Optimism for global aviation industry into 2025 and beyond, despite challenges

Other key points from the ‘Outlook’ include:

The commercial aerospace sector is a US$1.5 trillion industry and a critical enabler of economic growth.  The airline industry operates more than 30,000 aircraft, carries almost 5 billion passengers and transports 30% of world trade by value.  2024 turned out to be better than IATA had predicted. Net profitability was 23% ahead of IATA’s forecast in December 2023. However, airline net profit was still 10% (US$31.5 billion) behind 2023 levels, representing a return on invested capital of 6.6%, below the average airline cost of capital and sustaining the drag on recovery and investment.

A challenge for the global industry continues to be the shortfall in aircraft deliveries. Aircraft deliveries were 20% below expectations in 2024, resulting from aircraft non-availability due to engine unserviceability or component unreliability.  These supply chain challenges are likely to continue for much of the decade, leaving airlines to deal with disruptive and costly network and fleet planning challenges for several years to come.

Adding to the airlines’ cost burden, the average age of the global commercial fleet has trended up for the past five years to hit 14.8 years in 2024, the highest on record and well above the 13.6 year long-term average.

A 12% drop in fuel prices in 2024 globally compared to 2023 brought a welcome tailwind for the industry. Fuel prices are expected to remain moderated over the coming year.   At the same time, fuel costs for the global airline industry fell by just 3% compared to 2023, with non-fuel costs increasing by 11%, reflecting the pressures of wage inflation and operating cost increases. However, wage increases were partially offset by a 4.7% improvement in productivity.

Pent-up demand for new capital

The industry’s pent-up requirement for new capital to finance growth, develop and build aircraft, expand infrastructure capacity and absorb the costs associated with sustainability measures has never been greater.  2024 was another strong year for aviation-related borrowing. However, several aviation lenders also exited the market, citing strategic and regulatory changes driven by Basel and ESG considerations. Alternative lenders are increasingly augmenting the established aviation banks, with transaction volumes increasing by an estimated 15-20% year on year. This segment of the market is likely to become even more relevant as more mid-life aircraft are retained and will require re-financing.

Stunted growth in passenger traffic due to Covid will likely never be recovered

In 2024, passenger traffic, measured in Revenue Passenger Kilometres, surpassed pre-Covid 2019 levels for the first time. Traffic in the period from January to October 2024 was 5% higher than for the same period in 2019, with Europe’s progress slightly slower at 4%.  However, five years of compounding growth should have produced 25% growth by now. It is unlikely that this shortfall will ever be recovered.  In absolute terms, IATA’s member airlines carried 4.89 billion passengers in 2024, an increase of 10.2%.

More passengers are combining business and leisure trips, blurring the line between what had been two distinct categories of traveller.

Shortfall of over 4,500 commercial aircraft

A shortfall of more than 4,500 commercial aircraft now exists. For example, in 2024 alone, missed delivery commitments were an estimated 560 aircraft. These aircraft will never be built and delivered, leaving airlines short of capacity for many years to come.  The number of firm orders booked also fell sharply in 2024 from 2023’s record-breaking total.

It will be important to ensure that the Federal Aviation Administration (FAA) is sufficiently funded and resourced to provide the oversight and approvals necessary to support aircraft production and delivery. This immediately requires the appointment of a replacement for the current Administrator, who leaves the top job on 20^th January 2025.

Airlines should not have to face another peak season of frustrated expectations and late scheduling changes.  Passengers should equally not have to bear the consequences.

Aircraft leasing a net beneficiary - lease rates substantially higher

The aircraft leasing sector has been a net beneficiary of the capacity shortage. 2024 saw virtually all remaining flyable aircraft on lessors’ books placed on lease. Direct orders are fully placed out to the end of 2026, with 2027 inventory already almost 50% secured.

As a consequence of the capacity shortages, an unprecedented level of lease extensions is being experienced, with some lessors receiving requests to extend 90% or more of maturing leases, compared to typical 33%. Lease rates are thus substantially higher than a year ago. 

