As travel springs back and China removes its remaining Covid-19 restrictions, one stark truth is beginning to emerge — the world is running desperately short of planes.
With airlines from United Airlines Holdings to Air India placing, or looking to place, jet orders that number in the hundreds, Boeing and Airbus are crowing about blockbuster deals.
However, supply chain constraints mean those planes will probably not be delivered until years down the line. Investment banking group Jefferies estimates there is an order backlog of 12,720 aircraft currently.
All that means the sky-high airfares that people have complained bitterly about over the past few months are here to stay, and things could get worse before they get better.
“People got used to lower fares during the pandemic and China’s reopening will make it worse,” said Ajay Awtaney, the founder of frequent flyer website LiveFromALounge.com.
“It is not just a shortage of planes but also other factors like oil prices.”
While one cashed-up airline in a particular jurisdiction may have the financial wherewithal to bring prices down, that would probably cause other rivals to stumble, “leading to even higher fares in the long run”, Mr Awtaney said.
Boeing and Airbus, the plane makers that largely enjoy a duopoly supplying passenger jets, are sold out when it comes to their most popular single-aisle models through to, at least, 2029.
Compounding the demand from airlines as people once again take to the skies with a vengeance and airlines look to refresh ageing fleets are supply chain challenges — everything from securing the necessary components to labour shortages.
Earlier this month, Airbus dropped its delivery goal of 700 jets this year citing supply chain issues and said a jump in energy costs would weigh particularly hard on smaller, power intensive producers, such as those making castings and forgings.
According to Steve Udvar-Hazy, the founder of Air Lease Corp and a famous name in aviation, every jet delivered to one of the world’s largest lessors over the past two years has been late.
“We haven’t gotten one air plane on time, whether it is a 737 Max or a 787 or an A330 [or] A350,” he said.
“And the worst has been the A321neo. We have had delays of as much as six or seven months, comparing contract delivery month to actual delivery.
“It is a combination of supply chain issues, ramping up too quickly and [a] shortage of labour. Production workers can’t work from home. So, it has been a real problem.”
The thousands of planes that airlines stored in deserts around the world, unsure of when demand would return as travel collapsed after the onset of Covid-19 and countries shut borders, are also contributing to the shortage.
Hundreds have not been brought back into fleets, either because they now need heavy duty maintenance after having been not used for so long or because airlines plan to phase them out and have not bothered to slot them into their schedules again.
The end result for the flying public is eye-watering fares, which could rise even further as business travel returns and more people are willing to treat themselves as they go on holiday abroad for the first time in years.
It could also mean flying in older planes.
“As a last resort, we can see airlines extending ownership cycles,” said Sunny Xi, a Singapore-based principal at consultancy Oliver Wyman.
Airlines in Asia historically plan their fleets around 12-year cycles, which is lower than in most other regions.
But during the restructurings that they have gone through over the past few years, “several airlines have extended existing fleets and could do so again in the future”, he said.
For Boeing and Airbus, delivering the planes they have sold on time is now problem number one.
Airbus is already dealing with airlines reluctant to place new orders for jets, considering it has a backlog of more than 6,100 planes for the A320neo family that would take eight years to fulfil.
While it has long touted its plan to increase production to as many as 75 A320 jets a month, it has now pushed back that goal to the middle of the decade.
Meanwhile, investors in Boeing, which announced about 850 gross orders this year, including the mid-December United Airlines deal, are concerned about the slow progress the US plane maker has made in resolving its supply chain snarls and speeding work in its factories, RBC analyst Ken Herbert said.
The one bright spot is that employees working in the sector probably will not be laid off any time soon.
“The order backlogs are big enough that a recession wouldn’t really matter right now,” said George Ferguson, an analyst with Bloomberg Intelligence.
Manufacturers and airlines will “hold on to people, even if there are small hiccups”.
