By Brian Prentice and Anthony DiNota
Brian Prentice is a partner in Oliver Wyman’s transportation and services practice and an author of the Global Fleet & MRO Forecast. Anthony DiNota, also an author, is senior vice president and general manager at CAVOK, an Oliver Wyman division that supports certification and maintenance programs for aviation firms worldwide.
At the beginning of 2022, the global aviation fleet had the same number of aircraft in service as it did in 2017. Yet, at 25,500, it was almost double the pandemic low reached in mid-2020.
After two years of wrestling with the Covid-19 pandemic, the aviation industry is once again poised for a decade of growth. By early 2023, global demand for domestic travel is expected to reach its 2019 pre-pandemic peak. From there, the outlook is for steady expansion through the rest of the decade at rates that even exceed increases in gross domestic product.
Based on Oliver Wyman’s just released Global Fleet & MRO Forecast 2022-2032, the fleet will top its January 2020 apex of close to 28,000 planes in the first half of 2023. After that, we’re projecting compound annual growth of 4.1%, which should push the fleet to 38,100 by the beginning of 2032.
But unlike the decade between 2010 and 2019 when the industry enjoyed steady annual increases in demand, the 10 years to 2032 are apt to be filled with challenges that will test aviation’s resilience and profitability. The big question aviation faces moving forward is not its ability to grow but rather its ability to grow profitably.
Covid and climate
First, Covid-19 continues to torment airlines and aerospace. The rapid spread of the highly contagious Omicron variant at the end of 2021 delayed recovery of both corporate and international travel. It also set in motion a variety of complications for the industry that included everything from absenteeism among workforces, to government travel restrictions and disruption of the supply chain.
And beyond Covid-19, there are additional impending risks on the horizon that portend some degree of disruption for the industry. For instance, while the pickup in fleet numbers and demand are long overdue news for aviation, the growth does threaten to aggravate the emissions challenges that the industry faces.
Currently, aviation accounts for somewhere around 2.3% of total carbon dioxide emissions — still dwarfed, for instance, by road transport and other economic activities. That said, between 2022 and 2032, the global fleet will grow 49% in response to demand, which means more greenhouse gases from aviation in a period when the industry has limited options for cutting those emissions.
Aerospace manufacturers and airlines have been relentlessly driving for more fuel efficiency since the industry’s inception; on a seat-per-kilometer basis, aviation has cut emissions in half since 1990 through improvements in aircraft design, aerodynamics, materials, and operating efficiencies. But industry improvements in emissions haven’t been able to outpace demand for air travel. For instance, while aviation cut fuel burned per passenger by 24% between 2005 and 2017, passengers flew 60% more in those 12 years, causing emissions to rise despite efficiency gains.
The same could happen this decade without additional action, but what action to take is less clear. The non-fossil propulsion systems under development — hydrogen and electric batteries, the most promising — are over a decade away from commercial airliner use. That leaves airlines to depend on sustainable aviation fuel (SAF) as an interim fix.
Less than 1% of jet fuel consumed today is SAF, and while many airlines have pledged to push their usage up to 10%, there isn’t enough production capacity currently to fulfill that need. That’s even with the more than 80 additional facilities planned. SAF is also expensive, currently costing three times more than conventional jet fuel. That’s not a welcome addition to the list of rising operating costs carriers face.
Even more frustrating, even at 10% SAF consumption, we project airline emissions to exceed 2019 levels by 2030. Along with the addition of new, more efficient aircraft, it would take a fuel mix of at least 15% to let the industry break even by then.
Worker shortage and business travel
A second potential problem — and pressure on profits — is a labor force potentially too small to support aviation’s anticipated growth. Prior to the pandemic, the industry was already facing a potential shortfall mid-decade in the number of key aviation workers — pilots and aviation mechanics chief among them.
Pre-Covid, the pressing problem was baby boomers reaching retirement age and not enough candidates to take their place. The pandemic has exacerbated those demographic trends by encouraging early retirements among airline and aerospace workers uncertain about their career prospects in a sector that Covid-19 came close to shutting down for months.
It likewise may discourage many would-be pilots and mechanics from entering the industry. With demand still behind 2019 because of Covid, the industry hasn’t had to fully confront the problem yet, but that won’t be the case for much longer.
The future of corporate travel is another pressing concern for the industry. Covid-19 decimated what has always been the industry’s most profitable segment, and its recovery has lagged leisure travel. While this partially reflects cautious corporate policies around Covid, business travel has also suffered because companies are recognizing that videoconferencing and other remote working technologies allowed people to conduct business efficiently and effectively without being face to face. This change could hurt airline bottom lines.
Given demand for domestic travel, most of the short-term recovery in the fleet will be in narrowbody aircraft. Add to that the fact that Covid-19 continues to delay the return of transoceanic travel where widebodies predominate. By 2032, 64% of the fleet will be composed of narrowbodies versus 58% in January 2020.
One caveat. Most of the increase in narrowbodies will initially come from aircraft being brought out of airline storage or languishing in manufacturers’ inventory. Before Covid-19 struck, the industry had to deal with the 2019 worldwide grounding of Boeing’s 737 MAX. When the pandemic struck in 2020, more than 400 737s were built but undelivered. In 2021, Boeing delivered almost 250 and could clear the backlog in the next 18 months if it continues deliveries at the same pace.
The widebody recovery will have to wait until late 2023, over a year after narrowbodies. That’s when international travel is expected to pick up. In December, it was down 58% from 2019, according to International Air Transport Association data.
While aviation is almost guaranteed to keep expanding over the next decade, its ability to carve out profits and remain sustainable is not as certain. The industry hasn’t even fully emerged from the shadow of Covid and already it must start focusing on next challenges, particularly those like climate change where short-term and long-term investments will be required. As unimaginably bad as Covid-19 has been for aviation, the coming tests may prove almost as disruptive unless smart strategies are employed today to better position the industry for the 2030s.
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