Airbusglobalmarketforecast 2009 - 2028

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Airbusglobalmarketforecast 2009 - 2028

  1. 1. 2009 - 2028Flying smart,thinking big
  2. 2. True innovation can be difficult to see,but the identification and delivery of technologicalbreakthroughs are critical if the aviation industryis to develop a sustainable future for the spanof this GMF and beyond.This is particularly true in the field of alternativeenergy, so the cover of this years forecastis a graphical representation of oneof 200,000 species of algae availablefor research into aviation bio-fuels thatdo not raise conflicts, such as diverting resourcesfrom food production.The sheer number of possibilities for algaeand the challenges ahead to realise their potential,are useful reminders that resource and timeare arguably more important thanthe original idea when it comes to findingthe best result for all.True innovation can be difficult to see,but the identification and delivery of technologicalbreakthroughs are critical if the aviation industryis to develop a sustainable future for the spanof this GMF and beyond.This is particularly true in the field of alternativeenergy, so the cover of this years forecastis a graphical representation of oneof 200,000 species of algae availablefor research into aviation bio-fuels thatdo not raise conflicts, such as diverting resourcesfrom food production.The sheer number of possibilities for algaeand the challenges ahead to realise their potential,are useful reminders that resource and timeare arguably more important thanthe original idea when it comes to findingthe best result for all.
  3. 3. 2009 - 2028
  4. 4. 12 Demand for air travel30 Traffic forecast56 Demand for passenger aircraft142 Air cargo forecast154 Summary tables
  5. 5. ExecutiveUnderlying demand strongOver time, a number of significant developments haveinfluenced passengers and airlines, affecting the shapeand direction of the aviation industry, as well as deter-mining the level of future demand for air transportationaround the world.The latest development has clearly been the recent eco-nomic downturn, which has given everyone in theindustry cause to reassess their business in light ofthe prevailing competitive and operational environment.These include such drivers as fuel price, finance availa-bility and even aircraft product offerings. What forecas-ters must decide is whether these changes significantlyimpact the long-term trends of the industry. The goodnews is that, despite bringing difficulties that can rangefrom falling demand, load factors, yields and profitability,such cycles are generally relatively short lived comparedto the timescales considered for aircraft investment andfleet turnovers. In addition, the industry can be subtlychanged for the better as a result of efficiency improve-ments introduced to beat the downturn. This meansthat when recovery comes, it is generally stronger andBackgroundStrong demand,benefiting people,innovationguaranteed
  6. 6. Global Market Forecast 7Summarymore far reaching than the downturn.There is no doubt that the major reason the industryhas always recovered its upwards trend is the strongunderlying demand for the benefits that air transportbrings to the world, its economies and, most impor-tantly, to its people.Real benefits for real peopleWhile the cost of air travel in environmental terms is welldocumented, including the 2% contribution to manmade CO2 emissions, little is said on the benefit side ofthis equation. In monetary terms alone, aviation contri-butes more than some G20 countries to world GrossDomestic Product (GDP). These benefits are not merelyat a macro level; they permeate through the fabric of21st Century living, benefiting increasing numbers ofpeople from every corner of the globe. Aviation contri-butes to trade, by offering access to more lucrative andgeographically disparate markets; to investment, bynurturing internationalisation through greater access toskills and resources; to productivity, by stimulatingand encouraging competition, innovation and greaterefficiency; and to tourism, by facilitating a commercialexchange between travellers and regions where econo-mic growth could otherwise be limited.What is often crucial for all of these elements, is thatpeople come face to face, developing and reinforcingtrust and gaining the kind of knowledge and understan-ding of cultures, individuals, markets and places thatcan only be gained by physically being there.Innovation for passengers, airlines and theenvironmentBut underlying growth must be balanced with a sustai-nable future. The last 40 years have seen aircraft fuelburn and emissions reduced by 70% and noise by 75%,but this is not to say that Airbus, or indeed the rest of theindustry, will sit back for the next 40 years and donothing. Innovation remains the key and ambitious tar-gets have been set with an almost zealous desire toimprove fuel burn and resulting CO2 for our two biggestconcerns, our customers and our world.
  7. 7. Despite the economic crisis, markets in the emergingeconomic nations are expected to continue to growover the next 20 years; their economies and demogra-phic developments both driven by and benefiting fromair travel. Continued global liberalisation is giving grea-ter market access to airlines and wider choice for pas-sengers. Low-cost carriers will also continue to growaround the world, but particularly in Asia, while the net-work airlines will benefit from demand on the importantinternational markets and a wave of new internationaltravel consumers from the emerging countries.Changing dynamics, particularly network evolution andthe role of mega-cities and congestion, are influencingthe future of aviation. All of these drivers were taken intoconsideration when developing this edition of the AirbusGlobal Market Forecast (GMF).The highlightsFreighterfleetPassengerfleetNew deliveries24,951Recycled3,134Retired8,453Converted2,58524,097 8547,147 1,306Passenger aircraft >100 seats24,951 new passenger andfreighter aircraftdemand overthe 2009-2028 periodThere is no doubt that the financial turmoil of 2008 andthe resulting downturn in the world economy, hasimpacted passenger demand and traffic growth in theshort term. However, over the 2009-2028 period cove-red by this forecast, the downturn represents a fairlyshort timeframe. Therefore, overall world passengertraffic is expected to increase by 4.7% per annum andthe number of frequencies offered on passenger routeswill more than double. Faced with increased competi-tion and fluctuating fuel costs, airlines have alreadyachieved considerable productivity gains. Today, veryfew seats are “wasted”, with very high load factorsacross most major markets and flows expected onceagain as the market recovers over the coming months.When downturns start to bite, as with fuel prices,congestion falls down the list of priority issues for manyin the industry. But unfortunately, this means a return todelays, waste and cost as markets recover. This is anissue for passengers, airlines and many of the world’smost important airports and cities. Any future growth oftraffic and frequencies will once again be an increasingchallenge to airport infrastructure and air traffic mana-gement. Using larger aircraft, with their reduced costsper seat both in terms of cash and CO2, is a commonsense solution to congestion. There are already signs ofthis today, with average aircraft sizes increasing acrossall categories, from smaller regional aircraft to very largeaircraft. This will result in the average aircraft size increa-sing by as much as 26% over the next 20 years.This GMF assumes that all necessary infrastructureimprovements, including those already planned, will beundertaken during the forecast period. However, giventhe substantial investments and time required to carryout such developments, there is the possibility that notall the changes necessary may be achieved. Combinedwith the need to reduce seat mile costs to cope withdeveloping competitive and environmental pressures,this could cause average aircraft size to increase evenmore than currently forecast. Therefore, airlines couldbe forced to acquire more, larger aircraft, across thewhole spectrum of those available, to meet demandefficiently and to fly smarter.The trafficAverage aircraftsize will needto growin the future
