Throughout his 19-year career at Boeing, Darren Hulst has seen the aerospace sector change in many ways. As the vice president of Boeing’s Commercial Marketing division, Hulst keeps his finger on the pulse of the industry to see how consumer demand, technology, and the global dynamics have evolved. Today, sustainability, affordability, and connectivity are top of mind for both consumers and stakeholders.
At the 2024 Farnborough International Airshow, McKinsey Senior Partner Vik Krishnan spoke to Hulst about Boeing’s findings in its latest Commercial Market Outlook, including trends in airline offerings across the globe, airplane designs and use cases, and technology. An edited transcript of their conversation follows.
Vik Krishnan: Tell us a bit about what you and the Commercial Marketing Team do at Boeing.
Darren Hulst: I lead our Commercial Marketing Team, which is global but mainly based in Seattle. Our team’s purview includes providing sales support and some technical support for our airline customers. On top of those responsibilities, we create the Commercial Market Outlook every year.
We look at a lot of operational data, historical traffic data, and economic data to see where the market is headed, what the key drivers for the market are, trends that are changing the landscape today and in the future, and how these factors correlate to demand for air travel in the long term.
Vik Krishnan: What change did you notice between this year’s report and last year’s?
Darren Hulst: Our outlook this year is up about 3 percent compared to last year, which is not unusual. The market usually grows by 3 percent every year. Our outlook for new airplanes needed in the marketplace in the next year is just under 44,000.
In terms of big headline changes, there haven’t been a lot. The key areas we’re focused on now are new airplane technologies that help lower emissions. The replacement cycle is accelerating, and we’re seeing pent up demand for replacements in the near term. The shortage of capacity and new deliveries today are also driving a strong demand for replacements over the next ten years.
Second, single-aisle aircrafts make up the bulk of airplanes globally. But we increased the forecast on wide-body aircraft this year because we’ve seen even more replacements in that part of the market, driven by the fact that there have been relatively fewer of these airplanes delivered over the past five years.
Vik Krishnan: Recently, we’ve been seeing narrow-body aircrafts used increasingly on missions that historically used to be reserved for wide-body aircrafts. They’re flying not just Transatlantic but also on increasingly longer missions on thinner routes. How do you see the dynamic of narrow-body and wide-body aircrafts playing out?
Darren Hulst: I think single-aisles with additional range capability will be filling niches and enabling airlines to fly in certain new city pairs. But I don’t think it’s a game-changing trend that will change how networks are structured in the future. The limited capacity on single-aisle airplanes for both passengers and cargo is prohibiting them from filling routes wide-body aircrafts can fill. So having more range doesn’t necessarily open them to new network opportunities. But in certain cases, airlines that are more geographically advantaged might be able to do more connecting.
Vik Krishnan: What are some examples of that?
Darren Hulst: Most likely routes from the edge of Europe to the edge of North America and maybe something similar Intra-America, as well. Boeing 737 Max aircraft and 737 NG aircraft have been doing flights like these for airlines like Copa and Iceland Air without the additional range capability that would be touted on Airbus’s A321XLR. Fewer than a half percent of single-aisle airplane frequencies are used on routes over 3,000 miles. So this trend is not measurably different than what we saw even 30 years ago when Boeing’s 757 was introduced, but in certain cases, it provides an opportunity.
Vik Krishnan: Are the missions these aircraft are completing similar to what they were doing in the past?
Darren Hulst: I would say so. Once you get above an eight-hour flight, wide-body airplanes offer a better cost to move cargo and operate and provide a premium product that sometimes single-aisle airplanes can’t quite compete with.
Vik Krishnan: Shifting gears a bit, at last year’s Paris Air Show, there was a lot of talk about new technology, eVTOLs [electric vertical take-off and landing aircraft], hydrogen propulsion, and alternative combustion mechanisms to improve fuel efficiency and the sustainability footprint of airplanes. What’s your view on these technologies? How do they factor into your current market outlook?
Darren Hulst: The first ten years of our Commercial Market Outlook are based on airplanes that we know and see today. It’s airplanes that we either have or have launched in the market. Beyond that, there’s potential that new airplanes enter the system, whether they’re designed conventionally with today’s fuel propulsion technology or with a new kind of propulsion technology that we might see more of over the longer term. The Commercial Market Outlook factors that expectation in, but we can’t predict whether a specific airplane will enter service in, say, 2040 with those types of technologies.
Part of the reason why it’s ambiguous is because our experts tell us that hydrogen and some other potential fuels are probably not going to be mature enough by [2043] to be retrofitted into a commercial 737 or A320-sized airplane. In the next few years, we might start doing a complementary outlook that looks at some of these new technologies, as well as urban mobility and other parts of the ecosystem that supplement today’s infrastructure as adjacent markets.
Vik Krishnan: So, if anything, alternate technologies will expand the market rather than compete with existing narrow-body aircrafts.
Darren Hulst: That’s how it will start. The next question would be, “How do these technologies replace existing aircraft in the long term?”
