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Upon Recovery and Beyond: Global Fleet & MRO Market Outlook 2024

03 Apr 2024
Written by Joshua Ng, Alton Aviation Consultancy

The COVID-19 pandemic had a very significant impact on the aviation industry. Four years following the pandemic, aviation appears to have shaken off the worst effects of the pandemic as traffic is expected to touch 2019 figures in 2024. While traffic, fleet and MRO growth are expected over the longer-term, near-term headwinds may dampen the immediate growth prospects.

In this report, Alton discusses the drivers of the aviation industry, including a closer look at air traffic demand, the commercial aviation fleet, as well as the MRO market. These trends and analysis guides our proprietary Global Fleet and MRO Forecast which is also included in this report.

Air Traffic Has Recovered to Near Pre-COVID-19 Levels

The global aviation market will return to pre-COVID-19 levels in 2024, following a year of progress in 2023. Passenger capacity, measured by available seat kilometers (ASKs), was 95% of 2019 levels last year, while capacity in December 2023 was 99% of that in December 2019. In 2024, IATA forecasts total passengers to reach ca. 4.7 million, above 2019’s level of 4.5 million. In addition, the global revenue passenger–kilometers (RPKs) are expected to be 4.5% higher than pre-pandemic levels.

The Asia Pacific region saw a delayed recovery compared to other global regions, largely due to conservative border reopening strategies following the pandemic. As a result, the APAC region was ca. 93-94% of 2019 capacity in 2023. Borders are fully opened now, and the region should follow the global market and return to pre-pandemic levels in 2024.

Commercial Airline Profitability Returning

In addition to recovering capacity, airline profitability continues to improve following the pandemic. The extent of this profitability recovery depends on the region, as shown in Figure 2:

Asia Pacific. Asia Pacific’s return has been comparatively delayed, largely due to a conservative approach to travel restrictions and reopening of borders following the pandemic. The region is forecasted to return to profitability only in 2024, approximately two years after North America, Europe, and the Middle East.

North America. The North American market returned to profitability in 2022, a much earlier return compared to other regions. The reopening of borders in the North American region following the COVID-19 pandemic was earlier than other regions, which drove a faster recovery.

Middle East. As a global hub for international long-haul traffic, the Middle East’s recovery is being driven by the return of international travel. The Middle East largely stayed open through the pandemic and became a key hub for international travel as other regions remained closed. Similar to North America, the Middle East returned to profitability in 2022 and 2024 profit margin is expected to grow and exceed North America’s.

Commercial Aviation Yield Recovery Stalling

Post-pandemic, yields rose due to increased air travel demand following the reopening of borders while capacity was limited as aircraft were gradually brought back to service. Airline yields are expected to normalize further in 2024, considering the resumption of seat capacity in the market amidst a weaker global macroeconomic outlook.

For example, Asia Pacific’s yields have been declining since the peak of the pandemic in 2021 and IATA forecasts 2024 global passenger yields to increase 1.8% over 2023, compared to 2023 showing a 6.2% growth over 2022. Airline revenues have started to return to “normalcy”, both in performance and growth. The outlook for 2024 shows that yields are expected to stall as revenue growth slows and capacity returns.

Supply Factors Continue to be in the Spotlight

Inflation has been a key concern for global markets coming out of the pandemic, especially for the aviation market. Inflation was driven mostly due to supply issues, including supply chain issues and labour supply shortages. While inflation calmed in 2023, it still increased year-on-year from 2022.

In the near-term, there are risks to airline profitability as yields stall while costs continue to remain elevated:

Fuel and oil prices are expected to remain elevated and volatile, in part due to ongoing geopolitical conflicts and other supply chain disruptions. Taxes on carbon emissions and usage of more expensive sustainable aviation fuel (SAF) are expected to increase airline fuel / energy costs.

Lending rates stabilized in 2023, and while rate cuts are expected in 2024 the interest rates remain elevated compared to pre-pandemic levels.

The US Dollar has remained strong against many global currencies. The US Dollar is the transactional currency for many major cost items like MRO and spare parts, jet fuel and aircraft financing. With revenues largely dominated in local currencies, airlines are faced with the predicament of tighter operating margins, as a result of currency translation effects.

Wages and benefits for employees are sticky, as they can move up easily but move down with difficulty. Labour costs will likely be maintained at current and possibly higher levels even though the labour shortage issue has eased.

Fleet Forecast

Alton forecasts the global commercial aircraft fleet to grow at a 3.3% CAGR between 2023 and 2033, resulting in an increase from ca. 30,900 to 42,800 aircraft. When looking at this growth at a regional level, APAC has the highest growth (with 5.2% annual CAGR), while other global markets have lower rates of ca. 2-3%.

By Alton’s estimates, narrowbody aircraft will have the highest growth rate of any aircraft group, with an annual CAGR of 4.9%. Widebody aircraft will have a CAGR of 1.8% as the market shifts towards long-haul twin-engine narrowbody aircraft. These new generation narrowbody aircraft, such as the Airbus A321neoLR, are capable of operating transatlantic and other mid- to long-haul flights, which will ultimately replace the widebodies that typically operated these routes. A key driver for demand for long-haul narrowbody aircraft over widebody aircraft is due to the economics. With fewer seats to fill, airlines can either replace widebody service with a single or multiple narrowbody service, or start new routes that were not commercially viable with widebody aircraft.

Given the increasing share of narrowbodies for the commercial aviation fleet, the LEAP-1A/1B (driven by the Boeing 737 MAX) and the PW1000/1100G GTF (driven by the Airbus A320neo) engines are expected to become the prominent engines in the market. As the LEAP and GTF engines grow over the coming decades, they will drive much of the engine MRO demand.

