CAPA Outlook | State of the Industry August 2024
Lori Ranson is currently a Senior Analyst at the Centre For Aviation (CAPA). Her coverage has touched on all aspects of commercial aviation, including marketing and distribution, network development, safety, maintenance, repair and overhaul, aircraft programmes, alliances, regulatory developments, finance and the passenger experience. Prior to joining CAPA, Lori spent more than a decade covering the commercial aviation industry, specializing in the North American market. Previously she was Americas Air Transport Editor for Flightglobal, where she led a team of journalists and worked with freelancers to produce content for Flightglobal, FlightglobalPro, Flight Daily News and Airline Business magazine. Prior to that, she worked as a Senior Editor for Aviation Week, covering low-cost and regional airlines.
Transcript
Lori Ranson:Good morning, everyone. Thank you for being here. I'm going to have an update on where things stand with the industry as we head into the final months of the year. So this is a snapshot of capacity for the Caribbean in 2024, and ASMs are forecasted to reach 10-year highs this year. The region has been popular during the recovery, and even with some pockets of oversupply, airlines continue to expand. Just look at Frontier and JetBlue's buildup in San Juan, and Alaska is opening up new routes from Seattle and Los Angeles later this year to Nassau. And Cayman Airways has also launched flights to Los Angeles using the MAX. All of those routes are using the MAX because the capabilities of— the range capabilities are allowing those routes to open. Just a reference point, Aviation Week's ASM Consultancy has calculated about 32% of all traffic to the Caribbean is still indirect. There's also potential for intra-Caribbean growth, but there is some complexity in those markets. And that's something we'll talk about here at the conference. In Central America, capacity is also punching above its weight this year, and ALTA's latest stats show there was significant passenger growth from Costa Rica and Panama to the U.S. in May. CAPA's data show capacity from Central America to the U.S. was up 6% earlier this month and up 9% between Central and Upper South America. In Upper South America, capacity is also growing at a solid clip this year. We just heard about the Colombian market from Santiago, and ALTA has said Colombia posted 20% domestic passenger growth in May, and its international passenger growth increased 28%. For the first 5 months of the year, Peru was a notable standout for domestic growth at 17%. Supply in Lower South America is trending upward this year, and probably the biggest development in the region is a decision by Argentina's government to liberalize the aviation sector, which should open the door for more competition and passenger growth. These are IATA's passenger growth projections from 2023 to 2043. Europe and North America will grow at slower rates, while Asia-Pacific should contribute more than half of the net increase over that time period. The association calculates GDP in the region should grow 65% over the next 20 years, and trips per capita should nearly triple. There's also a lot of fleet growth in store for the region. CAPA's fleet database shows combined China and India have more than 4,000 aircraft on order. For this year, IATA is forecasting industry net profit margins of $30.5 billion with a 3% net profit margin and a 6% operating margin. There are always puts and takes, and the association states full effects of tighter monetary policy could be felt this year and next. Delays in aircraft deliveries have already driven operating leases to record highs, and that could weigh on profitability this year. Just another reference point for you, in late June, Aircap's index stock price was up nearly 47% year over year, with almost 13% for air lease. The net profit margin for Latin America this year is forecasted at 1.4%. This illustrates the challenges the industry has had with weighted average cost of capital outpacing return on invested capital. ROIC moved into positive territory in 2022, but the cost of capital is increasing as interest rates rise. creating challenges in closing the gap between the 2 metrics. These are 2nd quarter delivery numbers for Airbus and Boeing. Boeing's down about 35% year over year, while Airbus is down 4%. Obviously, the door plug incident was a huge setback for Boeing, and it's still working to make production quality changes. There is a sliver of good news there. Boeing's deliveries averaged about 20 MAX per month through May and increased to 35 in June, In July, it delivered 31 MAX jets and 6 787s, and Airbus delivered 77 aircraft in July. 737 production rates at Boeing were about 25 in June and July, and the company could reach its target of 38 per month by year-end, but the FAA won't approve an increase beyond that until its satisfied quality control issues are resolved. On the wide-body front, Boeing aims to restore 787 production to 5 per month soon and hopes to gain certification for the 737-7 and -10 by mid-2025. Before the Alaska incident, some airlines were expecting their first -10 deliveries this year. And Boeing also expects to deliver the first 777-9 next year as well. At Airbus, it's pushed out its narrow-body production targets from 75 per month in 2026 to 2027 and lowered total deliveries this year by about 30 shells to 770. That's going to have a knock-on effect on its earnings, and it's lowered its pretax earnings guidance by about €1 billion for this year. Obviously, it's largely a result of supply chain headwinds, but Airbus has signaled there's been a shift from challenges with smaller suppliers to the larger ones. It's setting up joint improvement plans with Honeywell and Safran, and also believes CFM needs to improve on-time delivery performance. This shows orders through Q2, which wrapped up before the Farnborough Air Show in July, but orders from the show sort of paled in comparison to other years. There are some wide-body campaigns occurring, but narrow-body slots are sold out for the coming years. And lessors are engaging in more sale-leaseback deals for narrowbodies. Airbus has an edge over Boeing in order backlog, but pushing out its narrowbody production goals means it can't grow its share in the single-aisle market as fast as it had planned. Here you have aircraft utilization by region, changes pre- versus post-crisis. Africa, China, and India are the breakouts, but that's not surprising given their respective recoveries started somewhat later than other parts of the world. And this is just a snapshot of GDP for several regions. There's always a bit of economic uncertainty lingering, and that seems to have intensified recently. So it's something to keep an eye on going forward. So this is just a brief overview of certain facets of the industry at this point in time. As always, there's a balance of opportunities and challenges that we'll discuss over the next 2 days. Thanks again for your time. Thank you.
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