It is now more than two years since oil prices began their decline from the $100 plus per barrel endured between 2011 and mid-2014. During that period, close to 10,000 commercial aircraft orders were placed, with more than 60% being next generation types offering significant fuel efficiencies over current generation types. Clearly high fuel prices were a major factor in airlines’ fleet planning process and they were planning for a future with sustained high prices. Then the decline started, and the market has enjoyed a very different environment than expected. How has this impacted fleet dynamics?
Since July 2014, the demand environment has been incredibly robust. Passenger traffic growth has averaged over 6% on a compound annual growth basis. That’s well above the long-run average and a continuation of the trend enjoyed since recovery began from the last demand downturn in 2009. Airlines are now into a seventh year of expansion, with lower fuel prices perhaps driving some further demand stimulus beyond those that might have been expected from underlying economic fundamentals.
That demand stimulus has driven increasing demand for commercial passenger jet aircraft. As a consequence, the fleet in service has grown by more than 3,000 aircraft over the past three years and at 4.2% CAGR is actually some 0.4 percentage points above the 20-year fleet growth of 3.8%. In that same period, there have been close to 4,500 aircraft delivered as passenger airliners, as well as a significant number of aircraft entering service and retiring.
The consequence is that the fleet age profile has altered significantly over the past three years. In particular in the mid-life and older space, when considering the fleet age on a cumulative service profile, there are around 3.5 percentage points more 15 plus-year-old aircraft in service today than there were in 2013, increasing their share to 24.5% of the fleet. Clearly airlines are using these aircraft to augment their new aircraft capacity to allow them to grow their fleet in line with the stronger-than-potentially-expected demand that they were planning for just a few years ago.
That difference in fleet profile is further evidenced through the chart which shows the fleet in service by aircraft age. Specifically we can see that in the mid-life portion there are significantly more aircraft in service today – actually 1,300 more aged 15 years or older – than there were just three years ago, a 30% increase.
So where are these aircraft coming from? Looking at the global commercial aircraft fleet in all roles, the stored inventory has declined consistently from the peak of around 2,500 at the end of 2009 to exceed just over 2,100 today. On a normalised basis when adjusted for fleet, single-aisle stored inventories are 6% today, the lowest level we have seen since the late 1990s. Regional jets have increased to around 18% of the fleet, with 30- and 50-seaters in particular not benefiting even from the lower oil prices. Twin-aisles are still around 10% of the overall fleet which means that as the fleet has grown, so has the idle inventory of typically current generation and older aircraft.
But as with many analyses, the macro picture can sometimes mislead, or at least hide more interesting trends. Focussing on just jet aircraft in passenger configuration, the stored inventory has actually increased from 1,820 aircraft in September 2013 to more than 1,960 aircraft today. But even that number needs some further disaggregation, since while the regional jet and twin-aisle idle inventories have each increased (in absolute numbers by 207 and 101 units respectively), the single-aisle inventory has declined by more than 150 aircraft. The final metric to consider here is again the normalised level, and with regional jets the idle inventory actually represents 22% of the in-service fleet. But for single-aisles and twin-aisles the ratios are similar to the fleet in all roles at 6% and 10% respectively.
So what is the dynamic within this idle passenger jet fleet? Looking at the fleet that was stored in 2013, there are actually nearly 600 aircraft (close to one-third) that have been returned to service in one role or another, with 440 (24%) actually finding a return to service in airline passenger service. A further 530 aircraft remain in storage today and given the passage of time and likely consequent maintenance required, they are unlikely to ever return to service.
The remaining 700 or so have been reduced to spares and scrap as they are parted out at permanent withdrawal from use. The final point to recognise is that a further 1,430 passenger jet aircraft have been stored over the past three years and still remain stored today, which highlights the dynamic within the stored fleet itself.
The returns to service are dynamic and perhaps occasionally surprising. The type with the most returns to service is the Boeing 737 Classic with 76 aircraft. But there have also been 34 MD-80s and 88 Airbus A320-family aircraft. Of the twin-aisles, 13 A340s have come back, along with 21 767s and even a handful of A300s and A310s. Clearly we don’t know where fuel prices are headed, and this is likely to be a last hurrah for many of these aircraft as airlines use them as surge capacity to fulfil current growth needs in lieu of new aircraft from OEMs whose skylines are full. But for now, at least there is good news for aircraft with maintenance life remaining.
Considering retirements, with current strength of demand and returns to service, it is logical that retirement volumes are declining and the data demonstrates this. Year-to-date the Flight Fleets Analyzer has recorded only 258 commercial jet retirements. More than 60% of these were in store at the start of this year, so actual retirements from service are less than 100. Most interestingly, the average age – both absolute and corrected for storage prior to retirement – still continues to decline, albeit marginally in the latter case, to just under 23 years. There is still a small but significant handful of sub 15-year-old retirements in there, including six Embraer E-Jets, five 737NGs and five A320-family aircraft.
In summary, there is evidence that the current low oil prices are positive for mid-life aircraft, with more in service today than in 2013, significant returns to service from storage and lower retirements. But the situation has not returned to the same place as it was prior to the fuel price increases of the early 2010s. And although retirement volumes are down, economic lives are still marginally falling and there are handfuls of young aircraft that continue to be parted out.
Source: Cirium Dashboard