Airbus sees encouraging signs of wide-body demand recovery

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By Scott Hamilton

Oct. 25, 2021, © Leeham News: Airbus sees some “encouraging” signs wide-body demand is recovering from the global COVID-19 pandemic.

Christian Scherer. Source: Airbus.

Passenger demand is nearing-pre-pandemic levels in key areas of the world where single-aisle aircraft are used. Long-haul international demand remains suppressed, however. Some don’t forecast a return to normal for up to two more years. Others forecast a recovery on key routes next year.

Christian Scherer, the chief commercial officer for Airbus, is optimistic.

“I would say that on the wide-body market, you see encouraging signs,” he said during a press gaggle at the IATA AGM Oct. 3-5 in Boston. “Maybe that has to do with the fact that the ecosystem at large is realizing that the best thing they can do in the short- and medium-term, towards that whole global objective of sustainable air transportation is to equip themselves with the most fuel-efficient and therefore eco-friendly airplanes.

“I think that against that backdrop and the opening of more international corridors sees a regained interest on the wide-body side as well. Now it’s lagging the single arch really and there is no scoop here that rates in the long-range airplanes are going to change imminently, but the general sentiment is positive on the wide-bodies as well and that’s really good.”

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Is the cargo capacity deciding the airliner variant? Part 3.

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By Bjorn Fehrm

Introduction

October 7, 2021, © Leeham News: In last week’s article, we could see today’s high cargo prices can motivate a 325 seat Airbus A350-900 even though the passenger load on the routes would point to a 240 seat A330-800.

How far does this “paying for a larger aircraft with belly cargo” paradigm go? Today we see if Airbus’ largest aircraft, the A350-1000, can generate the margins of the A350-900 on freight-rich routes. Can an airline that has an A350-900 sized passenger demand for such routes go to an A350-1000 instead?

Summary
  • The increased yields for air cargo leads to surprising effects. Oversized passenger models can survive the passenger drought on today’s international routes as long as it’s a route with good freight demand.

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Is cargo capacity deciding the airliner variant?

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By Bjorn Fehrm

Introduction

September 23, 2021, © Leeham News: In last week’s article, we put the question: Has the increased cargo pricing started to affect the choice of airliner variant?

We listed recent decisions between the Boeing 787-8 and -9 or Airbus A330-900 and A350-900 where the traffic levels post-pandemic would motivate the smaller variant, but the larger was retained or selected.

It makes you wonder whether the higher cargo capacity of the larger variant compensates for flying a larger cabin at a lower load factor? We make a cost and revenue analysis to find out.

Summary
  • Cargo was an additional revenue stream on top of the main source, the passenger traffic.
  • The lower traffic levels for international long-haul traffic and the increase in cargo pricing have changed this. Cargo is now as important in the decision of which aircraft to choose as the passenger capacity.

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Boeing; 20-year aircraft demand back to pre-pandemic level

By Bjorn Fehrm

September 14, 2021, ©. Leeham News: Boeing released its yearly commercial aircraft demand forecast today. Over the next 20 years, the demand for single-aisle aircraft is past pre-covid levels at more than 32,000 aircraft, with widebodies down 8% compared to 2019 at 7,500 aircraft, Figure 1.

The forecast for freighters is up at 890 aircraft making a total of 43,600 aircraft until 2040, the level of the 20 years forecasts before the pandemic.

Figure 1. Boeing’s forecast of deliveries of commercial aircraft to 2030 and 2040. Source: Boeing 2021 CMO.

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Global airline recovery: LNA’s view shifts from traffic to revenue, but our timeline hasn’t changed

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By Judson Rollins

Introduction 

July 19, 2021, © Leeham News: A year ago last week, LNA published what might have seemed an apocalyptic call: global airline passenger traffic would not recover until 2024 at the earliest – and potentially not until 2028.

Early trends and forecast revisions by other parties point to the earlier half of our window. However, one major downside surprise has been an increasingly bifurcated world for airlines as demand returns at widely uneven rates by region and passenger segment.

Air travel is undergoing a “K-shaped recovery” like the global economy, with fairly obvious delineation between winners and losers. The upper leg of the “K” represents countries with large domestic markets, leisure travel, short-haul routes, and low-cost carriers.

The lower leg applies to developing countries, international traffic, business travel, long-haul routes, full-service airlines – and most airline suppliers.

Source: International Air Transport Association.

In hindsight, our prediction probably answered the wrong question, because the key driver of renewed profitability and future investment in commercial aviation isn’t the recovery of airline traffic, but revenue. The many changes to business and long-haul travel make revenue more difficult to forecast, but it will clearly be even slower to return than traffic.

Most industry forecasts don’t call for airline traffic to fully recover until 2024 or 2025, even if large domestic markets recover sooner. That means airline revenue – and profitability – will still be hampered until late this decade.

Summary
  • Advanced and developed economies are on widely divergent economic trajectories.
  • Global travel recovery statistics are distorted by a couple of large domestic markets.
  • Vaccine rollout and documentation issues are likely to keep borders closed for longer.
  • Revenue recovery matters more than volume, both to airlines and the aviation supply chain.