  8. 8. Global Market Forecast 9The world’s fleet, which includes both passenger (from100 seats to very large aircraft) and freighter aircraft, willgrow from 15,750 beginning of 2009 to nearly 32,000 by2028. At the same time, some 14,442 aircraft from theexisting fleet will be replaced by more eco-efficientmodels. Of these, 3,134 will be recycled back intopassenger service, where they too will replace an oldergeneration model with another airline. It is also forecastthat 2,585 aircraft will be converted to freighters and theremaining 7,417 will be permanently retired or withdrawnfrom service, with increasing numbers decommissionedthrough environmentally sensitive programmes, such asthe Airbus PAMELA project. The Airbus forecast conti-nues to predict that the greatest demand for passengeraircraft will come from airlines in the United States, thePeople’s Republic of China and the United Kingdom, withits mix of global, low-cost and charter airlines. Europe willreceive 25% of the total, with North America and Asia-Pacific taking 23% and 31% respectively. In addition, theworld’s airlines will require more than 6,000 smaller air-craft, either jet or turbo-prop, (with 19 to 100 seats) toserve regional demand, especially in the US and Europe.While traffic demand will nearly triple, airlines will morethan double their fleets of passenger aircraft (with over100 seats) from 14,016 at the beginning of 2009 to28,111 in 2028.This will include deliveries of 24,097 new aircraft. Some17,000 of these will be single-aisles for domestic andintra-regional flows, which is more than in previous fore-casts due to the emergence of low-cost carriers andincreased liberalisation. A large number of aircraft,where new products must deliver even greater benefitsto passenger airlines and the environment, and a stepchange beyond those on offer today.The fleetAs many as 5,802 twin-aisle passenger aircraft willbe required to serve the existing, mainly internationalmarkets created largely by growth on existing city pairs,flows from and within emerging markets and the addi-tion of new routes. Around 1,318 very large passengeraircraft will be needed to link the 32 dynamic hub cities.It should be no surprise that more than 50% of theworld’s fleet of very large passenger aircraft will be ope-rated by the airlines in the Asia-Pacific region. With itshuge population increasingly concentrated in impres-sive and vibrant cities, more and more people have theeconomic ability as well as the desire to fly among thesedestinations.Freight traffic is expected to grow at 5.2% per annum.Combined with fleet renewal, this will create demand for3,439 freighter deliveries, 2,585 of which will come fromconversions and 854 of which will be new generationfactory-built freighters, mainly long-range or regionalfreighters.Overall, this means that by 2028 the world’s airlines willtake delivery of 24,951 new passenger and freighteraircraft, worth US$3.1 trillion at current list prices. Mostof this business will be generated from single-aisle deli-veries, while 1,729 large passenger and freighter aircraftwill account for 19% of total aircraft delivery value.Despite concerns about aircraft deliveries following theeconomic downturn, strong underlying demand willemerge with the recovery, which means airlines requirean average of 1,248 new, eco-efficient aircraft deliveriesper year over the next 20 years. Combined with thedecommissioning of older generation aircraft, this willgradually reduce the average fuel consumption of theworld’s fleet to less than three litres per 100 seat kilo-metres, already achieved by the A380 today.> 14,000aircraft to bereplacedby eco-efficienttypes
  9. 9. The environmental impact of aviation will remain smallcompared to other modes of transport and othersources of man-made emissions, with the benefitsundeniably large. However, Airbus and the rest of theindustry is determined to minimise and even reduce theenvironmental impact of aviation at every opportunity,while maximising the contribution that it can make tothe quality of life, to better cultural understanding, togreater learning, and to fair and sustainable economicgrowth.And that contribution is considerable. In 20 years, airtransport will directly employ some 8.5 million peopleand contribute $1 trillion to world GDP. Measuringacross aviation, its supply chain, the spending ofemployees in these businesses and the contribution airtransport makes to tourism, this will grow to 50 millionjobs and US$3.6 trillion of GDP; even more when youconsider the impact of other industries dependent onaviation that are harder to measure.In the future...However, should growth in passenger and cargo trafficbe one percentage point lower than currently forecast,the contribution to GDP would be reduced by US$600billion and the number of jobs would be reduced by6 million, including around 2 million in Asia-Pacific, 1.5million each in Europe and North America, 400-500thousand each in Africa and Latin America and over200,000 in the Middle East.In this long-term industry, where demand and resultinggrowth will drive the need for more aircraft, and wherethe stakes are so high for the millions of people whodepend on it, aviation must continue to innovate. Itmust take the path with the most potential for custo-mers and the environment, even if it is not necessarilythe shortest, cheapest or easiest. Anything else wouldbe irresponsible.New aircraft demand willaverage 1,248 per yearPassenger and freighterdeliveries worthUS$3.1 trillion04,0008,00012,00010,0006,0002,00014,00016,00018,000Single-aisle& small jetfreightersSmalltwin-aisle& regionalfreightersIntermediatetwin-aisle &long-rangefreightersLargeaircraft &largefreighters% unit:1,7297%2,0088%4,23717%68%16,977*Passenger aircraft >100 seats + freightersNumber of new aircraft*04008001,2001,0006002001,400Single-aisle& small jetfreightersSmalltwin-aisle& regionalfreightersIntermediatetwin-aisle &long-rangefreightersLargeaircraft &largefreighters% value:57119%48215%81927%39%1,206US$ (billions)Air transportto employ millionsand contributebillions in next20 years
  10. 10. Global Market Forecast 11Top ten countries (2009-2028)1 United States2 People’s Republic of China3 United Kingdom4 Germany5 India6 Russia7 Ireland8 Australia9 Japan10 BrazilPassenger aircraft demand5,0963,2721,2291,1751,0931,004615551548542United StatesPeople’s Republic of ChinaUnited KingdomIndiaGermanyJapanUAERussiaSingaporeAustraliaBy US$ value (billions)450.3439.5154.0141.5141.4114.298.289.979.374.2New and recycled passenger aircraft >100 seats (excluding freighters)Total new deliveries by region2019-20282,458% of worlddeliveries23%North America2009-20182,9932019-2028766% of worlddeliveries7%Latin America2009-20188922019-20283,949% of worlddeliveries31%Asia-Pacific2009-20183,7232019-2028455% of worlddeliveries4%Africa2009-20184742019-2028689% of worlddeliveries6%Middle East2009-20187302019-2028447% of worlddeliveries4%CIS2008-20184542019-20283,192% of worlddeliveries25%Europe2009-20182,876Passenger aircraft >100 seats (excluding freighters)
  11. 11. Demand for air travel
  12. 12. Aviation growth :more than justWhile much has been discussed about the environmen-tal impact of aviation, its 2% contribution to man-madeemissions and the fact that it will contribute up to 3%by 2050(1), little has been said about the socio-economicReal benefits for real peopleAviation plays an important role in today’s world,supporting social and economic development in bothemerging and established nations.While the impact of the aviation industry and its supplychain is considerable in itself, the indirect benefits areeven more significant, as air transport facilitates growthfor many other industries around the world; deliveringreal benefits for real people that can be measured ineconomic output, jobs, and the wealth and prosperity itbrings to communities and individuals.For example, by 2026 it is estimated that the air trans-port industry will directly contribute around 8.5 millionjobs and US$1 trillion to the world economy. Taking intoaccount the indirect and induced contributions, the airtransport industry is expected to contribute around 23million jobs and US$2.6 trillion. Adding the contributionof the air transport industry to tourism raises the contri-bution of the air transport sector to more than 50 millionjobs in 2026 and to around US$3.6 trillion of GDP.Beyond this there is a wide range of benefits that are justas tangible but are harder to quantify, which magnify theimmediate social and economic impact considerably.Broadly speaking, this can be seen in terms of:Trade: offering access to more lucrative and geographi-cally disparate markets;Investment: facilitating internationalisation and providingaccess to skills and resources,Productivity: stimulating and encouraging both competi-tion, innovation and greater efficiency,And tourism: facilitating a commercial exchange betweentravellers and regions where economic growth couldotherwise be limited, as well providing essential fundingand incentives for the protection of biodiversity.benefits the industry brings or the role it plays in preser-ving biodiversity through dependant activities, which canactually help reduce overall man-made CO2 emissions.(1) United Nations Inter-governmental Panel on Climate Change (UN IPCC).Balancing benefits and costs
