IBA, has published its outlook for 2025, alongside reflections on 2024, sharing the critical trends that it forecasts will shape the global aviation landscape in the year ahead.
IBA expects that the aviation industry will face a balancing act in 2025 as it navigates a complex global landscape shaped by modest economic growth, easing production bottlenecks, and rising operational costs. Global GDP is projected to grow at 3-3.2%, with advanced economies at 1.8% and emerging markets like India and China leading at 6.5% and 4.5%, respectively. According to IBA’s aviation intelligence platform, IBA Insight, capacity is forecast by IBA to expand by 5% (ASKs), with Asia-Pacific driving growth and North America and Europe set to experience more modest increases.
The trading and leasing market will continue to grapple with constrained aircraft supply due to ongoing production challenges. Lease extensions will dominate, and Lease Rates, while elevated, are set to stabilize. Widebody aircraft like the 777-300ER and A330ceo are poised for further Lease Rate increases due to new aircraft delays and as long-haul and intra-Asia markets recover. Investor confidence is likely to drive lesser M&A activity and portfolio diversification.
Success in 2025 will depend on operational resilience, effective fleet management, and the ability to adapt to evolving market dynamics, ensuring stability in a year marked by economic and industry-specific uncertainties.
1. The Macro Outlook Dr. Stuart Hatcher - Chief Economist & Exec. AdvisorISTAT-Certified Senior Appraiser 2024 wrap-up. From the outset, 2024 was always going to be a pivotal year in terms of politics, but for aviation, it ultimately proved a year that highlighted the fragility of established players and the resilience of market forces over traditional economics.
As expected, the Fed (in addition to other central banks) started to reduce interest rates as inflation eased back, and as we write this, a further cut is expected in December to take the total to 100bp for the year. Good news! However, as inflation volatility persists from month to month, investment banks expect further cuts to be no greater than 25bp per quarter. The big unknown is what the inflationary effect will be as a result of Trump’s actions once he takes office in January. As expected, with interest rate cuts, the strength of the dollar eased back ~5%, too. That is until the EUR and GBP slipped, and the market prepped for the election.
Politically, 2024 was classed the Supercycle year, with approximately half of the world’s population going to the polls. Unsurprisingly, the unsettled political and economic landscape triggered lots of change in both directions, which played out very differently depending on the electoral system: Control ‘vs.’ Popular vote. The continued emphasis on nationalism across the political spectrum does highlight the tone we expect for the remaining half of the decade.
Finally, on the economic front, oil and jet fuel pricing made fewer headlines in 2024 than in previous years despite global tensions growing between Israel and Iran as opposing supply forces played out. On the one hand, OPEC+ was trying to pull supply in light of falling OECD and Chinese demand, whilst non-OPEC+ was increasing supply to balance supply security concerns. Coupled with increased refinery capacity, a relatively stable oil price has enabled JetA1 to get back down to $2/USG and hold from early September. Certainly, it is a good countermeasure to labor cost hikes.
On the aviation front, there was plenty of drama, underlined by the Alaska Airlines MAX 9 door incident only five days into the new year. From that point on, the supply chain was in trouble as Boeing was prevented from ramping up production. Coupled with the strike action in autumn, production declined markedly from 2023. As expected, with all this going on, the 777X was pushed out to 2026. With demand continuing to rise (despite consumer spending headwinds) and an underperforming supply chain, availability declined rapidly, and Values and Lease Rates bounced back. Consequently, orders suffered, retirements fell short, and available spares and MRO slots remained tight.
Similarly, trading volume was in jeopardy if there was no movement at the start or end of the life cycle. However, extension trends continued, sale-leasebacks and sales with leases maintained a steady flow of deals to feed the investor community, and ABS transactions returned.
2025 – A balancing act looking forward, providing inflation remains largely in check, we are not expecting more than a single 25bp rate cut per quarter. However, how confident can we be about inflation? A difficult one as there will be several aspects at play. Trump wants lower taxes, a weaker dollar to boost exports, and tariffs against imports – all of which can trigger inflation. With the oil price, he wants to dramatically increase production to halve energy costs. Traditionally, cheaper oil would mean a stronger dollar, but since the relationship switched in 2020, they have tended to move on a similar path (excluding the currency hike since October 24).
