Impacts of Boeing's Crisis on Travel Costs

Boeing's production issues are causing ripple effects in the airline industry, which is already struggling to keep up with the demand for planes. This is making it challenging for airlines to meet the high demand for travel, and there is a possibility of ticket prices going even higher.

Ryanair CEO Michael O'Leary recently discussed the reasons behind the potential increase in ticket prices. He mentioned that with limited supply and strong demand, it is likely that airfares will rise again this summer, possibly by 5 to 10%.

Europe's largest airline in terms of passengers was initially scheduled to receive 57 Boeing planes this summer. However, Michael O'Leary, the CEO of the airline, now expects to receive only between 35 and 40 aircraft.

Ryanair is not the only major airline facing a shortage of planes. Southwest Airlines in the United States, known for operating solely Boeing 737 aircraft, recently disclosed that Boeing will be delivering 40% fewer jets than what was originally planned for this year.

Other airlines are also facing a critical shortage of planes, and this issue is not limited to just Boeing.

Cirium, an aviation analytics firm, reported that approximately 600 Airbus jets worldwide have been grounded for over a month due to engine problems from US aerospace manufacturer Pratt & Whitney.

That's causing trouble for Lufthansa, the German airline company that also has airlines in Austria and Switzerland. CEO Carsten Spohr mentioned to CNN on Wednesday that they have over 30 Airbus A320Neos that are currently not in use.

Ryanair CEO Michael O'Leary says issues with both Boeing and Airbus will constrain his airline's capacity this summer.

Ryanair CEO Michael O'Leary says issues with both Boeing and Airbus will constrain his airline's capacity this summer.

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Ryanair CEO: Plane shortages will lead to fare increase

“This industry … suffers from this lack of airplanes,” he added, noting that the shortage was affecting the company’s ability to grow.

The grounding of some planes and delayed deliveries of new aircraft will result in higher fares in the United States through 2024, according to Robert Mann, founder of R.W. Mann & Company, an airline industry consulting firm.

Mann referenced data from Airlines Reporting Corporation, which monitors ticket sales globally. The data showed that fares for US domestic flights booked in February for travel this year were 5%-6% higher than in the same month last year, surpassing overall inflation rates.

Airbus is still producing fewer aircraft than in 2019. The limited supply is causing airfares to remain high. This is because Boeing and Airbus dominate the commercial aircraft manufacturing industry, leaving airlines with little choice but to wait for their orders.

The global order backlog for commercial aircraft has reached over 15,700, as reported by the United Kingdom’s aerospace industry association, ADS.

In the past year, airlines worldwide ordered a record-breaking 3,850 commercial aircraft, marking a significant 91% increase from 2022, the highest number since ADS began publishing data in 2010. In contrast, aircraft manufacturers delivered 1,265 planes, a modest 11% rise from the previous year.

Boeing announced this week that it has reduced the production rate of its 737 Max jets due to a fuselage issue on a Max 9 aircraft that caused a hole during a flight in January.

Regulators have not yet approved the safety of Boeing's Max 10 for passengers, which is important for airlines like Ryanair. Ryanair made a deal worth $40 billion last year to potentially purchase up to 300 of these planes.

United Airlines is not waiting around for Max 10s. The US carrier has requested Boeing to build Max 9s instead and is considering filling the gaps with Airbus planes, as long as it is financially feasible. CEO Scott Kirby mentioned at a JPMorgan conference that they will consider a deal with Airbus if the economics make sense.

Production of Airbus A350 aircraft at the Airbus Atlantic plant in Bouguenais, near Nantes in western France, pictured on February 29, 2024.

Production of Airbus A350 aircraft at the Airbus Atlantic plant in Bouguenais, near Nantes in western France, pictured on February 29, 2024.

Switching planemakers is not as simple as it may seem. Aircraft orders are usually made years in advance and pilots are trained to operate specific types of planes. Airbus, for example, currently has a backlog of nearly 8,600 commercial aircraft orders and is fully booked until 2030.

The European planemaker Airbus is currently facing lower productivity due to lingering supply chain issues caused by the pandemic. CEO Guillame Faury mentioned at the “Europe 2024” conference in Berlin that the company is producing significantly fewer planes compared to 2019.

EasyJet CEO Johan Lundgren shared that the low-cost UK carrier is one of the few airlines in Europe receiving all its aircraft orders from Airbus on schedule this year. Lundgren also mentioned to CNN that the aviation industry is expected to face constraints for the next three years.

Airlines were already struggling to meet the soaring demand for air travel even before Boeing faced challenges that disrupted the industry. Many airlines had downsized their fleets and let go of employees in order to survive during the pandemic when air travel was greatly reduced due to Covid-19 lockdowns.

Airlines are currently facing challenges due to a surge in demand caused by Boeing’s crisis and supply chain issues. This situation is made more complex by a global increase in defense spending, with 40% of the supply chain serving both aerospace and defense companies, according to Craven at ADS.

The key question now, according to aviation consultant Richard Aboulafia, is how quickly Airbus can increase production to capture a larger share of the market, potentially surpassing two-thirds and beyond.

Passengers on a Boeing 737 Max 8 plane during a United Airlines flight departing from Newark Liberty International Airport in Newark, New Jersey, on March 13, 2024.

Passengers on a Boeing 737 Max 8 plane during a United Airlines flight departing from Newark Liberty International Airport in Newark, New Jersey, on March 13, 2024.

Bing Guan/Bloomberg/Getty Images

“This is an industry with only two suppliers, very high barriers to entry and (an) extremely strong comeback with a very tight labor market,” he told CNN.

Some 4.7 billion people are projected to travel by plane this year, which is a record number compared to the 4.5 billion passengers in 2019, as reported by the International Air Transport Association.

Aboulafia, managing director at AeroDynamic Advisory, mentioned that due to the high demand, there will be limited seating available on flights, resulting in an increase in ticket prices.

You may notice that the decrease in expensive ticket prices that we were expecting doesn't occur. Instead, you may observe a turnaround happening overall, with a focus on flights across the Atlantic.

Reporting by Chris Isidore, Richard Quest, and Maisie Linford.

Editor's P/S:

The article highlights the ripple effects of Boeing's production issues and supply chain constraints on the airline industry. The impact is far-reaching, leading to delays in aircraft deliveries, grounding of planes due to engine problems, and a shortage of planes overall. This crisis is exacerbating the challenges airlines already face in meeting the increasing demand for air travel, resulting in higher ticket prices and limited seating availability. The situation is further compounded by the global increase in defense spending, which affects the supply chain for aerospace companies.

As a result, airlines are forced to adapt and make difficult decisions. They must choose between waiting for Boeing's delayed deliveries, switching to Airbus planes (which also has a lengthy backlog), or canceling orders and downsizing their fleets. Ultimately, the crisis is putting a strain on the industry, as airlines struggle to balance the demand for travel with the limited supply of aircraft. The long-term implications of this situation remain to be seen, but it is clear that the aviation industry will face challenges for the foreseeable future. facing significant headwinds that will continue to affect travelers and the overall economy.