Navigating the Cycle
A series of in-depth interviews with 40 senior aviation leaders.
2017 was another extraordinary year for the aviation sector. Aided by the low fuel and interest rate environment, airlines posted very healthy profits for the third year in a row (2015 saw a step change in airline profitability with an almost tripling of profits). Capacity was managed, load factors increased and RPK growth was well above the ten-year trend of 5.5%. Airlines were able to expand their networks and renew their fleets with more efficient aircraft.
Leasing companies continued to grow their businesses. In 2015 there were approximately 33 companies with assets worth in excess of $1 billion and five companies with assets worth in excess of $10 billion. In 2017 the number of leasing companies with assets in excess of $1 billion stood at over 50 and the number of companies with assets in excess of $10 billion almost doubled.
The capital and banking markets remained very open with more investors and institutions coming into the sector searching for attractive and stable returns, leading to greater liquidity. Pricing of transactions has become incredibly tight indicating a maturing of the sector and the level of competition in the market.
The question remains whether the industry can continue on this upward trajectory or whether we will see a moderation or downcycle in the next few years. In the past, the aviation business cycle lasted for eight or nine years from peak to peak. Industry economists have been expecting the top of this cycle since 2015 but the growth period has continued to today, supported by the ultra-low-interest rate environment and airlines stimulating demand for travel. Profit forecasts for 2018 continue the upward trend. Change, if it is to come, however will no doubt present opportunities.
Over a four-month period, we surveyed a variety of industry leaders in three areas of the aviation market – lessors, airlines, and bankers. We are delighted to provide you with their insights on the state of the industry, areas of strength and the main challenges they face today.
KPMG’s Killian Croke presenting the key findings of our Aviation Industry Leaders Report 2018 at the Airline Economics conference in Dublin. View our webcast.
Download the report.