“People wanted to fly again; it’s that simple,” says James Meyler, CEO of ORIX Aviation, explaining the strong rebound in air travel over the past couple of years. “We are a global community; we want to travel; and we want to see family, friend and our customers face-to-face.”
The aviation sector’s performance since COVID-19 restrictions were lifted has certainly been impressive. After coming to a virtual standstill during 2020 and 2021, global passenger traffic last year jumped by more than a third to reach 94% of pre-pandemic levels in 2019, according to IATA.
This year, the airline industry trade body expects traffic (measured by revenue passenger kilometers or RPKs) to rise another 12% to a new peak. Meanwhile, worldwide flights are expected to reach 40.1m in 2024, also a record, forecasts Statista. Neither the advent of video conferencing for business, nor environmental concerns, or indeed higher average ticket prices have dampened demand, as Mr. Meyler points out.
The picture is very different when it comes to supply, however. One of the main consequences of the disruptions to global supply chains during the pandemic has been the impact on the supply of aircraft from the two big manufacturers, Airbus and Boeing. Due to various supply chain issues, their combined output has been below its 2018 peak for the past six years and as a result, over 3,000 fewer planes have been built than planned - a huge gap in a global fleet that numbers just above 25,000.
Creating legroom
This shortage of passenger aircraft is forcing airlines to keep older aircraft in service for longer while using the secondary market to see if they can acquire more planes while they wait - sometimes for years - for the delayed delivery of the new models they have on order.
This is where airline lessors like ORIX Aviation can help. Leasing companies already own and manage over half the global fleet, giving them a crucial role in bridging the gap between supply and demand. “As our airline customers turn to the secondary market, we can deploy over 30 years of knowledge and experience, particularly in the trading sector, where we have a proven track record in generating significant returns,” says Mr. Meyler.
Typically, a top-tier airline would return a leased aircraft after 8-12 years and the lessor would help redeploy it to a smaller airline or another leasing company for the remainder of its 25-year commercial life, explains Yushi Tanaka, Chief Investment Officer at ORIX Aviation.
Because of the current manufacturing delays, however, the bigger airlines - who are the firm’s key customers -- will keep the existing aircraft on lease for a further 6-8 years taking the aircraft to 16-20 years of age before it comes out of their fleet. Helping the airlines manage this change in the market with dynamic trading strategies and by adjusting its own investment levels, ORIX Aviation is building ever closer relationships with its most important customers while ensuring good returns for itself.
The future is emerging (markets)
Meanwhile, ORIX Aviation and its parent ORIX, one of Japan’s most entrepreneurial and diversified corporate groups, are continuing to focus on the sector’s bright long-term future.
There is undoubtedly a need to tackle aircraft emissions and the industry is spending heavily on a range of decarbonization measures, including above all, developing Sustainable Aviation Fuel. Aircraft Leasing Ireland, the industry body representing many of the large lessors and in which ORIX Aviation’s Chief Financial Officer Marie-Louise Kelly has just completed a two year term as Chair, is involved in many of those initiatives.
There is also some evidence that the growing use of online meetings has cut into the frequency of one-day business trips, according to the Global Business Travel Association. And ticket prices have outpaced inflation for much of the past year, though that trend seems to be abating.
Nevertheless, all industry forecasts predict that the appetite to fly will only increase in the coming years. As developing countries from India and Indonesia to Brazil and Vietnam invest in aviation, they will introduce many millions of people to the joys and benefits of flying. On average, a US citizen flies twice a year, a European 1.7 times and a Japanese once. In China, that number stands at 0.5 currently and in India it is just 0.1 flights per person per year.
As the world grows in population, aircraft leasing companies like ORIX Aviation are making sure it is also opening up, allowing more people to come together. (750 words)
