Despite Boeing being the greater success story of the two, both airlines closed huge deals in the Dubai Airshow on Wednesday, which undercuts the rise of low-cost carriers in general
At the Dubai air-show on Wednesday, aerospace companies Airbus and Boeing together closed more than $75 billion worth of deals to build new aircrafts for carriers around the world. What’s more, Airbus claimed one of the largest orders in it’s history, which marks a significant upturn for the company.
Airbus secured a deal to sell 430 jets to Indigo Partners, an investment firm that will lease the aircrafts to several of the low cost carriers that it partially owns, including European Wizz Air, Volaris of Mexico and US ultra-low-cost company Frontier Airlines. While plane manufacturers tend to wind up selling jets in bulk at roughly a 50% discount to the announced price, the deal still marks a much needed rebound for Airbus, insofar that the stock has struggled to match its rival Boeing over the course of the year, and has recently been weighed down by disputes with Emirates Airlines regarding the delivery of its massive A380 double-decker jet.
Meanwhile, Boeing also announced on Wednesday that it would be selling approximately $27bn worth of planes to FlyDubai, a carrier based in the United Arab Emirates. As one would expect, the markets have reacted positively to these new developments in aerospace, as both stocks surged in Wednesday trading. Yet Boeing in particular has been enjoying success long before the FlyDubai deal was closed. Shares in Boeing have nearly doubled this year alone, which is largely indebted to the fact that the company has been making huge efficiency gains in manufacturing. What’s more, demand for Boeing’s smaller passenger jets have led it to boost production levels by nearly 40%.
Airbus stock, despite not achieving success quite on the same level as its counterpart Boeing, has nevertheless performed well this year. It’s short-haul, single-aisle commercial jets are proving very popular with high-growth low-cost carriers, as the deal with Indigo Partners firmly explicated. This is particularly good news for Airbus, as low-cost carriers, which were once minor players within the aerospace sector, are finally beginning to come of age.
That is, in markets like South Asia, low-cost carriers already account for 50% of all air traffic, whilst in more developed regions like Europe and the United States, they account for roughly 30% of air traffic. Additionally, new leasing deals are bolstering the success of low cost Airlines, as by allowing carriers to rent aircrafts, upstart carriers are no longer required to spend extortionate amounts to get planes in the air. As such, these new developments within aerospace suggest that investors may want to take a closer look at the sector as a whole, however, low-cost carriers in particular.
(By Kathleen Craig, Research)
CFDs, spread-betting and FX can result in losses exceeding your initial deposit. They are not suitable for everyone, so please ensure you understand the risks. Seek independent financial advice if necessary. Nothing in this article should be considered a personal recommendation. It does not account for your personal circumstances or appetite for risk.