The global airline industry is currently facing a unique set of challenges as travel demand is expected to surpass pre-pandemic levels while aircraft deliveries drop sharply due to production problems at Boeing and Airbus. This has led to air carriers spending billions on repairs to keep older, less fuel-efficient jets flying, as well as paying a premium to secure aircraft from lessors. However, despite these efforts, some carriers are still being forced to trim their schedules to cope with the lack of available planes.
With the number of travelers globally expected to hit historic levels, reaching 4.7 billion people in 2024 compared to 4.5 billion in 2019, the industry is preparing for a surge in demand. However, this growth is being hampered by production issues at both Boeing and Airbus, resulting in passenger carriers receiving 19% fewer aircraft than initially expected. The grounding of the Boeing 737 MAX planes has also had a significant impact, with U.S. carriers set to receive 32% fewer aircraft than planned.
As a result of the production challenges, airlines are facing additional costs in leasing older aircraft, performing repairs, and dealing with increased labor costs. Repair costs at major carriers such as United, Delta, and American were up 40% last year compared to 2019. This, combined with higher lease rates for new aircraft, is putting pressure on airlines’ profit margins despite the high demand for air travel.
The shortage of new planes has led to a boom in the aircraft leasing market, with lease rates for new Airbus A320-200neo and Boeing 737-8 MAX aircraft reaching $400,000 per month, the highest since mid-2008. Airlines are now spending 30% more on aircraft leases than before the pandemic, further impacting their financials. Analysts expect capacity growth at U.S. carriers in the second quarter to be slower than in previous years, as airlines adjust their growth plans to offset capacity constraints.
Despite the high demand for air travel, consumer behavior is also changing. A recent survey by travel website the Vacationer revealed that fewer Americans are planning to travel by plane this summer compared to a year ago, citing high inflation as a deterrent. While airline fares are down year-on-year, they have been steadily rising month-on-month, potentially impacting travelers’ willingness to fly.
The global airline industry is facing a summer squeeze as it navigates the challenges of increased travel demand, reduced aircraft deliveries, and rising costs. Airlines are being forced to adapt to these market dynamics by leasing older aircraft, increasing repair and labor costs, and adjusting growth plans to offset capacity constraints. Despite these challenges, the industry remains resilient, with a strong performance expected throughout the summer.