Major Lessor Avolon Expects Pre-Pandemic Traffic By June

The company also predicts airline consolidation and says supply chains woes are good for aircraft lessors

The aircraft leasing business was more or less holding its breath for the first twelve-plus months of the pandemic. When would the industry begin to recover, and would airlines be needing any planes at all for the foreseeable future? It seems lessors can more or less exhale now (let’s forget about the billions of dollars worth of aircraft stuck in Russia), with industry giant Avolon expecting a return to pre-pandemic traffic figures within six months.

The Dublin-based leasing company said in its 2023 outlook released Monday that following a 70% recovery in passenger traffic led by Europe and North America in 2022, the coming year’s growth will be driven by Asia. In particular, the recent reopening in China is believed to push travel figures back up to 2019 levels. For every two seats of airline capacity added in the world today, one is in Asia, Avolon said.

In its 2023 Outlook: Climb to Cruise paper, the leasing giant stated that the rebound in traffic in 2022 had brought the airline industry “back to the brink of profitability” after combined sector losses of $180 billion in 2020 and 2021. (IATA states that projected losses for 2022 are $6.9 billion.) The tide is expected to have turned fully come the end of 2023, with a projected tip to a combined profit of $4.6 billion. This can be compared to 2019, when industry net profits were $26.4 billion.

Andy Cronin, Avolon’s Chief Executive Officer, commented on the findings of the report and the offered outlook,

“Aviation has demonstrated its resilience and is ready to thrive having come through a pandemic-driven two-thirds drop in traffic. Airlines, manufacturers, and lessors share an ecosystem that creates opportunities for all but requires collaboration to overcome key challenges including a higher interest rate environment, limited aircraft availability and the need to make further progress on decarbonisation goals.”

 
         
 


 Image: Avolon 


 

IATA predicts less demand, but agrees on growth challenges

However, not all share Avolon’s optimism. The forecast of IATA is a little more conservative. According to its latest forecast issued in December last year, worldwide passenger demand is expected to reach 85.5% of 2019 levels over the course of 2023. Meanwhile, they both share the opinion that what will hold the industry back from growth is not going to be passenger demand but rather the inability of airlines to increase capacity.

Much of this is due to production holdups and delays in new aircraft deliveries. Airbus and Boeing will both need to push their production ramp-up by at least a year, Avolon’s forecast found, in order to “focus on delivering to schedule and quality versus aspiration.” However, if you are in the business of leasing planes, this is not necessarily a bad thing. As Cronin further noted,

“Airlines are enjoying higher fares and load factors, and manufacturers are under pressure to ramp up production quicker. Whilst geopolitical and macroeconomic risks remain, this is a positive environment for lessors as supply constraints drive higher lease rates and increase the value of order books.”

Photo: Vincenzo Pace | Simple Flying.

Widebody leasing fee increase and airline consolidation ahead

The report, which was co-authored by Avolon’s Chief Risk Officer, Jim Morrisson, and Head of Counterparty Risk and Sustainability, Rosemarie O’Leary, also said that used widebodies would be back in demand as international travel reopens fully, causing the lease rates of A330ceo aircraft to rise by 35%.

Furthermore, airline consolidation will pick up, and fewer new startups will enter the market. Two electric aircraft startups will be acquired by larger firms, Avolon says, and the volume of sustainable aviation fuel (SAF) under uptake agreements will double from 40 billion to 80 billion liters.