technology aircraft. Power-by-the-hour and sale-and-leaseback agreements, both of which became more popular during the pandemic, have not gone away, despite some lessors perhaps wishing they would. Dimitroff says that while many lessors want sale-and-leasebacks to be over, there are "still lessors out there doing deals for narrowbodies". "The party's not over yet [on sale-and-leasebacks]. There are still those who are very drunk at the party and stay back after the music's gone off and the lights have dimmed," he observes. On the aircraft values side, Gardemal says the market is "definitely seeing" a recovery on new-technology aircraft but "mid-life widebodies are not doing well". Airbus A350 values have recovered to "in the nineties percent" of base value, says Dimitroff, although Boeing 787 values are still "far from base". Bankruptcies at Norwegian, LATAM and Avianca "really affected" the 787 market, although he is "absolutely" confident that values will recover. The availability of regional jets and turboprops has started to decline, causing values to recover, and Dimitroff predicts they will "remain stable for the next couple of years". However, one challenge facing the regional aircraft market in the USA is a shortage of pilots, particularly captains, which is "preventing some US regionals from taking delivery of used [Embraer] E-Jets". Values for freighter aircraft increased during the pandemic and "many lessors have jumped on the cargo bandwagon", says Gardemal, but there are questions over how long this will continue. "We're in a freighter bubble right now," says Dimitroff, pointing to the high level of passenger-to-freighter conversion work during what he describes as a "heated and unique situation". Airbus A321 P2F conversion programmes are in the ramp-up phase and the next three to five years will see increased activity in other passenger-to-freighter conversion programmes, creating "lots of supply", he predicts. However, from 2025 values could come down. Aircraft values for end-of-life aircraft have risen as a result of increasing engine maintenance costs, says Dimitroff, and this is incentivising owners to part-out younger assets.

UK regulators have proposed that London Heathrow airport be forced to cut its landing fees for airlines through to 2026.
The Civil Aviation Authority envisions that charges will decline from £30.19 ($37.07) to £26.31 in 2026, a 6% real-term year-on-year decline. This reflects forecast increases in passenger numbers as the recovery from Covid-19 continues, as well as the higher price cap put in place last year to reflect the challenges of the pandemic. Heathrow had argued that its charges should be raised to $41.95, a suggestion that drew outrage from airlines. IAG-owned British Airways, the largest user of Heathrow, had accused the airport of deliberately failing to ramp up its capacity in order to restrict passenger numbers and make its case for higher charges. The airline argued that fees at Heathrow were already the highest in the world, with consumers ultimately paying the price. BA cancelled around 10% of its summer services from the airport, citing a lack of capacity. John Holland-Kaye, Heathrow's chief executive, complains that the CAA "continues to underestimate what it takes to deliver a good passenger service, both in terms of the level of investment and operating costs required and the fair incentive needed for private investors to finance it". "Uncorrected, these elements of the CAA's proposal will only result in passengers getting a worse experience at Heathrow as investment in service dries up," adds Holland-Kaye. He warns that the proposals will undermine investment in the airport and harm the UK's attractiveness to private investors. The CAA, for its part, says its proposals reflect an "appropriate level" of efficiency to expect from Heathrow, while guaranteeing a return for capital providers that will ensure investment in the airport. In particular, it says the proposals will provide affordable charges for consumers, while enabling Heathrow to fund a safe, secure and resilient airport with a good passenger experience. "This includes investing in next-generation security equipment and a new baggage system for Terminal 2," which has a combined price tag of £1.3 billion. As regards baggage, Heathrow has recently suffered from high-profile problems that has wrought significant customer disruption.
"Today’s announcement is about doing the right thing for consumers. We have listened very carefully to both Heathrow Airport and the airlines who have differing views to each other about the future level of charges," states CAA chief executive Richard Moriarty. "Our independent and impartial analysis balances affordable charges for consumers, while allowing Heathrow to make the investment needed for the future.”

The 41 member states of air traffic service provider Eurocontrol have elected Raul Medina Caballero, who is currently at the helm of Civil Aviation of Spain, as its new director general from 1 January 2023. Caballero will take over from Eamonn Brennan who has led the organisation since 2018. Brussels-based Eurocontrol works to promote the safe and seamless air traffic management across Europe, including the co-ordination and planning of air traffic management in the continent. "I would like to thank the Eurocontrol member states for the trust that they have put in me. I look forward to working with all the states as well as the stakeholders over the coming years to continue to support and improve aviation in Europe and to build on the achievements of Eamonn Brennan over the past 5 years," states Caballero.