Flight prices could rise due to aircraft shortages

Front view of white 777 commercial flight airplane taking off or landing from the Airport runway with no visible markings or livery. Blue sky sunny back drop with some clouds

(Image credit: Craig Hastings)

published 16 May 2024

If you haven’t already booked a summer holiday it would be a good idea to get a move on. Prices are going up all the time.

Michael O’Leary, the pugnacious boss of Ryanair, has already warned that fares may have to go up by as much as 10% this summer because of the shortage of new aeroplanes to meet all the demand for flights. Air Lease, one of the largest suppliers of aeroplanes to the budget airlines, warned last week that delivery delays from both Boeing and Airbus were likely to persist well into 2025.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

What could push flight prices up?

It is not hard to understand what the problem is. The US manufacturer Boeing has suffered the biggest problems, with well-documented safety issues in its bestselling 737 series of aircraft. It may well not get up to full speed again until the summer of 2025, or perhaps even later.

Its great European rival Airbus has been warning since February that deliveries of new aircraft will be delayed all through this year because of hold-ups along its complex supply chain. Put the two together, and it is simply impossible to get a new aeroplane right now. There are not enough to go around.

We all know what happens when there is a gap in the market. Someone steps in to fill it. China has already launched the Comac C919, the country’s first passenger aeroplane. A direct competitor to the Boeing 737 and the Airbus A320, it is already in service in the domestic market, and the manufacturer is starting to get it ready for export.

Earlier this month Brazil’s Embraer, which specialises in small and private jets, said it is looking at building a 737/ A320 rival. China’s Comac has also announced that it has started work on the C939, a far larger jet that would compete directly with the Boeing Dreamliner on long-haul routes. Add it all up and it’s clear that the duopoly that has dominated the aerospace industry for the last 30 years is under threat. For the first time, they are seeing real competition.

True, manufacturing passenger jets requires vast investment, a highly skilled workforce, developed supply chains, and relationships with the airlines that take a decade or more to build. It is one of the world’s most complex, sophisticated industries, requiring plenty of support from governments and lots of patient work by management and investors.

Is there room for competition in the aerospace market?

Indeed, one of the main reasons why there are only two players in the industry right now is that it is so expensive to develop a new aeroplane that it is virtually impossible for anyone else to break into the market. But that is starting to change.

The safety issues at Boeing and the delays at Airbus are creating a market that is more open than it has been for a generation or more. The longer that lasts, the more airlines will start looking around for someone else who can supply them with new aircraft.

The door will be wide open for fresh competitors. Western governments and manufacturers need to make sure that closes as quickly as possible. The US needs to ensure that Boeing fixes its production problems as fast as it can, even if it requires a complete change of leadership, and perhaps a change of ownership as well.

And the European governments (including the UK, given that the wings are made in this country) need to make sure that Airbus can ramp up production, even if it requires investment in new factories.

The West has become dangerously complacent. This is the last major industry in which the US and Europe are dominant – aerospace is still completely controlled by the West, with two giant companies supplying aeroplanes for the entire world.

Along the way, they generated hundreds of thousands of skilled jobs and tens of billions of export earnings. Right now, it is under threat. If China, and perhaps even Brazil, get a foothold in the industry, they will be impossible to stop – and another major industry will have been lost.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.