Premium #111 – Business Cycles and Bubbles

Airbus and Boeing dismiss the talk of a bubble in orders.  Even some airline CEOs dismiss this talk.  Yet, the talk about a bubble persists.  In April 2013, Reuters mentioned this.   In October 2013 Avitas’ Adam Pilarski also spoke a bubble.  Recently at the PNAA conference in Seattle it came up again.

One might expect that the airlines don’t perceive that a bubble is in their future, but instead they see an opportunity to acquire newer and more fuel efficient planes for replacement and growth.  It would be irrational for airlines to order these new aircraft if they perceived a bubble forming.  This is especially true in in Asia, where the demand for air travel appears to be expanding, and their thirst for growth has yet to be quenched.  Yet, the same question comes up again under a slightly different guise – will the industry move quickly to over capacity, particularly with the average seating capacity of aircraft increasing as airlines ignore the smallest models from Airbus and Boeing.