Remember this chart?

We call it the shark-tooth chart - the bite taken out of narrowbody production rates since 2019.

It’s also the chart from which we started talking about the expectation of a narrowbody shortage in mid-2021, over three years ago.

The premise was (and is) simple. Over 3,000 aircraft that were once expected to be built would not be. Still in the throws of COVID, the expectation was that we would not have sufficient aircraft to fly the recovery. In 2021, it seemed preposterous. By mid-2022, it was apparent. By the start of 2023, it was common knowledge.

Things move quickly in this industry.

Amid the summer 2023 shortage, we communicated a seemingly contradictory term to our clients - “oversupply.”

We were watching the U.S. market and the rate at which capacity was being added into the market. It was too fast. And yet, we were still in a narrowbody shortage. Why? Because, even though the U.S. was taking the bulk of deliveries from constrained production lines, the rest of the world was still behind. We did not have enough narrowbodies and were not building enough.

By January 2024, we published a long-term aircraft market forecast that warned of the industry shifting from under- to over-supply. Our expectation was the back half of this decade. Things are ahead of schedule, though not here yet.

We watch the individual markets closely. In 2023, the U.S. was nearing capacity, while Europe and Asia were still well behind. Fast-forward to August 2024, and a newsletter titled “Did Europe’s leisure recovery run out of steam?” You may remember—it arrived in your inbox just last week.

Our research clients received a head start in April as we saw early challenges to Ryanair and the leisure European market.

Ryanair’s fares were quite soft, and capacity in Europe rapidly approached the new limit. And yet we still have a shortage of narrowbodies.

How is this possible? A shortage and an oversupply?

The details matter. Even though some like to think in terms of a monolithic shortage or oversupply, in reality, various regions will make the switch at different rates. The global aviation market is not one big market - rather a group of markets all subject to unique factors.

Take Latin America, for instance. Latin America kept growing through COVID. Capacity was available during the recovery, and it was deployed. The oversupply arrived very quickly with a wave of bankruptcies so close to COVID that many missed the cross-over.

The U.S. domestic markets crossed in Q3 2023. Europe appears to have crossed in Q2 2024. Southeast Asia has room. East Asia has a LOT of room.

We’re still short narrowbodies, but now is the time when a detailed understanding of how the various markets will shift out of a shortage is most valuable. Again, the narrowbody shortage is often considered a global monolith, yet narrowbody markets are distinctly different. Brazil is very different from Norway. The U.S. is very different from China.

Another factor that was not appropriately considered is the shark-tooth chart itself. While it has been one of our most requested charts by newspapers and clients alike, it only shows the shortfall in production. That is not the same as the shortage of aircraft.

Why? For precisely the reasons we outlined in our latest research, airlines will adapt. How are they adapting? By delaying retirements, extending leases, and finding other forms of capacity (translation: expensive capacity).

This newsletter arrives in your inbox free each week, but we earn a living by publishing detailed market intelligence for our clients through Visual Approach Research. In short, you hear about a shortage. Our clients hear the details of how the markets are shifting, where the opportunities are, and how quickly the markets may shift.

Many variables affect the overall market - geography, MRO capacity, GTF inspections, pilot shortages, slowing economies, and China doing… whatever it is that China does.

The confluence of the narrowbody shortage and oversupply is not a contradiction. It’s a complex, nuanced market comprising a group of individually complex, nuanced markets. Details matter.

We don’t sell our services often in this newsletter, mostly because it isn’t a marketing newsletter. If you appreciate the macro-level view of the market, replete with the idea that the market can simultaneously straddle a shortage and overcapacity, enjoy our free weekly analysis.

However, if your organization benefits from detailed nuances of the various markets and understanding how supply and demand relationships are changing across aircraft types, geographies, and business segments, consider Visual Approach Research.

Regardless, get ready for the shift from shortage to overcapacity in the coming years. Not all segments will make the shift at the same time. Geographies will continue to cross at different times. Production rates will continue to flux. Supply and demand will continue to move independently.

We’ll be watching it all.

Quiz - Which airline is this?

Hvaða flugfélag er þetta?

Don’t bother with Google Translate; the answer is right here.

Our research published this week

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