The shorter the trip, the more likely there are to be alternative modes of transportation. In markets like Europe—Intra-Europe especially—demand has reduced because of those adjacencies and other opportunities. Airplanes function best when they are the most efficient and most convenient form of transportation.
Vik Krishnan: How do challenges in the aerospace sector on the supply side—including supply chain constraints, engine issues, production issues, and maintenance constraints—affect your outlook? How long do you expect these issues to persist?
Darren Hulst: Ideally, over the next few years. We’ve seen these challenges and constraints diminish since last year. And next year will be better than this year. In our outlook, we see near-term constraints working themselves out over time. If anything, they create more pent-up replacement demand today that will need to be satisfied in the future.
Based on our outlook, replacement demand might be elevated in about five years because fewer airplanes are being retired today. But I think five years is probably a conservative timeframe for when things will be fixed. I think it’ll be sooner than that. We’ll see a normal balance between replacement and growth between 2028 and 2030.
Vik Krishnan: So years-worth of pent-up demand is currently being fulfilled by older aircraft or not fulfilled at all.
Darren Hulst: Correct. Airlines are extending the life of airplanes, which is also causing backups in the MRO [maintenance, repair, and overhaul] system because that’s creating demand for space in those hangars. But over time, that works itself out.
Vik Krishnan: In terms of sustainability in aviation, we’ve seen the whole cycle. It started as an imperative for the sector, but we quickly realized that the technology isn’t quite ready to decarbonize at the scale and impact that some of the sector’s critics would like to see.
At the same time, in Europe, and increasingly in other parts of the world, people have more concerns about their environmental footprints and the role aviation plays in them. How does that affect your outlook and how you consider demand for airplanes?
Darren Hulst: Bigger picture, the average trip distance that we project in our outlook is continuing to increase, just like it has over the past 30 to 40 years. The shorter the trip, the more likely there are to be alternative modes of transportation. In markets like Europe—Intra-Europe especially—demand has reduced because of those adjacencies and other opportunities. Airplanes function best when they are the most efficient and most convenient form of transportation. That’s what we expect to see going forward.
In the near term, the technology curve gets 2 percent to 3 percent better each year as the industry provides more airplanes equipped with new technology into the system. Sustainable aviation fuel is also important for achieving those goals. Scaling that in the near term is a challenge for the industry.
Vik Krishnan: Right, the cost of the production technology to make it and the cost and ability to get it into planes in an efficient way have been deterrents.
Darren Hulst: The good thing about [sustainable aviation fuel] is that the fueling infrastructure is already there. The challenge, to your point, is scaling it so that the price comes down. The quantity of fuel needs to be hypergrown from where we are today.
Vik Krishnan: We’ve all gotten used to relatively cheap aviation. In the past 20 years, the average fare to fly has been cut in half for consumers. Realistically speaking, if sustainable aviation fuel cannot bend the cost curve, the cost of airfare will get higher.
Darren Hulst: Coming out of the pandemic, we’ve seen that there is more willingness to pay than some airlines have thought. However, affordability drives demand, and that has to be a consideration.
The airplane itself also has to be versatile. So enabling airlines to configure the interior of planes as they need and see fit is an important consideration in how we offer our products to customers.
Vik Krishnan: What are some regional differences you’re seeing in outlooks for aviation and views on the recovery of aviation growth?
Darren Hulst: In the Americas, and even Latin America, there’s robust demand. They’re seeing the need for as much capacity as they can get. There are some differences by business model. Network carriers, for example, are uniquely positioned to offer all the products, services, and destinations that passengers want, which is differentiated in today’s market and puts them in a better spot. Whereas for low-cost, or ultra-low-cost airlines, putting capacity into only leisure markets does not have an infinite pool of demand.
But the markets are strong. Most of the profits this year for the global industry will come out of North America and Europe. And Asia–Pacific is finally getting back to pre-pandemic levels. One place we’re still observing is the China long-haul market because there are constraints—in some cases geopolitically and in some cases because of the demand dynamic. That’s the slowest of the long-haul markets based on the gear it’s in today.
The Middle East, geographically, has an advantage in how they connect. Russian overflight limitations have given countries like those in the Persian Gulf even more of an advantage. Some other players in the market like India have also been able to take advantage of that. Going forward, I don’t think that will change. Adding some routings will make it even more efficient to connect.
Vik Krishnan: Do you think network carriers trending toward premiumization has a yield advantage over low-cost airlines?
Darren Hulst: I think it does. Part of that is driven by the demographics of the US population. People who have the money to experience premium traveling, realize that it’s worth more. That’s not to say that low-cost carriers won’t be successful, but some might experiment in the premium economy space, as well.
Vik Krishnan: How does that impact your outlook for Boeing and how you think about selling airplanes to your customers?
Darren Hulst: We talk about making airplanes versatile enough for airlines to deploy them across any piece of the network at any time. But the airplane itself also has to be versatile. So enabling airlines to configure the interior of planes as they need and see fit is an important consideration in how we offer our products to customers. That’s how we’re approaching building the feature packages that we put together for airlines. What do those look like in the premium economy? How do those features fit into the front and back of the cabin? And how do airlines make the most out of each inch of space?
