Asia-Pacific to make up more than half the increase in global seat capacity in 2025
Airlines’ net profit to rise 16% to over US$36 billion, third year of growth
Aircraft deliveries to increase by 20% in 2025, fastest ramp-up in two decades
Investment grade lessors with orderbooks positioned to outperform
DUBLIN, January 10, 2025--(BUSINESS WIRE)--Growth in the Asia-Pacific region is expected to help drive global airline revenue over US$1 trillion for the first time in 2025, according to a paper published today by Avolon. The paper forecasts that more seats will be added to schedules in Asia-Pacific than all other regions combined in 2025, even as airlines’ growth slows in the US and Europe.
Lower oil prices in 2024 helped to more than offset a 19% increase in maintenance costs and 8% rise in labour costs, helping the sector back towards pre-pandemic levels of profitability. This trend is expected to continue in 2025 with a projected 16% increase in the sector’s net profit to over US$36 billion for the year. Securing aircraft for expansion and fleet replacement will continue to be a major challenge in 2025, with slots for new aircraft sold out beyond 2030.
Airlines are adapting to the structural undersupply through lease extensions and extending the life of their existing fleet. As a result, lease rates have risen as much as 50% in the past two years and are expected to remain strong in 2025, as will aircraft valuations.
Avolon’s 2025 Outlook:Fast Forward paper, available here, reviews the key trends in the aviation sector in 2025 and beyond, including:
Airlines: A third year of profitable growth in 2025 is set to help airlines recoup losses in 2020 and 2021 that erased the prior decade of profitability. The markets that were first to recover - North America and Europe - are still growing, but at a slower pace, while Asia-Pacific gains momentum. Airline revenues have returned to their long-term average share of world GDP, with an additional US$100 billion of revenue potential if peaks experienced last decade are achieved.
Manufacturers: Having declined in 2024, new deliveries will increase by c.20% in 2025 with over 1,400 aircraft to be delivered. Despite increasing deliveries, Airbus and Boeing will continue to struggle to hit their targets to ramp up production. The structural under-supply of new aircraft is driving aviation industry market dynamics. Airbus and Boeing’s next production slots are not available until the 2030s, meaning airlines will continue to extend leases and in-service life to meet their fleet plans.
Lessors: Lessors now hold more new aircraft supply out to 2030 than Boeing and Airbus combined. Orderbooks have consolidated around a smaller number of lessors who will benefit from higher placement returns as under-ordered airlines compete for scarce aircraft. The availability of capital and access to aircraft is differentiating the largest, investment grade lessors who are best positioned to outperform.
Innovation & Sustainability: Aviation generates US$3.5 trillion in global GDP, supports 88 million jobs, and accelerates social and economic development, but it also contributes c.2% of global emissions and so the goal of achieving net zero emissions remains key. IATA estimates that US$4.7 trillion is needed to fund aviation’s transition. Governments have a strong role to play in setting coordinated global policies that attract private investment both in sustainable aviation fuel production, and transformative new technologies such as hydrogen and electric-powered flight.
Risks:A low-visibility operating environment has emerged. Global economic growth is slowing from a peak of 6.6% GDP growth in 2021 to a steady 3.2% in 2025. Inflation is reducing towards central bank targets as the fastest rate hiking cycle in four decades has transitioned to easing in most major markets. Credit spreads have touched multi-decade lows with markets priced to perfection.
Andy Cronin, CEO of Avolon commented:
"The aviation outlook for 2025 is robust, reflecting continued growth in travel demand against a backdrop of structural under-supply of new aircraft. Asia-Pacific will be the engine of that growth, and we anticipate global airline revenues will exceed the US$1 trillion mark for the first time. In this environment, lessors will benefit from continuing strength in lease rates and valuations as airlines compete for scarce aircraft. Those lessors with strong balance sheets and attractive orderbooks of new technology aircraft are best placed to outperform and serve the growth needs of the world’s airlines."
Jim Morrison, Chief Risk Officer of Avolon commented:
"Airline profitability in 2025 will build on a strong performance in 2024 where lower oil prices helped offset higher maintenance and labour costs. While the higher demand for air travel is evident we are also entering a low visibility operating environment. There are uncertainties around what political changes will mean for trade and growth, but the structural fundamentals of the industry remain favorable. Aviation’s net zero challenge will also require global policy coordination to stimulate investment, but mitigating emissions remains a key industry priority."
The paper – co-authored by Avolon’s Chief Risk Officer, Jim Morrison, and SVP Portfolio Strategy, Marc Tembleque – makes seven forecasts:
Fearless Forecasts 2025
More seats are added to airline schedules in Asia-Pacific than all other regions combined: Asia-Pacific has returned as the growth driver of the industry. Airline capacity in the region was the last to return to pre-pandemic levels but will take the lead again in route openings and passenger growth as the emerging middle class takes flight.
A major airline merger on each continent is agreed: Consolidation will continue driven by airlines’ need to secure capacity and fortify balance sheets. As airline share prices recover, current owners may be tempted to exit while consolidators look for opportunities to strengthen market positions.
New aircraft deliveries increase by 20%, not 30%: 2024 demonstrated the challenge of pushing rates up faster than the production system could tolerate. A 20% increase in new aircraft deliveries would be the fastest ramp-up in two decades.
Narrowbody delivery slots in 2040 are sold: New deliveries will ramp-up and slots are available in the early 2030s, but airlines and lessors will need to accept longer-dated delivery profiles to secure the next available slots, with orders for aircraft delivering in 2040 anticipated this year.
A330neo garners more new orders and placements than any other widebody: Following 780 widebody orders in 2023 and an additional 320 in 2024, few A330neo slots remain this decade. The A330neo offers a strong value proposition to the 70 A330ceo operators that have not yet selected a replacement type.
Chinese companies order 800 aircraft: 182 aircraft were delivered to China in 2024, and this is expected to rise substantially in 2025 to meet travel demand growth and a fleet replacement wave which is coming. International relations will play a role in China’s central aircraft procurement process, creating win-win opportunities for large scale transactions.
Two investment grade lessors are upgraded one notch. Two more lessors are upgraded to investment grade: Having weathered the triple shock of Covid, Russia, and the fastest interest rate rise in 40-years, the aircraft leasing business model has proven its resilience. Rating agencies are reflecting the credit strength of aircraft lessors with ratings upgrades and positive outlooks which will continue in 2025.
About Avolon
Avolon is a leading global aviation finance company connecting capital with customers to drive the transformation of aviation and the economic and social benefits of global travel. We pride ourselves on our deep customer relationships, our collaborative team approach, and our fast execution. We invest with a long-term perspective, diversifying risk and managing capital efficiently to maintain our strong balance sheet. Working with 140 airlines in 59 countries, Avolon has an owned, managed, and committed fleet of 1,129 aircraft, as of 31 December 2024 on a pro forma basis including the proposed acquisition of Castlelake Aviation Limited. www.avolon.aero
Disclaimer
The views and forecasts set forth herein and in the 2025 Outlook are those of the authors. They do not necessarily represent the views of any other person or Avolon. This document, the 2025 Outlook Paper, and any other materials contained in or accompanying this document (collectively, the "Materials") are provided for general information purposes only. The Materials are provided without any guarantee, condition, representation or warranty (express or implied) as to their adequacy, correctness or completeness. Any opinions, estimates, commentary or conclusions contained in the Materials represent the judgement of the authors as at the date of the Materials and are subject to change without notice. The Materials are not intended to amount to advice on which any reliance should be placed and Avolon disclaims all liability and responsibility arising from any reliance placed on the Materials.
