Asia Pacific airlines will need 12,500-to-15,000 new aircraft in the coming 20 years, say Airbus and Boeing. This demand follows 10 years of rapid industry growth, during which the region’s jetliner fleet has doubled in size, from 2,900 aircraft to 5,850, with jet operators growing 50 percent in number from 150 to 225, according to Boeing’s Current Market Outlook (CMO). Meanwhile, capacity (available seat-miles/kilometres [ASM/ASKs]) has grown annually by 7 percent as the number of airline routes to, from and within Asia has increased by 57 percent, from 2,200 to 3,800.
Airbus puts Asia Pacific as the region with highest 20-year demand: 12,600 jet airliners and freighters (including almost 5,000 in the coming 10 years), representing about 39 percent of global requirements for “close to 32,600” aircraft noted in its 2015-34 Global Market Forecast (GMF). Boeing projects a world demand for 38,050 new commercial aircraft during the next 20 years.
Asian gross domestic product (GDP) and passenger-traffic growth will drive Boeing’s estimated need for 14,330 machines worth a nominal $2,200 billion at catalogue prices, with low-cost carriers (LCCs) accounting for some 10,370 single-aisle units (see box).
Bombardier’s Commercial Aircraft Forecast for the period sees demand for 4,250 smaller regional-jet (RJ) and turboprop deliveries in the overall 60- to 150-seat segment, split three ways: Greater China 2,450, Asia Pacific 1,100, and South Asia 700, including 2,450 with 100 or more seats. The company values its predicted global requirement for 12,700 aircraft at $650 billion, with the smaller 60- to 100-seat sector remaining “one of the most dynamic” in commercial aviation.
It says that airlines in “various stages [of] development” in emerging regions will require aircraft with “various capacities and competitive operating economics to [meet] passenger demand.” Not surprisingly, the Canadian manufacturer of the recently certified CSeries single-aisle jetliner suggests that, globally, the 100- to 150-seat segment will witness a “major fleet transformation with [introduction] of new designs.”
Embraer projects an Asia Pacific 20-year market for 6,350 RJs and turboprops: 2,250 in the 70- to 90-seat class and 4,100 with 90-130 seats, together worth $300 billion. The region’s fleet of such aircraft will increase from 2,590 to 6,490 by 2034; China will require 3,810 aircraft offering with capacity for 70-210 passengers (see box), with China and Asia Pacific accounting for 38 percent of global traffic by 2034, says Embraer’s 2015-34 Market Outlook (see tables for summary of manufacturers' forecasts).
Growing trade links between countries will promote local economic prosperity and require improved air links, says the Brazilian manufacturer. It sees Australia, India, Indonesia, Japan, Malaysia, the Philippines, South Korea, Thailand, Taiwan, and Vietnam driving the region’s economic expansion.
“Greater affordability and accessibility will stimulate demand for air travel in established markets and allow airlines to expand in low- and mid-density markets,” according to Embraer. “Over the next 20 years, the market will grow 5.1 percent annually.”
Airbus sees reliance on consumer demand in developed markets and inherent vulnerability to slumps in mature economies as having prompted emerging economies to move from export- and investment-led growth models to focus on greater domestic spending. “Policy makers in emerging markets are well aware that conventional export-led growth by Asian economies is unlikely to be sustainable over the longer-term and that economic growth increasingly needs to come from domestic consumption.”
While Asia remains “very dependent” on exports, Airbus expects domestic sources of growth, particularly private consumption, to play a larger role. “Asia Pacific will continue to have high economic growth, mainly due to openness to trade, high domestic saving, and a relatively well-educated and disciplined labor force, factors [that] will continue to attract the bulk of global foreign investment.”
The manufacturer cites forecasts that see the Asia Pacific continuing to lead global economic growth in real GDP and in trade. “The region is also destined to become the dominant manufacturing center and main consumer of non-oil primary commodities.”
Despite slower than anticipated world economic recovery, Bombardier expects demand for new aircraft, with replacements in established markets and growth potential in areas such as Greater China and South Asia predicted to lead deliveries. For Airbus, sharply lower oil prices are expected to support “long-awaited acceleration in global economic growth,” with the “big beneficiaries” including major net importers of oil such as China, India, Japan, and South Korea.