  13. 13. Global Market Forecast 15aircraftTrade is an important element of economic growth,which leads to better living standards, and 35% of worldtrade by value is transported by air.For many developing countries, air transport provides anessential link to wealthier markets. Research by theInternational Trade Centre (ITC) on the impact of banningair freighted organic produce to the UK in response toenvironmental concerns showed that some 79% of suchimports are from poorer countries of the world, includingKenya, Ghana and Zambia. And according to the UK’sDepartment for International Development (DFID)"Almost a million African farmers and their families relyon the fruit and vegetable trade with the UK...this is anexport trade success story … and it’s one of the reasonswhy African economies are growing around 5%”. In factthe UK trade alone injects over $200 million into ruralAfrican economies each year, while accounting for just0.2% of UK’s carbon emissions.As manufacturing in developing nations evolves and thevalue of the goods produced increases, so too does theuse of air transport. For example, 40% of high-techsales are dependent on air transport.Since World War II, the reduction of trade barriers has seenglobal trade increase more than 20-fold and world incomesmore than 6-fold. Aviation enables easier, more global tradeand highlights the need to reduce such barriers even fur-ther, with improvements in shipping times (both air and sea)adding value equivalent to reducing trade tariffs from 20%to 5.5% between 1950 and 1998. In addition, the speedof transportation, for which aviation cannot be surpassed,is an important determinant for entering an export marketand for the volume of trade that can be achieved. It hasbeen estimated that one-day saved in shipping timeglobally is worth more than US$100 billion and a 20-dayshipping time is equivilent to slapping a 16% tariff onimports; in this case, time quite literally is money, with avia-tion key to future timesaving.The express delivery industry provides fast, reliable,traceable door-to-door delivery of shipments. Aviation iscritical to express delivery as it allows the industry tooperate longer domestic or international routes anddeliver goods to places where alternative transport linksare not as good.Oxford Economics estimates show that in 2005 theexpress delivery industry supported 2.65 million jobsworldwide. However, the impact of the industry extendsbeyond this, through its effect on stimulating internationaltrade. The speed of express delivery enables internationaltransportation of perishable goods, e.g. pharmaceuticals,fruit, flowers etc. Reliability of delivery meanwhile encou-rages and facilitates international ties between customersand suppliers. Express delivery is crucial to ‘just-in-time’production and repair, allowing customers to get sub-components or spare parts quickly and at short notice,potentially sourcing them from overseas. On a macroeco-nomic level, the express industry stimulates internationaltrade by encouraging the specialisation of production indifferent countries.Surveys of companies around the world confirm theimportance of express delivery. A survey in Italy found thatwithout guaranteed international next-day delivery, about7% of Italian firms would possibly have to relocate someof their operations to another country. In a survey ofChinese companies three-quarters reported that custo-mers were demanding faster and more reliable delivery ofproducts. The express delivery industry is therefore crucialto Chinese exports. Likewise, 76% of businesses in theCity of London consider express parcel services critical orimportant to the smooth running of their operations.Demand for air travelThe express delivery industry:how a speedy high flyer delivers thegoodsBenefitingtrade
  14. 14. Air transport is one of the key links between countriesand their major “hub” cities, helping to create and sus-tain international markets, investment and business.As a clear indication of this, when top companies wererecently asked to rank the cities that are the mostdesirable locations for doing business, the highestranked also ranked top for the quality of air transport.In another survey, of over 600 companies from 5 coun-tries carried out by IATA, 63% of firms stated that airtransport networks are “vital” or “very important” forinvestment decisions. If the network was constrained,30% said it would be highly likely they would invest less.Many companies search the world before decidingwhere to site new research and development activities.India, particularly Bangalore, is fast becoming recogni-sed in the IT world as a suitable venue, with companiessuch as Siemens, Samsung, Dell, GM, HP and IBM allestablishing themselves in the region. Not only wouldthis activity be difficult without air transport, but withoutit the search may never have reached Bangalore in thefirst place.This trend of investment in air transport subsequentlygenerating investment in a diverse range of other indus-tries is particularly visible at the new Dube Trade Portin South Africa (see panel opposite).Benefiting investmentGood business locationsneed good air transportlinksExternal transport links rankBusiness location rank350510152025303530 25 20 15 10 5 0Source: European cities monitor 2007,Cushman & Wakefield, AirbusStockholmBudapestAthensHelsinkiLondonParisFrankfurt
  15. 15. Global Market Forecast 17Demand for air travelAs well as its direct impact on GDP, the DTP is designedto have catalytic benefits in terms of local economicempowerment, competitiveness and skills development.And, given the tourism ambitions of the project, relatedefforts to eradicate malaria from destination areas havedelivered significant health benefits to the local popula-tion.It is hoped that South Africa has almost reached the daywhen the country’s trade and tourism prospects willbe freed of the curse of malaria. South Africas naturalresources make it an ideal destination for many internatio-nal visitors. Its competitive tourism advantages are many:accessible wildlife, varied ecosystems, impressive sce-nery, unspoiled wilderness, diverse cultures, temperatesunny climate, and the absence of jet lag from Europe.In addition, the KwaZulu Natal region boasts uniquearchaeological sites and battlefields, the availability ofexcellent conference, exhibition and sporting facilities.To take advantage of such attractions, the building ofKing Shaka International Airport at DTP and the potentialit offers for direct flights from key markets, is a centralpart of the strategy to increase the flow of tourists to aregion. The FIFA World Cup in 2010 provides a majorincentive to have construction complete and the airportoperational.Thanks to the success of regional anti-malaria cam-paigns, the local KwaZulu Natal authorities now believethey have taken large strides to guarantee visitors immu-nity from the age-old disease that has long blightedthe continent of Africa.Airport development as an integral part of social and economic developmentinitiatives in South AfricaThe Dube TradePort (DTP) is a strategic and critical infra-structure investment, which aims to serve as a majorcatalyst for economic growth in KwaZulu-Natal andSouth Africa. The development demonstrates the cen-tral role that improved air services play in facilitating sus-tainable economic growth, widening the developmentoptions available and spreading prosperity. The creationof a new airport will be integral to improvements in pro-duction processes, trade stimulation, foreign directinvestment, natural habitat preservation and the deve-lopment of tourism.A new fully-integrated international passenger andfreight airport is to be constructed as part of the overallDTP development initiative. Included in the plans is atrade zone that will be linked to the airport’s freightfacility, providing scheduled space for the import andexport of high-value goods through KwaZulu-Natal. Byproviding state-of-the-art air freight handling facilities,comprising a cargo terminal and a perishables centre,the trade zone is seeking to attract industries such asmotor components, electronics, clothing and textiles,perishables and value-added logistics, which are criti-cally dependent on specialised and scheduled air cargothat guarantees timely delivery.The plans also include an integrated agricultural exportzone. This will include land and facilities for the cultivationand export of high-value farming products, providingopportunities for exporters of high-yield, time-sensitive, air-freighted horticultural produce and willinclude pre-harvest and post-harvest facilities required byon-site producers and growers from surrounding areas.
