LCCs have been major contributors to record aircraft orders for Airbus and Boeing in recent years. Each manufacturer holds around 3,400 aircraft in their backlogs – or around six years of production. These are levels not seen in the history of aviation.
LCCs have accounted for 36.2% of total aircraft orders in the past two years (38.9% of orders in 2006 and 34.0% in 2007).
But whether the cycle can continue is the 64 billion dollar question for the aviation industry. To date, both Airbus and Boeing have remained bullish on the prospects in the year ahead, but have they put too much faith in the strength of the current order cycle?
We are reviewing this question in a special two-part Perspective in Peanuts! Weekly. A brief extract of the first part is provided below.
Hills and valleys ahead?
The current, particularly strong, order cycle has several drivers, including:
- Continued strong air travel demand, thanks to the synchronised robust global economy, contributing to a return to industry-wide profitability in 2007, and prompting airlines to order aircraft to update and expand their fleets;
- Delays to new aircraft programmes, including the A380 and B787 debuts, which contributed to high load factors and the need for airlines to order;
- The push for greater fleet efficiencies, due to surging oil prices;
- Increasing aviation liberalisation, fuelling the need for expanded fleets for airlines targeting new growth opportunities;
- Growing environmental awareness, giving airlines with newer, more fuel efficient aircraft an edge, particularly in the environmental public relations stakes;
- A lack of (meaningful) industry consolidation, where carriers have merged and either cut or deferred aircraft orders.
Other factors, including a strong leasing sector have also kept up the aircraft orders momentum, while the sheer size of the production backlogs – and “sold-out” signs from the manufacturers - reinforced the message that airlines needed to order quickly or face lengthy delays – and higher prices – to the delivery of new aircraft.
Whereas the aircraft manufacturers suffered major downturns in the past, resulting in severe production cutbacks (and now production shortages), the industry is more hopeful of a smoother orders cycle in the future.
The CEO of Airbus parent, EADS, Louis Gallois, last week put this succinctly when he predicted that the days of “peaks and canyons” in global aircraft orders are over, though manufacturers could expect “more hills and valleys” in the future.
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