The team at global consultancy Ascend by Cirium reviews the data and examines what lies ahead for the airline industry this year
As the airline sector progresses on its post-pandemic recovery trajectory through 2023, there are many headwinds that could blow it off course. But the long-term prospects for the sector remain solid, with Cirium’s latest long-term forecast expecting over 44,000 new passenger and freighter jet and turboprop aircraft to be delivered over the next 20 years, worth an estimated $2.9 trillion.
But the short-term outlook is uncertain, amid geo-political tensions and macro-economic concerns which have largely supplanted Covid as the main issue impacting economic growth, and travel and tourism trends.
And sustainability should now be top of every airline and OEM’s agenda. ICAO, IATA, and many individual airlines have set targets and trajectories for the reduction of their CO2 emissions.
The airline industry’s net zero ambitions for greenhouse gas emissions largely rely on fleet renewal and achieving a huge ramp-up in supply of sustainable aviation fuel. But this is currently priced three to five times higher than jet fuel, and the implication is that the long-term trend of real-term reductions in ticket prices is likely to reverse.
At the global level, we expect airline operations in terms of revenue passenger-km (RPK) to return to 2019 levels by late 2023. The single-aisle passenger fleet will fully recover faster than the twin-aisle fleet, with the former within 2% of 2019 levels by the end of last year but the latter still down by 20%.
Twin-aisles are generally flown on long-haul sectors and this market has been slower to recover, largely due to the delay in the return of travel to/from and within Asia-Pacific where China’s extended Covid restrictions have been a drag.
What next for China?
The outlook for China a key market that is crucial for the full global recovery – remains hugely uncertain in early 2023. China represented around 13% of global RPKs pre-Covid (ie 2019), but this share had reduced to just 4% in late 2022.
The pace of the nation’s international travel revival following China’s unexpected policy reversal on Covid restrictions in January 2023 remains unclear and unpredictable. Chinese domestic traffic is expected to see a more stable pattern in 2023, in the absence of travel restrictions, and recover to 2019 levels during the first half of the year.
Chinese international traffic is expected to end 2023 just 10% below December 2019. This will help the steady recovery of intra-Asia international traffic through 2023.
The Russia/CIS market is far less significant than China on a global scale, representing around 4% of global RPKs pre-Covid. It has been significantly disrupted in the wake of international sanctions and airspace closures since the start of the conflict in Ukraine in February 2022. In our latest outlook, the market’s recovery has been set for beyond 2025.
Outside of China, and Russia and the CIS, most markets have seen a steady recovery of passenger traffic, as Covid travel restrictions continued to be relaxed. Transpacific and Europe-Asia markets are now well into recovery mode.
Within Europe, the capacity constraints seen in summer 2022 should largely be overcome in 2023, but the recession will likely cause airlines to be cautious around capacity decisions. The US domestic market could see the continued impact from pilot shortages, with regional jet flying remaining under pressure.
In the freight sector which has been enjoying a boom during Covid, slowing economic activity in developed economies, and additional bellyhold capacity on Asian long-haul routes are likely to see the decline in yields continue, and lower utilisations for some freighter aircraft.
Aircraft production rates
During the recovery from the pandemic, the over-supply of passenger aircraft has gradually diminished, and the OEMs have confirmed or are planning production rate increases – in Airbus’s case to unprecedented volumes for single-aisles. However, with widespread concerns about near-term economic turmoil and a retraction in demand, there remains the risk of more airline failures.
By the beginning of 2023, there were around 4,000 mainline jets still in storage – roughly twice as many as immediately prior to the pandemic in late 2019. Ascend by Cirium expects most of the surplus fleet will be reactivated this year as travel demand continues to strengthen.
Overall, Airbus and Boeing completed a total of 1,104 commercial airliner deliveries last year, comprising 654 by Airbus and 450 by Boeing. Comparative figures for 2021 were 903 deliveries (597 Airbus/306 Boeing). The two OEMs delivered a combined 886 A320s and 737s in 2022, the highest annual total since the Max grounding in 2019.
Both OEMs missed their original 2022 delivery targets by considerable margins. Airbus was more than 60 aircraft below its original expectation of 720 deliveries (including non-commercial customers). A revised target of 700 was also missed by around 40 aircraft (all customer categories).
Airbus points to supply-chain issues as a key factor, and there was certainly a hold-up in powerplant shipments during the year that contributed to Toulouse’s decision to slow its A320neo family ramp-up trajectory to a Rate 65 monthly output. This is now due to be reached during 2024, rather than late 2023. It aims to reach 75 a month in 2025.
Despite missing initial and revised targets, Airbus still shipped 200 more commercial aircraft last year than Boeing. The US OEM saw its early delivery dreams shattered by a variety of factors, including supply chain, China’s ongoing Max grounding (which prevented new shipments) and the 787-delivery suspension.
Boeing has indicated it aims to increase 737 monthly outputs from the current 31 to around 50 by the middle of the decade. Although total Max deliveries have now exceeded the 1,000-mark, the deficit to the rival A320neo family remains over 1,500 aircraft.
