Following a robust summer travel season, the aviation market continues its upward trajectory. The leading aviation market intelligence and advisory firm, IBA, offers some deeper insights.
IBA predicts that global airline Revenue Passenger Kilometres (RPKs) will surpass the 9 trillion mark for the first time in 2024. This marks a respectable 4.2% increase compared to the pre-pandemic record of 8.6 trillion RPKs set in 2019.
Factors Driving Growth
Several factors contribute to this positive outlook. Steady GDP growth has been experienced in many global regions.
This growth has been coupled with significantly lower unit costs driven by increased capacity and utilization. Together with reduced fuel consumption of newer aircraft, these factors have led to enhanced airline net profitability across all regions.
Aircraft Market Dynamics
While the overall aviation market is thriving, certain challenges persist. IBA forecasts that the global political and economic landscape, supply chain disruptions, and labor disputes will hinder the growth of aircraft deliveries in 2024. This effectively pushes back the recovery of delivery levels to pre-pandemic highs until 2026.
Moreover, the GTF engine issue continues to impact aircraft availability, with the percentage of off-lease narrowbodies owned by lessors falling to pre-pandemic levels.
Airlines are extending leases to retain their aircraft, limiting transitions and retirements. IBA predicts that this trend will likely continue for the remainder of 2024.
Asset Values and Market Trends
Despite the challenges, the aircraft asset market remains relatively stable. While overall trading volumes have declined since 2021, IBA forecasts a stabilization in 2024. Airbus narrowbodies, particularly the A321neo, remain the most popular assets for sale and leaseback.
The values of these latest-generation narrowbody aircraft have been steadily increasing, though they have been outpaced by their engine values, which have experienced significant growth.
New narrowbody aircraft lease rates have also risen substantially but are now stabilizing. Engine lease rates continue to exhibit strong growth. To address the shortage of new aircraft, mature aircraft utility has grown by 60% to support capacity needs.
Even previous-generation narrowbody aircraft values have held firm, with some types experiencing substantial growth in the past 12 months. Higher utilization for these aircraft has justified a significant increase in lease rates.
The values of new widebody aircraft have also increased, driven by growing order books. Demand for previous-generation widebodies has led to substantial value increases, particularly for the A330ceo. Lease rates for widebody aircraft have also risen.
Mid-life turboprop values continue to grow, while freighter aircraft lease rates have softened due to the increasing trend of aircraft conversions.
Airline Risk
Airline net profitability increased across all regions in FY2023, driven by strong demand and growing capacity. Operators in Europe, the Middle East, and Latin America have used their profitability to reduce net debt. Meanwhile, North American airlines have maintained elevated net debt levels.
IBA predicts that global airline capacity will grow by 9.2% from 2023 to 2024. However, operating performance has declined in European and North American markets, with EBIT margins dropping.
While the global weighted average risk rating has improved slightly for certain airline segments, others have worsened. Cargo and ACMI carriers have experienced significant declines, and the North American low-cost segment is at the highest risk, potentially leading to airline failures.
Despite increased absolute emissions, carbon intensity has stabilized, indicating improved fuel efficiency.
Conclusion
The aviation market is experiencing a strong recovery, driven by factors such as economic growth, lower unit costs, and increased capacity.
However, challenges such as aircraft deliveries, engine issues, and market risks persist. The overall outlook remains positive, but careful monitoring of market dynamics is essential for continued success.
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