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Positive outlook for the aviation industry in 2019

1 February 2019

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Last week our Aviation team attended and sponsored Airline Economics Growth Frontiers, Dublin. With around 3,000 delegates and top class speakers, it was a great opportunity to learn about industry trends from experts across the globe. Below are some key insights from the conference.

Outlook for Aviation

Overall there is a positive outlook for 2019; passenger numbers are expected to continue to grow, underpinning further growth in the aircraft financing market. The leading airlines have healthy balance sheets that will allow them to ride out any downturn, and private equity financing remains strong.
However there are still areas of concern. The uncertainty of Brexit and the possible consequences still hangs over the European landscape, along with increasing interest rates, oil costs and the potential trade wars.

Outlook for regional aircraft is positive

Whilst the regional aircraft market is still a niche segment we are seeing growth, and the outlook for 2019 is positive. There has been an increase in available capital for aircraft transactions which supports this growth. Eastern Europe and Russia are seeing regional aircraft becoming increasingly popular compared with other forms of transport in the region due to increased accessibility for passengers, lower cost, growth in routes and decreased travel times.

Leasing companies are proactively managing potential airline bankruptcies

The recent airline bankruptcies in Europe have so far been absorbed by the existing players. Lessors are also pro-actively managing these risks and undertake extensive due diligence on, and actively engage with their airline customers.

In Europe there is a large new aircraft delivery schedule, in addition to  a sizable number of aircraft due to return from lease in next three to four years.  Lessors face challenges in managing aircraft lease returns  and are factoring in the costs associated with re-marketing and releasing their fleets.

Low cost carriers focused on reducing costs

The low cost carriers (LCC) are, as expected, most concerned with potential cost increases. Labour and fuel costs are their main areas of cost pressure. Labour costs are expected to rise with low unemployment and a shortage of pilots. They are therefore focusing efforts to utilise the latest technology to minimise the impact. IMO 2020 is expected to cause a surge in expensive jet fuel, so LCC’s are heavily focused on using the latest and most fuel efficient planes available as well as keeping loads light.
LCC are very aware of the competitive landscape they operate within. In order to increase customer satisfaction they are now utilising new methods such as social media monitoring to improve their service to customers.

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