Turning Market Optimism Into Opportunity: New Avenues For Investing In The Aviation Sector

By Bhanu Choudhrie, Founder and Executive Director of Alpha Aviation 

Aviation as an industry has suffered more than most because of the pandemic. Airlines around the world have lost more than $200 billion, with the effects of travel bans and border closures eradicating nine years’ worth of profits. Any potential recovery has been hit further by low passenger numbers, which were fifty percent down last year. 

Wider market conditions are further threatening the liquidity of airline companies. The effects of a cost-of-living crisis, fuel price increases, rising inflation and rising geopolitical tensions are beginning to be felt. Air transport is an integral part of the economy, and investment to support its global recovery must be a priority. 

Within uncertainty, there lies opportunity, and there is no reason the aviation sector cannot bounce back stronger than ever. 

Air cargo

Air cargo is emerging as a stable investment, with rising demand and good potential returns for stakeholders. Owning largely to the e-commerce boom, the IATA recorded a 9.4 percent increase in air cargo demand in October last year, and this momentum is set to continue throughout 2022.

Air transport is a crucial facilitator of broader economic activity, facilitating international trade, economic growth and creating jobs in the process. Passenger traffic may still be low, but air cargo remains essential, and is an increasingly appealing avenue for aviation operators. 

Several operators, Airbus and Boeing included, are considering launching bespoke freighter carriers, owing to the market opportunities, and this is a trend that we can expect to continue. 

New horizons 

Despite last year’s low passenger numbers, normality is slowly being restored as we navigate our way out of the pandemic, and as travel restrictions ease. 

Asia Pacific is one region to watch, with domestic market activity on an upward surge. Investment into short-haul air travel is expected to rise considerably over the next twelve months, and India and China have both announced the launch of new airlines. The Asian middle class is expected to reach 3.5 billion people by 2030, so the opportunities across Asia Pacific will be plentiful. 

The move by the aviation industry to cut net carbon dioxide emissions to zero by 2050 is something else to watch. Uptake of sustainable aviation fuels has been slow to date, but widespread adoption will happen. The industry used 100 million litres of SAF last year, but the IATA plans for SAF to account for 449 billion litres of all fuel usage. Investment into engine technology will be at the heart of this change. 

The pandemic caused global disruption, but that in turn has created opportunity for new market players, particularly those whose competitors may have fallen by the wayside. The airlines and companies who invest in tomorrow’s market opportunities today can look forward to the brightest futures. 

Financial flexibility 

The past two years have been incredibly turbulent for airline stocks. With crude prices now hitting unprecedented levels, we are seeing another mass selloff. This is triggering short-term uncertainty in the market, but for those who are patient and ready to wait out the current disruption, there is cause for longer-term optimism. 

We have seen throughout the pandemic that airlines are able to withstand crisis, and that demand for air travel will bounce back. With stocks falling, there may never be a better time to invest before the next market boom. 

For savvy investors, there is an even bigger opportunity, with traditional banks retreating from the aviation sector. This has catalysed the adoption of new sources of funding, including green bonds and private equity, diversifying the financing streams in the sector. This new influx of capital has created a more varied aviation landscape, which is particularly exciting for new startups and leading platforms. 

Practice makes perfect 

Now that aviation is back up and running, and with new airlines launching across the globe, estimates suggest that as many as 500,000 pilots will be required in the next ten years. Pilot shortages are nothing new, this has been a prevalent issue in recent decades. 

The renewed demand for pilots is welcomed for the sector, but does create pressure to find ways to train new cadets in bulk and to the requisite level of quality to meet rising demand. 

At Alpha Aviation Group, we are seeing interesting trends develop across the aviation training sphere. There is growing demand for localised training facilities and educational institutions, with airlines wanting to save on cost by training cadets nearer their facilities, rather than outsourcing internationally. 

There is also growing appetite for simulator facilities and e-learning solutions. If investment into these solutions continues and they are implemented effectively, they could hold the key to solving the industry’s training dilemma in the years to come. 

Looking ahead 

The aviation industry has taken a significant hit amid the Covid pandemic and ongoing global economic turmoil. However, the sector has also proven its resilience and now it is imperative that we start planning ahead for the future and invest in new market developments and technological advancements that will enable the industry to once again resume its position as a pillar of economic growth. 

From freighter carriers and emerging domestic markets to stock fluctuations providing entry points and shifting sentiments prompting new sources of financing, there are plenty of new avenues coming to market for those that are able to turn optimism into opportunities.