Airline executives are taking advantage of current interest rate levels and low fuel prices to reduce ticket prices, invest in technology and increase their fleet utilization
NEW YORK--(BUSINESS WIRE)--Aerospace executives are optimistic about the short-term prospects of their industry, but looming interest rate hikes and fuel price volatility are compelling them to act, according to an exclusive online study released by CIT Aerospace, a global leader in aircraft finance, a division of CIT Group Inc. (NYSE:CIT), a leading provider of commercial lending and leasing services. The study, “2015 Aerospace Outlook” (www.cit.com/aerospaceoutlook), was conducted by Harris Poll among 100 airline fleet and finance executives.
“Airline executives are taking advantage of current interest rate levels and low fuel prices to reduce ticket prices, invest in technology and increase their fleet utilization,” said Jeff Knittel, President of CIT Transportation & International Finance. “However, they realize that the market is changing and many are preparing for future challenges around fuel price volatility, increased competition and rising interest rates. In fact, 63% believe higher interest rates will change their company’s views on purchasing new aircraft and 65% indicate that these higher rates will cause them to increase the lease content of their fleet.”
KEY FINDINGS FROM THE STUDY:
Preparing for Rising Interest Rates:
- Eighty-one percent of executives agree that interest rates will rise by more than 1% in the next two years.
- More than three-quarters (76%) expect to pay more for financed aircraft as interest rates rise.
Fuel Price Volatility on the Horizon:
- Sixty-three percent of executives believe that fuel price volatility will have a positive impact or no impact on their plans to acquire new technology aircraft.
- Half of executives believe that fuel prices will increase in the next 18 months, and four out of five expect them to increase within the next three years.
- Despite the expectation for fuel price increases in the future, the top three actions taken by executives to benefit from the current fuel price levels are: hedging at current fuel prices, reducing ticket prices and increasing utilization of their current fleet.
Aircraft and Cabin Innovations Highly Anticipated:
- More than four in five (86%)* believe that airframers will launch replacement programs for the popular single aisle market, which will enter into service before 2030.
- Nearly eight in ten (79%)* agree that used aircraft in the 130-seat category will be in high demand in the next 10 years due to the current lack of new units in the same seat category entering the market.
- Seventy-three percent of executives believe that technology/innovation in aircraft will have the biggest positive impact on their company in the next five years.
- Three-quarters of executives (75%) report that their company already provides, or plans to provide in the next five years, internet connectivity to passengers on narrow body and wide body aircraft.
Fleet Leasing Expected To Remain High:
- Over the next two years, executives say their businesses plan to increase in-flight sales (60%), the number of routes (58%) and the number of flights (55%).
- More than half (54%) expect to increase the number of aircraft over the next two years.
- In five years, executives expect to lease a higher percentage of narrow body aircraft (on average 52%) than wide body (on average 33%).
- Executives indicated that lease terms (62%), a lessor’s responsiveness to their requests (53%) and efficiency of the lease negotiations process (48%) were the most important areas when leasing aircraft.
- A significant majority of executives (65%) believe that their companies will increase the percentage of leased aircraft in their fleet due to rising interest rates.
About the Study
The study was commissioned by CIT and conducted online by Harris Poll from February to May 2015 among 100 commercial airline fleet and finance executives. Among respondents, principle area of their airlines’ operation was Europe (38%), North America (38%), Asia/Pacific (13%), South America (5%), Africa (3%) and the Middle East (3%).
*Note that select questions were asked among a reduced base of respondents, resulting in a small sample size.
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About CIT Aerospace
As one of the world’s leading aircraft leasing organizations, CIT Aerospace provides leasing and financing packages, including operating leases and structuring and advisory services, for commercial airlines worldwide. CIT Aerospace owns, finances and manages a fleet of more than 350 commercial aircraft serving approximately 100 customers in 50 countries. cit.com/aerospace
Founded in 1908, CIT (NYSE: CIT) is a financial holding company with more than $65 billion in assets. Its principal bank subsidiary, CIT Bank, N.A. (Member FDIC, Equal Housing Lender), has more than $30 billion of deposits and more than $40 billion of assets. It provides financing, leasing and advisory services principally to middle market companies across more than 30 industries primarily in North America, and equipment financing and leasing solutions to the transportation sector. It also offers products and services to consumers through its Internet bank franchise and a network of retail branches in Southern California, operating as OneWest Bank, a division of CIT Bank, N.A. cit.com