Aircraft leasing is one of the most popular ways for airlines to manage their fleets financially. But as a paper by the aviation think tank Bauhaus Luftfahrt shows, there is a renewed interest in aircraft sharing models. Can the aviation industry learn from the car-sharing sector? Do aircraft on-demand sharing models offer what it takes to reduce costs and become a viable solution for the future?
Exploring new ideas and capturing future trends often means not to expect to be awarded polished concepts. It’s rather about translating and adapting best practices to one’s specific requirements. About keeping an eye on the sky and an ear to the ground – to find out what works and what doesn’t.
The aviation experts’ crystal balls predict an annual growth of the industry of around 4-5% for the next 10-15 years. But as a paper about aircraft on-demand sharing models by the aviation think-tank Bauhaus Luftfahrt points out, with the growth comes an increasing competition between low-cost carriers and full-service network carriers. As a consequence, network carriers in developed markets are under constant pressure to reduce unit costs. Could this spark new interest in aircraft sharing models? The researchers from Bauhaus Luftfahrt, which is a non-profit research institution of AIRBUS, IABG, Liebherr Aerospace and MTU Aero Engine, seem to think so.
Why Own If You Can Loan
Over the last few decades, cash and equity financing (e.g., corporate debt) have been the primary financing sources for aircraft. Airlines for the most part outright owned their craft, using them as a source of payment in this often aircraft-based financing concept.
Leasing is a key source for aircraft financing, holding a market share of currently 40 % of commercial aircraft in operation worldwide.
This model of financing has decreased in favor of leasing as a key source for aircraft financing, holding a market share of currently 40 % of commercial aircraft in operation worldwide. Leasing-based models increase as airlines get more focused on maintaining cash buffers to cover their normal operations as well as unusual situations and therefore seek to constantly reduce unit costs.
Leasing has several obvious benefits with greater financial flexibility being just one of them. Less capital needed for fleet financing means more cash for operational business. Leasing also allows for greater fleet flexibility as the leasing model reduces the residual value risk for the airlines. Another business boosting factor was the growth of low-cost carriers across the world as those start-ups seldom buy their own aircraft due to capital commitment. Last but not least, leasing helps to heighten the appeal of an airline as flying the newest aircraft sparks customer awareness while managing maintenance costs. This can subsequently lead to gains in market shares.
From Car Sharing to Aircraft Sharing
How can we meet the need for more and modern aircraft while simultaneously boosting environmental and business sustainability? As the experts from Bauhaus Luftfahrt put it:
As new-generation aircraft comprise a larger portion of the global fleet, airlines will see benefits from their operation. Between 15 and 20 percent more fuel efficient, these new aircraft can cut expenditures on jet fuel and potentially improve profitability. This becomes particularly helpful if fuel prices start to rise again. Improved fuel efficiency will also help carriers reduce greenhouse gas emissions. Aside from savings on fuel, new-generation jets with advanced technology and sophisticated avionics will provide airlines increased operational flexibility and improved productivity.
Just like the aviation industry, the automotive industry saw a shift in ownership models in the past: in 2016, one in four cars was financed with a leasing model. Another growing share of the car market are rental cars as the rental industry experiences radical changes with new concepts of car sharing.
These trends give reason to look into the potential of on-demand aircraft sharing models for commercial aircraft. The experts at Bauhaus Luftfahrt based the whole idea of aircraft sharing models on the concept that airlines no longer own their aircraft. Similar to the free-floating car sharing model, wherein a system operator centrally owns the fleet, enabling one-way journeys as well as round-trips, the investigated concept of aircraft sharing would be based on the aircraft being pooled at airports and shared by participating airlines.
They first took a look at the mere sharing of the aircraft, not including cabin and flight crew pooling. The analysis focused on dominating types of aircraft, such as the Airbus A320 and the Boing 737. The data analyzed included real scheduled flight data from the OAG 2012.
Looking at different scenarios, the analysis showed that:
The Aircraft On-Demand Sharing Model offers a significant potential to reduce overall aircraft inventory and hence reduce Cost Of Ownership (COO). A 16 % fleet reduction for a combined A320/B737 fleet would result in nearly 1500 less required aircraft to serve the given, unchanged flight schedule. According to an averaged list prices of Airbus A320 and Boeing 737-800, […] airlines could save up to US$ 147 billion. Besides the potential of lower aircraft inventory costs, the higher utilization rates per aircraft would result in an up to 16 % faster fleet renewal offering potential of further decrease fleet-level fuel burn.
Although the experts state that this is just a first analysis and further research has to be done to examine the potential as well as the logistical challenges of aircraft on-demand sharing models, this prediction sounds promising. It is an inspirational starting point to further put our traditional models to the test and together venture into profitable and sustainable solutions.