Bruce Andrews, partner and Alderman & Company, says we can expect to see greater profits for aviation companies and potentially greater M&A activity as a result

Global air travel demand has been steadily rising in 2024.

According to the latest US Air Carrier Statistics by the Bureau of Transportation, when comparing data from February 2024 to February 2023, revenue passenger miles increased from 72 million to 79 million.

In addition, available seat miles increased from 92 million to 101 million, and total revenue departures increased from 644,000 to 681,000.

The bureau further projects 271 million passenger miles for 2024, a 6% increase over 2023.

While this data only captures the increased demand for travel in the US, similar trends are occurring on the global scale.

IATA (International Air Transport Association) has revised its profit forecast for global airlines from $25.7 billion in December to $30.5 billion.

When asked about the revision, IATA director general, Willie Walsh, cited the record five billion air travelers expected for 2024 as the driver for profit growth.

However, despite such increased demand for air travel, Walsh was also cognizant of the supply chain issues facing airlines and their suppliers.

“To improve profitability, resolving supply chain issues is of critical importance so we can deploy fleets efficiently to meet demand,” he said.

Walsh’s concerns are reflective of the industry as a whole.

Airlines have recognised that they may be unable to serve all the increased travel demand as they suffer from supply chain issues stemming from Boeing and Airbus struggling to keep up with their production targets and with maintenance suppliers unable to meet turn-time goals.

As demand continues to grow throughout 2024 while supply issues persist, there could be a number of consequences for the aviation industry, including but not limited to:

• In order to better service airplane producers such as Boeing and Airbus who are facing supply chain and quality issues, middle market companies within the industry may want to merge or acquire each other to bolster production capabilities and increase market share/revenue.

• Since China has recently imposed sanctions on exports to US aerospace companies, airlines that would have potentially turned to China as an alternative supplier for parts or maintenance may turn to smaller, middle market companies within the United States.

This could lead to opportunities for smaller suppliers to secure new contracts and expand their presence in the industry.

• With the strain on production capacities, aviation companies may intensify their focus on innovation and automation to streamline manufacturing processes.

This could lead to increased investment in research and development for technologies such as robotics, AI-driven manufacturing, and 3D printing.

Companies that specialise in automation solutions or provide advanced production technologies could experience heightened demand for their products and services.

• If the disconnect between supply and demand persists, travellers may see higher ticket prices and the need to plan their trips well in advance to ensure seats are available.

Until the gap between supply and demand can be bridged, there will certainly be significant ripple effects for the broader aviation industry, particularly for smaller middle market companies.

This could mean greater profits for these companies and potentially greater M&A activity as a result.