Within this decade, we will see passenger AAM offer quieter and perhaps safer alternatives to helicopter and general aviation, and onward airport shuttle, writes Chris Brown of our Strategy team.
When meaningful automation of pilot and airspace is possible, there will be a significant cost advantage, making the passenger AAM market preferable to less flexible and more expensive infrastructure investment in road and rail.
Advanced Air Mobility
An idea whose time has come
Advanced Air Mobility (AAM) covers a range of new technologies and use cases to move people and cargo between places underserved to date. Several of these use cases have the potential to become the largest and most exciting new markets of the 4th industrial revolution.
This is driven by a perfect storm of city congestion, environmental concerns, technological disruption and rising customer expectations. But with long development lead times for both technology and regulation, all interested parties need a farsighted approach if that potential is to be realized, and the sector’s future winners have much to gain by engaging regulatory stakeholders now.
KPMG’s ‘Aviation 2030’ series has already considered readiness issues for ‘Air Taxis’ by geography, or the implications of Vertiports for traditional aviation. Its sister series ‘Mobility 2030’ has considered the opportunities and challenges presented by key disruptors such as Mobility as a Service (MaaS) and Autonomous Vehicles (AV).
This paper looks specifically at some of the larger short and vertical take-off and landing (S/VTOL) passenger-carrying market opportunities and associated ecosystems that will evolve. It is informed by client projects, supplemented by inputs from across our network, and includes rounded projections from our latest market model. Like any model, it aims to serve future planning purposes without claiming certainty about the future.
A varied market
In its early incarnations, with higher costs and volumes limited by technological constraints, AAM will penetrate the corporate travel and airport shuttle sectors, but as costs reduce, greater automation comes onstream and volumes increase, expect AAM to become a viable alternative to ground-based taxis, buses and rail options. To get and keep this variety of services airborne, the AAM revolution will likely support a diverse ecosystem.
Ways to play
Whilst hi-tech flying machines are of course the most visible and sexy aspect of the AAM revolution, vehicle sales are only a small part of the overall opportunity. The market breaks down into four clear segments:
- Passenger & Fleet Operations - Operation of a AAM service including front-end passenger experience and back-end fleet operations
- AAM Vehicles - Design, development and production of AAM vehicles, including vertiport infrastructure, and in turn, charging / fueling supply chain
- Service & Support - Materials, maintenance, and training services to support AAM fleets and maintain flight airworthiness
- Urban Air Traffic Management - Development and operation of solutions to manage the sky for safety and security of vehicles
By 2040, the AAM passenger and fleet ops market could grow to over 800m passengers annually, with more than half of the estimated 2040 passenger demand concentrated in 20 combined metros. Note this assumes supply-side constraints around regulations and infrastructure (e.g. 5G, cyber security standards, UATM and vertiport infrastructure) are overcome, with our Air Taxi Readiness Index paper highlighting the relative geographic maturity with regard to obstacles, in contrast to this demand-led view.
Depending on their roles, AAM companies seeking to enter this market can adopt one of two main strategies: city-by-city or partner-by-partner. Many existing airline service providers have relationships with municipalities and infrastructure required for AAM services, decreasing the time required for AAM fleet operators to go to market. The partner-by-partner strategy therefore allows AAM fleet operators to achieve scale at an accelerated speed compared to the city-by-city approach, at the expense of the partner’s share in the takings.
In the early phase of growth, over 19,000 AAM pilots may be required (by 2030) to fulfil projected global passenger demand, implying a looming pilot shortage driven by declining student population, ageing pilots and expired licenses. Sourcing, qualifying and deploying crew will therefore be one of the key opportunities of this sector of the market.
Vehicle Unit Sales & S/VTOLs
Global vehicle unit sales are modelled to reach 25,000, with revenue CAGR of 18% from 2025 to 2040.
Building S/VTOL vehicles usually involves a number of key technologies, namely:
- multiple rotors powered by distributed electric propulsion to improve safety and noise
- batteries weighing 200-500kg, many using li-ion or li-metal technology (we assume the vast majority of S/VTOL are electric – though hydrogen and sustainable aviation fuel will have their niches). Among electric, battery swap capability enables faster turnaround times once vehicle capacities grow and hence higher vehicle utilization compared with conventional electric charging)
- avionics responsible for flight management, communication and navigation system
- sensing systems to provide space awareness and detect and avoid in-flight collisions
Service and Support
Service and Support consists of three primary capabilities:
- Maintenance and technical services to preserve the airworthiness of S/VTOLs
- Services may be diagnostics, preventative maintenance, repair, or tech upgrades
- Services offered on site or at external service centers – provided by OEMs or 3rd party provider
- Material Services ensure the availability of S/VTOL spare parts
- Services include scheduled exchange and unscheduled replacement
- Unlike traditional vehicles, batteries will be a key component for material services
- Services may include forecasting consumption / repair cycle of S/VTOL parts
- Services can be offered on-site, in service centres, and distribution centers
Training & Simulation (T&S)
- T&S is the process by which pilots and crew learn to operate and technicians learn to maintain a vehicle
- Comprehensive programs deliver training through in-air, classroom, and simulated environments
- T&S is required for pilot, crew, and technician certification
- T&S is offered at training / simulation facilities and flight schools
The service and support market is forecast to reach an estimated USD16bn annually by 2040. Material services are modelled to comprise the biggest share, at 64%, followed by maintenance services and finally training and simulation, which is expected to decrease in importance as automation becomes more widespread.
