The exponential growth in passenger demand in recent years has intensified the challenges airlines face, requiring innovative strategies and constant adaptations. This surge not only pushes airlines to increase their operational capacity but also exacerbates structural issues, such as airport infrastructure saturation and air traffic control (ATC) limitations, leading to slot congestion.
These difficulties also result in more frequent delays and cancellations, impacting both passengers and airlines, with significant operational, economic, and reputational repercussions. In response to this situation, airlines are forced to implement new solutions, such as optimizing their logistical processes, improving communication with passengers, and exploring emerging technologies that enable them to navigate the growing complexity of the environment.
In this context, this newsletter will analyse the challenges facing the sector and how emerging solutions are helping airlines manage the increasing demand, enhance the passenger experience, and optimize their operations in an increasingly demanding and competitive landscape.
THE GROWING DEMAND FOR PASSENGERS
To begin with, it is important to note that managing the growing demand for travellers has become a complex challenge for the aviation industry, primarily driven by an increase in tourist travel.
Globally, data reflects a significant increase in air traffic and highlights the rapid recovery of the sector following Covid-19. According to the April 2024 report from the International Air Transport Association (IATA), which represents approximately 83% of global air traffic, international passenger demand grew by 15.8% compared to April 2023, capacity increased by 14.8%, and the load factor reached 82.2%¹ .
Additionally, IATA forecasts that nearly 5 billion passengers will be transported worldwide in 2024, surpassing the record of 4.54 billion set in 2019. This surge is expected to lead airlines to achieve unprecedented global profits and revenues, helping to offset the enormous losses suffered during the pandemic.
In the European context, the outlook is similarly optimistic, with a notable resurgence in intra-European air traffic. At the national level, the economic data from the sector is revealing and suggests a record year for travel and tourism in Spain in 2024.
However, despite these encouraging figures, the aviation industry faces several significant challenges, which we will address next.
CHALLENGES IN AVIATION INDUSTRY
In this scenario of growing demand, meeting passenger expectations while ensuring necessary safety and quality standards is becoming increasingly complex. Therefore, identifying and addressing the challenges facing the aviation sector is essential to ensure a sustainable future.
Among these challenges are: (i) the need to improve airport infrastructure and air traffic management; (ii) enhancing operational efficiency for airlines in light of rising operational and investment costs alongside profit margins; (iii) the proliferation of cases where compensations are improperly awarded to passengers under Regulation (EC) No 261/2004²; and (iv) the changing global geopolitical landscape, which inevitably forces companies to rapidly adjust their operations to minimize risks and ensure service continuity.
These factors, which represent just a sample of the key issues, must be addressed with innovative strategies to ensure that this growth is viable in the long term. Therefore, we consider it important to focus on some of these matters.
Thus, firstly, the limitations in capacity, space, and scheduling within airport infrastructures, along with air traffic congestion, constitute a key and pressing challenge that requires the reduction of regulatory barriers, the integration of different regions, and the implementation of open skies policies³.
In this context, the European Union launched several years ago the Single European Sky (SES) initiative, aimed at increasing efficiency in air traffic management and navigation services, reducing airspace fragmentation, and promoting interconnectivity and cooperation among different countries⁴. Additionally, there has been a recent push to reform the Single Sky in order to optimize the performance, organization, and management of European airspace and air navigation services. This development aims to increase capacity, reduce costs, and improve the system’s adaptability, while simultaneously minimizing the environmental and climate impact of aviation⁵.
Regarding airlines’ operational and investment costs, it is important to note that despite the promising growth figures in the sector, airlines are facing a significant increase in expenses that could jeopardize their long-term profitability. Contributing factors include: (i) fluctuations in fuel prices and constant reputational and regulatory pressures to advance towards the decarbonization of the aviation sector; (ii) rising labour costs, driven by union movements and the need to retain talent in a competitive environment; (iii) the essential renewal of the fleet with more sustainable models, which generates a considerable short-term financial burden; and (iv) the increasing demand for commercial aircraft and the scarcity of supply for engines and cabin components, exacerbated by pressure from an oligopolistic market dominated by Airbus and Boeing, which limits airlines’ capacity for planning and growth in response to demand.
Similarly, another significant challenge arises from the European regulatory framework, particularly Regulation (EC) No 261/2004. While it is true that this framework was designed to protect passengers, it is also the case that the interpretation of certain cases by the courts has created a complex and costly legal environment for airlines. Specifically, the jurisprudence of the Court of Justice of the European Union (CJEU) has introduced additional challenges, with rulings requiring airlines to compensate even in unforeseen circumstances, such as the death of a pilot or the presence of foreign objects on the runways⁶. These decisions have generated uncertainty and legal insecurity, increasing the risk of litigation and raising operational costs for airlines.