  16. 16. Benefitingproductivity & efficiencyCork Airport Business Park: symbolof transition from agriculture to hi-techSince the early 1990s, the Irish economy has experiencedgrowth at an extremely accelerated pace. The 1980s hadseen many leave the island in search of employment, asan economy built on a strong agricultural sector stagna-ted. Much of the success of the Celtic Tiger economicboom around the turn of the century can be attributed tovarious policies implemented specifically to attract foreigncompanies. These policies included low corporation taxrates and an emphasis on high-quality education.These national policies have been complemented by localinitiatives that have made some regions of the countryparticularly attractive for foreign investors. The businesspark set up next to the city of Cork is one such example.The Cork Airport Business Park located just two minutesfrom Cork airport was set up in 1998. By 2005, the parkhad attracted many international companies employingaround 1,800 people. Building on this success, the Irishgovernment launched a new phase, which would nearlydouble the park’s office capacity and provide jobs foran extra 1,500 people. The business park hosts tenantssuch as Pfizer, Marriot, Motorola and Amazon.The Cork Airport Business Park has contributed to thelocal economy’s diversification away from declining agri-From the aforementioned IATA survey, 80% of busi-nesses also said that air transport was important toefficiency and 50% thought it was vital. More than twothirds believed that air transport enabled them to reachgreater economies of scale and improve efficiency, whileover half were convinced that it reduced costs for theirbusinesses.Opening markets to international competition alsodrives innovation, which typically leads to efficiencyimprovements. Over a quarter of companies believethat innovation and investment in research and develop-ment would probably be badly affected if air transportservices were constrained(2).Innovation has long been at the heart of the aviationindustry itself. In 2006, 39 aerospace and defence com-panies undertook US$19.9 billion of R&D expenditure.Successful innovations in aviation have a much widerimpact than just the industry itself. For example, thesocial return on aerospace R&D spend is estimated tobe 70%, compared with 50% for manufacturing as awhole(3). In other words, once it matures, a typical invest-ment of US$100 million in R&D by the aerospace sectoradds US$70 million to the level of GDP year-after-year.Two recent studies, by IATA and InterVistas, haveattempted to quantify the beneficial impact of air trans-port on productivity. Both found that an increase in avia-tion connectivity typically leads to a sizable improvementin labour productivity. To capitalise on such efficiencygains, some cities and regions have developed businessparks next to airports. These typically attract highlyproductive companies that benefit from the exchangeof ideas and skilled personnel, as well as the opportunityto do business together. One example of this is in Cork,in Ireland.(2) The Economic and Social Benefits of Air Transport 2008, ATAG(3) Assessing the Economic Impact of Aerospace Research & Development,Oxford Economics, May 2006
  17. 17. With 40% of international visitors travelling by air, avia-tion is indispensable to the growth and sustainability oftourism. The industry contributes almost 10% of theworld’s GDP and employs nearly 80 million people, ran-ging from over 6% of total employment in Africa to over10% in the US. Because tourism is the primary sourceof economic growth for many areas, some governmentsplace it at the centre of their country’s growth strategies,which involves the development and promotion of flightconnections.In particular, areas with fragile ecosystems, which areoften home to endangered species and offer few alter-natives for locals who need to support their families,eco-tourism provides a growing source of funding,incentives and options. In Costa Rica for example, thepromotion of eco-tourism started in the 1980s. Sincethen, international tourism has increased six-fold toUS$2 billion, with nearly 1.9 million international visitors.In 2005 tourism contributed 7.9% of GDP, 13% of jobs,and 22.3% of foreign exchange earnings. But moreimportantly, it has also helped to pay for the preservationof the country’s national parks.In 2007, the spending of foreign visitors arriving by airdirectly supported more than eight million tourism jobs.Taking into account indirect and induced jobs, air tou-rism accounted for more than 18 million jobs.culture to the fast growing pharmaceutical and IT sectors,two sectors that rely heavily on air transport.Since 2000, growth of output in Cork has averaged 5.5%,outperforming the fast growth in the Irish economy overthat period by 0.5% per annum. Moreover output perhead is nearly 30% above the Irish average. In tandemwith this fast growth the proportion of the working-agepopulation that is economically active has risen fromapproximately 60% in the mid-1980s to 72% today. Thenumber of jobs has increased by 83% over the sameperiod, ensuring that the benefits of this growth have beenwidely spread throughout the community.Based on the key metrics of share of regional GDP,growth in value added and productivity, Cork ranks highlyin globally successful IT and Life Science locations.Among the key factors that have attracted these know-ledge-intensive industries to Cork are accessibility, R&Dinvestment, tertiary education and quality universities.Source: Cork Airport Business Park; Regional Forecasts (a division of OxfordEconomics); ‘Regions as Technology and Life Science Locations’, BAK BaselEconomics Forum 2006BenefitingtourismDemand for air travelGlobal Market Forecast 19
  18. 18. Airborne tourists provide a path to jobs and development- Morocco’s Vision 2010The country’s location at the nexus between Africa andEurope has contributed to a rich brew of culturalinfluences, incorporating influences as diverse as thoseof the Phoenicians, the Berbers and the Spanish.Continuing this rich tradition of inclusiveness is theFestival of World Sacred Music (Festival des MusiquesSacrées du Monde). Each June sees performers fromevery corner of the Earth fly into Morocco for a week ofartistic performance in Fès, the country’s ancient holycity. The festival represents the spiritual heart of Islam –peaceful, pluralistic, generous and joyous, with the aimof honouring all the worlds spiritual traditions anddissolving musical boundaries.The Moroccan government has been keen to promotethe country’s rich cultural heritage and to encourage cul-tural exchange which will bring more visitors throughMorocco’s airports. The recent recording of part of U2’slatest CD in Fès has been a timely boost to these efforts.It is hoped that the attendant media interest in theband’s choice of recording venue will rekindle Morocco’sreputation as a favourite artistic retreat in the 1950s and60s, when artists such as the Rolling Stones were regu-lar visitors. The legendary rock group returned toMorocco in 1989 to record with the country’s mostpopular traditional artists, the Master Musicians ofJajouka, an all-male guild trained from childhood.Fès lies inland, 200km northeast of Casablanca. It is theoldest of Morocco’s imperial cities and commonly reco-gnised as the spiritual, cultural and intellectual capital ofMorocco. It is home to Fès El Bali, the largest medina inMorocco. Set within almost 3,000 acres, the ancient sitehas been declared a UN World Heritage Site, and hasbeen extensively renovated as part of the Vision 2010plan. The medina is a maze of mosques, food marketsand bazaars. Noted for its quality craftsmanship, Fès isfamous for metalwork, rugs and leather goods.Despite its status Fès El Bali had become run down andits tourist potential unexploited. Accordingly, the regio-nal plan calls for establishing Fès as a tourist destination.The plan aims to promote the city as a “Lively MillennialMuseum, based on its authenticity as the only remainingplace in the world where daily lives still reflect an ancientway of life and its associated culture and art.”The tourism development plans include:• the creation of additional accommodation in theMedina by converting houses with high historical valueand Fondouks into high-quality guest houses• the conversion of Fondouks into theme-based cafés orexhibition spaces• the creation of a religious arts museum• the rehabilitation of two pilot neighbourhoods, inclu-ding restoration of the original Medina walls• the opening of local handicraft industries to touristaccess, and the facilitation of electronic payment andoverseas shipping• the development of tourism in the hinterland of Fès, toallow these rural areas to benefit from the city’s role as atourist hub.Crucially for Fès, the realisation of the city’s tourist poten-tial and its successful entry into the European city-breakmarket depends on the introduction of point-to-pointflights from the major cities of Morocco’s key overseasmarkets. This will involve more flights on existing routesfrom France and the UK, and the introduction of newroutes, from untapped sources such as Barcelona,Madrid, Milan and Rome.To realise this ambition it is anticipated that investmentstotalling 3 billion dirhams (US$350 million) will be requiredover the ten years to 2015. In turn this is expected tocreate an additional 4,500 beds in tourist accommoda-tion, annual revenues of 1.26 dirhams (US$150 million)and an additional 13,500 jobs in and around Fès.Source:http://www.tourisme.gov.ma/docspdf/PDRT/PDRT%20F%C3%A8s/Brochure-An.pdf
  19. 19. Global Market Forecast 21Demand for air travelToday, many of these benefits are so obvious and sointegrated into the social and economic fabric of oursociety that they are, in many ways, taken for granted.However, aviation has never been so closely scrutinisednor had its future growth so acutely threatened from somany sides.So consider this: should growth in passenger and cargotraffic be one percentage point lower than forecast pre-viously:Almost 1.5 million jobs would be lost within the air trans-port sector itself, some 3.8 million when including theindirect and induced effects, and over 6 million whenadding the impact on tourism. That would represent0.2% of world employment in 2026, including around2 million in Asia-Pacific, 1.5 million in each of Europeand North America, 400-500 thousand in each of Africaand Latin America and more than 200,000 in the MiddleEast.The direct, indirect and induced contribution of the airtransport sector to world GDP would be US$440 billionlower, with an additional US$164 billion lost throughlower tourism activity. Therefore, in total air transportwould contribute 0.6% less to world GDP in 2026 thanin the base case.That’s a lot to take for granted.But what if….
