This article first appeared in The Edge Malaysia Weekly on December 30, 2024 - January 12, 2025

A door panel fell off a jet following take-off. A toilet door came off mid-flight. One passenger died and many others were injured after a flight hit severe turbulence. A cybersecurity outage led to thousands of cancelled flights and stranded passengers around the world. A brand-new Airbus A330neo was grounded just three days after its inaugural flight.

These were just some of the more significant incidents to have hit the aviation sector in 2024.

In the most recent major incident, an airline briefly grounded its flights nationwide just as the year-end travel season kicked off because of a technical problem.

It was largely a year filled with frustrations and disappointments for the global air travel industry as passengers found themselves stranded after their flight was delayed, cancelled or diverted. While natural hazards such as strong winds, typhoons and heatwaves were partly to blame for the recent post-pandemic surge in flight disruptions, the bulk was caused by technical problems.

At the beginning of the year, airlines appeared to be finally recovering from being one of the worst hit by Covid-19. Many airlines including Malaysia’s flag carrier Malaysia Airlines Bhd were looking to generate profit for the second consecutive year against a backdrop of still-tight capacity and sustained demand for air travel.

Global passenger volume was set to exceed pre-pandemic levels in 2024, with the International Air Transport Association (IATA), representing some 340 airlines that carry 80% of the world’s air traffic, raising the industry’s 2024 profit outlook to US$31.5 billion (RM140.78 billion) compared with its earlier forecast of US$25.7 billion.

However, operational challenges due to aircraft delivery delays, extra maintenance and a shortage of labour have frustrated airlines, which are now spending more on cancelled flights, refunds and passenger accommodations.

Still, the issues were foreseen 1½ years ago. In June 2023, IATA director general Willie Walsh had warned that air travel will be affected by “very frustrating” supply chain issues.

And he had said shortages will be particularly noticeable when it comes to engine parts, which could then delay the delivery of new aircraft from manufacturers like Boeing and Airbus.

On the home front, the year saw Malaysia Airlines reducing capacity by 18% to address the shortage of planes, spare parts and workforce arising from supply chain issues. The national carrier has received just five of 13 Boeing 737-8s that were scheduled to arrive this year. On Dec 19, it received the first of its 20 A330neo aircraft, only to temporarily ground it after multiple technical defects were detected. The airline was initially scheduled to receive four A330neos this year.

Airlines have been left red-faced each time a flight is delayed or cancelled, and the damage done to their reputation is difficult to quantify.

Alas, aviation experts say that supply chain troubles will remain the biggest headwind in 2025.

According to Subhas Menon, director general of the Association of Asia Pacific Airlines (AAPA), the current supply chain problems are the worst in history.

“I have been in the industry for 40 years; I have not seen a situation like this before where all aspects of the aviation supply chain are affected so drastically and there doesn’t seem to be any clear-cut solution coming from the manufacturers,” he tells The Edge.

“The challenges [facing the airline industry] are quite daunting. The supply chain problems have affected the ability of the airlines to be able to put on the necessary number of flights to meet demand.

“It is important for the manufacturers to find ways of getting over the supply chain problems because it just means the needs of the travelling public are not being addressed,” says Subhas.

He is of the view that the exceptional growth seen in 2023 and 2024 is unlikely to continue into 2025. “As Asia-Pacific air passenger traffic restores to pre-pandemic levels, growth is unlikely to surge by 30% to 40% as seen in 2024. My prediction is that growth would be about 10% in 2025 as demand normalises and with capacity constraints caused by ongoing supply chain disruptions.”

Alan Lim, director of aviation advisory firm Alton Aviation Consultancy, concurs, noting that supply chain issues have been a constant bugbear in the aviation industry over the past 24 months, especially given the rapid post-pandemic recovery of air traffic demand.

“These have caused significant challenges across the entire aviation value chain — from manufacturers not being able to keep up with deliveries [and] maintenance, repair and overhaul (MRO) providers having much longer turnaround times for maintenance to airlines having to delay their post-pandemic growth plans due to a shortage of aircraft, pilots and ground crew,” he tells The Edge.

“In 2025, we will see a moderation of some of the growth we saw in 2024, partly due to moderating economic growth going into a period of economic and geopolitical uncertainty, but also due to constrained capacity growth owing to engine and supply chain issues,” he says.

Given that global traffic has returned to pre-pandemic levels, albeit to different extents across regions, his view is that it will continue its long-term growth trend of 4% per year globally from 2024 to 2034, off the back of a 2.7% per year gross domestic product growth.

Lim sees Asia-Pacific continuing to be the largest market for air travel demand, growing at 5.1% per year in the same period, with China and India driving this growth.

