Growth in air travel will be around 5% per year in the next 20 years.
The recovery of economic optimism worldwide since 9/11 is benefiting the airline industry. Though the global air transport industry has been affected by high oil prices, Middle East instability and the recent tsunami disaster, the long term prognosis is a strong rebound in traffic growth. The Federal Aviation Authority in the US forecasts a rising demand for more aircraft and they report that passenger levels are returning to pre-9/11 levels, possibly exceeding 1 billion annually by 2015. US airlines increased passenger numbers from 642 million in 2003 to 690 million in 2004. Airbus predicts worldwide passenger traffic to grow at an average of 5.3% per year over the next 20 years.
Low-cost and regional airlines
The emergence of low-cost and regional airlines is leading to change. Their traffic has risen by 40% since 2000 to 269.5 million in 2004 with a 43% share in the market. Deregulation since 1978 has given more options and lower fares and customers are driving this change.
The FAA and other agencies must keep up with the growth in air traffic by redesigning air space and deploying new software to help increase capacity. Infrastructure is lagging behind and must be developed to keep pace with increased demand for more air traffic or growth will be constrained in Europe and North America.
The forecast for 2005-2016 points to regional/commuter airlines particularly in the US experiencing the greatest increase in passenger volume. Their fleets increased by 538 since 2000 to 1630 jets and are expected to increase to 2960 by 2016. Low-cost carriers and regional/commuter carriers continue to operate profitably in the face of high fuel costs. (IATA warns that higher fuel prices could cost airlines $5.6 billion this year.)
Easyjet is the largest of the low-cost airlines, with 2.6 million passengers carried in March 2005, and has taken delivery of its 100 th aircraft, an Airbus 319. Budget airline Ryanair has placed a $4 billion order for 70 Boeing 737-800 aircraft, with options on a further 70. Ryanair, Easyjet and others have driven down prices by about 60% over the past decade. 40% of European commercial fleets now have a low cost model.
However, despite increased fare prices and slower growth than regionals, large domestic carriers anticipate passenger increase from 502.2 million in 2004 to 700 million by 2016, 2.8% each year. In 2004, total landing and take-off at FAA and contract towers rose 0.5%, the first increase in activity since 2000.
China and Asia-Pacific region
Both Airbus and Boeing recognise the growing importance of the Asian market to commercial airline sales, with the strongest growth in the Asia-Pacific region. Though the US may fear the prospect of China as a long term challenger to their status as world superpower, airframe manufacturers see the Chinese as a key sales target. What is happening in China today is dictating the shape and size of tomorrow’s global aerospace sector.
China is sustaining production and competition while Western aerospace companies are becoming well established in the country with design and manufacturing bases as well as support facilities. Lufthanza Technik in Germany entered the Chinese MRO market as long ago as 1994 when it set up AMECO in Beijing as a joint venture with Air China.
The dynamic Chinese market is growing at an average of 16.5% every year for its domestic flights. Market consolidation will help improve the competitiveness and profitability of the top three carriers – Air China (the largest), China Southern Airlines and China Eastern Airlines.
Currently, Air China is in the throes of a possible takeover of Hong Kong’s Cathay Pacific airline. Three Chinese airlines have recently signed a deal for 30 Airbus aircraft, including five of the new A380’s, worth up to $3.2 billion, while Boeing has completed an agreement with China Aviation Supplies to provide 60 787 airliners in a deal worth $7.2 billion. Consolidation and mergers will cut operating costs and avoid price wars with smaller carriers.
The result should be domestic airfare pricing controls, with a healthy demand and supply balance. Shanghai is one of Asia’s busiest air hubs. Their two airports handled nearly 25 million passengers in 2004 and ambitious expansion is taking place in anticipation of increased demand in advance of Beijing Olympic Games in 2008 and the Shanghai World Exposition in 2010. China plans to build three new airports each year over the next 15 years.
The dynamic multi-billion dollar commercial and military aviation industry in the Asia Pacific region has powered ahead in spite of an urgent need for infrastructure spending.
Despite the conflict in Iraq, Middle East aviation is growing at 7% annually, with Dubai fulfilling its goal of becoming a major worldwide hub and powering traffic growth across the region. A 49% increase in annual profits to $637 million was recently announced by Dubai-based Emirates Airlines, winner at 2005 OAG Airline of the Year Awards for Best Middle East/Indian Sub-Continent Airline.