It’s going to be a tough balancing act as the drive for consumers to strengthen the economy will remain at the center whether they like it or not. Pull any of the levers too far, and further global instability will result. For now, we have GDP growth remaining largely flat for 2025 at ~3.0-3.2 % globally. The advanced economies are holding at ~1.8% and emerging at ~4.2%, with India and China up at 6.5% and 4.5%, respectively.
The cargo market will be eyeing this all very carefully after a steady 2-year upward trend and 15 consecutive months of growth.
Consequently, as GDP remains positive, we also expect traffic growth to continue (which Dan will cover below). Similarly, as highlighted above, we expect cost escalation will continue too. That typically leads to an increase in airline failure rates, something that has been steadily rising with rising costs/falling yields.
Aligning with other economic factors mentioned above, the trading market will remain hampered by OEM output but sustained by the need for airlines to raise capital on their existing fleet. Likewise, investors and lessors will be keen to explore opportunities as capital remains abundant.
Similarly, oil remaining in check will endeavor to sustain the lives of aging aircraft and ease a part of the manufacturing cost. With only a marginally increased flow coming in from the OEMs, though, pricing for some types in high demand will remain high. The key factor will be for Boeing to rebuild its reputation and satisfy the FAA if it hopes to remain competitive with Airbus. This must find a satisfactory conclusion as soon as possible. Otherwise, those sitting on the fence will make alternative arrangements.
Orders for 2024 were lower for many reasons, but Boeing’s inability to deliver was certainly high on the list. In our market outlook, we make assumptions that this will happen in 2025. As for reaching 2018 levels, that won’t happen until 2026.
2. The Airline Outlook Dan Taylor – Head of Consulting Capacity continues to grow despite continuing production challenges. In 2024, airlines increased overall capacity (Available Seat Kilometers - ASK) by 9%, on a 2% rise in fleet size, surpassing pre-pandemic levels. The Asia-Pacific region experienced the highest growth, driven by both domestic and international routes, although key markets such as China to North America and Europe showed slower recovery. Despite pockets of geopolitical and economic challenges, capacity expanded across most markets.
This growth was primarily achieved through new aircraft deliveries, including the shift to larger models, such as replacing A319s with A320neos. However, the primary driver has increased aircraft utilization and the reactivation of stored fleets. Remarkably, narrowbody aircraft utilization exceeded 2019 levels despite ongoing challenges with GTF engines and production quality. Airlines are optimizing schedules and networks to maximize efficiency.
Looking ahead, capacity is expected to grow at a slower pace in 2025. Aircraft deliveries will start to accelerate as production bottlenecks near resolution and certifications are secured, but not yet to the pre-crisis levels. Aircraft retirements are anticipated to return to normal levels, stabilizing utilization rates. ASK growth is forecasted at approximately 5%, lower than pre-pandemic averages, with Asia-Pacific dominating expansion while North America and Europe see modest increases.
Figure 1 - Aircraft utilization by class for 2019 to 2024
Source: IBA Insight Demand dynamics: Has the bubble burst? Demand in North America and Europe remained robust in 2024, particularly in the leisure and "visiting friends and family" segments. The premium segment on transatlantic routes also performed exceptionally well, contributing to increased unit revenues. Contrary to expectations, the post-pandemic travel demand has not subsided.
As capacity catches up or exceeds demand, yields are expected to face pressure, with airlines likely to reduce fares to maintain load factors. This competitive environment is driving innovation, with Low-Cost Carriers enhancing service levels — Southwest introduced assigned seating and premium legroom options, while JetBlue expanded its Mint product. Conversely, full-service carriers are adopting basic fare models to remain competitive. In 2025, unit revenues are projected to decline across most markets, favoring airlines that can capture premium and ancillary revenue streams.
