Demand should surpass prepandemic levels by mid-2024
Asia will lead expansion as three growth factors hit regions differently
European long-haul flights are the most vulnerable to economic swings
In May 2020, we began making regular forecasts of how soon aviation demand would recover from the Covid-19 pandemic. Now, even as the pandemic’s impact on air travel diminishes, carbon mitigation, inflation, and lower disposable incomes have emerged as constraints on future growth. The effect of the airline industry’s CO2 mitigation costs has already begun to reshape medium- to long-term demand.
We’ve developed this next generation of our model to take these new factors into account, and we’ve extended our forecast to the end of the decade. We intend to publish regular updates using the latest information.
Here is the outlook as of the end of the second quarter of 2023:
- Air travel demand remains on pace to surpass 2019 levels next year, with the long-term trajectory dependent on CO2 costs, market-specific competitive pressures, and macroeconomic growth (see Figure 1 above). Our scenario for low macroeconomic growth now incorporates the effect of a hypothesized mild recession in 2028-2029, which flattens travel demand growth in the final two years of the forecast.
- We expect airlines’ cost of mitigating carbon emissions will cause material increases in ticket prices starting in 2026. By 2030, in our baseline scenario, these costs will reduce demand by 4.7% on average across regions compared to a zero-cost carbon scenario (see Figure 2). This is a more significant effect than the 3.5% demand reduction versus a zero-cost carbon scenario that our model forecasted last quarter. This is due to an updated outlook for the regulatory environment and increased prices for sustainable aviation fuels.
- We anticipate demand varying significantly between geographic regions. By 2030, Europe–North America travel could increase about 17% from its 2019 demand volume in the baseline scenario, while Asia intraregional travel could jump 61% (see Figures 2 and 3).
- European airlines have less room to lower prices to stimulate demand, given cost inflation, low-cost carrier competition, and tougher carbon regulation. We expect this regulatory environment will reduce demand for long-haul flights to and from Europe. At the same time, projected Europe intraregional traffic has increased 3 percentage points in our latest model due to improved forecasts for disposable income growth.
- North America’s short-haul flight projection for 2030, despite its recent strong recovery, fell 5 percentage points due to changes in the macroeconomic outlook.
- Asia maintains a much stronger outlook for long-term disposable income growth, and low-cost carriers also continue to accelerate growth. There remains significant uncertainty in Asia around how carbon regulation will evolve in each country.
Projected market and financial information, analyses, and conclusions are based (unless sourced otherwise) on external information and Bain & Company’s judgment. They are intended as a guide only and should not be construed as definitive forecasts or guarantees of future performance or results. No responsibility or liability whatsoever is accepted by any person, including Bain & Company, Inc., or its affiliates and their respective officers, employees, or agents, for any errors or omissions.