Air fares for passengers across Europe have seen a spike of around 20% in 2023, with the average price for UK consumers rising by 18%. Price rises within the industry have led to predictions of the 2030’s being the earliest that consumers can expect to see a return of low-cost air travel.
Argued by figures such as Michael O’Leary, CEO of Ryanair, one of the principal reasons for air fare rises is the lack of competitiveness within the industry, propelled by the short supply of new aircraft. As supply chains still experience significant disruption, AIP Capital – a specialised aviation asset management and investment firm – has argued that private equity and credit has emerged to provide a potential lifeline for the industry. Capitalising on opportunities to invest into the aerospace supply chain, pressures on supply chains are being alleviated in the hope of accelerating the delivery of aircraft for low-cost carriers.
The demand for air travel in Europe this summer is set to increase by at least 35% compared to last year, according to IATA, but accusations have been levelled against legacy airlines that they will be deliberately operating at reduced capacity in order to have greater control over their ticket prices.
In some cases, carriers have re-entered the post-Covid market unable to supply more than 50% of their pre-pandemic demand – with TAP and Alitalia (now ITA), as notable examples – further restricting the provision of low-cost travel for consumers. With the order books of major aerospace engineers full for the next few years and supply chains still experiencing heavy disruption, the delivery of new aircraft to ultra-low cost airlines has been significantly hampered, reducing the speed at which consumers will have access to airlines with low-fare capacity.
As an example of private investors stepping in to help remedy the constraints on the aviation industry, AIP Capital plan to invest $200 million in small and medium aerospace suppliers by the end of 2024, with investments including a first lien loan, while single investments will range between $10 million and $30 million. AIP is also targeting to raise $300 million to $500 million by the end of this year overall for private credit investments.
In addition to this, AIP Capital will exclusively manage aircraft and aircraft financing for 777 Partners, and its affiliated airlines including the ultra-low cost airlines, Flair and Bonza, meaning they currently manage 30 aircraft – alongside a Boeing MAX order book of an estimated 68 aircraft – with over $1.6bn in AUM.
