Premium 249 – Airline Fleet Trends and Implications

Periodically, we take a detailed look at airline fleets and the fleet database. In doing so, we've noted some interesting indicators that may be important in forecasting growth. Let's begin with a review of the active passenger aircraft fleet (excluding parked aircraft) by region, shown in the chart below. Just like the salesmen say, the market never stops growing. Demand for new aircraft seems insatiable. The red line, with an axis on the right side, is solidly pointed upward and shows the overall fleet continues to grow. The columns illustrate the breakdown of aircraft by region as a percent of the overall fleet. Examining the data shows that the US and Europe, the most mature markets, are losing market share while the Asia and Pacific regions, fueled by China, show the strongest growth. Examining the data in more detail results in some interesting points: Despite being only about 6% of the global market, the Middle East has 54% of the world's A380s in service. A market doesn't need to be huge to support the right aircraft for its traffic patterns. With weak regional markets and a dependence on long-haul travel, the A380 fits the bill perfectly for Emirates, Etihad, and Qatar, which can use their connecting traffic to fill the aircraft. Asia's fleet eclipsed the US fleet in 2015 to become the world's largest. Traffic numbers should also eclipse the US before long, with China soon to become the largest market in the world. With the growth rates we've seen in 2017, it appears that the transition will occur about a year sooner than previously predicted. The US share of the overall market has shrunk quite remarkably - even though the actual fleet size grew from 4,686 aircraft in 2000 to 5,921 (+26%) in 2017. But over 17 years, the 26% growth isn't that impressive - under 1.5% per year. Capacity constraints post-consolidation in the US are driving load factors and yields higher. Oligopolies behave as one would expect them to. Europe also saw a fleet growth in absolute terms, from 3,234 to 5,020 (+55%) yet the share of the market dropped from 24% to 21%. Mature markets may be large, but they are not growing as fast as others. Within Europe, virtually all of that growth resulted from low cost and ultra-low-cost carriers, as the nature of that mature market is changing. The market that saw the biggest decline was the CIS. The percentage of the global fleet declined from 10% to 4%. Feet size was reduced from 1,376 to 1,045 aircraft. Economic sanctions and a slow restart to the Russian aircraft industry (which should change with the MS-21 joining the Sukhoi Superjet) haven't helped. With consolidation, the industry is evolving. The Top Five customers account for 15% of the market, the Top Ten about 22.7%, and the Top 25 airlines account for about 30% of the global in-service fleet. Consolidation in the US and European markets has resulted in the big getting bigger. Nonetheless, the bottom 400 airlines account for 70% of the aircraft in the fleet, so those smaller aircraft deals can and do add up. OEM sales teams naturally tend to focus on the largest airlines and hope that a sale to a major airline positively influences the market. But substantial opportunities remain under the "Other" category, which includes rising stars like Lion, Air Asia, and the ME3. As we move forward, we see an increasing Asian presence in the Top 25 and a declining presence from Europe, with the consolidated North American carriers remaining among the Top 10. Predicting the Future We can obtain an initial glimpse of the future by looking at the backlog. The backlog data as of the end of 2016 shows some interesting differences by region, with Airbus, Boeing, Bombardier and Embraer vying for orders. The following chart shows overall backlog by region, with Asia far and away outpacing the US and Europe. The overall backlog at the smaller end of the market between Bombardier and Embraer is very close, 452 to 450 at the end of 2016. But between Airbus and Boeing, Airbus has a substantial lead, 6,874 to 5,715. Interestingly, the entire difference in those backlogs comes from Asia, where Airbus has 2,300 orders and Boeing 1,224. With the Asian region the fastest growing, the growing incumbency of Airbus aircraft portends well for the future. The following chart shows backlog by region by OEM and shows that Airbus leads in the fast-growing Asian, Middle Eastern and Latin American markets, while Boeing has the lead in the slower growing US, Canada, and CIS markets. Orders by undisclosed customers account for 15.1% of total orders. The Bottom Line: The market is shifting to Asia, and Airbus currently appears to be better positioned for growth in Asia than Boeing, with 1,176 more aircraft on order in that region at year-end 2016. The rest of the world, when combined, is nearly a tie at 4,574 to 4,491 for Airbus and Boeing, respectively. Going where the growth is occurring is a precursor to future market share, and Airbus is leading in the fastest growing region in the world.

US Flight Planner - US DoT On-Time Data	Airbus vs Boeing - Official OEM Data
US Airline Schedule Performance - US DoT Data	Daily OEM Production & Deliveries -

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