Demand For Widebodies Set To Remain In The Doldrums For Now

As the industry is holding the first major air show since the outbreak of the novel coronavirus pandemic, many airlines are benefiting from improved demand on short-haul domestic and regional routes. Long-haul traffic, in contrast, will only begin to recover in the coming months as the U.S. and potentially China open up more. But when demand for widebodies will begin to return remains a major unknown.

Here at the Dubai Airshow, a turnaround based on massive new orders is highly unlikely. Major carriers in the region are busy redefining their fleets, a process started years ago that has not been completed. With their substantial exposure to Asia, the Gulf carriers in particular are also affected by travel restrictions in many of their markets. European and U.S. airlines can increasingly rely on the return of transatlantic demand starting this month. Demand is growing for many airlines in the transatlantic market, and even Emirates is seeing strong improvement.

With too many uncertainties remaining and airlines in fragile financial shape, Airbus and Boeing will likely have to prepare for continuing low widebody production rates. But in the longer term, they are betting on an upcoming replacement cycle and some growth.

Airbus became the first of the two manufacturers to increase widebody production rates, albeit slightly. It plans to raise A330neo output from the current level of two aircraft per month to just under three by the end of next year. The A350 will go from the current five a month to six in early 2023. That is obviously still far from past peaks, which saw the A350 at 10 aircraft per month and the A330 classic at even higher rates.

CEO Guillaume Faury expects the long-haul market to recover between 2023 and 2025. But privately, Airbus executives say they have little insight into when that might translate into a return to past higher production levels. Another uncertainty is a market shift toward smaller aircraft that is being promoted in part by Airbus itself in the form of the A321XLR, which is scheduled to be delivered for the first time in 2023.

The A330neo rate increase was made possible by two current deals—Condor bought seven aircraft and the new Italian airline ITA (that replaced Alitalia) purchased 10. There are also “perspectives for other deals moving forward,” Faury says. However, he notes that “more broadly, the situation has not changed much,” adding: “The good news for us is the long-haul reopening, [which provides] some glimmer of hope.”

What size the market will return to is still anybody’s guess. Airbus has not updated its global market forecast (GMF) for two years and planned to publish its latest GMF today [Nov. 13], on the eve of the show. The latest official figures it released in 2019 predate the pandemic and are hardly relevant anymore. Back then, Airbus forecast a market of 5,370 aircraft in the medium category (A321neo, A330neo) and 4,120 for larger aircraft, meaning the A350 variants, over 20 years. For the Middle East, it projected potential for 475 medium-size and 1,090 large aircraft.

Several factors are influencing future patterns: lost traffic and growth on the one side and replacement and potential catch-up demand on the other. Should long-haul travel become more expensive because of more environmental taxation or other regulatory measures, demand would also suffer.

Despite all of the above, Boeing says banking on widebodies is a safe bet. Production and deliveries have fallen to their lowest levels at Boeing for years, due to the combined impact of the pandemic, 777X development delays and inspection- and rework-related holdups to 787 deliveries, but the manufacturer expects better times returning within three years.

“We tend to see a three-stage recovery, with the widebody demand being the last to come back but returning in approximately 2024,” says Tom Sanderson, director of product marketing for 787 product development and Boeing’s Confident Travel Initiative. “Overall, our revised current market outlook projects a demand for 7,670 new widebody passenger aircraft over the next 20 years—and that does not include freighters.”

Of the total over the next two decades, Boeing projects around 1,320 widebodies worth $510 billion will be bought by operators in the Middle East region. “Today, the global fleet is about 4,660 widebodies, and a number of those new aircraft will be used for replacement of existing [aircraft], and a number will be used for growth,” Sanderson says. “Thus, we see that by 2040, the total fleet of widebodies will be approximately 8,900 aircraft.” 

Boeing’s optimism is buoyed by the projected post-pandemic recovery and the inevitable need to replace capacity following airlines’ desperate rush to retire older widebody fleets in 2020 and early 2021. “We’re starting to get into a replacement wave. A lot of large widebody aircraft are going to begin to retire, and we’ll continue to see growth in the number of retirements well into the 2030s,” Sanderson says.

The Middle East is the future home for most of the current 777X order backlog as well as a large percentage of the world’s youngest twin-aisle fleet, so the prospects for the region’s operators are a bellwether for the accuracy of Boeing’s forecast. Middle East airlines have more than doubled twin-aisle passenger traffic in the last 10 years and have grown belly and freighter traffic by eight times to 32 billion revenue ton kilometers from 1999 to 2019. With cargo traffic growth in the region already up 19% over the last 12 months, Boeing expects that passenger numbers will soon follow.

Based on a projected GDP growth of 2.8% for the Middle East, passenger traffic is projected to grow 4.1% in the next 20 years, with the largest single sector forecast to be the European market. Boeing predicts traffic to and from Europe will grow by 3.3%—essentially doubling the volume in 2019, when these routes generated more than 300 billion revenue passenger kilometers. The biggest growth sector, however, is expected to be routes connecting the Middle East with South Asia. Although the overall volumes will still be below those of European routes, Boeing expects traffic in this sector to grow 5.5% through 2040.