Boeing’s annual Commercial Market Outlook (CMO) paints a rosy picture for air transport’s 20-year growth prospects, pandemic notwithstanding. In fact, Boeing predicts now that after 2024, airline traffic will return to the level the company had forecast for that year before pandemic struck.
“We’ve lost about two years of growth,” Vice President of Commercial Marketing Darren Hulst told reporters on Monday in advance of the CMO’s release. “There’s no getting around it.” But after that choppiness subsides and the industry regains equilibrium, the return to growth will be fast. Unlike in other airline industry crises, the fundamentals underpinning the industry remain strong. Global economic growth already has resumed and will continue to expand. “The recovery accelerates pretty quickly next year and into 2023,” Hulst said.
Instead, the constraints on air travel are regulatory. Travel restrictions remain in place around the world, hampering the return of air travel. The deployment of vaccines against Covid-19 is uneven worldwide, leading to a patchwork of regulations that further complicates air travel.
The domestic air travel recovery is well underway. Regional air travel — intra-Europe, and intra-Asia, for example — is starting to resume and will be the next area of growth. In line with previous forecasts, Boeing expects longhaul international travel to return last, and forecasts a return to 2019 levels by the end of 2023 or the beginning of 2024. Passenger traffic is expected to grow by 4 percent per year. “This is fundamentally a growth market,” Hulst said.
Another trend fueling this growth projection is demographic. Increasing urbanization in emerging economies will stimulate travel, as people are likely to fly to return to their home regions. Rising incomes also will allow for more discretionary spending, and people will want to “explore the world,” Hulst said.
The CMO forecasts a $9 trillion aerospace market over the next 20 years, broken down into $3.2 trillion in commercial aircraft, $2.6 trillion in defense and space programs, and $3.2 trillion in the services market. The world’s airlines will need more than 43,000 new aircraft to fuel expected growth over the next 20 years, resulting in a doubling of the global in-service fleet from 25,000 aircraft today to about 50,000, Hulst said.
The market for new aircraft will be split almost evenly around the world, with Europe, North America, China, and Asia excluding China accounting for about 20 percent each. The rest of the world accounts for the remaining 20 percent. “I’ve never seen a more balance market,” Hulst noted.
Boeing expects single-aisle aircraft to lead the market. Of the 43,000 aircraft the world will need, 33,000 will be single-aisle jets, just under 8,000 will be widebodies, 2,400 will be regional jets, and about 1,000 will be dedicated freighters. In terms of single-aisle jets, airlines will focus even more on fleet and network flexibility, which could mean more market share for larger single-aisle aircraft, like the Boeing 737-10 or the A321, which can complete longer missions. The widebody market, meanwhile, will coalesce around smaller, longer-range aircraft, like the 787 or A350 families, Hulst said.
In the short term, however, the used aircraft market could heat up. Airlines have parked more 4,000-5,000 aircraft in response to the pandemic. About 1,500 are expected to be fully retired. The balance are being recalled as demand warrants and could start changing hands as airlines rationalize their fleets. Others could be slated for freighter conversions.
Freight will be an area of considerable growth, but the market is expected to stabilize soon. Now, airlines are busy adding freighters or operating preighters, in the absence of belly-hold capacity. But as international routes begin to recover in 2024, the demand for conventional large freighters, with strengthened floors and cargo doors, will subside. Cargo demand, however, is expected to continue growing, fueled by explosive demand for e-commerce. This will result in more growth in the freighter-conversion market. “Express [e-commerce] markets don’t need the same type of densities as longhaul freight,” Hulst said. “Lower densities will require more and smaller aircraft.”
Hulst said Boeing expects the conventional jet — gas turbine — engines to be dominant over the next 20 years as new technologies likely will not be mature enough to replace jets on the in-service fleet. Boeing is optimizing its new aircraft to run on sustainable aviation fuels by the end of the decade. “Sustainable aviation fuels have become a critical part of our sustainability goals,” Hulst said.
