Industry grapples with familiar issues as it enters a key season

Rising passenger demand and fleet values, expensive aircraft parts and a skills shortage continue to be major risks for the aviation industry as it enters the summer season, in what is a key period for the sector.

These were just some of the risks outlined in a new report by Marsh, examining the industry’s commercial and insurance performance for the first quarter of 2024.

Alongside more longer-term risks such as geopolitical risks from the Russia-Ukraine conflict are more developing risks, one of which is litigation fears.

The report highlights that a growing area of concern is of significant court awards in the US in the aftermath of a major incident involving passengers. Fears that have increased in the aftermath of recent events surrounding Boeing aircraft earlier this year.

Higher Passenger Traffic

Global passenger traffic is expected to surpass 2019 levels this year, signaling the industry’s recovery from the COVID-19 pandemic. The surge in passenger numbers has helped to boost profit margins of many airlines including Etihad and Emirates.

Yet, not everything is smooth flying for airlines as a new report by Allianz highlights, with clouds on the horizon. Higher aircraft repair costs, driven in part by higher labour rates and aircraft parts along with rising inflation is threatening to eat into airlines’ profit margins.

Rising aircraft repair costs are a concern, the report notes, particularly as claim costs relating to certain aircraft spare parts have increased by 10% to 15% over the last few years, resulting in a larger number of aircraft being deemed Constructive Total Losses (CTL) than in the past.

Thrown into this mix, is the shortage of aircraft mechanics which greatly increases the repair time for an aircraft too.

With the drive towards sustainability accelerating the shift towards the next generation of aircraft, the repair and maintenance of aircraft, both in labour and parts, may become a significant risk for the industry as a whole.

Crashes and Collisions Leading Way in All Claims

Crashes and collisions now account for over 63% of all claims by value and a third by number (33%) according to analysis by Allianz of more than 30,000 industry claims with a value of $15.1bn across the last five years.

Faulty workmanship and defective products were the second largest top cause of claims by value at 22%, the report highlighted.