
At the recent Airline Economics’ Growth Frontiers conference in Dublin, the prevailing sentiment among industry leaders was one of cautious optimism. Rory Conway, Ocorian Capital Markets Director and aviation specialist, who attended the conference, gives his views on what it means for the aviation industry in 2025.
Robust demand for air travel & interest rate stability
The sector has experienced a strong rebound in passenger demand since the COVID-19 pandemic. This growth is expected to continue, driven by pent-up demand for both leisure and business travel – particularly in the Asia-Pacific region where more seats were added to the region than to the rest of the world combined.
In 2025, interest rates in key markets are forecast to stabilize at around 4%. This news is positive and will provide stability and a more predictable financial environment for the aviation industry, greatly assisting investment planning and strategic decisions for stakeholders.
However, the year ahead will not be without its challenges, below are some of the key issues discussed during the conference that may cause concern for the industry.
Supply & demand – aircraft and parts shortages
Executives from major leasing companies expressed concern around the ongoing delays in aircraft deliveries from manufacturers Boeing and Airbus. The main cause of these delays are attributed to persistent supply chain disruptions, labour shortages, engine delivery issues, and increased demand for parts – it is anticipated these challenges will continue for several years to come.
It was projected that a balance between supply and demand would likely not be achieved until the end of the decade. Airlines and other stakeholders must plan the makeup of their fleets accordingly. That said, the overall view is that the demand and supply equilibrium will stabilise by the beginning of the next decade which allows for greater forward planning for stakeholders.
The onset of “ESG fatigue”
While there has been a significant focus on ESG in prior years, specifically regarding the changes the sector must make to achieve its net zero targets by 2050, there was a clear shift in priorities from sustainability to operational challenges, with immediate concerns such as the shortage in aircraft and parts taking precedence over ESG initiatives. This has raised concerns about “ESG fatigue” settling in and potentially harming the industry’s environmental goals. It was noted that the continued use of older, less efficient aircraft due to new aircraft shortages further complicates efforts to achieve net-zero carbon emissions by 2050. Despite this, experts emphasised the ongoing importance of reducing emissions, however the move to a more sustainable global model including the widespread use of sustainable aviation fuels (SAF) has not been without its challenges.
Trump 2.0 – impact on aviation
Predictably, the tone regarding the impact on the aviation sector of the incoming Trump administration was split. Some industry leaders expressed optimism for the Trump administration’s approach to regulatory policies. There was an anticipation that President Trump will reform the US government’s regulatory environment, adopting measures aiming to significantly reduce red tape, which will be of benefit to airlines.
On the other hand, there was a sense of unpredictability for all key stakeholders, and as such an inability to robustly plan for what might be to come during the Trump administration. Notably, President Trump has since signed executive orders to withdraw the US from the Paris Climate Agreement, and to reverse the Inflation Reduction Act, which generates subsidies for clean energy schemes. These actions raise concerns about the potential barriers in the development and distribution of sustainable aviation fuels (SAF), adding to the burden on the industry of reaching the net zero 2050 target.
Geopolitical tensions
Tensions between major powers such as the US and China, and the risk of a trade war under the Trump administration, pose risks to the industry, particularly in air cargo and trade-related travel routes.
The conflicts in Ukraine and in the Middle East continue to disrupt airspace access in those countries and neighbouring regions. The Middle East is a critical hub for oil production, and geopolitical instability in the region may cause spikes in oil prices, thus impacting fuel costs and airline profitability and ticket prices.
Regulatory concerns on domestic passenger caps
Specifically for Ireland, Irish airlines and other carriers operating in Ireland have appealed to the incoming Irish government to lift the existing cap on passenger numbers travelling through Dublin Airport. The current cap which was set in 2007 –at 32 million passengers annually – however, this has been surpassed and has led to a reduction in seat capacity. Many have advocated for the removal of the cap to accommodate the anticipated increase in demand for air travel via Dublin Airport. There were warnings that, should the new government opt not to increase the cap (as they balance a range of concerns domestically), it may inhibit Ireland’s economic growth.
Despite these challenges, the optimism prevailing at the conference is a testament to the resilience of the aviation sector and we hope that it continues in 2025.
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