AlixPartners: Aviation industry profit reaches $73 billion

05 November 2015 4 min. read
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The civil aviation market has booked profits of $73 billion in 2014, research by AlixPartners shows. Of which $33.9 billion was generated by airlines, while the aerospace industry that support it generated $31.9 billion. A large increase in profit for airlines, with the expectation that fuel costs will rise again, has seen orders for new more efficient planes reach 12,000 – sending aircraft OEM profit upwards.

The civil aviation market – which is comprised of all non-military aviation activity – has seen its profit grow a massive 27% between 2013 and 2014, as both aerospace and airlines book profits, up from $57 billion to $73 billion. Profits have been buoyed by cost cutting programmes coming into effect, as well as the 40% decrease in fuel costs. In a recent report, titled ‘Gaining Altitude - With Help from Strong Tailwinds’, AlixPartners explores the market and its conditions that have seen profitability rise so dramatically.

Airlines profit pool

Aviation market profit
The civil aviation industry had a number of difficult years following the financial crisis. In 2008 profits fell below the line at -$1.1 billion across the industry. 2009 saw only a minor recover, increasing to $1.9 billion as revenue dropped almost $100 billion from the year previous. 2010 was a relatively strong year, profits jumped to $27.6 billion, while revenue rebounded to almost the level of 2008 at $564 billion. The following two years saw again a decrease in profits, after which 2013 and 2014 have seen both continued growth in profit and revenue. The market in 2014 is estimated to be generating revenue of $733 billion, of which $33.9 billion is profit – representing a 20% increase on profit generated in 2011. Projects are expected to increase further in 2015, up to $50.1 billion on revenues of $727 billion.

Airline profits have in recent years been stimulated by a number of internal and external factors. Internally, carriers have been engaged in cost cutting as well as increasing the number of seats available on aircrafts. External factors include an increase in passenger numbers of 6% and a 40% drop in the cost of fuel. The projection for 2015 is based on the assumption that operators will likely maintain their capacity discipline, strong cost control, and fleet replacement practices.

Civil aerospace industry profit pool

Civil aerospace market profit
Increasing profit within the aviation industry has seen a corresponding increase in demand for services related to the industry. High oil prices in recent years impelled carriers to invest in new and more efficient stock, and is one factor that has seen the aircraft OEM market surge following the crisis. Today, Airbus and Boeing have backlogs of 12,000 aircraft orders, representing 8-10 years of production. This surge has seen profit increase from $0.8 billion in 2009 to $9 billion in 2013. OEMs in response to the backlog are ramping up production, which has seen them generate further profit this year, at around $10.9 billion.

Although all segments of the civil aerospace industry saw their profits increase in absolute terms, the share of profits has decreased in all segments, as aircraft OEMs have come to dominate since 2007. The largest downward mover has been the ‘other aircraft suppliers’ (aero structure, cabin, equipment, materials) which saw their share shrink from 24% to 21%. The MRO segment is the only segment that has seen a decrease in absolute profit since 2013, owing to significant competition and overcapacity in selected markets. According to Oliver Wyman, the MRO market in Europe will see slow growth in the coming decade however, while the US market is expected to remain flat.

Composite use in aero structure by weight

Growing trends
The report further highlights that there are a number of trends in how aircraft are constructed that are likely to affect the market in the coming years. One such change is the high level of composites used in the manufacture of aircraft, which for both large civil manufacturers has increased to 50% in 2014, up from between 11% and 22% in 20007. The consulting firm expects that, because of several downsides to composite materials, the level of use in manufacture is likely to stagnate and potentially even decrease in coming years.

Another factor likely to bring changes to the market is additive manufacturing or 3D printing. A&D applications (such as production of plastic and metal parts) represent as much as 12% of the additive manufacturing market. With a value of $400 million, this market is still relatively small. Yet the consultancy expects there to be a robust annual rate of 15% over the next five to 10 years—perhaps thanks to the multiple benefits it promises A&D players.