Figure 2 - Airline unit revenue indexed to 2022
Source: IBA Insight Profitability set to cool While 2024 began with optimism for improved profitability, regional variations have emerged. Europe faced risks from economic slowdowns, while North America remained strong, and Asia-Pacific continued its recovery trajectory.
In the year, we have seen fuel costs stabilize, benefiting airlines with effective hedging strategies. Demand growth and limited capacity contributed to strong profitability, as reflected in recent financial results. The utilization of existing fleets has kept unit costs competitive. However, delayed aircraft deliveries and prolonged operation of older fleets have presented challenges. Labor costs, influenced by recent settlements and a tight job market, alongside high interest and exchange rates, remained significant headwinds.
Figure 3 - EBIT margin by region for 2024 and 2025
Source: IBA Insight Regional performance highlightsAPAC – Full-Service
- Profit growth is slowing but remains positive
- Strong pent-up demand for international travel
- The region leads global growth, although China's market is predominantly domestic-focused
Europe – Low-Cost
- Margins are improving as international demand strengthens
- Labour disputes are easing, with costs stabilizing
- Gaining market share from full-service carriers
Europe – Full-Service
- Margins are under pressure, with short-haul market share eroding
- The premium sector remains resilient
- Labour costs are rising, contributing to operational challenges
North America – Low-Cost
- EBIT margins are declining, with multiple airline failures reported
- Inflation continues to impact Cost Per Available Seat Kilometer (CASK)
- Operational diversification efforts are proving difficult
North America – Full-Service
- Margins show slight improvement, supported by a strong premium sector
- Inflation impacts CASK, and debt loads remain elevated
2025: What lies ahead? The overall performance in 2025 is expected to resemble 2024, with significant variation across segments. North American Low-Cost Carriers are particularly vulnerable, while full-service operators in Europe and North America may have already peaked. Asia-Pacific airlines could face yield pressure, potentially impacting results.
The industry's ability to pass rising costs onto consumers will be a critical factor. If economic conditions deteriorate or customers resist fare increases, airlines may need to revisit cost-cutting and operational adjustments. With fuel stable at current levels and capacity growth limited, profitability should continue. Individual carrier performance will be key, as broader trends mask specific challenges and opportunities within specific sectors.
3. The Trading Outlook Mike Yeomans - Director – Advisory & Consulting
ISTAT-certified Senior Appraiser The lease extension trend will continue in 2025. Lease Rates remain elevated but are reaching cruise altitude. It is predicted that airlines will continue to extend leases for their existing fleets in 2024. This trend was exacerbated by the unforeseen 737 MAX 9 door plug accident and the union strike at Boeing, leading to further disruptions to the supply of new narrowbody aircraft. Production and delivery rates of the MAX have fallen due to the strikes and increased FAA scrutiny, so output will take time to recover in 2025.
Airbus, too, continues to face challenges in production ramp-up, not least due to the increased requirement for Pratt & Whitney GTF shop visits and spares resulting from the powder metal contamination issues. With continued aircraft on the ground and challenging turnaround times for shop visits, airlines will continue to extend leases to maintain capacity in 2025.
IBA’s extensive managed aircraft portfolio, data inflows, and network give us access to a wealth of lease transaction data. Observed transactions indicate that while Lease Rates have climbed on the back of this trend, they are nearing a peak, and any growth in rates will be moderate in 2025 compared to what we saw in 2024.
Rate cuts stimulate rising lessor trades. More aircraft lessor M&A on the near horizonAs we entered 2024, IBA forecasted an easing of interest rates and an increase in lessor trading activity. The strong recovery in Lease Rates, stable airline industry credit outlook, and the materialization of the improving interest rate environment have seen this trend come to fruition.
As some of the recent movers in the M&A market look to rationalize their portfolios and focus on returns, opportunities are created for new entrants and growth in smaller lessors through portfolio acquisitions.
Close to US$ 12 billion of on-lease assets are expected to have traded by the end of 2024, according to IBA’s analysis. We expect this number to rise in 2025.
