Significant growth in most aircraft values and lease rates, but stalled aircraft delivery levels push recovery to 2026
Following a strong summer travel season, the leading aviation market intelligence and advisory company, IBA, forecasts that global airline Revenue Passenger Kilometres (RPKs) will pass the 9 trillion mark for the first time ever in 2024. This represents a 4.2% increase on the previous record of 8.6 trillion RPKs in 2019.
Steady GDP growth in many global regions, significantly lower unit costs driven by a growth in capacity and utilisation, and lowered fuel use has resulted in increased airline net profitability in all regions.
Aircraft orders, delivery, and trading activity
However, IBA forecasted the global political and economic landscape, supply chain challenges, and strike action would stall the growth in aircraft deliveries in 2024, dropping it back below 2023 levels. IBA predicts this will push back the recovery in delivery levels (to their pre-pandemic high in 2018) to 2026.
Meanwhile, the GTF engine issue is impacting aircraft availability with the percentage of off-lease narrowbodies owned by lessors falling to levels not seen since before the pandemic. Operators are holding onto their aircraft by extending leases, leading to fewer transitions and retirements. IBA forecasts that this trend will likely continue for at least the remainder of 2024.
Many airlines have been impacted by this issue with hundreds of aircraft currently parked. Those with the highest proportions of their GTF-powered fleets parked are IndiGo with 60% of their fleet of 136 PW1100G aircraft on the ground and Viva Aerobus with 50% of their fleet of 50 similarly powered aircraft currently parked.
As a result, the level of aircraft retirements remains very low and is set to remain fewer than 200 aircraft in 2024; a similar figure to 2023, and 70% less than the peak of 2020 based on last day of service.
Asset values
While overall trading volumes declined from 2021 to 2023, IBA forecasts that this will stabilise in 2024. Airbus narrowbodies feature strongest in leasing trades with the A321neo being the most popular asset for sale and leaseback in 2024 thus far, followed by the 737 MAX 8 and A320neo.
The values of these latest generation narrowbody aircraft have been growing at single-digit percentage rates of up to 8.4% a year, although these have been significantly outpaced by their engine values which have grown at up to 49.2% a year. New narrowbody aircraft lease rates have grown substantially since last year with increases of up to 25% and are now stabilising. Engine lease rates for both continue to exhibit strong growth of up to 47.6%.
Given the shortage in new aircraft, mature aircraft utility has grown 60% to support capacity needs according to data from IBA Insight.
The value of previous generation narrowbody aircraft values have held in recent months, with some aircraft type values, such as the Airbus A319 and Boeing 737NG, growing between 40% and 60% in the last 12 months. Higher utilisation for these aircraft types justifies the strong rise in lease rates in the last 12 months with increases between 35% and 45%.
As orderbooks grow, the values of new widebodies have also increased with both the A330-900neo and A350-900 seeing value climbs of more than 4% in the last 12 months and engine values growing between 2% and 4.4%. Demand for previous generation widebodies has driven some very substantial value increases, in particular the A330ceo which has seen its value double in the last 12 months. Lease rates have also increased, with the Boeing 777-300ER continuing to recover beyond 2019 levels.
Mid-life turboprop values continued to grow, with the Dash 8 Q400 increasing by 35.5% in the last 12 months.
In contrast to the rising lease rates of passenger aircraft, freighter aircraft lease rates have softened by up to 7% in the last 12 months as the trend towards aircraft conversions accelerates.
Airline risk
Airline net profitability increased across all regions in FY2023, driven by strong demand outstripping growing capacity. Operators in Europe, the Middle East, and Latin America have been using their profitability to lower their net debt, while the net debt of North American airlines rose in FY2022 and remained elevated in FY2023.
IBA predicts that global airline capacity will grow 9.2% from 2023 to 2024. Operators will continue to increase their capacity for the rest of FY2024, with capacity in Q3 set to increase 8.7% year on year.
The highest year-on-year increase in seat capacity in Q3 2024 has been in Asia Pacific at 12% and the lowest in North America at 3%. Looking at traffic between regions, capacity between Europe and Asia Pacific grew 26% in this period compared to just 3% between North and Latin America.
Across the European and North American markets, Q2 operating performance has declined while capacity has risen, with EBIT margins dropping by up to 6.3% in North America and up to 4.8% in Europe.
Overall, IBA global weighted average risk rating has improved slightly with low-cost carriers in the Middle East, Asia Pacific, Europe, and Latin America, and full-service carriers in Asia Pacific, Latin America and Africa rising in ratings between 0% and 4%. However certain market segments have been worsening. Critically, cargo and ACMI carriers globally have fallen between 3% and 6%. Other declining segments include full-service, low-cost, and regional carriers in North America, and full-service and regional carriers in Europe.
IBA forecasts an overall drop in yields in most global regions in 2024 leading to worsening margins. However, it has identified the largest growth in Asia Pacific full-service carriers, driven by pent-up international demand. Despite previous labour disputes in the European low-cost segment, their international demand remains strong. At the highest risk is the North American low-cost segment which could lead to airline failures in a market impacted by sustained inflation and oversupply of flight capacity.
While absolute emissions have increased back to pre-pandemic levels across most aircraft types, carbon intensity has stabilised, indicating better fuel efficiency.