An Industry in Upheaval
Editor's note: This article was updated on May 14, 2020. Oliver Wyman is monitoring the COVID events in real-time and we have compiled resources to help our clients and the industries they serve. Please continue to monitor the Oliver Wyman Coronavirus hub for updates.
It is difficult to overstate the effect of the COVID-19 pandemic on commercial aviation. In the months since the new strain of coronavirus that causes COVID-19 first emerged, passenger air travel has come to a near standstill as a result of the need for social distancing and international travel restrictions to contain its rapid spread.
Air carriers around the world are facing extreme financial pressures and are cutting capacity at unparalleled rates in the absence of meaningful passenger demand. Some airlines have shut down completely, a portion of these may never return. While there’s an effort to reopen the economy and Transportation Security Administration statistics are showing a slight move upward on the number of travelers screened at airports, planes are still carrying on average a handful of passengers per flight.
To get an overview of how the industry is faring, our Aviation Market Intelligence team is busy integrating the fleet groundings, aircraft retirements, new production rates, and other announcements to ensure updated information is available. This webpage includes our update as of May 14, 2020. Please visit this page weekly for updates.
May 14 Forecast Update
Aviation continues to be an industry in upheaval. While the 9/11 terrorist attacks represented a sudden, severe shock to the North American aviation market and the 2008-2009 financial crisis presented immense global economic challenges, COVID-19 is proving to be an even greater threat to commercial aviation because of global travel restrictions and massive reductions in consumer demand for air travel, evidenced in cancelled and lost bookings, and the uncertain prospects for a return to normalcy. Commercial airlines have already been forced to make significant cuts to their capacity through a combination of placing aircraft in storage and operating the remaining aircraft at lower levels of utilization.
As the world gradually starts to reopen for business, aviation faces an uphill struggle to rebuild public confidence in travel. The threat of a second wave also remains a cloud over future progress.
Predicting with any precision fleet decisions and the effect on maintenance, repair, and overhaul activity in response to COVID-19 remains a difficult task, given the disease’s evolving nature. Our revised forecast reflects the best information and thinking available today (May 14); new information, particularly at a regional level, may result in further refinements.
Our latest forecast includes three scenarios. More details on these are available in the report.
- The May 14 baseline scenario for the global virus expects containment to be achieved by late summer 2020 and assumes multiple waves of contagion. Passenger revenue reaches 60 percent of pre-COVID levels by late autumn when it will plateau as new infection hotspots flair up. Assuming development of a vaccine by summer 2021, global air travel will finally return to pre-COVID levels by the end of 2021, nearly two years after the initial outbreaks.
- In our accelerated scenario, demand begins to return in late spring in many key markets. This scenario assumes a single wave of outbreaks, which allows for continuous recovery beginning in late summer 2020. Passenger revenue would steadily climb to 90 percent of pre-COVID levels by early 2021.
- Our final, prolonged scenario envisions an extended epidemiological response during which there are multiple waves of contagion and delayed vaccine development. In this most pessimistic scenario, the virus is not contained until early 2021. We wouldn’t return to pre-COVID levels until 2023.
Fleet and MRO impact
The contraction of the global commercial in-service fleet is already more pronounced than in any of the prior crises: As of late April, over 65 percent of the pre-COVID fleet of 27,500 commercial aircraft have been parked. The financial uncertainties caused by COVID-19 are also compelling airlines to defer or cancel new aircraft deliveries, and retirements will be four to five times higher than previously forecast. The pace of fleet recovery is expected to require several years. Our baseline scenario does not expect the fleet to return to its pre-COVID size until the end of 2022.
Like previous shocks to aviation, many aircraft that are not already parked are expected to see lower utilization, and despite record order books,
Assuming our May 14 baseline scenario that anticipates recovery later this summer, the current trajectory for fleet reductions and lower aircraft utilization would reduce global MRO demand in 2020 by over $48 billion, or 53 percent. North America and Western Europe would suffer the largest impact.
To gain additional insights into regional details around the scenarios, how each impacts the fleet and MRO aftermarket, and strategies for the MRO aftermarket, download the full report.
To supplement the 2020-2030 Global Fleet & MRO Market Forecast Update, our COVID-19 impact interactive dashboard provides users with the ability to explore the near-term impact of COVID-19 on MRO demand in a deeper fashion. Both dashboard views include a summary table that quantifies the updated MRO forecast and the corresponding impact.
The dashboard is amended weekly based on new developments and insights and compares the original MRO forecast, released in February 2020, to an adjusted forecast baseline. As a result of new information to include more airline capacity reductions and revised OEM production announcements, the adjusted forecast baseline in the dashboard may vary from the baseline in the article above as data have changed since the article was published on May 14, 2020.
Within the dashboard, there are two tabs. One view shows the impact of COVID-19 by MRO segment and aircraft class with the ability to filter by region, allowing users to identify the most affected segments and classes within each region. An additional view focuses on the regional breakdown of the MRO impact with the ability to filter by class.
Please reach out to AviationMarketIntelligence@oliverwyman.com with any questions or customized impact requests and check the dashboard for updates to the forecast each week.