Need To Resolve Commercial Plane Shortage To Revive Airline Growth

Airlines are currently looking into lifetime extension and many lease terms are extended to keep flying schemes afloat. Demand for older, used aircrafts is also going up

The post-pandemic airline demand has proved resilient, but available capacity remains a major headache for airlines. They include supply shortages, extra maintenance, aircraft production issues and delays have led to operational challenges, limiting growth and slowing sustainability progress

Global airline demand has outpaced fleet capacity development, which puts growth plans for airlines under strain. This is reflected in the number of parked aircrafts, which is continuously sliding. Capacity constraints force airlines to adjust flight schedules – Ryanair, Lufthansa and KLM (including Transavia) revised available seat capacity downward for the full-year 2024.

The nature of aviation understandably puts safety above everything else, and multiple supply chain issues and incidents currently limit aircraft availability.

A complicating factor for airlines is the limited flexibility across the aviation sector as pilots, cabin crew and maintenance personnel are also educated for a specific type of aircraft.

Moving forward, networks will gradually recover further as flag carriers re-introduce more long-haul destinations, but a full recovery will take more time amid current supply and demand dynamics. And of course, the geopolitical environment has also changed the map of airlines, with flights to Russia from the west suspended and flights to Israel and Iran affected by cancellations.

The complex aircraft production supply chain involves highly specialised certified players. Therefore, diversification or switching suppliers in case of bottlenecks often isn't possible. On top of that, supply chain partners scaled back massively during the first phase of the pandemic, when the future was highly uncertain. The so-called bull-whip effect accelerated the downturn across the supply chain, and as a result, rescaling is now much more time consuming than it is in other sectors.

The industry is also facing shortage of highly qualified skilled personnel. Both engines and other components such as seats with digital devices still have long lead-times. This means that engine makers such as CFM (GE/Safran), Pratt & Whitney and Rolls-Royce, but also parts suppliers such as RTX are struggling to keep up with demand. This limits growth potential for production of new aircrafts, but retrofitting and refurbishing programmes for older aircraft are also impacted next to regular maintenanceprogammes.

Late last year, engine manufacturer Pratt & Whitney announced extra inspections for turbofan engines installed in Airbus A320NEOs after a risk of cracks in the engine appeared. This will include a total of 600-700 aircrafts in operation each being grounded for up to ten months in batches. This will take out an expected 350 units in 2024 alone, which affects airlines operating aircrafts powered with these engines, such as Jetblue, Wizzair and Air New Zealand. In total, at least 1.5 per cent of the global fleet capacity will be taken out of service, but for the individual airlines affected, it's going to be much more.

The impact of this issue will also spill over into 2025, keeping maintenance personnel scarce and the engine company busy, limiting the ability to ramp up new production.

Accidents with the B737 MAX 8 aircraft in 2018 and 2019 led to a steep production decline at Boeing in 2019, which accelerated during the pandemic. Other setbacks forced the US Federal Aviation Authority (FAA) to require production limitation of the B737 Max aircraft to 38 per month. Supplier issues have also kept deliveries low in the first part of 2024. Consequently, upscaling production isn’t possible and instead, production almost halved again in the first quarter of 2024. With production at Boeing have been subdued for four to five years, the production backlog has already hit 3.000 aircraft and continues to mount, while order books have swelled.

Airlines are currently looking into lifetime extension and many lease terms are extended to keep flying schemes afloat. Demand for older, used aircrafts is also going up. On the back of this, used market prices and lease rates have risen significantly, especially for narrow bodies.

The world’s leading airlines roughly returned to pre-pandemic operating profits levels in 2023. Cost pressure remains high, with wage costs (often the largest cost fraction) likely continue rising in 2024-2025 as collective wage increases at Lufthansa suggest.

Nevertheless, we may see a slight uptick in operational margins.

SAF blending has kicked off, and operational efficiency draws more attention to decarbonisation strategies – but the most important pillar for airlines, accelerated fleet renewal, is severely lagging. This slows the reduction of emissions per seat/kilometre.

Continued detours around the massive Russian airspace (with a fifth of Europe’s sky effectively closed) extend flight durations between Asia and Europe by up to four hours between Amsterdam and Tokyo.

Tensions in the Middle East have also forced additional rerouting. Altogether, this leads to longer miles and higher emissions than seen previously.