As the summer season fast approaches, a dilemma is impacting the skies: an unparalleled travel surge coincides with a pronounced aircraft shortage within the global airline industry. This critical juncture arrives as expectations indicate that the travel demand will outstrip the pre-pandemic high-water mark. However, a stark contrast emerges with the concurrent dip in aircraft deliveries, a scenario affected by production hurdles at aerospace behemoths Boeing and Airbus. As a result, air carriers find themselves disbursing billions to maintain older jets, which are notably less fuel-efficient, and shelling out a premium to secure leases on available aircraft.
Despite these mounting pressures, some airlines have been compelled to pare back their schedules to manage this dearth of planes. The upcoming wave of travelers is estimated to crest historical peaks, with a forecast of 4.7 billion voyagers in 2024, dwarfing the 2019 figure of 4.5 billion. John Grant, a senior analyst at travel data firm OAG, augurs a “strong performance from airlines throughout the summer with some particularly high airfare.”
The International Air Transport Association (IATA) once prognosticated a 9% annual growth in global airline capacity for the current year. Yet, such rosy predictions now seem ambitious in light of Boeing’s ongoing safety crisis. Numbers posited by Martha Neubauer, senior associate at AeroDynamic Advisory, paint a more sobering picture, with passenger carriers anticipated to receive 19% fewer aircraft than initially expected, due to the mired production lines of Boeing and Airbus.
The situation is especially pronounced for U.S. carriers, which are positioned to receive a staggering 32% fewer aircraft than projected a year earlier. Many American airlines are notably reliant on Boeing’s 737 MAX planes, and Boeing’s output has been substantially restricted following an alarming mid-air panel blowout in January. The fallout from this incident, which originated with an Alaska Airlines flight, has had regulatory repercussions, placing firm constraints on 737 MAX production numbers—targets which the company is struggling to meet.
Airbus, not immune to such predicaments, has its own share of woes. Around 650 of its A320neo jets may be temporarily grounded in the first half of 2024 for inspections relating to problematic Pratt & Whitney engines manufactured by RTX Corp, according to a disclosure from last year.
Amid these mechanical and logistical headwinds, airlines are maneuvering as best they can. In Europe, budget operator Ryanair has culled some of its routes, while in the U.S., both United and Southwest have scaled back their flight offerings and tweaked hiring and staffing protocols accordingly. The expected growth in the capacity of most U.S. carriers for the second quarter is slated to trudge along at a slower rate than previously witnessed. Investors and industry-watchers alike will keenly observe updates on growth plans and strategies for navigating the capacity quandary as airlines begin reporting quarterly results, with Delta Air Lines leading the disclosures.
The ongoing shortage of new aircraft has precipitated a boon in the aircraft leasing market, with Cirium Ascend Consultancy revealing that the monthly lease rates for new Airbus A320-200neo and Boeing 737-8 MAX aircraft have spiked to $400,000 – a high not seen since mid-2008. John Heimlich, chief economist at Airlines for America (A4A), has noted that airlines are incurring leasing costs that are inflated by 30% over pre-pandemic levels.
Furthermore, airlines are clinging to aging jets, saddled with onerous maintenance obligations that now span several months. The financial toll from increased leasing, heightened repair and burgeoning labor costs is nibbling away at profits despite surging demand. Last year, U.S. passenger airlines clocked a pretax margin of 4.5%, backed chiefly by the strong performance of Delta and United.
Ironically, even as airlines contend with supply-side limitations, fewer Americans exhibit intentions to travel by air this summer, chiefly due to soaring inflation rates. Although airline fares are trending lower on a year-over-year basis, they’ve been incrementally climbing month-over-month. The industry faces a complex balancing act ahead – guaranteeing safety, meeting heightened demand, and navigating supply constraints – all of which will define the contours of this year’s coming summer travel season.
