Ground Support Equipment
Date May 2019
- A total of 4.3 billion passengers were carried by air transport on scheduled services in 2018; a 6.1% increase over 2017
- Global airline industry profit is projected to be positive for 2019; however, it was recently downgraded by the International Air Transport Association due to ongoing trade tensions
- The overall U.S. market for new and used ground support equipment remains strong
Ground support equipment key drivers: Key drivers of this industry are directly tied to the growth and performance of the airline industry and the factors affecting the airline industry both domestically and internationally. When the health of the airline industry is good, the ground support industry typically benefits from an increase in new and used equipment sales. Corresponding demand for certain types and ages of equipment utilized more heavily may vary by country or region.
Global airline industry outlook remains profitable: In mid-May 2019, Alexandre de Juniac, director general of global airlines trade association, International Air Transport Association (IATA), cautioned of lower industry forecasts for 2019, driven by increasing trade tensions and rising costs. In December, the IATA lowered its 2019 global airline industry profit forecast to $35.5 billion from $38 billion. Despite the downgrade, the updated forecast still represents an increase of almost 10 percent over 2018 profits. It should be noted, however, that de Juniac recently suggested that the industry group would potentially lower its forecast again when it meets in Seoul for its annual general meeting in June. He noted that “the figures will be in the black but will be more difficult.” Trade tensions are already hurting cargo demand, and passenger demand is sure to be affected as a result.
Passenger numbers increasing moderately: Based on IATA data, annual growth in industry-wide revenue passenger kilometers (RPK) fell to 3.1 percent in March 2019, following a 5.1 percent increase in February. Despite the positive growth, the trends were the weakest annual growth outcome since early 2010 and well below the five-year average growth rate of 7.0 percent. March results were impacted by the earlier timing of the 2018 Easter holiday period, which had increased demand in March of 2018; nevertheless, the upward trend continues. Notwithstanding the monthly volatility, in seasonally adjusted terms the solid upward trend in passenger volumes remains. The underlying growth rate has been relatively steady at a 4.1 percent annualized pace since October 2018—a solid outcome, but a clear slowing from the very strong 8.6 percent pace of the same period a year ago. Preliminary figures released by the International Civil Aviation Organization (ICAO) showed a total of 4.3 billion passengers were carried by air transport on scheduled services in 2018, representing a 6.1 percent increase over 2017.
In terms of domestic scheduled passenger services, overall markets grew by 7.3 percent in 2018, slightly up from 7.1 percent in 2017. This upward trend was driven by increasing domestic air travel demand in North America, which accounted for 40 percent of the world domestic RPK. The region demonstrated an increase in growth from 3.7 percent in 2017 to 5.4 percent in 2018. In addition, Asia/Pacific, the world’s largest domestic market with 42 percent of traffic share, grew by over 10 percent, propelled by strong demand in India and China owing to their increasing gross domestic product per capita and growing domestic air connectivity.
Cargo volumes increasing: After the sharp increase in air freight growth during the inventory restocking in 2017, air cargo traffic growth moderated in 2018 as reported by the ICAO. This coincided with the softening demand drivers impacted by trade tensions and declining import and export orders.
Looking ahead, the IATA reports air cargo volumes remain soft in 2019. Industry-wide freight tonne kilometers (FTK) for March 2019 were slightly higher (up 0.1 percent) over last year. Although this represents a sharp turnaround from February, it would be premature to view this outcome as a change in the recent trend, especially given the typical data volatility in the early months of the year. Air freight capacity continues to grow moderately, at approximately 3.0 percent year-over-year, which means that the freight load factor is currently 1.5 percentage points lower than a year ago. All regions showed an improvement in year-over-year growth for March, with Asia Pacific the only region where FTKs were lower than their level of March 2018. Weakness in global trade as well as a number of economic and leading industry indicators continue to weigh upon the sector. That said, the industry is more optimistic over the year-ahead outlook than current conditions indicate, according to the latest findings from IATA’s Business Confidence Survey.
Aircraft ground handling system outlook: The head of ground operations for the IATA recently noted “strong passenger and cargo growth are forecast to continue” in 2019, based upon the industry’s focus on “identifying new efficiencies in other areas, such as ground operations.”
Factors driving the aircraft ground handling system market are those that help avoid delays caused by aircraft, baggage safety, and security, along with reduced ground time for ensuring operational efficiency. Rising air traffic across the globe has led to increase in flight iterations, which has resulted in demand for efficient and effective customer services. Between 2017 and 2036, the number of airline passengers is expected to grow at 5 percent. Considering present trends, passenger numbers could double to 8.2 billion by 2036. Such an increase in air traffic is anticipated to increase the demand for improved capacity of ground handling staff and services, thereby enhancing the forecasts of ground support equipment suppliers and vendors.
Secondary market for ground support equipment remains healthy: Despite increased activity, the overall U.S. market for new and used ground support equipment remains strong. Growth is projected due to airport expansions and increased passenger traffic. Continued profits and growth within commercial aviation for healthy domestic and international airlines and within the private sector have led to a continued demand for both new and used ground support equipment. Currently, larger airline companies continue to purchase new equipment, while smaller-scale aviation companies purchase a mix of new and used equipment or equipment refurbished from equipment re-builders.
Research indicates that market saturation of used equipment has started to occur from public auctions, recent bankruptcies, and the cessation of business of struggling unhealthy companies but this has not yet affected used pricing. In fact, the continuous increase in end-user activity in attending online auctions or purchasing equipment from the secondary marketplace has prevented the decline in used equipment value. Furthermore, original equipment manufacturers of ground support equipment still have long lead times, and demand for new equipment remains healthy. Therefore these market factors have not yet negatively impacted the value of used equipment, with demand for used still outweighing supply of the available used equipment in North America. In general, equipment 10 years old and under is most desirable, attracting large buyer pools with good resale values. These later-model assets offer buyers an opportunity to purchase more fuel-efficient equipment equipped with modern technology at a discounted price. Equipment in excess of 10 years old will attract some smaller capacity U.S. buyers, along with buyers from Mexico, Asia, and other developing nations that have capacity to utilize this type of equipment or to replace equipment that is decades old.