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The starting point for any aircraft demand forecast is a clear understanding of the issues driving air transport and the way in which they affect future air traffic. Airbus’ traffic forecast process is based on four major building blocks: detailed market research, suitable market segmentation, targeted use of econometrics and detailed network development analysis. The latter being particularly important, as it provides a systematic view on how the route structure of the world’s air transport system will evolve, based on true passenger origins and destinations. The 2007 Airbus Global Market Forecast (GMF) analyses a total of 155 distinct domestic, regional and intercontinental passenger sub-markets, segmented according to their degree of maturity and specific characteristics over time. Economic developments can be measured by several macro economic variables including Gross Domestic Product (GDP), exports, imports, unemployment rate, inflation, private consumption and disposable personal income. For each edition of the GMF and each traffic flow, the final permutation of independent variables that are selected follows the testing and statistical evaluation of numerous possible combinations. Most often for developing and matured markets, the statistical model that best fits the historical traffic provides the best explanation of future trends and is, therefore, the one selected for use in Airbus’ aircraft demand model. In some market segments, classic econometric modelling is not sufficient to adequately forecast traffic growth and the use of hybrid models is required. For example, in Asia, the development of Low-Cost Carriers (LCCs) is driven by the pace and timing of deregulation within each country and of liberalisation between others. In Mexico, a portion of air traffic growth depends on the number of people switching from the popular bus network to air transport, which is a consequence of lower airfares and improved journey times. In the maturing LCC markets of North America and Western Europe, the LCC growth will ultimately depend on the number and size of new routes still to be opened, on an economic and sustainable basis. Good examples include the growth witnessed in India, which although undoubtedly influenced to some extent by classic econometric drivers such as economic, trade and population growth, have also benefited from increased access to air transportation, either through new destinations or simply through greater affordability as a result of deregulation and competition. These positive developments have been made possible by the actions of regulators keen to take advantage of the benefits of air transportation. Sensitivity analysis is useful to understand the impact that variations in certain economic conditions could have on the baseline traffic forecast. To illustrate this, below are two examples of sensitivities showing possible conditions that are worse and better than the most likely case of the GMF. Economically driven downturns in demand are a historical fact in the air transport industry and are often exacerbated by exogeneous events such as war, terrorism and disease. However, these lows have generally been relatively short lived, after which the trend towards strong growth has been resumed. In order to accommodate demand, airlines have successfully increased their aircraft load factors, which are currently at an historic high, indicating the focus being placed on capacity management. This is important, because it affects the financial gain of the airline and the environmental impact of air transportation: the more seats that are filled on a flight, the more efficiently it moves people around the world. Monitoring the load factor is also a useful way to check that capacity or supply is not being added too quickly, which could create an inefficient overcapacity in the market place and result in possible pressure on airline yields as airlines seek to fill the extra seats, through reduced ticket pricing. The world’s airlines reported an average load factor of 76% on total scheduled services in 2006. A particularly strong improvement occurred in North America, where airlines from the Air Transport Association (ATA) reported average load factors of 80%. European and Asian load factors have also improved, averaging record highs of 77% and 76% respectively. This trend has continued, with ATA airlines reporting an average load factor of 81% for the first seven months of 2007 and the Association of Asia Pacific Airlines (AAPA) reporting progressively higher average load factors of 77%. While some improvement is still possible in certain regions, the number of full aircraft operating on most flows today suggests that significant further improvement is unlikely. In the coming years, Airbus expects the main drivers of worldwide traffic growth to include:
There are now more than 100 LCCs in the world, representing 20% of the total global market in terms of seats offered. While the LCCs in North America are still growing, the network airlines have stabilised their market share, even improving their position in some markets. In Western Europe, the LCCs are beginning to mature. However, there is still considerable growth potential towards the eastern and southern parts of Europe. The market share of Asian LCCs grew from 5% with less than ten airlines in 2004 to 12% with 43 airlines in 2007, if the new Chinese domestic carriers are considered as LCCs. Given that most Asian domestic and intra-regional markets are still in the early stages of development with limited incumbency, it is likely that Asian LCCs could even, in time, exceed the share of capacity achieved by LCCs in both Europe and the US. So far, most of Asia’s LCCs have developed within the region’s own deregulating domestic markets. While there is still potential for the development of new domestic