Air Lease Corp. Bullish on Post-Pandemic Market for Lessors
Lessors should get out of the game of financially supporting airlines, now that the industry is over the initial shock of the pandemic. Instead, further support should come from governments, Air Lease Corp. Chief Financial Officer Gregory Willis said last week at a pair of financial conferences.
For the first year of the pandemic, ALC its peers offered deferments and other accommodations to airlines struggling with an almost complete collapse in demand. But now, 18 months in, airlines have taken the necessary steps to emerge from the crisis by cutting headcount and other costs and rationalizing their fleets, and many around the world benefited from government support. Given that, it is unlikely that ALC will offer further accommodations, Willis said, while noting that most of its customers are on a stable footing.
The exception is Vietnam Airlines, which ALC also noted in its last earnings call. The lessor has several “young” airplanes at the carrier, but Willis said it is confident the deferments will be resolved soon, as the airline has the support of its government.
Another thing ALC is confident of is the industry’s recovery. “The pandemic has proved that air travel is vital to the economy,” Willis said. Lessors stand to benefit from both from airlines adding new aircraft to support the growth in air travel expected when the pandemic recedes and from what Willis thinks will be a large replacement cycle, as airlines rid their fleets of older, less efficient aircraft. And airlines with balance sheets battered by the pandemic are more likely to lease aircraft than they were in the past. In fact, Boeing in its 20-year forecast expects about half of the global fleet will be leased.
Echoing Boeing, Willis pointed out that this crisis is unlike past airline industry crises. The global economy remains strong and is back to growth. Airlines reacted quickly by slashing routes, cutting costs, and parking aircraft. And governments stepped in with support soon after the crisis began. “But it will not be a straight line to recovery,” he said, pointing to the spread of the Delta variant.
Supply could be an issue, however. Airframers slashed production during the pandemic, which means 1,600 aircraft that were expected to be built were not, Willis said. Meanwhile, about 1,500 aircraft are expected to leave the fleet. Narrowbodies are likely to be the most constrained, but demand for widebodies could increase too. When traffic returns, airlines will resume operating widebodies on longhaul routes. A single-aisle aircraft used on longhaul routes can’t generate as much revenue as a widebody, Willis said.
Airbus has said it will raise production rates, especially for single-aisle aircraft, but Willis said the manufacturer could bump into issues with its suppliers to attain its planned rates. Meanwhile, Boeing is plagued with delivery delays for its 787 aircraft, a backlog of Maxes, and production problems on the 777-10 program. “It’s tough there,” Willis said of Boeing.
- Avianca has terminated a lease agreement with BOC Aviation for 10 new Airbus A320neos as part of the airline’s U.S. Chapter 11 bankruptcy reorganization. The deal dates to January 2020 — two months before the the Covid-19 pandemic shut down most air travel, and four months before Avianca entered Chapter 11. The A320neos were scheduled to begin arriving in 2023. To date, Avianca retains outstanding orders for 88 A320neos and two Boeing 787s, however, it continues discussions with Airbus and Boeing over the future of these commitments.
- Less than four months after launching flights, David Neeleman’s latest venture Breeze Airways has ordered more aircraft. The airline upped its commitments for the Airbus A220 by 20 to 80, with the first A220-300 due on October 26. In August, Neeleman told Airline Weekly that it plans to introduce its first A220 by the beginning of April 2022 on flights two-plus hours in length. Breeze flies 13 used Embraer E-Jets currently.
- Brazil has signed off on Latam Airlines Group‘s plan to base Boeing 787s in the country. The group’s local subsidiary Latam Airlines Brasil will add four 787-9s to its fleet by December with the aircraft debuting on its flights between São Paulo Guarulhos and Madrid that month. The 787s replace Airbus A350s that Latam removed as part of its U.S. Chapter 11 bankruptcy restructuring. At the end of the year, the group anticipates a fleet of 28 787s.