|BlueSky Business Aviation News|
According to Richard Brown, Principal at ICF International, this $4.5bn niche represents 7% of today’s commercial MRO market and is poised to grow by 5.3% per year until 2025. While the drop in the price of jet fuel has undoubtedly spurred the increase in the demand for cabin modifications, it will be only one of many factors behind this sector’s expansion in 2016.
At a dollar a gallon, the price of jet fuel has fallen 45% over the past two years. This has boosted every airline’s profitability so greatly that the IATA expects total airline profits to be $33bn for 2015, up from $20bn in 2014. As for this year, the IATA envisages an average net profit margin of 5.1%, with total net profits rising to $36bn in 2016.
Falling fuel prices make airlines more profitable and this serves as an incentive for operators to keep their existing aircraft in service longer than might have been the case if operating costs had risen or stayed the same. In as early as December 2014, UBS estimated that the move of jet fuel price below two dollars a gallon makes used jets 5% more economical than new jets. According to the study, the cost of owning and operating a new narrow-body aircraft (i.e. a Boeing 737MAX or Airbus 320neo) is about 8% more expensive than a ten-year old Airbus 320 or Boeing 737 Next Generation (NG) with jet fuel at that price.
Yet since then, the price of fuel has fallen lower than anyone could have predicted, and experts now suggest that fuel prices are going to remain relatively low for the foreseeable future. Indeed, the cost of jet fuel is below a dollar a gallon, which would further increase the motivation to keep used jets in service.
However the other major driver for cabin modifications has been the introduction of exciting, economically viable and much better equipped jets, not least with the ramp-up of the Boeing 787 (in October 2011) and the Airbus A350 aircraft (in December 2014). More than 380 Boeing 787s and 16 Airbus A350s have been delivered so far, with many more on order and destined to enter service over the next few years. These new aircraft set new standards in cabin interior design and transform for better customer experience. This, in turn, means that customers will increasingly expect new services and comfort levels when they fly.
A new paradigm is being created in which operators are encouraged to harmonize the passenger experience across their entire fleets. Such enhancements are increasingly seen as mission-critical to an airline’s marketing appeal, a key to increasing (or at least retaining) the current number of passengers.
After all, in today’s competitive aviation business, every airline customer counts and operators can no longer afford to disappoint travelers with outdated In-Flight Entertainment (IFE) systems, antiquated and worn cabin interiors, and slow (or absent) connectivity systems.
To put it another way, passengers today want to be able to check emails or stream movies on both short and long haul flights. What’s more, they expect modern comfortable seats inside creatively designed and well-lit interiors.
That is why there has been and will continue to be a strong demand for airlines to enhance and harmonize the passenger experience across their diversified fleets of mature and brand new aircraft. At SR Technics, we have been preparing for this upsurge in demand for several years. During that time, we have taken a leading market position when it comes to cabin upgrades on Airbus A330 and A340 aircraft.
Moreover, the recent entry into service of the A320neo and the first delivery of the B737MAX expected for 2017 are poised to generate a similar momentum for cabin modifications on narrow-body aircraft such as the Airbus A320 and the Boeing 737NG families.
In summary, falling fuel prices have combined with pre-existing drivers such as new and innovative aircraft, to create a true bonanza for the cabin modification market. In this fast-changing market, airlines can make a strong business case for the large investments they will need to upgrade their cabin interiors and inflight-services.
They have another and perhaps even stronger motivation to do so: the emergence of a new class of traveler who wants to use a smartphone or tablet during a flight and is thus seeking the new generation of aircraft connectivity solutions.
As a result, airlines will have no choice but to upgrade their existing long-haul and sometimes short-haul products. But they had better anticipate in order to secure the hangar slots fitting their operations and to make sure that critical aspect of cabin modifications such as supply chain management (i.e. ordering and delivery of seats or galleys) or engineering have sufficient time to be properly coordinated and executed.
Bertrand Boisset is a sales director at SR Technics, where he works exclusively with Original Equipment Manufacturers of aircraft, seats, galleys, IFE and connectivity systems to support SR Technics’ Center of Excellence for cabin modifications. Bertrand also focuses on serving leasing companies and financial institutions in continental Europe. From 2013 to 2015, Bertrand was a member of the company’s Strategy and Business Development team where he worked on various strategic and commercial crossborder projects. He holds a Master’s degree in Corporate Finance from the Toulouse Business School.