KBRA releases its 2024 Global Aviation Sector Outlook, examining key trends from 2023 and various factors that will impact the sector’s performance in the year ahead.

The persistent recovery of global aviation markets amid industry and macroeconomic challenges supports KBRA’s continued favorable outlook for the sector in 2024. After returning to profitability with an estimated $23.3 billion in net profits in 2023, airlines globally are projected to generate $25.7 billion in net profits on historically high revenues of $964 billion in 2024, according to International Air Transport Association (IATA) estimates. Improved airline profitability has been driven by the robust recovery in worldwide air travel demand, as well as increased airline efficiency with high load factors. However, airline earnings margins remain thin and impediments to further improvement remain, including aircraft capacity constraints given production limitations at major original equipment manufacturers (OEM), as well as labor shortages that have driven higher costs and volatile fuel prices. In turn, global aircraft lessors have reported stronger performance and they maintain strong balance sheets and liquidity, benefiting from improved airline customer performance and favorable supply/demand factors driving higher lease rates, which largely offsets the impact of their higher borrowing costs.

Key Industry Themes

• Credit profiles in global aviation improved overall across most regions last year, given the strong recovery in passenger demand to near pre-pandemic levels, which is expected to sustain or improve in 2024, with further recovery in the Asia-Pacific region. Industry-wide passenger traffic, measured in revenue passenger-kilometers (RPK ), increased 30% year-over-year (YoY) through November 2023 and reached 99% of pre-pandemic levels, according to IATA.
• Airlines’ credit improvement has been marked by an overall return to profitability in 2023 compared to net losses during the pandemic years, but KBRA remains cautious given their high leverage levels, increased costs, and thin earnings margins.
• Global aircraft lessors’ diverse portfolios and strong capital and liquidity metrics continue to underpin solid credit profiles. KBRA believes lessors are well positioned in the aftermath of the pandemic, with cash collection rates having recovered and favorable supply/demand factors driving higher lease rates and aircraft values.
• OEM delays and current production rates imply a shortfall in supply versus demand in the near and medium term. Lessors have sought to increase their order books, both directly with OEMs and through secondary purchases, to secure scarce deliveries for new-technology, fuel-efficient aircraft.
• New tech engine issues requiring shop visits, coupled with the new Boeing 737 MAX 9 problems, are contributing to capacity constraints in the near term and spurring demand for mid- and end-of-life aircraft.
• Airlines continue to see challenges from macroeconomic factors like inflation, volatile fuel prices, higher interest and lease rates, and labor shortages that cause wage increases—all of which dampens the positive effects of recovering travel demand. However, as demand has exceeded supply, airlines have enjoyed pricing power. Still, the impact of tightening monetary policy on labor markets and consumer demand has yet to be fully realized, which could negatively impact future air travel demand.
• Geopolitical risk has intensified, but the direct industry impacts of the Russia-Ukraine and Israel-Hamas wars have so far been limited.
• Smaller subsets of commercial aviation, including private aviation and the cargo sector, faced diverging fortunes in 2023. Private aviation has seen continued strong demand at above pre-pandemic levels, albeit down from peak pandemic demand, as new customers who entered the space during the pandemic continue to fly private.
• The cargo sector has faced softening demand that began in late 2022 as stagnating international trade coincided with increased passenger aircraft belly capacity.
• The recent easing of market volatility, inflation, and recession concerns led to an uptick in aviation public bond issuance in 2023 (after minimal activity in 2022), although issuance levels remained low and continued to be supplemented by bank and private market lending to the sector.

Click here to view the report.

Related Publications

• EETC Resilience: Updated Historical Recoveries Through Pandemic and Beyond
• Tried and True: Sovereign Support for Airlines
• KBRA Insight on Private Credit: A Boon for Private Credit and Private Placements in Aviation

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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