  20. 20. The overall long-term effects of the 2008/2009 financialcrisis are expected to be more pronounced on networkevolution than on future passenger demand growth.In the coming years, the routes that passengers actuallyfly will depend not only on the route they want to take,but also on what the airlines can profitably offer in achallenging market environment.In the past, a significant part of growth allocation wasattributed to network development. The number of non-stop routes on the three main long-haul flows (trans-Atlantic, Europe-Asia and trans-Pacific) has doubledsince 1987 and now represents 70% of long-haul traffic.Strong air travel growth, globalisation of economies, airtravel deregulation and technology have allowed moreconnectivity between cities. New routes from hubs alsoplayed a major role in this development. In fact, hubshave been crucial, not only because few long-haul citypairs could survive without the connecting traffic, butalso because they are often the destinations peoplewant to fly to. Consequently, some 77% of long-hauldemand and 73% of long-haul routes involve at leastone of 32 global hub cities.Previous network development and the natural concen-tration of demand have created a more mature net-work, with few significant non-stop markets left to beopened on the three main long-haul flows.After 2001, traffic recovered relatively quickly whencompared to the recovery in the number of routes drop-ped in that period.In 2008, the number of airline routes has only increasedby 15 compared to 2007 on the three main long-haulflows, despite the new trans-Atlantic open skies agree-ment that came into effect that year.One such constraint today, and more so in the future,is the effect of airline alliance and consolidation, whichartificially influences some potential route openings,therefore, helping to limit the absolute number of non-stop routes.Even with such constraints, Airbus forecasts the needfor 400 net additional routes on the three main long-haul flows by 2028. However, their impact on the ove-rall network will have an ever-decreasing effect, as theirimportance in traffic terms also reduces, and as growthwill be increasingly concentrated on the existing routes,particularly on the hub-to-hub routes.IntroductionThe Future :a greater concentraand traffic
  21. 21. Demand for air traveltion of demandGlobal Market Forecast 23Passengersfly furtherA long-haul network continuing to be dominatedby a few citiesSource: UN, Thomas Brinkhoff: City Population, Airbus5-10 million 10-15 million 15-20 million 20-25 million >25 millionUrban population:1985 201501977197919811983198519871989199119931995199719992001200320052007200920112013201520172019202120232025202740010001400Airline routes*202820080060018001200*Flows between (Europe/Africa/MiddleEast) - (Americas) - (Asia/PRC/Indian sub/Japan/Oceania). (70% of the world long haul RPKs).Airline route : Airport pair operated non stop by a specific airline.Source: Airbus GMF, OAG55119871,1582007 +388routesForecast1,5462028Long-haul route network maturation
  22. 22. The trans-Atlantic flows will havethe most route openingsHistorically, the choice of aircraft for a given operationwas limited by the range capacity and of the productson offer. However, today there are aircraft with a widerange of capacities but with similar long-range capabi-lity, so it is possible to make fleet decisions basedpurely on demand and growth expectations.Growth allocation directly impacts generic aircraftdemand in terms of variables such as size and range.Airbus has developed a unique process that uses realand future passenger demand to determine the mostlikely airline operations on a route by route basis.The process starts with future growth being calculateddown to the origin and destination of passengers(O&D) and the basic principles are as follows:• Each O&D has a specific growth rate based on eitherthe size of the economy in a metropolitan area(known as the gross metropolitan product), if thisdata is available, or using a set of market typologiessuch as urban population growth, historical localtraffic growth, the presence of low costs airlines etc.• The routings of each O&D are then calculated tocreating the optimum “virtual network of routes”.• Matching the “virtual network” to the “actual net-work” indicates the values of many parametersinfluencing the passenger’s choice of routes.• New constraints are added/removed (technology,regulations, new business models, etc.)• New airline routes are incorporated to test their futurefeasibility and to identify from which existing routesthey could attract traffic. Dropped routes are alsoincorporated.• The future routings of all O&Ds are consolidated, withdifferentiation between those passengers connectingand travelling point-to-point.• The total traffic growth on each individual route isthen calculated, making it possible to estimate fleetrequirements.Translating growth into aircraft demand:Split of additional routes on the 3 main long-haul flowsEurope-USA 79Europe-PRC 38Europe-S. America 35Middle-USA 22PRC-USA 39Asia-USA 17Europe-lndian Sub 29Indian Sub-USA 15Asia-Europe 21Canada-Europe 19Other 74Trans-AtlanticEurope-AsiaTrans-PacificSource: Airbus
  23. 23. Global Market Forecast 25Demand for air travelAll three of the main long-haul flows are expected to expe-rience solid and sustained future traffic growth. In particular,deregulation is expected to drive Latin American growth onthe trans-Atlantic flow; fast growing economies in Asia forthe Europe-Asia flow and the trans-Pacific flows; and newemerging sub-flows from/to the Middle East or Africa.The way traffic is allocated on each of these flows willdirectly impact demand and, more specifically, the aircraftcapabilities required by airlines, including the number ofseats.While different in many aspects, the three flows tend toshare the same basic long-haul principles:• Most of the 32 global hub cities are already intercon-nected with non-stop flights, the “big points”. Theseroutings are also very often those adding significantvalue to an airlines network.• Almost all routes are linked from, to or between these32 cities.• For historical, geographical and social reasons the moredistant two regions are, the more concentrated thedemand tends to be between connecting cities in eachregion.Regional network development• Frequencies are limited by time windows, passengerpreferences, airport congestion, noise curfews, over-night fees.• Largely due to the principles mentioned above, thelonger the route, the larger the aircraft tends to be.• Average route length is increasing as demand hasemerged from distant destinations. People are flyingfurther, simply because they want to visit places thatare further away.• The volume of organic growth (i.e. traffic added to anexisting route) is higher on hub-to-hub routes thanksto the dynamism of the 32 global hub cities and thegrowth of the connecting traffic.• The most common source of totally new city pairs isbetween hubs and secondary cities. These are typi-cally operated by only one airline, therefore, once thedaily flight is achieved, the airline can move to a largeraircraft to accommodate the additional organicgrowth.• Routes between secondary cities, or “transverse”routes are marginal. Many of these markets arecharter routes with no need for a daily flight.Trans-Atlantic network: % of passengersflying new airline routes in twenty years0%10%% of passengersEurope-USCanada-EuropeCentralAmerica-EuropeCanada-CentralEuropeCentralEurope-USCanada-NorthAfricaEurope-S.AmericaAfrica-USNorthAfrica-US20%30%40%50%60%70%80%90%S.Africa-S.AmericaMiddleeast-S.AmericaCanada-MiddleeastMiddleeast-USS.Africa-US68%of the trafficSource: AirbusThe longerthe routes,the largerthe aircraft
