Narrow-body jet could propel Airbus to new heights

In May 2025, Airbus SE announced it had more than 500 orders for its revolutionary single-aisle, long-range passenger jet – the A321XLR.[i]

The new plane promises to boost global air travel. The XLR can fly significantly further than previous Airbus and competitor narrow-body aircraft (its range is up to 8,700 kilometres).

This longer range means airlines can use the XLR to serve new international routes with 11-hour, non-stop flights. Airbus describes the plane as a ‘route opener’ that can connect primary and secondary cities worldwide.[ii]

The XLR’s growth potential was part of PM Capital’s thesis to invest in Airbus SE in late 2021. Airbus shares had fallen by almost two thirds[iii] during the COVID-19 pandemic in 2020 due to lockdowns and travel restrictions.

We believed the XLR would help Airbus take more market share from Boeing, its struggling rival. Longer term, the XLR could potentially help reshape the global aviation duopoly in Airbus’s favour.

Our thesis has so far proved correct judging by the XLR’s growing order book and market reaction. Airbus SE shares have rallied 65% since late 2022, adding to PM Capital’s Global Companies Fund’s outperformance.[iv]

Chart 1: Airbus SE (AIR.PA) share price (€)

It hasn’t all been clear skies for the XLR. Its development had minor delays and supply-chain challenges limited Airbus’s ability to turbocharge production to meet booming aircraft demand post COVID-19.

Yet Airbus has secured XLR orders from over 20 of the world’s largest airlines, including Qantas Airways, which in 2019 bought Airbus narrow-body aircraft for the first time for its mainline fleet (not Jetstar), placing an order for 36 converted and new aircraft.[v]

More airlines worldwide are replacing ageing Boeing aircraft with the XLR and some European airlines have already taken delivery.

Airbus says the XLR has 30% lower fuel burn and CO2 emissions per seat, and reduces noise by half, compared to previous-generation aircraft. These are encouraging sustainability metrics for an industry working to reduce its environmental footprint.

The XLR’s key innovation is its Rear Centre Tank (RCT), a high-capacity fuel tank behind the plane’s main landing gear bay. The RCT significantly increases the XLR’s fuel capacity without using additional cargo space.

Asia and aircraft travel

The XLR’s main attraction, however, is its potential to create new transatlantic routes and connect Asian cities to those in Europe and the US. It could also connect smaller Australian cities to large Asian cities.

Rising long-term demand for aircraft from Asia was an important part of PM Capital’s investment thesis on Airbus. We believed demand for commercial aircraft had decades of growth ahead amid population growth and higher travel volumes.

As incomes in Asia rise, more people there are likely to travel overseas. Extra planes will be needed. The XLR is ideally suited for Asia given its potential to connect Chinese and Indian diaspora in the US, Europe and Australia with family in their home country.

In its 2024 Global Market Forecast, Airbus predicted demand for 42,430 new aircraft between 2024 and 2043. Asia accounted for almost half of this demand.[vi]

Airbus said in a summary accompanying the report: “China, India and more generally Asia-Pacific as a whole, will power growth, further shifting aviation’s centre of gravity towards Asia’.[vii]

Chart 2: Forecast aircraft demand 2023-2043.

Number of aircraft

Airbus also noted aviation was ‘reconnecting with previous trends’ after COVID-19.[viii] PM Capital believed Airbus would fully recover after the pandemic and that the market would re-rate the stock based on its rising market share, strong free cash flow and balance-sheet strength.

These attributes have entrenched Airbus’s status as the market-share leader in the world’s largest duopoly.

Airbus continues to take share from Boeing, which was beset by fatal crashes in 2018 and 2019, the worldwide grounding of its 737 MAX fleet for about 20 months, and production problems – the cumulative impact of which have impacted its financial position.

In contrast, Airbus’s balance-sheet strength has enabled it to increase its investment in product development – the results of which are starting to pay off, as shown by the XLR’s success.

Overall, we expect the gap between Airbus and Boeing to widen further this decade as the former enjoys strong tailwinds and the latter battles production and design headwinds that are hard to resolve quickly.

Conclusion

Airbus reinforces the benefits of buying high-quality companies during periods of heightened market volatility when investors panic and assets become irrationally oversold. That was true of Airbus during the pandemic.

At the time, PM Capital believed the market focused too much on Airbus’s short-term challenges and overlooked its medium-term growth potential.

Longer term, we believe the market still underestimates Airbus’s potential to change aviation travel through its innovative narrow-body aircraft.

Although Airbus’s valuation has risen since we initiated our position, the company remains a core investment due to its long-term growth potential, aided by product innovation and rising aircraft demand.

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