The post-lockdown resurgence of air travel demand is likely to continue into 2023, according to Kroll Bond Rating Agency (KBRA), which said the aircraft leasing industry looks set to do well as manufacturers struggle to make enough new aircraft.
"In 2022, aircraft lessors benefited from the recovery in global passenger traffic driving strong demand for aircraft which, together with constrained supply, has supported higher utilisation and lease rates," KBRA in a new report.
"Established lessors with strong liquidity and new lessors with committed growth capital have seized on a favourable underwriting environment, achieving attractive long-term leases during the recovery and rising rate environment. Many airlines that emerged from restructuring and/or received government support through the pandemic have look to lessors for sale-leaseback transactions to fund fleet expansion and improvement during the recovery", the rating agency explained.
However costs and prices look set to go up across the industry. Airfares have increased, outstripping the consumer price index average in the US in recent months, while production backlogs look likely to see increased demand for leased jets, which in turn look set to become more expensive.
"Scarcity of aircraft and higher borrowing costs are driving lease rates higher, particularly for new technology, in-demand narrowbodies like the Boeing MAX, the Airbus A321neo and A220, as well as for new generation widebody aircraft like the A350 and the Boeing 787 models," KBRA warned.
Overall, however, the agency said it is "optimistic about the gradual but certain recovery in the aviation markets despite another year of upheaval in economies globally which was exacerbated by geopolitical tensions".
In 2022 the airline industry "turned a page", KRBA said, after two harrowing years and "the removal of travel and entry requirements globally".
"In 2023, we expect international recovery to be stronger, especially as China focuses on tackling its Covid infections and gradually open its borders to international traffic," the agency said.
However, business travel has not kept up with overall demand revival, KBRA noted, warning that the outlook for the sector "remains unclear" due to inflation and corporate cost-cutting.
The report was published ahead of the January 16 2023 opening of the Airline Economics Growth Frontiers Dublin conference in Dublin, with around 4,000 aviation industry delegates expected to travel to the Irish capital for the three-day event.