Furthermore, within the national framework, the recent fine of 150 million euros imposed by the Ministry of Consumer Affairs in Spain on four low-cost airlines for practices deemed abusive, such as charging for carry-on luggage, illustrates how regulation can disrupt business strategies and affect airlines, influencing their competitiveness and the way services are offered to passengers.
Lastly, as mentioned earlier, the impact of the global geopolitical situation should not be overlooked, as airlines, as transnational companies, are exposed to international conflicts and tensions, requiring them to maintain constant adaptability. Sudden changes in political, economic, or security conditions can severely affect operations, forcing airlines to quickly adjust their strategies and operational plans to ensure service continuity.
INNOVATIVE SOLUTIONS AND EMERGING TECHNOLOGIES
In response of the multiple challenges brought about by the exponential growth of the aviation sector, airlines are adopting a range innovative solutions and advanced technologies.
Among the most notable solutions, we can highlight: (i) advanced air traffic management (ATM) systems that employ artificial intelligence and big data to optimize flight routes, reduce waiting times, and avoid congestion at airports, thereby managing the increasing volume of passengers more efficiently and minimizing delays; (ii) the use of sophisticated climate prediction systems that enable airlines to anticipate adverse weather phenomena and proactively adjust their operations, thus reducing potential disruptions or incidents during flights; (iii) the automation and digitalization of processes that facilitate the dynamic management of slots and gate assignments, allowing airlines to adapt more flexibly to real-time operational changes⁷; and (iv) the development of more fuel-efficient aircraft, which not only reduce the sector’s carbon footprint but also comply with environmental regulations and meet growing consumer expectations for greener practices.
These initiatives not only focus on optimizing operational efficiency and promoting sustainable practices but also aim to transform the passenger experience. As we have described, these innovations have become fundamental pillars for ensuring the viability and growth of air transportation in the future.
CONCLUSIONS
In conclusion, in this context of global expansion, airlines face a paradox: on one hand, there are opportunities for growth and expansion; on the other hand, they must deal with rising operational costs, significant investments, and a constantly evolving regulatory environment, all of which limit their profit margins.
Innovative solutions and emerging technologies, such as evolved air traffic management systems, automation, and the digitalization of processes, along with the adoption of more efficient aircraft, play a crucial role in overcoming these challenges.
However, these challenges require coordinated actions among airlines, governments, and international organizations to ensure safe, efficient, highly competitive, and sustainable growth in the sector. This joint effort will allow commercial aviation to remain a key pillar for connecting people and economies, driving economic growth, creating jobs, and fostering social inclusion worldwide.
.
1 For better reference, we refer to the IATA Report published in April 2024.
2 Regulation (EC) No 261/2004 of the European Parliament and of the Council of 11 February 2004 establishing common rules on compensation and assistance to passengers in the event of denied boarding and of cancellation or long delay of flights, and repealing Regulation (EEC) No 295/91 (Text with EEA relevance) – Commission Statement (hereinafter, “Regulation (EC) No 261/2004).
3 A current example of this situation is the collapse of the Hungarian airspace that occurred in July 2024. The capacity limitations of air traffic control and the ineffective management of this space, driven by various factors, including the deterioration of working conditions for air traffic controllers, unleashed a chaotic situation with widespread cancellations and delays across Europe. In fact, several local media outlets report that Budapest has become the main hotspot of delays in the air traffic management system. However, this situation is beyond the control of the Airlines.
4 The first set of common rules established by the Single European Sky (SES) included Regulation (EC) No. 549/2004 of the European Parliament and of the Council, dated March 10, 2004, which sets the framework for the creation of the Single European Sky (Framework Regulation). This regulation has been followed by a comprehensive regulatory framework established by the European legislator. For more details, please refer to the following link.
5 For better reference, please refer to the following link.
6 Judgments of the CJEU, dated May 11, 2023 (Case C-156/22) and April 4, 2019 (Case C-501/17), respectively.
7 As an example, contactless check-in, boarding, or the use of chatbots to enhance customer service are transforming the passenger experience.
The information provided on this document does not, and is not intended to, constitute legal advice. All rights reserved. Reproduction in any form, distribution, transfer, and any kind of use of this document, either in its entirety or in part, is prohibited without prior authorization from PionAirLaw.