A record 4.7bn people are anticipated to fly in 2024, according to a paper published by Jim Morrison, Chief Risk Officer of Avolon, while the value of new aircraft deliveries in 2024 will increase by over 15pc, reaching around US$100bn.
The delivery of over 1,450 new large commercial aircraft is expected to drive airlines’ passenger revenues up by 12pc to approximately US$717bn.
Domestic airline capacity has already exceeded pre-pandemic levels, while international recovery is slightly slower, particularly in the Chinese and Southeast Asian markets.
Review of 2023:
- Airlines: In 2023 airline revenues accelerated 22pc compared to a 3pc rise in global GDP. A return to positive cashflows has enabled airlines to repay US$57bn of government debt provided during the pandemic. The continued reopening of Chinese international travel will provide positive momentum for airlines through the year.
- Manufacturers: The undersupply of aircraft will take years to unwind, increasing the value of delivered aircraft, and extending their economic lives. The widebody production recovery is lagging behind narrowbodies resulting in a tighter market and longer wait times for twin-aisle aircraft.
- Lessors: With both aircraft and capital in short supply, the role of lessors is strengthening. Investment grade lessors that have secured attractive new aircraft orderbooks are best positioned for the years ahead. Market lease rates took time to adjust to higher interest rates, but they have risen as much as 35pc in 2023 with further growth expected this year.
- Innovation & Sustainability: Momentum behind sustainable aviation fuel (SAF) is building and an estimated US$2 trillion of investment is required to scale up production to levels required to hit net zero goals. Flying will get more expensive this decade as airlines face tighter labour markets, increasing sustainability pressures, and engine durability challenges.
- Risks: The macroeconomic outlook is normalizing as inflation trends downwards, but softer demand threatens in the U.S. and potentially Europe. Political risk will be in focus in 2024, with conflicts in the Ukraine and the Middle East and ongoing tensions between China and the West. The production ramp up by OEMs is vulnerable to supply chain pressure and regulatory oversight.
Forecasts for 2024:
- Engine-related AOGs peak in June: New technology engine durability challenges have been major disruptions to airline operations. Design and production quality issues will continue to persist in the fleet for years, but the operational impact will diminish following the peak mid-year.
- Four airline mergers close. Four don’t pass regulatory approval: Mergers can provide synergies, reducing overhead and increasing revenue potential, but sometimes at the expense of passenger choice and affordability. Several of the dozen or so currently proposed mergers will be approved, but some will be blocked, as seen by the recent US court decision on the JetBlue-Spirit merger.
- More new aircraft deliver to China than any year this decade: Boeing’s first 787 delivery to China in four years in December 2023 marked the re-opening of a key export market. 737 MAX deliveries will follow as Chinese airlines need to access new aircraft to renew their fleets and return to growth. China is too big a market to not be a priority for Boeing and Airbus.
- Widebody production skylines will sell out to the end of the decade: Mega-orders have filled up the manufacturers’ skylines. Asian airlines late to order risk missing out. The remaining slots will soon be sold, leading to increased demand for lessor slots and used widebodies.
- At least two new passenger aircraft variants will be certified in 2024: Likely candidates to enter service are the Airbus A321XLR and the Boeing 737-7. The 737-10 and 777-9 act as further stretch targets to our forecast.
- The next clean-sheet large commercial aircraft enters service in 2036: Given the 10-years plus it will take from program green light to certification, Boeing and Airbus will need to commit to their next designs soon. No new clean-sheet designs for the next decade protects the investment case of today’s new-technology aircraft.
- Two investment grade lessors receive rating upgrades, again: Investment grade is a key differentiator for scale lessors. Rating agencies will continue to acknowledge the resilience of the lessor business model with ratings upgrades.
- A global framework for a SAF book-and-claim system is agreed: Airlines and lessors will have access to verified SAF credits enabling them to leverage SAF without having to transport liquid fuels over long distances. Agreeing a framework will attract the capital required to kick-start SAF production.
Andy Cronin, CEO of Avolon commented: “The economic and social benefits of travelling will continue to drive aviation and underpin the resilience of our sector. Airlines’ growth in 2024 will be supported by around US$100 billion in new aircraft deliveries, with lessor orderbooks and capital supporting fleet expansion plans. While geopolitical and economic risks remain, the market backdrop as we start the year is likely to drive lease rates and residual values higher.”
Jim Morrison, Chief Risk Officer of Avolon commented: “India, China and the Middle East are driving aviation’s growth. A structural undersupply of both narrowbodies and widebodies will take years to unwind. While new aircraft designs with step-change improvements in energy consumption will ultimately be required to decarbonise, in the short-term the industry must focus on scaling up sustainable aviation fuel production.
The paper is available at:
