Global commercial airplane fleet to see sharp rise as demand booms

16 April 2019 4 min. read
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Low fuel prices saw commercial airlines enjoy a year of relatively solid returns in 2017, but rising fuel prices, prolonged use of older aircraft, and higher labor costs again saw airline profits fall in 2018. For the coming year, flight travel demand is projected to increase and many fleets are set to be modernized. There are, however, looming concerns surrounding the industry’s long-term environmental sustainability.

Globally, commercial airline prospects remain strong. Demographic shifts in developing economies are set to create considerable additional demand, particularly in Africa, Latin America, and Asia. Europe and the US are also set to see growth in demand, with tourism continuing to flourish. Approximately $900 billion was spent on commercial aviation in 2019, representing nearly 1% of global GDP.

To meet growing demand, airlines are strengthening their fleets – with a corresponding increase in the demand for maintenance. While demand is projected to grow, sustainability concerns stem from the considerable emissions generated from commercial aircraft, both in terms of greenhouse gases and aerosols. The industry is therefore grappling with how to offset its environmental impact, including changes in technology such as battery-powered short-haul craft, carbon credit programs, and different fuel mixes.

20-year RPK and GDP annual growth projections

New analysis from Oliver Wyman (“Global Fleet & MRO Market Forecast Commentary 2019-2029”) explores major trends in the industry as part of a wider report into the maintenance segment.

The industry is projected to see significant growth in the total aircraft fleet, with an additional 11,600 added in the coming decade. The commercial fleet is expected to total more than 27,492 by 2029.

The top driver of fleet growth is a projected increase in Revenue Passenger Kilometers (RPK), an airline industry metric that shows the number of kilometers traveled by paying passengers. Asia is expected to have strong RPK growth, at 5.7% annually over the coming 20 years. Africa and Latin America, however, are set to lead, with average growth of 6% and 5.9%. Europe and North America will see significantly slower average annual growth – although on far larger initial numbers – at 3.8% and 3.1%.

The firm notes that RPK growth is not set to follow respective long-term economic growth trends. It is instead largely due to demographic shifts, with a larger middle class opting for flight travel.

Passenger and cargo traffic

The firm notes that various factors have boosted revenue for the industry over 2018. The number of available seat kilometers (essentially passenger carrying capacity) has increased, as has RPK. These increases reflect market liberalization, service quality improvements, route additions, increased competition, and lower fares.

Global airlines financial performance

Industry economics

While demand growth is strong, the industry faces a number of challenges. A recent lull in fuel prices saw the industry able to claw back some of its lost profits – with the industry having spent years streamlining their operations to mitigate costs in the area. Yet the good times for low-cost fuel are not indefinite, with recent spikes adding additional expense. Delays in delivery of next-generation aircraft saw companies continuing to use older, less fuel-efficient stock, which added to costs in 2018.

The industry also faces additional costs from labor, which represents around a third of total costs. In the US, however, demand for workers is set to outstrip supply over the coming five years, with a similar long-term trend. The growth in the industry has seen the labor pool increase by around 3.1% in 2018 to 2.8 million people. The report notes, however, that demand for trained personnel is likely to outstrip supply in the coming decades as baby boomers begin to retire, placing upward pressure on wages and driving up costs.

Global passenger load factors relative to invested capital

Net profitability

The analysis revealed that profitability was down 14.3% in 2018 on 2017, at $32.3 billion and $37.7 billion, respectively. The decline in profitability is partly the result of higher costs, though that was partly offset by consolidation in major markets. Overall, net margins fell to 5.7% in North America in 2018 from 7.9% the year previous. Oliver Wyman projects net profit to increase in 2019 on 2018, although it will remain below 2017’s levels.