The value of new aircraft deliveries is expected to rise by over 15% to $100 billion in 2024, according to a paper published by Avolon, a leading global aviation finance company.
The delivery of over 1,450 new large commercial aircraft will help drive airlines’ passenger revenues up 12% to $717 billion. Airlines’ net profit is projected to rise by 10% to $26 billion.
Some 4.7 billion people are expected to fly in 2024, more than any year in history. Aircraft values and lease rates rose sharply in 2023 as a structural undersupply of both narrowbodies and widebodies was reflected in the market, and further increases are expected in 2024.
India, Saudi Arabia, and the UAE are emerging as key drivers of growth. Airlines and lessors that waited to commit to new orders to source new aircraft risk waiting into the next decade for supply.
Domestic airline capacity has reached 106% of 2019-levels globally, whilst the international recovery lags slightly, at around 95%, largely due the slower than anticipated rebound in the Chinese market and the knock-on impact this has had on previously busy routes in Southeast Asia.
Avolon’s 2024 Outlook: New Horizons paper, reviews the major trends in the aviation sector including the key findings:
- Airlines: In 2023 airline revenues accelerated 22% compared to a 3% rise in global GDP. A return to positive cashflows has enabled airlines to repay US$57 billion 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 35% 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.
Andy Cronin, CEO of Avolon, said: “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 $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.”
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