This ecosystem will evolve significantly over time, driven by total vehicles in operation, regulatory evolution, and the transition to autonomy.
Urban Air Traffic Management
The associated Air Traffic Management market is by some measure the smallest of the four that compose the AAM ecosystem, modelled to remain just under USD6bn by 2040. This market includes stakeholders and providers for software / data management, data providers, regulatory fees, and cyber security.
The ATM ecosystem’s evolution will be driven by S/VTOL density in airspace and the transition toward autonomous flight, but AAM presents unique challenges not fully addressed by prevailing regulations, software or infrastructure, such as:
- Integration of low-level airspace for manned and unmanned passenger flight
- Greater operational complexity compared to existing services increases difficulty of meeting stringent regulatory standards
- Underdeveloped digital infrastructure to address new AAM missions, vehicle and ecosystem
- Insufficient scale of supporting physical infrastructure
- Public acceptance (noise, safety)
The AAM revolution will only thrive in a complex ecosystem of services, presenting commercial opportunities for a spectrum of players. To conclude, we consider some implications by player type, building on thoughts previously aired in our 2021 Air Taxi Readiness Index.
OEMs & supply chain
- The currently crowded field is highly likely to consolidate within the next 5-10 years
- With many ‘national champions’ playing in this space, we expect some countries to unofficially have preferred manufacturers from the outset
- OEMs will need to decide between targeting solutions that are operator-specific (supporting operators’ participation in the wider ecosystem) or ecosystem-wide (extending services beyond single operators, distributing data broadly across operators)
- Much of the aerospace supply chain has had a disruptive reminder during the pandemic of its concentration risk with 1-2 OEMs. S/VTOLs offer a once-in-a-generation opportunity at revenue diversification. However, since many of today’s OEMs won’t survive a future consolidation, cultivate multiple relationships while managing the time spent on any one particular OEM without firm income streams in place
Investors & lessors
- Some tempting markets, such as India, will require a long-term perspective on returns; investors need to look carefully and comprehensively at readiness of target markets, not only size. Our Air Taxi Readiness Index builds on this further
- We foresee a new cohort of S/VTOL only lessors drawn to this growing market – a mix of private capital and institutional sub-brands. The question is whether or not existing lessors want to be part of the AAM value chain, with a customer base spanning tech giants, reimagined automotive brands, transport companies and local government
- Exposure to S/VTOL as an asset class not only defends traditional aviation lessors from long-term cannibalization of regional and short-haul narrowbody aircraft, but with a vehicle size much more compatible with the limitations of battery technology, electric S/VTOLs offer an opportunity for lessors to ‘green’ their portfolio – monetising a shift to sustainability as opposed to seeing CSR as just costs and risk management
Fleet and ops providers
- With infrastructure costs being substantially lower than road and rail, S/VTOL mobility has the potential to seriously disrupt existing urban and regional transport plans
- Joint ventures are likely needed between ground mobility / tech companies and OEMs looking to bridge the expertise and skills gap between urban mobility and air travel
- Startups need to develop and nurture relationships with aviation authorities essential for vehicle certification
- Consider advantages and disadvantages of city-by-city or partner-by-partner expansion strategies
- Take steps well in advance to effectively identify and source high-quality pilots
- Actively plan for atrophy of pilot requirements over the longer term as unmanned mobility goes mainstream
- Given the likely regulatory restrictions around S/VTOL mobility in the urban environment, mass adoption will require extensive bespoke vertiport and short take-off infrastructure. Existing infrastructure providers (including airports, coach terminals, railway stations) have an opportunity to partner with S/VTOL players to service that need
- Much of the maintenance opportunity may be on the vertiport side, with high frequency turnarounds and urban operating environments meaning more intensive maintenance and repair budgets
- Future proofing new landmark commercial, residential, and mixed-use developments with landing sites for S/VTOLs will be in the interests of major developers in many cities
- Opportunities exist to retrofit S/VTOLcompatible landing areas into the urban landscape, which will enable operators to continue concept proving whilst widening accessibility to AAM beyond existing public transport hubs. This is particularly the case for STOLs which, with longer range, can do more stops requiring little more than 50-100m of a suitable surface
- A new market in asset repurposing is likely, as prime-located existing infrastructure (e.g. car parks) is repurposed to support vertiport operations
National policy makers
- Policy makers will have widely different degrees of public acceptance and knowledge to contend with and will in many cases need to actively promote public acceptance if they wish to facilitate AAM adoption. This will involve assuaging concerns around noise and environmental impact
- ANSPs or new bodies will require investment to build suitable air traffic management infrastructure (see below)
- Best practice will be available through international fora such as the World Economic Forum’s recent ‘Seven principles of the urban sky’
