By Rob Morris, Head of Global Consultancy, Ascend by Cirium
In the absence of a crystal ball, how can we predict the potential scope, scale and timeline for aviation industry recovery post-COVID-19? Drawing upon latest Cirium data and analytics – looking at global and regional demand trends based on schedule and tracked flight activity, return to service of the global commercial passenger jet fleet, what’s back in service and what’s driving returns – we have revised our scenarios modeled in April.
For our latest webinar, Value your future: The Impact of COVID-19 on aircraft values in 2020, I presented a detailed analysis of ‘where we are now’: the data and trends that have informed our revised global recovery scenarios featured here below. And Thomas Kaplan, Senior Valuations Analyst, Ascend by Cirium, shared an in-depth analysis of the impact of COVID-19 on aircraft values and lease rates.
> Listen to the full webinar or download the presentation slides
Global airline/aviation industry recovery scenarios
Global recovery is obviously very difficult to forecast right now. In addition to drawing upon our own analytics, we’re always eager to hear what our customers and fellow industry professionals think about the recovery outlook. During our live webinar on 28 October, attended by 850 airline industry professionals worldwide, we ran a poll question: “When do you expect global passenger traffic to recover to match levels last seen in 2019 – our last mature year?”
Our aim: to assess changes in predictions since our last poll in July.
Here are the results:
- Today, around 1% of you expect global passenger levels to recover to 2019 levels in 2021, back in late July, 6% of people voted for that
- 2% now expect it will be 2022 – this was 11% in July
- 8% think it will be 2023 – this was 48% in July
- More than half of industry professionals polled now expect that recovery will not happen until 2024 or later (vs. only 24% in July)
- Clearly, as the pandemic has evolved, our outlook has become increasingly pessimistic
For reference, here are our global recovery scenarios based on the global state of play in April:
- In April, as this pandemic took hold, our team modeled three global recovery scenarios. We set them out as Scenario 1, 2 and 3. We specifically gave them numbers, rather than labels like ‘base’, ‘upside’, etc because at the time we had no idea which were most likely and thus we could not assign probability of outcome to any specific one
- Scenarios 1 and 2 model recovery in 2021
- In hindsight, those scenarios were hopelessly optimistic, so we’ve canned those and moved on:
We have now remodeled two more scenarios: Scenario four and Scenario 5, detailed below:
- Scenario 4 is, in effect, very similar to Scenario 3 in the near term – both project a stagnation of demand globally over the coming winter
- But Scenario 4 then has a slower return to 2019 demand levels, not getting there until sometime in 2024 or early 2025
- We’ve also modelled Scenario 4 by region – that’s the clever thing because we can then monitor the evolution of traffic by region, capacity by region and turn it into aircraft units and work out whether there is a surplus of capacity over demand
And these are the fleet scenarios that result from Scenarios 3 and 4:
- From April until today scenario 3 effectively projected a fleet that was much smaller than we have today. The reason the fleet is much greater than we projected in that scenario is because of structural inefficiency – the fact that aircraft are being used for lower average daily utilization that we expected
- Scenario 4 accounts for that but then effectively freezes the utilisation where we are today, freezes the traffic where we are and projects a stable or maybe slightly declining fleet – with perhaps more aircraft in store at the end of the year than we have today
- both scenarios then start to see some growth in the latter part of 2021, then an increasing fleet which actually doesn’t exceed 2019 levels until the end of 2023 – thus projecting a significant fleet surplus in the period through late 2023
A note about OEM deliveries. In this pandemic the good news is that the OEMs have fundamentally corrected production very quickly:
- 2020 will see perhaps around 650 – 600 to 700 – aircraft deliveries, including a handful of Max’s, increasing to around 1200 aircraft in 2021 and 2022 but staying broadly stable
- We might see some upside in 2023 and 2024 because some of the aircraft which have been in store for several years by that stage may not be economically feasible to return to service (as required by demand) and thus more new OEM deliveries may be needed to fulfill the traffic demand, we project
- So, Scenario 4, with that delivery scenario, with the fleet scenario, allows us to work out the surplus quantifiably
- It implies around 4000 or so – it’s actually 3900 – surplus aircraft in the macro aggregate through 2023
- That surplus could be higher if utilisation or unit productivity improves faster than projected but that surplus in this base analysis, in its base assumption, has around 980 removals from service. I’ve called them retirements but they are removals from service, so they could be remaining in store rather than absolutely retired
- By the end of 2023 we have the fleet returned to 2019 levels and slightly greater, but over that time 4,000 or o aircraft will have been removed from the system
There is a little bit of positivity. Airlines have moved into recovery phase, but the pace of that recovery varies by region and market with China, of course, leading with others lagging significantly, including the rest of Asia Pacific.
We do need to be prepared for backward steps in the recovery as second and subsequent waves cause stalls in that recovery – as per the US market recently ,as per the European market at present.
All forecasts are unreliable at present. Frankly, it is really hard. Boeing published its current market outlook recently, and all credit to them for doing so as it’s very brave to make a forecast.
We’re working hard to build our own fleet forecast right now, which will be published very soon but it is one scenario and regular scenario monitoring is important to inform progress. We’ll monitor several scenarios to see how the forecast is progressing to the actual.
Traffic demand is lagging our current most pessimistic recovery scenario, but the fleet is ahead of our most optimistic. Aircraft are being operated at way below optimum utilizations and yet there is still a surplus (albeit currently under control) but frankly, the worst is yet to come.
- Airlines have moved into the recovery phase, but the pace varies by region and market, with China in the lead but others lagging significantly
- Be prepared for backward steps in the recovery as second and subsequent waves cause stalls, as per US market at present
- All forecasts are unreliable at present, but regular scenario monitoring informs progress
- Traffic (demand) is lagging our current most pessimistic recovery scenario, but fleet leads our most optimistic
- Aircraft surplus thus appears presently to be under control, but worst is yet to come
Cirium – working in partnership with the airline industry