Aviation’s total contribution to the European economy as a wealth generator is over 10% of GDP. The European Organisation for the Safety of Air Navigation (Eurocontrol) has predicted that the number of flights in Europe will grow at around 3.4% per year in the next five years. By 2015 it is expected there will be a doubling of traffic in European skies driven by the growth of low-cost carriers and increased overflights to and from China.
Demand for flights could be 2.5 times higher in 20 years. The need has been identified for ten new major hubs and 15 medium sized airports and the European Commission stress the need for massive future investment, while environmental issues are also at stake. In Italy, hub airports are enjoying rising international traffic from expanding regional European routes and growing low-cost carrier business, but regional airports are capturing a larger share of the market as a result of no-frills services and more direct flights. Recently merged Air France-KLM reports a rise in operating profits for the second quarter of the year.
The House of Commons Trade and Industry Committee Report published in April 2005 presents a very positive view of the aerospace industry and its contribution to the UK economy, emphasising that it is one of the most successful sectors of UK manufacturing.
Aerospace has been successful in the early stages of bidding for support under the Government’s new general R&D programme. British Airways has had the best results in seven years, with annual profits up 80% to £415 million to the end of March 2005, beating city expectations, and despite soaring prices for aviation fuel, and cut-price competition.
Demand for passenger air transport has risen dramatically. In 1970 the total number of takeoffs and landings from the UK was 607,000, now increased to 2 million per year. In 2004, 189 million passengers travelled by air through the UK, and by 2030 it is estimated that 460 million will fly in and out of the UK. However, the speed of airport development is slow when compared to airport growth and expansion in developing areas such as Asia and the Middle East.
Embraer anticipate a future worldwide need for over 3000 aircraft in the Light Jet and Very Light Jet categories. They are introducing a new family of LJ and VLJ as they see it is essential to exploit a huge and competitive bizjet market that is expected to open up over the next ten years. The market segment is expected to expand to $33.6 billion by 2014.
The Paris International Air Show is the world’s largest aerospace showcase and networking event of the year. In June 2005 the Show looks set to bounce back from the pessimism of the 2003 Show, which resulted from an airline and business aviation slump following 9/11. This year the Show will be bigger than ever with the general upswing in civil air transport and several long-term military projects.
US Defence budget spending will equal the rest of the world combined in the next 12 months. In 2003, it reached $417.4 billion, 49% of the world’s total military budget. Meanwhile, European Air Forces are becoming operationally smaller, lighter and more powerful. New highly technical aircraft such as the Eurofighter, Gripen and Rafale are replacing phased-out classics. European air forces are busier than ever with operations in Iraq and Afghanistan and deployments elsewhere in the world including humanitarian relief.
New technology such as cockpit equipment designed to help pilots is first developed for military aircraft. Then a commercial version is developed, firstly for business jets and finally for large civil aircraft. Now bizjet passengers are benefiting from networked integrated cabin equipment (NICE), a new system developed by Lufthanza Technik offering combined cabin communication, entertainment and environment portfolio.
By using the touchscreen, passengers can gain access to a variety of IFE entertainment and management systems. In addition, flat display screens up to 42 inches wide can be installed in different parts of the aircraft for video and DVD display. The system is now being developed for the general business aviation market.
Maintenance, Repair and Overhaul
After 9/11, a global economic downturn, and SARS, the airline industry shrunk by 20%. A changed MRO market has now emerged which faces competition and restructuring. Global MRO capacity actually increased by 15% in the past 3 years. Forecasts are bright, with anticipated growth between 3% and 5% per year over the next ten years.
In the restructuring of this industry, there will be comprehensive networks of approved and one-stop aircraft on ground shops for either the entire aircraft or subsystems. These suppliers will be fewer but bigger and more innovative.
Airbus and Boeing
Airbus with its new A380 is encroaching into the ageing Boeing 747 range. Airbus claim there is a potential market for 1600 such ultra-large commercial aircraft, to meet future demands over the next 20 years. Aerospace product organisations from around the globe have contributed to its design and manufacture and it is expected to be fully operational in 2006.
Advanced technology in material and engineering will create 15% savings in operating costs. Cockpit displays are bigger, with the new built-in electronic flight bag and new plasma displays and touch screens. Airbus so far has well over 140 firm orders for the A380. Boeing meanwhile aims to capture the lucrative middle market with their new 7E7, which is designed to fly long range routes but also short range, frequent schedules.
Civil Aircraft Forecast
The market for large commercial forecast will grow in both unit production and dollar value in the near future. New competitors are emerging in the regional aircraft industry and the bizjet market is returning to growth. Continued market growth is expected in the commercial rotorcraft and fixed wing general aviation markets.
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