  24. 24. In the year to September 2008, 113 scheduled routesof all sizes, (in terms of seats offered), were openedacross the overall transatlantic network, whichincludes non-EU states, Africa and the Middle Eastto/from Canada and Latin America. However, 106 ofall routes have been dropped.It has been forecast that that there will be nearly 200additional trans-Atlantic airline routes, 60% of whichwill be between the North America and WesternEurope, in the next 20 years. However, most of thegrowth will be allocated to existing routes, which areexpected to carry some 93% of the forecast traffic.Dynamic growth in Latin America will create someadditional network opportunities, but will remain limiteddue to the historical concentration of demand inEurope and continuing consolidation among airlines.As a result, 23 routes will carry more than 1,000 dailypassengers one way by 2028, compared to only tworoutes today; making this a clear market for largeaircraft.The trans-AtlanticDuring recent years, smaller trans-Atlantic traffic flowshave quickly emerged. In 2000, only three regularnon-stop routes existed from the Middle East to theAmericas, but by 2008 there were 19 in operation. In2028, more than 70% of the passengers flying from theMiddle East to the Americas will fly on routes not yet inoperation. This market will be ideal for large twin-aisleaircraft such as the A350XWB and very large aircraftlike the A380.Today 45% of trans-Atlantic passengers fly on 42 citypairs with traffic exceeding 1,000 daily departing pas-sengers. This number has steadily increased during thepast 30 years, despite the opening of many new non-stop routes. As fewer new route opportunities remain onthe main flows, airlines consolidate and emerging flowslargely having demand concentrated in a few cities, alarger proportion of the growth will be allocated to theexisting routes. Therefore, the number of “1,000 pas-senger” routes will rise to 130 in 2028. Traffic on theseroutes will be accommodated by an increase in bothaircraft frequencies and seat capacity.Trans-atlantic: number of citypairs with more than 1,000 dailydeparting passengersNumber of city pairs1977 1987191997 2007402017 2028132140120100806040200Source: Airbus
  25. 25. The long-haul market between Europe and Asia-Pacific,which includes the Indian Subcontinent, China andJapan, is the 2nd largest in terms of traffic (RPKs(4)). Halfof the volume of passengers added in the last threeyears were to China and India. High growth from Chinaand India will continue to create new network opportu-nities, of which the majority will be new city pairs.In China, there are currently very few non-stop routesfrom and to secondary cities, but more are expected toemerge by the end of the next decade as wealthspreads and the country’s aviation network develops.The high organic growth of these routes will result in ahigh density of routes.However, India’s network is more mature, with shorterdistances from Europe and traffic in new markets 30%less dense than in China. This is consistent with averagelong-haul trends, where the longer the route, the largernon-stop markets.Between Asia and Europe :recent developmentsSignificant growth to and from Europe has also beenobserved in some South Eastern Asian countries likeVietnam, the Philippines and Malaysia. New directnon-stop routes are expected from South East Asiancountries to the largest markets in Europe, although theMiddle Eastern hubs will capture a significant part ofthe local traffic.The market share of Middle Eastern hubs on theEurope to Asia flow has continued to increase toaround 14%, depending on the season. Many of thesepassengers are travelling from Europe to India andother South East Asian countries, while China, Koreaand Japan remain relatively untapped. As the MiddleEastern hub network expands to encompass moredirect routes to North East Asia, they will capture someadditional traffic.(4) RPK: Revenue Passenger KilometresEurope-Asia: share of passengers transiting throughMiddle East hubs by final Asian destination40%20%0% 100%NepalMaldivesSri LankaPakistanBangladeshPhilippinesAustraliaThailandMalaysiaIndiaNew ZealandIndonesiaSingaporeVietnamChinaHong KongRepublic of KoreaJapan60% 80%% of passengersTop Asian markets from EuropeSource: Airbus, GMF; IATA PaxisDemand for air travelGlobal Market Forecast 27
  26. 26. Most of the growth is on hub-to-hub routesTrans-Pacific network development will remain largelydominated by the trunk routes linking major cities onboth sides of the ocean. This flow is characterised bythe high concentration of the demand to and from a fewAsian and American cities.The share of routes linking global hub cities on both sidesof the Pacific (hub-to-hub routes) will remain at 70% of thetraffic by 2020. This is because three quarters of thegrowth on existing routes will be on the current hub-to-hub routes. Among the 28 new non-stop city pairs to beopened by 2020, half will be driven by high growth in Indiaand China. The other half is mostly long-range routes toSouth East Asia, which will be extremely sensitive to theoil price.Non-stop routes to and from secondary cities in Chinaare expected to mainly develop after 2020, but will notrepresent more than 1% of trans-Pacific traffic by 2028and will also be extremely dependent on oil price.The Asian to Latin American flow is a fast developing mar-ket with a few non-stop city pairs expected to be opened,but most of the demand will continue to connect throughother regions due to range and costs.One conundrum today is: “how can a passenger travelfrom one side of the Pacific to the other without crossingthe Pacific?” The answer is to fly through Europe and theMiddle East. In Europe new connecting Asia-Americasgates (e.g. Brussels) are being established by major car-riers . In the Middle East, hubs have more direct servicesto the Americas. For example, Dubai and its Asia-Americas connecting traffic is expected to increase14-fold by the year 2020. Although a staggering growth,only specific parts in Asia will be impacted, with 90% of theoverall trans-Pacific demand still expected to fly on “actual”trans-Pacific routes, rather than via connections.Today’s trans-Pacific routes are dominated by interme-diate twin-aisle and large widebody aircraft (90% ofthe trans-Pacific RPKs). As almost three quarters ofthe growth will be allocated to existing routes, that domi-nation will continue, with an even greater emphasison this class of aircraft.The trans-Pacific18%55%12%15%% of traffic added 2007-2020 on the trans-Pacific flowsOther routesHub-to-hub routesGrowth on existing city pairsNew city pairsSource: Airbus
  27. 27. Higher fuel prices, stronger hubsGlobal Market Forecast 29Demand for air travelThe long-term effects of crisis are expected to be morepronounced on network evolution than on overall pas-senger demand growth. Long-haul network develop-ment is also particularly sensitive to the increases in fuelprice. Therefore, it is important to consider alternativescenarios linked to these variables. For example, analy-sis shows that on the trans-Pacific the total number ofnon-stop city pairs in 2020 would be similar to today’slevels with an oil price of US$150 per barrel (real terms),while the traffic would still grow (with an average growthrate still exceeding 4% per year). However, very long thinroutes would be expensive to operate, with the costsand risks associated with opening new city pairs higher.The acceleration of airline consolidation would also havea major effect on the forecast for network evolution.Airbus anticipates that this trend will continue withinsome major regions and across regions, as say restric-tions on foreign ownership is reduced. Large airline hubswill benefit from this consolidation, even when airlinesadopt a multi-hub structure. However, while big routeswould remain non-stop, routes from absorbed airlines tosecondary destinations are more likely to be operatedfrom the main airline hub.The combined effects of higher than expected energyprices and airline consolidation, will be less new non-stop city pairs, resulting in more demand which will stillcontinue to connect. For example, with oil costingUS$100 per barrel in 2020, 45% of traffic from Europeto Asia would still connect even with new non-stoproutes. With an oil price of US$150, the overall flow traf-fic would be down 12%, but the share of connectingtraffic would increase to 52% (+7pt) making the routeswith a higher proportion of connecting traffic more resi-lient to higher oil price.
