Hi everyone,
I’m doing a school research project on the aviation industry as a whole, more specifically how recessions affect the growth/development of the industry (bankruptcies, consolidation etc.) as it’s a well known fact that recessions hit aviation particularly hard.
Whilst doing it (so far I’m about 1/3 of the way through) I wondered which, if any, sectors of the aviation industry are unaffected or perhaps even thrive during recessions, as this will help me make a better argument as the project goes on.
From a few old Quora threads and an old article on the internet, I’ve managed to find out that the following aren’t as affected by recessions as others:
- Medevac
- Mechanics (annual inspections etc.)
- Aviation insurance
- Aircraft graveyards/hangaring
- Regional airlines (not sure if this one’s still relevant as the article was talking about recessions from before I was born!)
I have two main questions for this: 1) Am I missing any sectors? 2) If anyone here has any experience with any of them, to what extent are they unaffected/grow due to recessions? 3) Are there people other than Kenn Ricci who have grown their aviation empires in recessions who I could use as “case studies” as I know he’s grown his empire considerably during recessions like Covid, 2008 and is preparing to do the same in the coming one?
Thanks a ton in advance. I think it’s quite easy to use the age old “if you want to be a millionaire in aviation, have a billion and start an airline” saying, and that recessions hit aviation incredibly bad - they’re on of the first industries to be hit and one of the last to recover as a whole - but obviously these things must hit different sub-sectors and even forms differently.
PS: Obviously, this question isn’t meant to just focus on 2008, but aside from the oil crises of the 70s, it was the most devastating recession for aviation as a whole.
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Re: What did well in 2008?
Even 2008 didn't do nearly the number that 9/11 did on aviation. Especially commercial airlines.
Re: What did well in 2008?
You got a couple of the big ones already. It might help to think about what is in higher demand when overall demand drops, or what substitute goods people buy in a recession. A lot depends on the nature of the recession and what caused it. Couple trees to bark up:
If it's high oil prices/oil shocks, then the winners are the OEMs who can sell more efficient planes, the scrappers who have a bunch of old ones coming to the desert, etc. There are some good case studies from the 1970s, like how USAF bought a bunch of the civil 707s for cheap to use the engines for upgrades from KC-135A to E with the fan engines. Uncle Sam buying them all was part of what destroyed the business case for the 707-700.
If it's a general recession from financial markets like 2008, then the bankruptcy lawyers and M&A lawyers start paying attention.
I'm curious to what extent the 2008 recession saw a reduction in new buys to save capex while instead operating older planes for longer because cheaper oil meant lower opex on those frames. That might be an avenue to explore.
In recessions you sometimes end up with a bias toward trip cost over CASM. Looking at the early 1980s, the 737-300 sold ok while the 757 had a slump because it was bigger than what a lot of airlines wanted after deregulation. There's a good section in "Hard Landing" about that.
If it's high oil prices/oil shocks, then the winners are the OEMs who can sell more efficient planes, the scrappers who have a bunch of old ones coming to the desert, etc. There are some good case studies from the 1970s, like how USAF bought a bunch of the civil 707s for cheap to use the engines for upgrades from KC-135A to E with the fan engines. Uncle Sam buying them all was part of what destroyed the business case for the 707-700.
If it's a general recession from financial markets like 2008, then the bankruptcy lawyers and M&A lawyers start paying attention.
I'm curious to what extent the 2008 recession saw a reduction in new buys to save capex while instead operating older planes for longer because cheaper oil meant lower opex on those frames. That might be an avenue to explore.
In recessions you sometimes end up with a bias toward trip cost over CASM. Looking at the early 1980s, the 737-300 sold ok while the 757 had a slump because it was bigger than what a lot of airlines wanted after deregulation. There's a good section in "Hard Landing" about that.
Re: What did well in 2008?
LH707330 wrote:I'm curious to what extent the 2008 recession saw a reduction in new buys to save capex while instead operating older planes for longer because cheaper oil meant lower opex on those frames. That might be an avenue to explore.
In recessions you sometimes end up with a bias toward trip cost over CASM. Looking at the early 1980s, the 737-300 sold ok while the 757 had a slump because it was bigger than what a lot of airlines wanted after deregulation. There's a good section in "Hard Landing" about that.
That's a really good idea. I'm wondering though if you can get a really definitive answer. 2008 happened on the backs of airline bankruptcies post-9/11, the Iraq War and really expensive gas, which all had a disproportionate effect on aviation as opposed to other sectors. It kind of turned into a "Lost Decade" for airlines before the Merger Decade (The 2010s). After all the consolidation, the fleet acquisitions really picked up steam.
I think 9/11 and the Iraq War, more than the 2008 recession, was probably the largest driver of operating old airplanes to reduce capex. My theory, anyways.
Re: What did well in 2008?
A little bit of a tangent:
I was working at a helicopter manufacturer at the time. We ended up with many white tails during that recession. Often, it was not the buyer who wanted to pull back from the contract, but the buyer's bank (or other source of credit) that went under, forcing them to cancel.
I was working at a helicopter manufacturer at the time. We ended up with many white tails during that recession. Often, it was not the buyer who wanted to pull back from the contract, but the buyer's bank (or other source of credit) that went under, forcing them to cancel.
Re: What did well in 2008?
One sector of aviation not yet mentioned is military aviation. OEMs like Boeing and their suppliers are also active in the military branch, exactly because that sector is much more resilient against recessions.
Airbus had several ups and downs following changes in the economic environment, so they decided to found a military branch with the A400M, A330 MRTT etc. This helps immunizing Airbus against the unpredictable nature of the civilian business.
Airbus had several ups and downs following changes in the economic environment, so they decided to found a military branch with the A400M, A330 MRTT etc. This helps immunizing Airbus against the unpredictable nature of the civilian business.
Re: What did well in 2008?
I hadn’t thought of military aviation, I’ll add it to the list. Thanks!
Re: What did well in 2008?
Considering I worked in the industry then, this is what did well:
Flights supporting Oil Sands/Oil Shale
Flights supporting defense contractors in the middle east
ULCCs grew significantly as there were lots of popular leisure routes either not being flown or that were monopolies
Flights supporting outsourcing or offshoring activities
Australia
Canada
Flights supporting Oil Sands/Oil Shale
Flights supporting defense contractors in the middle east
ULCCs grew significantly as there were lots of popular leisure routes either not being flown or that were monopolies
Flights supporting outsourcing or offshoring activities
Australia
Canada
Re: What did well in 2008?
@Drdisque Out of curiosity, how did Canada and Australia do well? Could you be a bit more specific? Was it that their entire aviation industries had no knock-on effect from falling passenger numbers elsewhere etc.?
Thanks!
Thanks!
Re: What did well in 2008?
TheR0bot wrote:@Drdisque Out of curiosity, how did Canada and Australia do well? Could you be a bit more specific? Was it that their entire aviation industries had no knock-on effect from falling passenger numbers elsewhere etc.?
Thanks!
Mineral prices went nuts. Oil and gold are huge in Canada and everything but oil is huge in Australia. CAD/USD/AUD were banging around parity for a while there, which was pretty gross.
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