6 Major Threats to the Aviation Sector

February 14, 2024

Commercial airlines transported over four billion passengers in 2023 and generated $600 billion in revenue worldwide. Additionally, demand for air travel is expected to increase to 9.8 billion in 2024, according to the IATA.

However, to keep up with regulatory changes and, above all, with consumer trends driven by the global economic downturn, commercial airlines must manage these eight hazards, many of which are still developing and emerging as you read this content.

1. Outdated System and Technological Infrastructure Failure

Unfortunate examples in the aviation industry demonstrate how even the smallest failures in an airline's systems can have atrocious implications, both financially, regulatory, and brand image-wise.

For instance, Delta's network disruption in late January 2017 resulted in at least 270 aircraft cancellations and numerous delays, leading to a loss of over $100 million. This was due to an issue affecting their website and mobile apps. Southwest Airlines also experienced a router failure, resulting in cascading malfunctions in their systems, leading to the cancellation of 2,000 flights and costing the company between $54 million and $82 million in lost revenue and additional costs.

These incidents, along with the most recent ones, demonstrate the danger of trying to build new programs on outdated infrastructure. However, advancements in technologies like Big Data, AI, Machine Learning, and Cloud Computing have substantially reduced the barriers to entry for these much-needed system upgrades.

2. Pilot Shortage

The increasing demand for flights coupled with a decrease in the number of qualified pilots is creating a concerning pilot shortage. Boeing projects that in the next 20 years, the aviation industry will require 754,000 new maintenance technicians and 790,000 new pilots. Additionally, over the next ten years, more than 42% of airline pilots will retire, with 50% of all pilots retirement-age, posing a worrying situation.

Moreover, private aviation companies tend to recruit highly qualified pilots who were previously in the Air Force, but even the Air Force has a shortage of approximately 2,000 pilots as of late 2018. The most affected subsectors will be private and corporate airlines, as commercial airlines can often provide more competitive salaries and regular flight schedules.

3. Climate Change

Climate significantly affects the ability to maintain flight schedules on time. While airlines could predict some cancellations due to seasonality in the past, climate change has made planning almost useless. Global warming has led to more frequent and severe storms, resulting in more disruptions for travelers. Extreme heat also poses a problem, as pilots cannot achieve enough lift for safe takeoff. Additionally, more volatile temperature changes and weather patterns are leading to more turbulence.

Furthermore, airlines are under pressure to develop ways to be more fuel-efficient and reduce their carbon footprint, as the aviation industry is responsible for 2 to 5% of global emissions.

4. Volatility of Oil Prices

Around 30% of total expenses in the aviation sector are from fossil fuel consumption. Therefore, the volatility of oil prices is expected to have a significant commercial and logistical impact on the aviation sector.

In the past ten years, the price per barrel dropped from a peak of $126 in 2011 to a low of just $36 in 2016. While the cyclical nature of oil prices is not a new risk, rapid fluctuations have become more pronounced in recent decades and will remain a challenging risk exposure to manage.

It is estimated that an increase of just $1 per barrel of oil could cost the global airline industry an additional billion dollars per year.

5. Reputational Damage

Reputational damage in the aviation industry can have significant repercussions due to the highly visible and socially shared nature of incidents. Problems involving passengers, whether confrontations between passengers and crew or forced evictions, can spread quickly through social media and media channels, amplifying negative impacts.

These incidents highlight the importance of having a clear and effective communication response plan in place. Incidents cannot always be avoided, but how a company responds can determine whether the story disappears in a day or has a long-term impact on the bottom line.

6. Issues with the U.S. Government

The impact of a U.S. government shutdown on the aviation industry can be significant and multifaceted. During a shutdown, reduced availability of government employees and contractors can affect both the safety and efficiency of air operations. Financially, the government shutdown can lead to a decrease in business and leisure travel, affecting airline revenues.

In summary, the aviation industry faces a series of challenges ranging from technological failures and pilot shortages to the impact of climate change, volatility in oil prices, and government shutdowns. These challenges not only affect operational efficiency and airline profitability but also have significant implications for industry safety and reputation as a whole.

To remain resilient in an increasingly complex and changing environment, airlines must adopt proactive strategies to address these challenges, from modernizing technological infrastructure to implementing sustainable practices and effectively managing reputation. By doing so, they will be able to successfully navigate current and future challenges and stay ahead in a dynamic global market.