- Policymakers who wish to accelerate the roll out of air taxis in their geography need to first know which pillars of readiness are holding them back and address them accordingly. Our Air Taxi Readiness Index provides relevant commentary. For some countries, our proxy approach suggests it is particular areas that bring down the overall average, and depending on which metrics those are, materially different strategies should be adopted. If, for example, cyber security scores poor nationally, this is, in relative terms, something that can be ‘bought in’ from a geopolitical ally at reasonable cost. If public attitudes to change or technology score low, a thoughtful and sustained communications campaign may help
- Geographies with limited existing infrastructure may have an opportunity to leapfrog expensive ground-based infrastructure programmes. Whether state-led or merely state-enabled, here is an opportunity to get more ‘bang for buck’ than high-speed rail, hyperloops, bridges or tunnels. This applies within developed economies as well as in emerging markets – who doesn’t pay lip service to economic prosperity that is inclusive of rural areas? Yet even the wealthier countries of the world often struggle to justify the economic case for remote bridges, rail and highways. Much as rural bus services are often supported by the state today, subsidized S/VTOL routes provide rural connectivity at a fraction of the cost (and carbon footprint) of major road upgrades
- Policymakers should consider targeted funding and financing to support early stage R&D, for areas of ecosystem which are essential but less easily monetized in the short term (e.g. UTM)
- Governments should encourage the development of regulatory sandboxes, convening innovators to test use cases in a safe environment to prove emerging concepts
- Provide government-backed funding in the form of grants, to catalyse the development of emerging concepts towards operational and commercial viability
ANSPs & regulators
- AAM presents unique challenges not fully addressed by prevailing regulations or infrastructure, especially in the integration of low-level airspace for manned and unmanned passenger flight. Innovative concepts of operations are required for ATM to support and scale AAM
- The need for regulators to engage is urgent in many jurisdictions to avoid unplanned deployment and the PR setbacks likely attendant on that
- We can expect new players from tech, independent start-ups and space agencies entering the Unmanned Aircraft System Traffic Management (UTM) market
- There will be new revenue opportunities from the provision of training, licensing and consultancy work in the area of airspace designs, systems integration and operations set-up, as well as ATM services to S/VTOL operators
- ANSPs need to establish the costs of monetizing this opportunity. Leading ANSPs would like to increasingly digitize their offering this decade, with increased use of AI. But upgrading core systems at scale is tough – would it be better to trial automation in air traffic control first on UAVs, then passenger S/VTOLs? Once the system works, concepts from lower airspace can be translated into existing upper airspace operations
- Regulators will probably require bespoke frameworks around noise and designated rights of way in urban environments, as well as vertiport positioning and specs
- Shifts in regulation will be a key accelerator in enabling and driving another wave of rapid innovation in drone-enabling technologies, including but not limited to autonomy enablers, sense-and-avoid response systems, imaging and sensor capabilities, and IoT platform integration
- Regulation continues to lag technology advancements, slowing enterprise adoption, depressing startup funding, and limiting further use cases for commercial users. Regulators need to anticipate and lead innovation, not merely follow it
Local government, airports & public transport bodies
- Engage in public-private partnership. In a heavily regulated field, local governments will collaborate with private innovators to find pragmatic solutions specific to the geography
- Existing major airports will need substantial additional vertiport assets to service the anticipated demand for local and regional AAM. Newbuild terminals can start incorporating vertiport design today, while existing operations will need to factor in the required build work to minimize disruption
- The choice of VTOL and/or STOL will be influenced by local geographic characteristics. Is the priority rural-to-rural and small town connectivity (which may suit STOL) or does the route network involve downtown routes where landing space is at a premium (VTOL)? Many regions will realistically need to consider a mix
- Given the small size of VTOLs, in particular, heavy luggage for onward travel is impractical. Therefore, expect the roll-out of integrated, door-to-door luggage services (ground or AAM cargo based)
- The workforce will need to be upskilled and their processes redesigned to manage S/VTOL maintenance in airports and vertiports, with increased volumes and faster turnarounds
- Given the urgency of congestion issues in some geographies and their proven deleterious effects on public health, a strong case can be made for public subsidies in AAM-relevant infrastructure and journeys. Whether that means starting subsidies now, or in several years after winning technologies become clearer, will be down to local strategic preferences, but is akin to the existing subsidisation that many governments in effect give to rail and bus networks today
Service and maintenance providers
- Actively seek potential AAM partners in your area of operations, whether established or startup operators, or lease / operators
- Understand high-AAM traffic centres and consider building maintenance networks focused on them, to facilitate rapid response to on call-requests
- Depth of data collection and analytics will be ever-more critical to enable timely and effective maintenance decision making
- Development and execution of comprehensive T&S programmes for AAM provide a major new revenue opportunity
Get in touch
If you have any queries on advanced air mobility, please contact Chris Brown, Head of Strategy. We'd be delighted to hear from you.
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