Production Rates Not Expected to Return to 2019 Levels Until 2026

In 2023, ca. 1,300 commercial aircraft were manufactured – down from the pre-COVID-19 level of ca. 1,900 in 2018. 2024’s forecasted production is ca. 1,700 aircraft, and aircraft production is expected to take 2-3 years before reaching pre-pandemic levels. Issues with new aircraft production, such as supply chain factors, labour shortages, and certification challenges will cause the production rate to remain below pre-pandemic levels until at least 2026.

As the global aviation market shifts to new generation aircraft, demand for new aircraft is robust. Many key aircraft programs have backlogs into the late 2020s or early 2030s. As backlog timelines lengthen, airlines are increasing demand for leased aircraft in the interim to meet capacity demand. In addition, retirement dates are being pushed back and are keeping older aircraft in operation until new models can be delivered.

To accommodate the demand for new aircraft, Airbus and Boeing are both working towards increasing monthly production rates.

A320: Airbus is currently producing ca. 45 A320 family aircraft per month, with a 2026 target of 75 per month.

A350: The A350 was produced at a rate of ca. 5 per month in 2023, with a 2026 target of 10 per month.

737 MAX: At the close of 2023, Boeing was producing 38 MAX aircraft per month. With the recent 737 MAX 9 issues, Boeing’s ability to increase its production rates has now paused pending further quality and safety checks

787: The 787 Dreamliner program is currently being produced at ca. 4-5 per month, with a target of achieving 10 per month in 2025/26.

MRO forecast

The global commercial MRO market is expected to reach US$139B in 2033, up from US$112B in 2023 and growing at a CAGR of 2.2% p.a. Asia Pacific is expected to generate the highest spend over the next decade, growing from US$39B to US$50B at a CAGR of 2.5% and accounting for over 36% of the global MRO demand. The growth of the narrowbody fleet in APAC is a large contributor to this growth. The fastest growing region is expected to be North America, with a CAGR of 3.3% between 2023 and 2033, and will account for ca. 26% of the global MRO spend.

Engine MRO is the largest segment of MRO spend, with a ca. 50% share. The total engine spend will grow from US$58B in 2023 to US$69B in 2033 with an annual CAGR of 1.7%. This relatively low growth rate can be attributed to near-term demand for work on new generation engines that face “teething” reliability and production issues, and Alton expects that OEMs will resolve these issues later in the decade.

Modifications demand is expected to grow the fastest among the MRO segments over the coming decade. This demand will be driven by:

“Pent-up” demand for cabin interior work to refurbish older interiors that were postponed during the pandemic, as well as a growing need for airlines to differentiate themselves from competitors with attractive cabin products

Addition of internet connectivity to aircraft, given that inflight internet access is fast becoming a hygiene factor rather than a paid ancillary for many airlines

Conversion of aging passenger aircraft into dedicated converted freighters – driven primarily by an aging global freighter fleet

MRO Labour Challenges

The global MRO market will continue to face a technician shortage in 2024. Boeing forecasts a need for ca. 690,000 new technicians between 2023 and 2042, with 156,000 of those coming from the Eurasia region. MRO providers will need to address this issue by focusing on recruiting and retaining talent, of which there are both monetary compensation issues as well as industry-specific issues like job security and attractiveness that need to be addressed to renew the aging workforce.

Technology in MRO

Digitalisation is quickly becoming an important factor in the post-COVID-19 market, especially in the MRO space. An Alton survey showed that before the pandemic, 83% of respondents said digital optimisation was “important” or “very important”. After the pandemic, that number is close to 100%. As supply chains are strained and labour supply is tight, the market will have to do more with less and digital optimisation can play a crucial role in supporting the transition.

Conclusions

Aviation Industry Outlook: 2023 was a year of progress in the aviation market, as capacity nearly fully recovered to 2019 levels and expectations that 2024 capacity will surpass pre-pandemic levels. It will be critical to follow many factors in the coming year, including inflation, fuel prices, foreign exchange, global supply chain challenges, and more. Geopolitics will also be closely watched as it would impact both near and long-term performance of the global market.

Fleet Outlook: The next decade is forecasted to bring significant growth in the global fleet, from ca. 31.0k global commercial aircraft in 2023 up to 42.8k in 2033. Asia Pacific, North America, and Europe are the largest contributors to that growth. New generation aircraft, such as the Airbus A320neo and Boeing 737 MAX, will drive the narrowbodies that will have the leading share of the fleet.

MRO Outlook: As the fleet grows, the MRO industry will grow as well, driving an expansion from ca. US$112B in 2023 to US$139B in 2033. Older aircraft will be kept in service due to slower OEM production ramp-up timelines, new generation engines and aircraft will require additional maintenance as a result of teething issues, and the modifications space will grow in popularity.

MRO Trends in Focus: The global supply chain is in the spotlight for the aviation market, as much of the market’s performance is dependent on supply strategies being both functional and prompt. Looking ahead, both geopolitical and business developments will drive supply chain strategies and will in turn impact the wider performance of the industry. Digitilisation and optimisation will be critical for keeping the supply chain efficient.

In conclusion, Alton expects 2024 to be a year of growth and expansion in the aviation market. In addition to capacity returning, OEM production rates will increase, sustainable aviation technologies will take steps forward, and airlines are poised to continue growing in the post-COVID-19 market. As commercial aviation returns, the MRO industry is also expected to grow to new levels.