Despite supply chain challenges holding airlines back to some extent, their profitability will still be strong this year, although the days of bumper profits and massive year-end employee bonuses are over, say aviation experts.

In a Dec 10 statement, IATA expects severe supply chain issues to continue to impact airline performance into 2025, raising costs and limiting growth. Still, the airline trade association is expecting the global airline industry to reap a net profit of US$36.6 billion next year.

IATA’s Walsh points out that the buffer between profit and loss is US$7 per passenger in 2025. “With margins that thin, airlines must continue to watch every cost and insist on similar efficiency across the supply chain — especially from our monopoly infrastructure suppliers who all too often let us down on performance and efficiency,” he says.

IATA data shows that the average age of the global fleet has risen to a record 14.8 years, a significant increase from the 13.6 years average for the period of 1990 to 2024.

At the same time, aircraft deliveries have fallen sharply from the peak of 1,813 aircraft in 2018. The estimate for 2024 deliveries is 1,254 aircraft, a 30% shortfall on what was predicted going into the year. In 2025, deliveries are forecast to rise to 1,802, well below earlier expectations for 2,293 deliveries with further downward revisions in 2025 widely seen as quite possible.

IATA also points out that the backlog for new aircraft has reached a record high of 17,000 planes. “At present delivery rates, this would take 14 years to fulfil, double the six-year average backlog for the 2013-2019 period. However, the waiting time is expected to shorten as delivery rates increase.”

The mismatch between the post-Covid-19 demand for flights and the aircraft supply pipeline is bad news for travellers as well.

Demand is going to be above the industry’s ability to supply. This could also mean that airfares and cargo rates will not come down as fast as they should, according to AAPA’s Subhas.

“While [passenger] yields will continue to be high, airlines’ bottom lines can still be affected because of [higher] costs as they are forced to operate older aircraft and older engines, which require more maintenance and break down more frequently. For the time being, the yield decline is not happening as fast as it should have been,” he says.

Alton’s Lim expects airlines to see yields normalising from the post-pandemic highs. “While this will not yet fall all the way to 2019 levels, we will nevertheless see downward pressure on top-line revenue with increased capacity in the market and receding leisure demand that is not fully offset by a rebound in business travel demand.”

While revenues moderate, Lim says cost inflation — particularly from labour and maintenance costs — will continue to be key issue areas for airlines and the rest of the aviation value chain as supply chain issues remain unresolved.

Geopolitical unrest may also cause a spike in oil prices, putting further strain on airlines’ bottom lines, he adds.

“With Boeing only beginning to restart production following a [seven-week-long] strike and a US$21 billion capital raise, we will likely see further delays to airlines’ 2024/25 fleet plans, constraining their ability to expand and grow.

“Engine issues with Pratt & Whitney and CFM International that have kept more than 600 aircraft grounded were projected to ease through 2025, though persistent labour and material shortages could lengthen the duration in which these aircraft remain grounded, which will further constrain airlines’ capacity plans,” Lim says.

Amid ongoing supply chain disruptions, the aviation sector is also under increased pressure from new regulations imposed by governments.

“Government regulations can also weigh down heavily on airlines. If governments do not take the trouble to understand what is happening in the industry and come up with knee-jerk regulations, it increases costs for airlines and adds to operational complexities. We have to talk to governments more frequently to make them understand why their regulations should take into consideration what is really happening in the industry,” says AAPA’s Subhas.

He cites, as an example, the Malaysian government’s response to the slew of recent flight disruptions by coming up with a mandate requiring airlines to offer mandatory full refunds to passengers of flights delayed for at least five hours or more.

“They are holding airlines fully responsible for all delays and cancellations. What can the airline do if they are not getting the supply of parts and components that go into the operations? This becomes very onerous on the airlines. As it is, they are already looking after their passengers when there is a delay and cancellation by providing them hotel accommodation and rebooking their flights. Then there is the European Union (EU) Regulation 261/2004 that is being adopted by various governments,” says Subhas. The EU 261 outlines what an airline must provide passengers in the event of a qualifying flight delay or cancellation of certain flights headed to or from the EU.

Nevertheless, Alton’s Lim sees the light at the end of the tunnel for the aviation industry as firms within the aviation supply chain, for one, have turned to rehiring some of their retired workforce or turning to contractors to help supplement their workforce to resolve the supply chain and production issues.

“The next few years will hopefully see some of these efforts coming into fruition, including talent retention and hiring.

“These initiatives can help to temporarily plug the short-term gaps in workforce needs, but as these issues are mostly structural and require catching up on the backlog, they will likely only be resolved in the medium to long term,” he adds.

Still, even if production rates can be ramped up to pre-pandemic levels, Lim believes it will take some time to catch up on the current backlog. In other words, recovery of the supply chain is not likely to happen quickly. 

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