Network scale — As with many industries, the economics of AAM flight improve considerably with scale. Fixed overhead costs can be amortised across a larger transport task. Specifically, for AAM operations, as the number of nodes in the network grows, the number of potential operating routes grows non-linearly to accommodate scaled demand. Initially, when the network has a few vertiports (eVTOL take off and landing sites), there is a low share of trips that can be completed using one of the available routes; however, as nodes are added, connectivity improves. Even if nodes added later have relatively low traffic, there is significant benefit from the connection to existing nodes as well as associated network effects.
eVTOL specifications — As the industry matures, the cost of eVTOL aircraft is expected to reduce in nominal terms by c.15% in five years. Scale will also drive eVTOL aircraft production and construction efficiencies. In addition, the aircraft are likely to become capable of carrying more passengers. In a shared operating model, this dramatically improves the potential revenue per flight kilometre (km).
Utilisation — The term refers to the extent of flying time for eVTOL aircraft vs time spent charging, reloading passengers or going unused. For eVTOL operators building scale on a particular route, higher utilisation may deliver greater returns than building out the network to gain overall network connectivity benefits.
Price — At industry inception the cost to travel by eVTOL aircraft in urban areas is likely to be greater than USD 2.50/km. In context, this is about double a traditional taxi journey. This cost is expected to fall dramatically. With high levels of utilisation, remote pilot capability and increased capacity per aircraft, the economics improve dramatically, allowing the cost of eVTOL travel to eventually reach parity with today’s taxi prices.
Remote pilot capability — As the industry matures, analysts expect that will move towards remote piloting and eventually fully autonomous operations. This will increase the capacity of the aircraft itself by freeing up the seat taken by a pilot, and will reduce the cost to operate, as remote piloting will require less labour. The dual effects of this will significantly improve the profitability per flight kilometre.
Shared ride mode — A shared ride mode, which charges on a per passenger basis, is the ultimate goal for AAM operations, and will allow the most flexibility as the industry grows. It allows for more efficient utilisation of the assets and offers a step change in profitability.
Social licence to operate — Social licence is the acceptance granted to an organisation (or industry) by the community and is closely linked to meeting expectations and gaining community trust. It is achieved when the community trusts that the organisation or industry will act in line with its interests, beyond what is required by regulatory or legal obligations. Gaining the social licence to operate is critical to the successful launch and expansion of the AAM industry. However, no single party is responsible for achieving this. It requires the collaboration of multiple parties — federal government, council bodies, regulators, proponents and participants in the broader AAM ecosystem.
Commercial attractiveness of the AAM industry
The commercial returns of the AAM industry are expected to improve significantly over time. L.E.K. forecasts that the AAM industry could be worth several billions of dollars for a country like Australia. However, it could take up to 8 to 10 years to deliver positive cash flows. The timing depends on the scale of investment, rate of market development and use cases.
To better understand the commercial attractiveness of the AAM industry, it is important to assess the dynamics of both supply and demand — which in the AAM industry are inextricably linked. Demand for AAM is expected to be highly correlated to the cost of the service. The success of the industry depends on its ability to reduce the cost of supply, making it more competitive (relative to alternative modes) with the public as a mode of transport and more attractive to the freight industry.
The following estimates are generalised costs across the whole of market deployment and are intended to represent a blend across the industry. Commercial attractiveness will vary depending on the extent to which key drivers of profitability can be enabled.
eVTOL capex and opex
Market estimates for eVTOL aircraft vary significantly by manufacturer and design. Generally, as the size of the aircraft increases, the cost increases. In the early years of development, smaller eVTOL aircraft seating two passengers could cost under USD 1.5 million, but a five-seater could cost more than USD 4 million. This price includes batteries, flight systems, rotors and associated technology, and is expected to decrease materially as production volume scales. Currently, the useful life of an eVTOL aircraft is estimated to be eight years. This varies by market participant but is expected to increase over time.
We estimate eVTOL costs per passenger kilometre to decrease by more than two-thirds between 2025 and 2040 (see Figure 3). Major cost components are pilot salaries and energy costs of recharging eVTOL batteries, as well as maintenance, repair and overhaul jobs to maintain aircraft airworthiness. The cost of operations on a per-kilometre basis are lower for regional services due to a much higher assumed average distance per flight.
Initial industry profitability in the early 2020s is depressed by the higher cost of pilot-flown operations. We expect that there will be a step change in price once remotely piloted operations commence. Profitability improves due to significantly reduced pilot and avionics costs and availability of an additional seat, increasing revenue in a per-passenger charging model. A further step change is expected when fully autonomous services commence.