  28. 28. Traffic forecast
  29. 29. People want andWorld air traffic growth is closely correlatedto economic growth0%1%0%2%3%4%5%6%7%-5%10%5%20%30%Air traffic growth (%) Real GDP growth (%)1972197425%15%-10%19761978198019821984198619881990199219941996199820002002200420062008EAir TrafficGDPSource: Global Insight, ICAO, AirbusEconomic developments can be measured by severalmacro economic variables including Gross DomesticProduct (GDP), exports, imports, unemployment rate,inflation, private consumption and disposable personalincome. For each edition of the GMF and each trafficflow, the final permutation of independent variables thatare selected follows the testing and statistical evalua-tion of numerous possible combinations. Most often fordeveloping and matured markets, the statistical modelthat best fits the historical traffic provides the bestexplanation of future trends and is, therefore, the oneselected for use in Airbus’ aircraft demand model.While the current downturn has highlighted the impor-tance of GDP as an explanatory variable in traffic fore-casting, in some market segments, classic econometricmodelling is not sufficient to adequately forecast trafficgrowth and the use of hybrid models is required. Forexample, in Asia, the development of Low-Cost Carriers(LCCs) is driven by the pace and timing of deregulationwithin each country and of liberalisation between others.In Mexico for example, a portion of air traffic growthdepends on the number of people switching from thepopular bus network to air transport, which is a conse-quence of lower airfares and improved journey times.In the maturing LCC markets of North America andWestern Europe, the LCC growth will ultimately dependon the number and size of new routes still to be opened,on an economic and sustainable basis. The growth inIndia is a good example of this, because althoughundoubtedly influenced by economic, trade and popula-tion growth, it has also benefited from increased accessto air transportation, either through new destinations orsimply through greater affordability as a result of deregu-lation and competition. In some cases these develop-ments are the result of actions taken by regulators andgovernments keen to take advantage of the benefits ofair transportation.Airbus is often asked how variations in underlyingfactors, such as the oil price, a recession or acceleratedmarket liberalisation, can affect traffic growth anddemand for air travel. To understand the impact suchvariations could have, the forecast uses econometric orhybrid models to conduct sensitivity analysis around ourbaseline traffic forecast in a more systematic way.Key drivers of traffic growth
  30. 30. Global Market Forecast 33Traffic forecastneed to flyThe Airbus traffic forecast process is based on fourmajor building blocks: detailed market research, suitablemarket segmentation, targeted use of econometrics anddetailed network development analysis. The latter beingparticularly important, as it provides a systematic viewof how the route structure of the world’s air transportsystem will evolve, based on true passenger originsand destinations. The full benefits of this approach areparticularly clear when the aviation market movesthrough its now characteristic cyclical variations, such asthe drop in passenger demand resulting from the mostrecent economic downturn.The 2009 GMF analyses a total of 156 distinct domes-tic, regional and intercontinental passenger sub-mar-kets, segmented according to their degree of maturityand specific characteristics over time. Airbus marketresearch examines the fundamental drivers of transpor-tation including future consumer behaviour and expecta-tions, the pace of liberalisation, modal competition,the growing importance of emerging markets andconstraints, such as the influence of airport congestion.The market is segmented by airline business model,region and traffic flow, which enables the precisecircumstances and drivers prevailing on each segmentto be fully considered. Econometric data is then used toquantify future air travel demand based on economic,operational and structural variables.Airbus traffic forecast:from research to network development• Deregulation/liberalisation• Emerging markets• Modal competition• Low-cost penetration• Consumer/travel surveys• Regional/low-cost/charter• Start-up/network• Integrators• Traffic flows• Domestic/international• Economics• Tourism• Fuel price• Yields• Trade/value of goods• Aircraft economics• Airline operation economics• Origin-destination demand• Demographics• GeopoliticsMarketresearchMarketsegmentationEconometrics NetworkdevelopmentForecast methodology
  31. 31. Cyclical downturns have almost always been linked toeconomic cycles, but at times this has also been exa-cerbated by other factors, most notably in the last tenyears with 9/11 and SARS.This time, both the global economy and consumerconfidence have been severely affected by the events inthe world’s banking community and stock markets,including the knock-on effects of the restriction offinance – the so called “credit crunch”. This createsproblems for consumers, airlines and aircraft manufac-turers alike. However, although these periods invariablylead to extremely difficult trading conditions - includinga number of airline bankruptcies, poor financial resultsfor some and some very difficult decisions for most -historically the industry has managed these periodsproactively, becoming more efficient and recoveringto enjoy the benefits when the market rebounds.Air travel has proved to be resilient to external shocksLong-term fundamentals01968 1973 1978 19881983 1993 2003 200819980.51.01.52.02.53.03.54.04.5World annual traffic(RPKs - trillions)5.0Source: ICAO, AirbusOil Crisis Oil Crisis Gulf CrisisAsianCrisisWTCAttack SARSFinancialCrisis+38%It is not yet clear how severe the current cycle will be orwhat shape it will take, however, previous cycles showthat the deeper the recession, the stronger the subse-quent recovery. During the last two cycles, the drop offin traffic and passenger demand was steep, creatingthe only two periods of negative traffic growth everwitnessed. The steep recovery after the last cycle sawalmost 14% growth in one year.
  32. 32. Global Market Forecast 35Traffic forecastWhile the current cycle is clearly difficult for everyone inthe industry, it has the global economic slowdown at itsheart and has not been aggravated by any other “exo-genous events”. In this cycle, perception has played asignificant role, as businesses and passengers put tra-vel plans on hold awaiting a clearer picture of where theturning point of this cycle would come. As the serious-ness of this cycle became apparent, however, theworld’s major economic powers were very quick to res-pond, with unprecedented economic stimulus plans,totalling thousands of billions of dollars. While 2009 isexpected to be the worst in terms of world GDP growthfor many decades, economies are widely expected togradually begin to recover late in the year, with moremeaningful improvement in 2010 and 2011 forecast.These developments are expected to form the basis ofrecovery in passenger and freight traffic.As seen in the past, this typical response of the marketto such events is possible only due the enormousunderlying demand, the fact that people want and needto fly.remain strongThe deeper the downturnthe stronger the recoveryPotential for upsidefrom meaningful rescueand economic stimulusplansRescue Plan EconomicStimulus Plan$700 billion$320 billionN/A$650 billion$656 billion$468 billion$787 billion$150 billion$586 billion$109 billion$52 billion$39 billion-4%0%-2%4%2%8%6%10%14%12%Air traffic growth (%)Year 1 Year 2 Year 3 Year 4 Year 5Source: ICAO, Airbus Market Research and Forecast00 - 01 - 02 - 03 - 0490 - 91 - 92 - 93 - 9479 - 80 - 81 - 82 - 83USJapanChinaGermanyUKFranceSource: Airbus
  33. 33. Although inversely linked to traffic growth, airline yieldshave traditionally been one of the main drivers for airtransportation growth, largely driven by fares. In otherwords, higher yields generally reduce passengerdemand and for obvious reasons are also closely linkedto the profitability of airlines. Analysis has shown that a1% increase in airfares will result in a 0.5 to 1% decreasein air travel demand, with this variation largely linked toregional markets and passenger class. Conversely, a 1%increase in GDP results in a 1% to 2.5% increase in airtravel demand.Like any industry, airlines seek to manage downturns bybalancing supply and demand. However, many opera-tors initially reduce capacity because, as explainedabove, using pricing alone to stimulate demand has pro-ven to be financially damaging in the past. In fact, duringthe early stages of the current cycle a significant portionof airlines particularly in the US chose to reduce capacityeven before demand started to turn significantly down-wards. A move designed in part to protect yields andrevenues and reduce costs, but also later havingthe effect of more closely matching capacity to demandand protecting load factors.Seats, yields and costs continueto influence trafficAir traffic demand is also correlated to air fares-10%19711973197519771979198119831985198919871991199319951997199920012003200520075%15%US domestic Air traffic growth (%) US domestic Air fare growth (%)20%0%-5%10%Air trafficAir Fare*Source: ATA, Airbus* Airline unit revenue expressed in average passenger revenue per kilometer flown (airline yield) as a proxy of air fares-10%-5%-0%5%10%15%20%25%30%35%-15%
