In the past 10 years, fuel costs for airlines have more than doubled as a percentage of revenues, and buying fuel now makes up for 58% of an airline’s running costs.
That’s good news for plane manufacturers, who benefit from the resulting demand for new, more fuel-efficient aircraft, according to a new blue paper from analysts at Morgan Stanley.
Plane maker backlogs are now at record levels, according to the paper.
Between them, Boeing and Airbus (the two biggest players in the market) have 14,000 planes on order. That’s enough to last them more than seven years of production.
The blue paper, “Commercial Aviation: A Renewed Lease of Life,” was written by Morgan Stanley analysts Rupinder Vig, Penny Butcher, John Godyn, and Nigel Coe.
Morgan Stanley does warn “rising fuel prices can be a negative for new aircraft if fuel prices rise so quickly that they put a number of airlines at a liquidity squeeze,” but calls the high prices as “very much a tailwind” for OEMs (original equipment manufacturers).
As proof, they offer this chart, which makes it easy to see how over the past two decades, high fuel prices have lined up closely with high demand for replacement aircraft. Both are sky high at the moment:
A second chart shows that brand new planes like the Boeing 787 Dreamliner and upcoming Airbus A350 XWB are the latest in a decades-long effort to improve efficiency. Compared to the Boeing 777, the 787-9 offers 23% savings, and the A350-900 offers 14% savings.
That’s huge, especially for airlines competing in an industry with high upfront costs and thin profit margins.
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