2025 will see an evolving lessor landscape, with several investors looking to crystalize the value of their equity in this strong market. IBA has been supporting new investors to the space, who have been instilled with confidence by the resilience and recovery of the asset class post-COVID, and several lessor platform sales are being negotiated across multiple market segments. Likewise, some existing investors have been looking to expand and diversify their portfolios.
It will be a close call whether some deals are finalized before the end of the year, so 2025 could be a much bigger year for aircraft lessor M&A than 2024.
Aircraft availability will increase in 2025, but demand will still outstrip supply. The 2025 forecast is consistent with our outlook for 2024 in that an undersupply of aircraft will be observed throughout the coming year.
This forecast is underpinned by the ongoing OEM production issues and availability of MRO capacity, neither of which will be fully resolved next year.
Whilst the new aircraft supply remains somewhat predictable and unlikely to see much upside risk to forecast monthly delivery rates, airlines in more challenging markets have been deferring their positions, creating availability in the system. This has been the case in the US and may permeate Europe in 2025 as yields come under further pressure. This will open up further opportunities for airlines to take delivery of new equipment nearer the skyline.
In the secondary market, the increasing cost headwinds and impacts of a protracted period of inflation will drive aircraft out of some operators. However, with IBA’s forecast of a resilient demand environment and the constrained new aircraft supply, IBA forecasts that Market Values of mid-life aircraft will remain buoyant but will not grow materially against Base Values.
More room for growth in widebody Lease Rates with delayed recovery in key markets In 2024, IBA predicted that widebody aircraft values would double from their lows during the pandemic, and they did.
Asia Pacific is a key market for previous generation widebodies, not only due to the large operator fleets in the region but also due to the large operators that connect Europe and Asia through their Middle Eastern hubs. This has become an increasing trend due to the inability to overfly Russia for European carriers and changes in trading patterns across the Pacific.
The capacity flow from Asia to the Middle East has overtaken North America since 2019 and shows 8% growth, while APAC to North America is 18% down on pre-pandemic levels.
Asia to Europe is -11% below pre-pandemic, but intra-Asian international capacity is also down in 2019 by 10%. IBA sees this as an opportunity for further recovery, which will drive more demand for widebody aircraft.
The A330ceo, a key asset for the intra-Asian market, saw Market Lease Rates rise to around US$ 350,000 in 2024 for a typical 12-year-old example. Data provided by the IBA Insight platform sees headroom for further growth in Market Lease Rates of this asset in 2025. Some shorter-term extensions have already been seen in the US$ 360,000 to US$ 380,000 range.
Further delays to the Boeing 777X entry into service in 2024 have encouraged operators of the Boeing 777-300ER to retain their existing fleets, and Lease Rates observed in these extensions have continued to creep up throughout the year. APAC and Middle Eastern operators account for two-thirds of the market for this aircraft. With a continued recovery in the long-haul international markets out of Asia, demand for the 777-300ER will likely see further growth in Lease Rates. IBA’s Market Lease Rate is currently in the mid-US$ 400,000 range. Higher rates are forecast for the coming year, with some deals expected north of US$ 500,000 per month.
In conclusion, in 2025, the aviation industry will navigate a complex economic landscape with global GDP projected to grow modestly at 3-3.2%, bolstered by emerging markets like India and China. Capacity expansion is expected at a slower pace of 5% (ASK), driven by easing production bottlenecks and normalized aircraft retirements, with Asia-Pacific leading growth. However, yield pressures will challenge airlines as capacity catches up with demand, forcing fare reductions and innovative approaches to revenue streams. While fuel prices remain stable, rising labor and operational costs will test profitability, particularly for Low-Cost Carriers in North America, whereas premium segments in Europe and Asia-Pacific are better positioned.
The trading and leasing market will remain constrained by limited new aircraft production, with lease extensions dominating. Elevated Lease Rates will stabilize, but demand will outstrip supply, particularly for widebody aircraft like the Boeing 777-300ER and A330ceo, where Lease Rates are expected to rise further. Investor confidence will drive increased M&A activity among lessors, creating opportunities for portfolio diversification. Despite these challenges, operational resilience, strategic fleet management, and adapting to evolving market dynamics will define the industry’s success in 2025.
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