Read time: 2 minutes
Background
During and just post-Covid-19, demand in the air freight sector sparked interest from lessors; airlines; maintenance, repair and overhaul service providers (MROs); investors; funds; and other financial institutions. Many were keen to invest in the area, either to hedge their existing passenger aircraft exposure, create new business lines around it and/or build out their existing expertise (in the case of MROs/conversion specialists) to increase the capacity and range of conversion programs on offer.
But has the demand continued post-Covid-19, and if so, are there any limiting factors prohibiting further investment and/or growth?
Analysis of current market dynamics
- Demand for freight: The trend toward e-commerce, coupled with the ongoing challenges in global supply chains, has solidified the demand for air freight. This demand is expected to persist, driving growth in the freighter market.
- Feedstock availability: The retirement of aging passenger aircraft fleets has provided a steady supply of suitable feedstock for conversion. This has eased concerns about the availability of feedstock, which were more prominent in the early stages of the market's growth.
- Freight pricing: Freight rates have remained buoyant due to the imbalance between demand and supply of goods. The limited availability of conversion slots has further constrained capacity, supporting strong pricing.
- Conversion slots: Despite the expansion of conversion facilities, demand for conversion slots continues to outpace supply. This has led to extended wait times for operators seeking to convert their aircraft. While new facilities are coming online, it may take some time to significantly alleviate this bottleneck.
Key takeaways
- Demand for air freight remains robust. Ongoing demand trend toward e-commerce, coupled with global supply chain challenges, continues to drive demand for air freight
- Feedstock availability no longer a significant concern. Retirement of aging passenger aircraft fleets has provided steady supply of feedstock for conversion
- Freight pricing remains buoyant. Imbalance between demand and supply for goods combined with limited conversion capacity, supports strong freight rates
- Conversion slots remain a bottleneck. Despite increased conversion capacity, demand continues to outpace supply, leading to extended wait times for slots
- Emerging challenges. While fundamentals remain positive, factors such as rising fuel costs, geopolitical tensions and potential economic downturns could pose risks to the market