There remains an inventory of around 90 pre-bult 787s to clear, as Boeing contemplates the timing of a production ramp-up for the twin-aisle. Executives have indicated Boeing aims to restore 787 output to 10 a month by 2025-2026, from around two currently.
Ascend’s near-term outlook forecasts commercial mainline deliveries rising in through around 1,400 aircraft in 2023 to surpass 2018’s record volume (1,580 aircraft) in 2024 with around 1,800 shipments.
In the near-term (2023-2024) Boeing’s deliveries will continue to comprise a portion of the undelivered inventory of 737 Max and 787 aircraft that have been stockpiled.
For our latest long-term forecast, passenger capacity (ASKs) is forecast to grow at 3.6% per year (compared with pre-pandemic levels in 2019), but in our view the industry has essentially lost about four years of capacity growth and so the level of ASKs in 2041 will be similar to those predicted for 2037 in the last pre-Covid forecast (2019).
Passenger traffic (RPKs) is forecast to grow annually by 3.6%, with a load factor of around 84% by the end of the period. Freight capacity (available tonne kilometres or ATKs) is forecast to grow at 3.0% and traffic (FTKs) at 3.7%, relative to 2019.
The 2022 Cirium Fleet Forecast (CFF) shows 43,390 new passenger aircraft deliveries between 2022-2041, worth an estimated $2.8 trillion. The forecast predicts the supply of some 3,560-freighter aircraft over the next 20-year period, including 1,060 new builds (30%) and 2,480 conversions from the passenger aircraft fleet (70%).
Our forecast reflects the near-term boom in freight conversions due to air-cargo market dynamics of the Covid-19 pandemic including e-commerce growth and rising feedstock availability.
Airbus and Boeing will remain the two largest commercial aircraft OEMs, between them delivering an estimated 80% of aircraft and 88% by value through 2041. However, there is $360 billion of demand for other OEMs or new programmes.
In the passenger market, single-aisle jets will account for 70% of deliveries and 56% of delivery value, with the core of this $1.6 trillion market continuing to be the 150-seat size, typified by the A320neo and 737 Max 8. They will make up 48% of deliveries, but the 180+ seaters including the A321neo and 737 Max 10 will take an increasing annual share, with just over 40% of deliveries through to 2041.
New programmes from both OEMs are forecast to be in development by the mid to late 2030s.
The 787 and A350 will remain central to the $1.1 trillion twin-aisle market, with the mid-sized 250-300 seaters accounting for almost 70% of delivery value in the sector. The A350-1000 and 777-9 will compete in the highest capacity markets.
In the regional markets, deliveries are forecast to be worth $145 billion, around a third of which will be for turboprops. The 70-seaters will lead in the propeller-powered market sector with a larger 90-seat size from the 2030s.
This sector is experiencing change, albeit Embraer has postponed a launch decision for its proposed large turboprop. Demand in the $95 billion regional jet market is split evenly by aircraft of over 90-100-seats and those typically in 70- to 76-seat configuration.
Across all size categories, just under half of all passenger deliveries will be for replacement during the 20 years.
Freighter markets will continue to see a 70% to 30% split between conversions and new deliveries, with total demand for over 3,500 aircraft, including $130 billion for some 1,060 new aircraft.
Conversion demand is being driven by the rise of e-commerce which gained momentum during lockdowns as well as increasing volumes of feedstock in the wake of the Covid-19 crisis. Focus is increasingly on newer generation conversion programmes, including the A321ceo, 737-800, A330ceo and 777-300ER.
Asia remains the key growth region, with China forecast to have the highest passenger traffic growth rate at over 6%. This will make it the largest single country in the region for deliveries, with a 19% share, ahead of all other Asia-Pacific countries with a combined share of 22%.
North American airlines follow with 21% and Europe with 17%. Middle East airlines will take 7% of deliveries, but the share rises to 14% in value terms due to the rich mix of higher value twin-aisle deliveries.
Forecast traffic growth over the long term will require the global passenger fleet to increase by around 22,000 units, taking the inventory to some 47,700 aircraft at the end of 2041.
About 88% of the current passenger fleet is forecast to be retired from passenger service during the 20-year period (including aircraft being converted to freighters). Freighters have longer useful economic lives, and of the current fleet, around 70% will be retired.
Over the next 20 years, the forecast deliveries will drive the Chinese passenger fleet to grow at the highest annual rate, around 4.5%, enabling it to grow its share from 15% to 19%. Asia-Pacific will lead with a 22% global share, while the more mature North American and European markets follow with 20% and 18% respectively.
The freighter fleet will grow by 2.3% annually to reach over 4,100 aircraft. Although the current conversion boom may not persist, it is enabling the replacement of older, less efficient aircraft as well as catering for e-commerce growth.
In summary, the long-term prospects for the industry are bright as it fully recovers from the pandemic. But there are many areas of concern currently which bring much caution to the near-term perspective for the airline sector.