Nevertheless, that acceleration will likely not be spread equally, even within sub-regions with the highest growth: rather, Airbus sees metropolitan locations as the main beneficiaries as long-haul traffic continues to concentrate around so-called “mega-cities” – aviation hubs with more than 10,000 long-haul passengers/day. In Asia Pacific, for example, the top 20 largest airports account for almost 50 percent of total traffic, and the region will involve “half of 2034’s top 20 traffic flows,” according to the GMF. The region also contains the world’s sixth- to tenth-largest mega-cities, which rank below London, three other unidentified “advanced world” locations, and Dubai in the Middle East.
Seeking to quantify the scale of traffic, Boeing sees “a billion passengers” a year currently travelling to, from, or within Asia, with “more than 100 million” new passengers projected to enter the market annually. The manufacturer reports that Asia is “expected to be the [world’s] largest travel market, growing at 6.1 percent annually,” driven over the next 20 years by 4.3 percent/year regional GDP growth that will be mixed among mature, developing, and emerging sub-markets.
Embraer says that liberalization in Asia, which has been concentrated in links between large cities, will play a key role in the development of non-trunk routes, as 70 percent of low-density intra-regional markets have no non-stop flights. “Further liberalization is needed to fully realize the wholesale effects of connecting medium and smaller communities,” concludes its forecast. Airbus predicts that 60 percent of Asia Pacific traffic will be intra-regional by 2034, compared with 2014’s 55 percent, a proportion strongly driven by trade and immigration.
Analyzing traffic flows, Boeing notes that the region’s full-service carriers–which include “large, old, and well-regarded” operators that tend to have major hubs for domestic, regional, and international services and large, complex fleets–are slowly beginning to change. “Traditional Asia Pacific network carriers are evolving to satisfy passenger needs, continually upgrading their fleets for efficiency.”
Operators such as Australia’s Qantas, Singapore Airlines, and Thai Airways International have created their own LCCs that in some cases are making inroads into traditional business areas. Airbus says LCC penetration into domestic markets in emerging Asian countries accounts for nearly 60 percent of capacity, while among domestic markets in the Indian subcontinent it is almost 65 percent.
Outside regional services, Boeing’s forecast says that growth in Chinese long-haul operations since 2010 has been 18 percent, while that in Japan has been half that rate; such market dynamics will drive demand for twin-aisle jetliners in the region to 3,590 machines by 2034.
Beyond passenger services, Airbus recognizes that air cargo plays a crucial role in Asia, which is home to many of the “largest and most efficient” operators. The market is expected to grow by 5.7 percent/year, leading to regional requirements for 380 new freighters and 570 converted machines, according to the GMF.
The manufacturer's predictions see express cargo continuing to develop more rapidly than general cargo, driven partly by domestic and regional traffic in emerging areas such as China and Southeast Asia. Medium-haul regional cargo traffic will “surge,” with development of cargo networks in regions such as intra-Asia, concludes the European manufacturer
China shop
Three decades of rapid economic growth in China have established a thriving middle class, according to the Airbus 2015-34 Global Market Forecast. Boeing expects that this growing population group, complemented by “new visa policies and the underlying strength of the country’s economic growth” will lead Chinese expansion “to continue and, in fact, accelerate.”
The decade between 2004 and 2014 saw China increase its share of the region’s traffic from 23 percent to 31 percent, while airlines domiciled in the country raised their capacity from 26 percent to 33 percent, says Airbus.
With the region being home to five of the 10 largest “mega-cities”–aviation hubs with more than 10,000 long-haul passengers daily–China’s biggest hubs at Beijing and Shanghai will see 2015-34 traffic growth of 400 percent “and it is estimated that they will become larger than London” was in 2014 (120,000 long-haul travellers/day), according to Airbus.
Such increasing traffic will stimulate 20-year demand for 6,330 new airplanes nominally worth $950 billion, says the Boeing Current Market Outlook: “China’s commercial airplane fleet will nearly triple: from 2,570 airplanes in 2014 to 7,210 airplanes in 2034, with more than 70 percent of these deliveries accommodating growth.”