The long-term stability, profitability and resilience of the leasing sector underpins its attractiveness to investors. The trend towards consolidation of lessor platforms will continue, with more M&A activity for middle and smaller tier lessors.

Environmental sustainability driving major investment but Net Zero targets extremely challenging

The challenge of environmental sustainability for the global aviation industry is driving a major expansion of investment and resources into developing new technologies and sustainable fuel sources. However, much of the industry is now in agreement that meeting the targets to achieve Net Zero by 2050 will be extremely challenging and Net Zero by 2050 will only be achievable if Sustainable Aviation Fuel (SAF) availability and affordability improves significantly.

The industry does not currently have the technology advancements market-ready to launch the next generation of alternatively powered commercial aircraft (electric, hydrogen or a hybrid).

SAF production more than doubled in 2024 compared to 2023, but availability remains chronically low, accounting for less than 0.5% of airline consumption. Alternative synthetic SAF products are needed. However, cost is a major consideration for airlines. Synthetic SAF is expected to be 6 to 10 times more expensive. The scale of investment required to develop the technologies and production facilities for synthetic SAF is currently far beyond what the market is capable of raising.

Nevertheless, SAF plus carbon trading, capture and offsets will still contribute 80% of the carbon emission reductions required to hit the 2050 target, with the SAF component ranging from a meagre 5% to 31%, according to the Air Transport Action Group (ATAG).

Dick Forsberg, Senior Aviation Finance Consultant, PwC Ireland and author of the report,  commented: “The industry in 2025 will benefit from a robust global economy, lower oil prices, further modest reductions in interest rates and inflation and the completion of post-COVID traffic recovery in Asia.

“Supply chains continue to present challenges but should gradually improve. A key factor on the journey back to a fully functioning supply chain is re-building the depth of experience in the workforce. This can only come with the passage of time and we, therefore, expect production rates to remain below projections and market demand for most of the second half of the decade.

“Despite these challenges, airlines carried more passenger and cargo traffic at higher average load factors in 2024 compared to 2023 and both operating and net profitability were well ahead of predictions. These are good reasons for optimism heading into 2025 and beyond.”

Corporate emerging trends will bring both opportunities and challenges for lessors - Advancement of AI to bring operational efficiencies for lessors

Brian Leonard, PwC Ireland’s Aviation Finance Leader, said: “The aircraft leasing sector has been a net beneficiary of the capacity issues and improving underlying demand in aviation. However, the shortfall and backlog of aircraft deliveries may also limit lessor’s growth strategies over the medium and longer term and other avenues for expansion may need to be considered. 

“With lessors now in a more stable position they have the chance to identify future opportunities and challenges. The rapid advancement of AI will bring operational efficiency for lessors, and its early adoption will be critical for lessors to remain competitive. However, the evolution of these new technologies also brings heightened cybersecurity threats. The growing sophistication and frequency of cyber threats make it essential for lessors to prioritise and evolve cybersecurity measures.

“In an era of change, lessors need to develop and embed the right operating, business and technology models to be prepared for every challenge and opportunity. From building the right infrastructure for transformational technology to fully integrating cloud into core processes, lessors have an opportunity now to enhance performance whilst reducing operational costs to future proof their business.

“Lessors will also need to step up their efforts to help the airlines and the overall aviation industry achieve net zero status by 2050.   In an asset intensive industry with complex investment structures and a difficult path to reducing carbon, the application of ESG reporting frameworks such as CSRD and the challenges that come with it should not be underestimated."

ENDS

Notes to editors:

About Dick Forsberg

Dick Forsberg is an external Senior Consultant with PwC’s Aviation Finance Advisory Services team. He has over 50 years’ aviation industry experience working with airlines, operating lessors, arrangers and capital providers in a variety of roles spanning business strategy, industry analysis and forecasting, asset valuation, portfolio risk management and airline credit