Emerging markets look to capture a larger share of the aviation market

−‭ ‬Aviation’s post-pandemic recovery buoyed by a surge in tourism

−‭ ‬Emerging markets launch new airlines to boost status as global aviation centres

−‭ ‬Historic aircraft deals signal return of investor confidence to sector

−‭ ‬New emissions regulations present opportunities for sustainable fuel production

With global aviation passenger numbers rebounding, emerging markets are looking to capture market share through increased investment and sustainable aviation fuels (SAFs).

As OBG reported in February, tourism figures rebounded in 2022, thanks to the easing of Covid-19-related restrictions and increased investment in tourism. The sector’s recovery is set to continue, with international tourist arrivals likely to reach 85-90% of pre-pandemic levels in 2023.

Revenue is also on the upswing for the global aviation industry after an estimated $9.7 billion in losses posted in 2022, compared to $42.1 billion in 2021 and $137.7 billion in 2020. Figures are expected to return to net positive in 2023, with the global aviation sector on track to record $4.7 billion in profit.

Numbers are already improving in the Middle East, which is home to centres for international air travel such as Dubai International Airport in the UAE and Hamad International Airport in Qatar.

In the Asia-Pacific region, the easing of Covid-19 restrictions in China in spring 2023 is expected to boost aviation activity, although the region may not see profitability until 2024.

Apart from the London-Heathrow-to-New York-JFK route, all 15 of the world’s busiest routes were in Asia Pacific and the Middle East in 2019.

While many travel metrics are trending upwards, challenges remain. Airfares in both regions surged by 53% last year, driven by rising fuel prices, insufficient capacity to meet demand and a lack of competition on specific routes.

Expansion and sector confidence

As recovery gains pace, several emerging markets are working to expand their footprint through new national carriers and investment in aircraft, in the hopes that aviation will support overarching economic diversification goals.

In March 2023 Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud announced the launch of Riyadh Air, which seeks to connect the country to 100 destinations around the world by 2030. The announcement comes amid planning work for Riyadh’s King Salman International Airport, which will be one of the world’s largest airports and serve as the new airline’s base.

In addition to supporting tourism activity and diversification – the Kingdom is targeting 100 million international visitors annually by 2030 – the new airline could help Saudi Arabia’s aviation sector compete with regional heavyweights. Riyadh Air operations are expected to create 200,000 jobs and generate $20 billion in non-hydrocarbons revenue.

In another large deal, Saudi Arabia agreed to purchase 121 aircraft from Boeing for $37 billion to support its aviation expansion, a further sign of investor confidence returning to the sector following the pandemic.

In West Africa, Ghana Airlines is set to begin operations in the third quarter of this year. The previous national carrier, Ghana International Airlines, ceased operations in 2010. Nigeria has also announced plans for its new national carrier, Nigeria Air, to begin operations by May 2023, with investment from Ethiopian Airlines. The plan has faced criticism from local airlines, however, who assert that the carrier could have an advantage over smaller players.

Beyond passenger air transport, cargo could help the aviation sector prosper in other regions. With the fall in passenger numbers during the pandemic and subsequent supply chain disruptions, many airlines turned to providing cargo operations; in 2021 air cargo levels were 7% above their 2019 peak.

Air cargo prices have remained relatively competitive compared to maritime cargo since mid-2021, and the segment is likely to remain a key source of revenue in the medium term.

Air cargo activity in Latin America and Africa has remained especially buoyant, even as growth levels out in other regions. A number of airlines in the former have exited bankruptcy procedures as the region’s aviation sector moves toward consolidation. In Africa, the robust flow of goods and investment from China has supported cargo activity for many of the continent’s carriers.

Sustainable aviation fuels

Prior to the pandemic, aviation accounted for 2.5% of global emissions – a share that is expected to grow as other industries decarbonise and the sector continues to expand.

With the EU aiming to reduce aviation emissions by 55% compared to 1990 levels by 2030, SAFs are set to play a larger role in air transport. Produced from sustainable feedstock such as cooking oil or other forms of waste biomass, SAFs can reduce carbon emissions by 80% over the course of the lifetime of the fuel, as compared to traditional jet fuel.

To meet global 2050 zero-emissions targets, SAFs would have to account for 65% of aviation fuel usage worldwide, requiring approximately 450bn litres annually. This represents a substantial opportunity for emerging markets looking to scale up SAF production.

In January UAE flag carrier Emirates conducted a flight with one of the aircraft’s engines fully powered by SAF, as opposed to the typical blend with 50% traditional jet fuel.

The UAE is looking to scale up production of SAFs as demand grows. Shortly before the landmark flight, renewable energy company Masdar, oil major Abu Dhabi National Oil Company and international oil company bp signed an agreement to conduct a joint feasibility study for the production of SAFs in the UAE using renewable hydrogen and solid municipal waste, alongside other sources.

Latin America also has the potential to become a global leader in SAFs, thanks to the region’s biofuel production capacity and recent investments in green hydrogen expansion. US multinational Honeywell’s Performance Materials and Technologies unit is reportedly in talks with countries in the region for 12 SAF projects worth billions of dollars.

The company is already working with Brazil’s biofuel producer ECB Group on a plant in Paraguay with SAF production capacity. Valued at $800 million – $1 billion, the plant is on track to become operational in 2025.

In Brazil, the world’s second-largest producer of biofuels, national oil company Petrobras has plans to produce biodiesel and SAFs by 2028, and fuel distributor Vibra Energia and Brasil BioFuels have established a partnership to produce SAFs from palm oil by 2025.

In Colombia, biofuels producer BioD is looking to raise some $1bn to establish SAF production capability by 2027, which could support the sustainability goals of the national palm oil industry. Colombia is currently conducting a study with the World Bank to demonstrate palm oil’s suitability as a feedstock for SAF, without undue deforestation risk.