The U.S. manufacturer foresees the country becoming “the world’s largest domestic air travel market,” with a requirement for 4,630 single-aisle airplanes in the period, with Chinese low-cost carriers’ share of single-aisle market demand rising from 8 percent to 25- to 30 percent by 2034. Meanwhile, China’s twin-aisle fleet will need 1,510 new machines, led by small and medium-size units, says Boeing, which notes that Chinese airlines have “more than doubled” international long-haul capacity in the past three years.
Confirming the positive long-term outlook for China, with 5.6 percent annual GDP growth driving a stronger 7 percent annual traffic increase through 2034, Embraer adds a cautionary note that “the Chinese economy continues to show signs of gradually slowing.” The Brazilian manufacturer of regional and short-haul aircraft points out the value to that industry of Chinese government policies designed to develop the economies of the country’s western region.
“The Civil Aviation Administration of China plans to construct more regional airports to improve the operation and management of the [airline] system [and] is encouraging the introduction of regional aircraft by offering subsidies,” notes Embraer. “The current five-year plan identifies 70 new airports and feasibility studies for 28 more.”
Airbus says that western China “will experience higher [growth than eastern areas] within the next decade. This movement of economic activity westward should be mirrored by aviation development.” For Embraer, that means start-up airlines will exploit opportunities to grow quickly from small bases where there are sufficient time slots and subsidies from local governments.
“As the country becomes more integrated and major airports congested, airlines will be further encouraged to look to secondary markets as the next frontier for expansion. Efficient regional integration requires both smaller aircraft and a fleet that is flexible to serve a range of missions,” concludes Embraer. “Access to air travel will grow throughout [China], but it will increase twice as fast in second- and third-tier cities, especially in the countryside.”
Regional fare
Asia Pacific has seen particularly successful application of low-cost carrier (LCC) business models, says Boeing. LCCs in the region have generated a 24.5 percent 10-year average annual growth, compared with Europe’s 13.4 percent/year and North America’s much more modest 2.2 percent rate, according to its Current Market Outlook. In Southeast Asia, LCCs are flying nearly 20,000 weekly flights, while Japan’s large high-speed rail network and ageing population have contributed to slower growth among such operators in northeast Asia.
In contrast, Airbus notes “various levels of growth in [Asia Pacific] LCCs in recent years. Operators in the Indian subcontinent and what the manufacturer terms “Asia Emerging” have captured close to 65 percent and 60 percent of total domestic traffic, respectively, while their market share in “Asia Developed” and Australia and New Zealand have remained below 25 percent.
The manufacturer says that new LCCs in Asia Emerging benefit from there being fewer incumbent airlines, the growth in new flyers, and developing liberalization. However, this has been offset within, or between, developed countries by a narrowed gap in recent years between LCC and full-service carrier “product offerings” and business models.
“China is the latest region to embrace the LCC model, with a large increase in the number of entrants in the past two years,” says Boeing. Airbus says that Chinese LCCs have captured greater than 10 percent market share intra-regionally, but less than 5 percent domestically.
The large inflow of Asia Pacific LCC capacity (available seat-miles/kilometres) in the past 10 years has influenced ticket prices and created a vicious cycle, according to Embraer: “Lower yields force lower unit costs, leading to larger aircraft that add more capacity which, in turn, [reduce] load factors that promote even more fare discounting. As a result, yields have been declining.”
Embraer sees profitability as remaining “elusive for Asian carriers facing the challenge of surplus capacity, even though most economies across the Asia Pacific region continue to grow. The marginal cost of flying an extra seat is often higher than the lower fare it generates and ever-lower fares induce the need for ever-lower costs,” concludes the manufacturer's 2015-34 market outlook.
Footnote
*It would be unwise to analyze the four forecasts too closely, however, since the manufacturers appear not to share a common geographic definition of Asia (or Asia Pacific). For forecast purposes, Airbus uses the generic “Asia Pacific,” while its accompanying commentary refers to “Asia Advanced,” “Asia Developed,” and “Asia Emerging” sub-markets. Boeing’s outlook says “Asia,” comprising China, the Indian subcontinent (“south Asia”), and Australia and NZ (“Oceania”) elements, but sometimes excludes China from Asia observations. Bombardier has three forecast areas: Asia Pacific, Greater China, and South Asia; while Embraer’s forecasts for the region are divided into Asia Pacific and China (including Hong Kong, Macau, and Mongolia).