routes, there is thought to be much larger growth potential on the intra-Asian markets. The pace of growth in these markets will largely depend on the pace of liberalisation between countries in the region. For example, the Association of South East Asian Nations (ASEAN) is planning to have ‘open skies’ from 2008. The time will come when other obvious markets such as the ASEAN to PRC market will offer considerable potential for LCC development. With the exception of the Australia to Japan market, most intra-Asian markets are still practically untouched by LCCs. Amongst these relatively untouched markets, one stands out: the Chinese-Indian market. With more than one billion people on each side, a formidable industrial and service power base, aspiring populations and with no real substitute to air travel due to the natural barrier of the Himalayas, the Chinese-Indian market is likely to be the champion of all high potential intra-regional markets. As the historical, political and social differences lessen and common interest grows on both sides, a powerful and enduring, broad based bilateral co-operation is being shaped. The potential is further highlighted by the comparison with other economic powerhouses that have also, at times, overcome differences and competitive pressures. For example, the combined population of Brazil and Argentina is ten times smaller and their combined GDP 2.5 times smaller than the combined values of China and India, yet today air traffic between them is almost ten times bigger. The political will to develop closer socio-economic ties that started in 2003, has driven trade worth US$3 billion in 2000 to US$25 billion in 2006, an average annual increase of 45%. India became China's tenth largest trading partner in 2006, while China is India's second largest trading partner. India to China trade is likely to overtake India’s US$30 billion trade with the US in the very near future. This relationship continues to develop in both scale and scope, with more value-added goods being traded. There is no doubt that the economic dimension of this partnership will promote tourism and business between the two countries and that air traffic is likely to benefit from and support this growth. This is especially true for China to India tourism and business travel. The number of visitors travelling from India to China has already taken off over the last ten years with 430,000 people making the journey, in comparison to 55,000 Chinese people visiting India. Indeed, since 2000, China has emerged as one of the top destinations for students and people with small businesses in India. The volume of Chinese visitors to India has still to pick up the momentum seen in the other direction, but it promises to grow faster as the Indian infrastructure, which is the major impediment, develops further. In the next 20 years worldwide Revenue Passenger Kilometres (RPK s) will grow at an average of 4.9% per annum. Among the largest submarkets, annual RPK growth on domestic Indian and PRC flows is expected to average 11.5% and 8.4% respectively. This reflects increasingly optimistic projections for economic growth in these countries, as well as a growing tendency for their populations to travel by aircraft. Growth will also be driven by increased wealth and improved access to air transportation generally. Some other markets linked to the Indian Subcontinent are expected to grow strongly, with an average annual RPK growth of 8.0% for the Indian Subcontinent-US market and 7.5% for the Asia-Indian Subcontinent market for example. For other, more mature markets, such as the domestic US and the intra-European market, Airbus forecasts average annual RPK growth of 2.4% and 3.8% respectively. Although these seem to be relatively small numbers, they are still significant due to the already high levels of traffic in these regions. In addition, the combined Middle Eastern traffic flows are expected to expand rapidly, with 6.5% annual growth to 2026. Flows from and within the Commonwealth of Independent States (CIS) will generate 6.3% average annual growth. Africa and Latin America are expected to increase by 5.8% and 5.3% respectively over the next 20 years. Flows that involve North America and Europe are also expected to remain significant. Seven of the top ten flows, in terms of actual traffic added, are forecast to involve the US, Western Europe or both. However, traffic within China is now expected to add more RPKs than any other flow in the next 20 years, with the domestic and intra-European flow next in order of importance using this measure. The two largest traffic flows of the last 20 years, domestic US and intra-Western Europe, will remain so, for at least the next 20 years. However, the progress made by Chinese flows is equally clear. The country’s domestic flow moved up from seventh place in 1995, to fourth in 2006 and is expected to be the third largest by the end of 2026. Flows from and to the Middle East are also expected to become more important, with growth driven by rapidly developing business and leisure opportunities, as well as the region’s aspiration to become a ‘world hub’. In particular flows from the Middle East to Europe will move up through the rankings to the ninth position by 2026. As a consequence, airlines based in the Middle East and Asia, which will grow by an average of 6.8% and 6.1% respectively, are expected to develop their traffic more rapidly than those based in other regions. This is fuelled by the aspirations of airlines and in some cases the countries themselves, as well as by access to burgeoning markets driven by liberalisation and a growing propensity to travel. The biggest change will be traffic becoming much more evenly shared across the world, with Asian airlines forecast to almost triple their traffic to represent 31% of world traffic by 2026. |
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