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Pontifications: The reshaped commercial aviation sector

By Scott Hamilton

July 12, 2021, © Leeham News: With Washington State and the US open for business following nearly 18 months of COVID-pandemic shut-down, there is a lot of optimism in commercial aviation.

In the US, airline passenger traffic headcounts are matching or exceeding pre-pandemic TSA screening numbers. Airlines are placing orders with Airbus, Boeing and even Embraer in slowly increasing frequency.

The supply chain to these three OEMs looks forward to a return to previous production rates.

It’s great to see and even feel this optimism. But the recovery will nevertheless be a slow if steady incline.

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Asia-Pacific airline recovery held back by slow vaccination, border closures

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By Judson Rollins

Introduction 

July 5, 2021, © Leeham News: The passenger air travel recovery from COVID-19 has been wildly uneven, even between neighboring countries. Most countries with large domestic markets have seen dramatic rebounds in passenger volumes, although yields have been held back by a continued slump in long-haul and business travel.

Aircraft parked at Hong Kong International Airport, with construction on a third runway in the background. Source: Bloomberg.

In the Asia-Pacific region, however, even short-haul international traffic has been disrupted by virus outbreaks, a painfully slow vaccine rollout, and a largely stagnant web of border closures.

Summary
  • Much of Asia is well behind global average in the vaccine rollout.
  • Domestic markets in China, Australia, and New Zealand are performing strongly.
  • Border closures continue to cripple international travel.
  • Many Asian countries are likely to stay closed well into 2022.
  • Most Asian airlines are reporting slow progress toward capacity restoration.

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Europe’s airline recovery: a tale of two continents

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By Judson Rollins

Introduction 

June 24, 2021, © Leeham News: The recovery in passenger air travel from COVID-19 has been wildly uneven. A dramatic recovery in passenger volume – although not yield – in many domestic markets has been offset by a continuing sharp slump in international traffic.

The latter has proven particularly crippling to European airlines, most of which have miniscule domestic markets. Intra-EU travel, although generally permitted by member countries, has been slow to recover as business travelers have failed to return in meaningful numbers.

Meanwhile, long-haul travel remains hampered, most recently by an ever-changing landscape of “red zone,” “orange zone,” and “green zone” labels, plus other restrictions placed on arriving travelers.

The bright spot is strong leisure travel demand, which is propelling the continent’s low-cost carriers much closer to recovery than their legacy counterparts. This LCC-versus-legacy split brings into sharp relief the state of European airline traffic.

Source: European Centre for Disease Prevention and Control

 

Summary
  • Vaccine rollout ahead of many developed markets; certificate program launching next week.
  • Legacy carrier recovery is dragging out, weighed down by business and long-haul travel woes.
  • LCCs performing relatively well, with some on track to fully recover next year.
  • Train service unlikely to displace airline demand.

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Cheap aluminum widebodies may finally enable long-haul LCC profitability

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By Judson Rollins

Introduction 

June 10, 2021, © Leeham News: Residual values and lease rates have plummeted to record lows for previous-generation widebodies like the A330, 767, and 777. Inventories continue to build around the world, and prices appear set to fall even further.

At the same time, business travel ground to a near-halt in most regions. Even in countries where domestic leisure travel rebounded, like the US or China, average fares are down 20%-40%.

Southwest Airlines describes itself as a “low-fare carrier.” With business and premium-cabin traffic expected to take 3-4 years to return and be permanently impaired to some extent, every airline may be a low-fare carrier for years to come.

With higher-density seat configurations, more flexible scheduling – and, most importantly, the lower capital costs of used aircraft – new low-cost carriers (LCCs) could break even on long-haul routes with materially lower revenue than their predecessors.

This confluence of events has created a once-in-a-generation, perhaps once-in-a-lifetime, opportunity for new airlines to achieve a sustainable cost advantage over legacy carriers weighed down by capital-intensive aircraft, expensive crew contracts, and record-high debt service costs.

Summary
  • Previous long-haul LCC startups failed due to insufficient capital, overextended operations, fares too low to cover costs.
  • Ultra-low lease rates make used A330s cheaper to fly than new-technology aircraft.
  • Lower costs, surgical route selection level the long-haul playing field.
  • Legacy hub-and-spoke model will be weakened by “overflight” routes.
  • Low capital costs mean used airplanes need only be flown when demand warrants.

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Widebody availability set to surge; could new entrants take advantage?

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By Judson Rollins

Introduction 

June 3, 2021, © Leeham News: Lessors are expected to write down the value of their widebodies as the long-haul travel slump appears set to extend well beyond this year, LNA reported last week.

A tidal wave of excess widebodies has reduced ownership costs to historic lows. Prices will only go lower as lessors finally initiate distressed-asset sales, and lease rates will continue to fall as used widebody inventory grows.

A confluence of factors, topped by the availability of lower-cost used widebodies, could increase the cost advantage of low-cost carriers over legacy competitors – at the same time reduced business travel and lower yields reduce the gap between legacy and LCC unit revenue.

Summary
  • Widebody availability is set to increase steadily throughout the decade.
  • What airplanes are likely to be most attractive?
  • Sustainably lower costs could enable low-cost carriers to overcome a shrunken “revenue gap.”

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