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By the Ascend by Cirium team
There are hopes and expectations that the aviation industry has much to be positive about as 2022 gets underway, with further progress from the dark days of the pandemic as markets continue to recover. However, the setbacks caused by the Omicron variant serve as a stark reminder that there are no guarantees when dealing with the effects of a deadly virus.
We expect the hassle factor around air travel will ease this year (at least for those who are vaccinated) amid a further opening of international borders. But there may not be full progress on harmonisation of pre-travel requirements.
While there should be strong leisure demand in the summer, the recovery of international business travel remains uncertain. Even if corporations allow international business travel, it is assumed budgets will be significantly below 2019 levels. Load factors will continue to improve, led by the low-cost carriers. This year should finish up with load factors within 2-3 percentage points of 2019 levels.
As airlines deal with the challenge of restoring their networks, they will also face rising pressure on the environmental front, so expect to see many setting numerical targets for tackling CO2 levels. There will be huge pressure on achieving a meaningful deal at the 41st ICAO Assembly later this year.
Global GDP growth will be around 4% in 2022, with inflation pressures easing slowly as supply chains recover. Our current ‘baseline’ recovery scenario predicts nearly 50% growth in global RPKs in 2022, with all major domestic markets reaching 2019 levels by year-end and intra-Europe (international) very close.
Recovery on the long-haul transpacific and Europe-Asia markets will lag, however. Until these markets have substantially improved, the continuing shortage of belly cargo capacity will see the current strong demand for freighter aircraft continuing.
From a manufacturing perspective, around 1,450 Airbus and Boeing deliveries are expected this year, more than 50% up over 2021. But like last year, the total will be dependent ultimately on the rate of 737 Max deliveries and whether Boeing can significantly clear its inventory backlog. An early resumption of 787 deliveries is also crucial.
The e-commerce-led cargo conversion boom will continue in the near term with another record year. 2022 may see the launch of the proposed 777X Freighter derivative.
From an operational perspective, airlines will improve the average daily utilisation of their fleets through the year to reach within 5-10% of 2019 levels. The number of single-aisles in service will exceed 2019 levels during the first half of 2022. While the return of large passenger twin-aisles is still lagging, expect to see over 100 A380s back in service by year-end, with A330 and 777-300ER also seeing reductions in storage numbers.
The operating-lease sector is expected to begin slowly increasing in market share again in 2022, after slowing last year (its share increased only 0.2 percentage points, after 2020’s 2.1 percentage-point gain). The consolidation trend will continue with more exits expected to follow GECAS, Goshawk and AMCK, as smaller participants leave the market.
The inventory of used aircraft available with lessors will likely stabilise in 2022 as owners are able to part out more aircraft as fleet recovery and utilisation increase, which will drive increased demand for used serviceable material and spare engines.
Market-value wise, single-aisle types bottomed out during 2021. Some have started recovering and further improvements are expected this year. Single-aisle freighter conversions and therefore trading of feedstock passenger aircraft will also continue at high volumes. One driver of earlier value recovery for mid-life and older single-aisles could be spare-engine demand due to MROs reaching capacity, resulting in increased part-out activity.
In the twin-aisle category, there may still be further value reductions this year as the inventory remains very high and demand weak. No improvement is expected in twin-aisle lease rates before the second half of the year, perhaps later. A relaxation of Asia-Pacific travel restrictions to allow long-haul networks to return is crucial to the recovery of twin-aisle values and lease rates.
The recovery of regional aircraft value and lease rates will continue as surplus inventory gets placed, but progress will be slow as there is a significant level of inventory for some types.
So, early signs suggest the outlook for 2022 is encouraging – “but don’t be surprised if new virus variants make the recovery a bumpy ride!”
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