  34. 34. Global Market Forecast 37Traffic forecastAlthough all downturns have a number of similarities,there is invariably always something that makes eachone a little different. This time one difference was the factthat airline costs had been strained by exceptionally highprice of oil. But ironically the same financial crisis thatweakened demand for air traffic also reduced demandfor oil, thereby bringing fuel prices to more manageablelevels. In May 2008, world economic growth for 2009was expected to be around 3.3%, with oil costs aroundUS$140 per barrel at that time. Early in 2009, economicforecasts for the year show expected negative worldgrowth, with oil prices ranging around US$50 per barrelat that time. It is assumed that as economies anddemand recover, then so too will the price of oil andother commodities. Forecasts suggest that this will notbe to the levels witnessed in 2008, but enough will be tomake the need for the most fuel and eco-efficient aircrafttypes, once again self-evident.Elasticity for air travel demand1% increase in air fares0.5 to 1% decrease in airtravel demand(elasticity for air fares is -0.5 to -1)-0.5 Domestic ChinaChina - JapanDomestic USUS-W. EuropeDomestic Europe-11% increase in GDP1.0 to 2.5% increasein air travel demand(elasticity for GDP is +1.0 to +2.5)+2.5 Domestic ChinaChina - JapanDomestic USUS-W. EuropeDomestic Europe+1
  35. 35. The 2.8 billion people living in Brazil, Russia, India andChina (BRIC nations) represented 36% of world GDPgrowth and 10% of all consumer spending in 2008.Over the next 20 years these nations will grow to repre-sent 22% of world GDP and 19% of consumer spen-ding, making them increasingly important in terms of airtransport.Today, the BRIC nations’ economies and industries arestill closely entwined with more developed countries.Therefore, the slow down in demand from the US andEurope has had a negative effect on these emergingeconomies and on the short-term development of theirair transport industry. However, there is little doubt thatstrong performance in recent years, coupled with largetrade surpluses and foreign exchange reserves, meantthese emerging economies were in a better positionthan many to boost spending, encourage consumerdemand and withstand the worst effects of the currentdownturn.In future, it is also likely that the resilience of BRICnations will further increase with each successive eco-nomic cycle. The national savings rate in China is around50% of GDP, up from 38% in 2000, and there is clearlyhuge potential for consumer spending growth as China’seconomy and population develop. This offers real poten-tial as a counter balance to difficulties such as the recentcuts in consumer confidence and spending in moremature economies. In China, consumer spending isexpected to increase by 8.4% annually over next 20years to 43% of GDP, while Indian consumer spendingis expected to grow by 6.9% per year to 60% over thesame period, all helping to strengthen their economiesand offset the effects of future economic downturns.Cyclical downturns no matchfor underlying demandGrowing importance of consumption in BRIC countries30%19811983198519871989199119931995199719992001200320052007200920112013201520172019202120232025202740%50%60%Private consumption as a share of GDP (%)70%History ForecastWestern EconomiesWorldBRIC countriesSource: Global Insight (Jan 2008), Airbus
  36. 36. Global Market Forecast 39Traffic forecastThe Chinese and Indian governments both aim to stimu-late their economies using multi-million dollar infrastruc-ture projects, which also include airport developments.China’s massive US$586 billion package is designed toboost investment and consumption.Packages unveiled by the Indian government in late 2008and early 2009 have made more funds directly availablefor projects that will help the country’s airport infrastruc-ture, which has struggled to keep pace with rapid growthand the resulting increase in air traffic, increasing by anaverage of 20% per year since 2002. The governmentLarge potential to increase propensity to travelhas also relaxed regulations to make it easier for thoseinvolved in infrastructure projects to gain access to foreignfunds.These actions also address concerns raised in a reportpublished by Forbes, which indicates that three of the fiveairports with the most significant delayed arrival times in2008 were in India, and another by Goldman Sachs,which highlights the need for infrastructure development,including airports, in their top ten recommendations toensure India realises its economic potential by growingforty-fold by 2050.0.0010 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,0000.010.11Trips* per capita - 20082008 Real GDP per Capita10 SeychellesBarbados MaltaPassenger originating from a particular countryNote: GDP in 2005 US$Source: IATA PaxIS, Global Insight, AirbusCyprusBahrainBahamasNew ZealandSingaporeMacao UAE IrelandSwitzerlandDenmarkNetherlandsSwedenUSAQatarUKBelgiumFinlandJapanCanadaSt LuciaFijiCape verdeSamoaJordanMalaysiaMauritiusCzech rep.EstoniaCroatieLatviaPanamaSaudi ArabiaBosniaBelarusAngolaNigeriaBangladeshLesothoAfghanistanIraqChadNigerBotswanaSlovakiaMaldivesItalyBruneiSloveniaSouth KoreaPuerto RicoTrinidadTaiwanIsraelPortugalSpain Hong KongAustraliaGreeceGermanyFranceKuwaitHungaryMexicoPolandSurinameBrazilChinaIndiaWorld averageRussiaEquatorial Guinea
  37. 37. In 2008, the number of foreign tourist arriving in India wasup 5.7% on 2007 to 5.5 million, despite the problemsthat beset the Indian market in the second half of theyear, including fuel prices, terrorism and the economiccrisis. However, there is clearly also a lot of additionalpotential, when you consider that some 47 million foreigntourists visit China each year and there are 528 milliondomestic Indian tourists that can be targeted with airtravel, at the right price.In recent years, the populations of emerging countrieslike China and India have clearly demonstrated anincreased propensity to fly. Even with the significantgrowth in air transportation witnessed in recent years,huge potential exists for further growth as these nationsand their people become better able, economically, totake advantage of the benefits aviation undoubtedlyoffers. Wider access to such opportunities helps ensurethat GDP and wealth are increasingly spread amongstthe world’s nations. By 2017, it is forecast that 70%of the world’s population will be responsible for 18% ofworld GDP: double the 1997 level of just 9%.GDP increasingly spread over the worldAlthough China and India are the largest emergingmarkets, the United Nations has identified another 27emerging or potentially emerging countries. With a com-bined population of almost three billion people, theserepresent smaller, but never-the-less significant markets,in terms of their economies and air transportation.Many of these governments recognise the benefitsaviation can offer their economies and their people, soactively support and promote air transport within andfrom their nations. This support comes in many forms,but can include tax relief on aircraft purchases and fuel,airport and infrastructure projects, and creatingor extending existing bilateral arrangements, therebycreating greater deregulation and greater access andchoice for passengers. Vietnam for example has imple-mented many of these policies, including extending abilateral agreement with the US in 2008, and is todayseen as one of the fastest developing markets in Asiaand indeed, the world.0%0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%20%10%40%30%60%50%70%90%100%80%World Population (%)World GDP (%)Source: Gobal Insight, Airbus201720071997Future air travel capture
  38. 38. 2.52.01.51.00.50 3.0Spain-United KingdomGermany-SpainRepublic Of Ireland-ItalyGermany-United KingdomGermany-ItalyFrance-United KingdomItaly-United KingdomItaly-SpainFrance-GermanyFrance-SpainFrance-ItalyNetherlands-United KingdomAustria-GermanyGermany-SwiterlandGermany-GreeceSwiterland-United KingdomPoland-United KingdomPortugal-United KingdomNetherlands-SpainFrance-SwitzerlandSpain-SwitzerlandGermany-SwedenGermany-PolandDenmark-NorwayGermany-NetherlandsFrance-NetherlandsItaly-NetherlandsPortugal-SpainBelgium-ItalyDenmark-GermanySweden-United KingdomGermany-PortugalBelgium-SpainDenmark-United KingdomNorway-United KingdomRepublic of Ireland-SpainFrance-PortugalDenmark-SwedenLCC AirlinesOther scheduled airlinesSource: Airbus, OAG, Scheduled seats (millions), September 2008Millions sheduled seats (Sept 2008)Global Market Forecast 41Traffic forecastEuropeLow Cost Carriers (LCC) now carry over a third of thescheduled traffic in Europe and will continue to act as astimulus for air traffic growth into the future. Despite beingheavily affected by a higher oil price, the LCC model inEurope has not lost ground and many airlines haveactually strengthened their positions. Even the economicdownturn provides some opportunities, with businesspassengers in particular increasingly flying LCCs as travelbudgets are tightened. Longer term, opportunities formergers and acquisitions among LCC airlines will lead tothe possibility for fewer but larger groups, enabling themto reinforce their networks and access more markets,potentially even on long-haul routes.LCCs exceed 50% market share on some large intra-European flowsLCC’s continue to growand influence traffic growthThe European LCC market is well established andbeginning to mature. As well as seeking new routes, forwhich the number of opportunities will steadilydecrease, operators will look to consolidate and growexisting markets and routes, inevitably leading to theneed for larger aircraft. Three quarters of the LCC capa-city is today on intra-European markets, where LCCsoften already exceed 50% market share on large non-adjacent markets.LCC’s exceed50% on someEuropeanmarkets
  39. 39. Domestic European LCC operations primarily focusedon a small number of key countries todayThere is still significant potential for LCCs in the largestdomestic markets, such as in Spain or Italy, althoughcompetition with other modes of transport, such asthe high-speed train, is more pronounced on shorterdistances. In addition, many domestic markets arelimited to regional jet operations, an aircraft segmentin which LCCs have traditionally not operated.2.01.00.0 3.0Domestic SpainDomestic ItalyDomestic GermanyDomestic FranceDomestic United KingdomDomestic NorwayDomestic SwedenDomestic GreeceDomestic FinlandDomestic PortugalDomestic DenmarkDomestic Ireland RepublicDomestic SwitzerlandDomestic PolandDomestic AustriaDomestic RomaniaDomestic CroatiaDomestic IsraelDomestic IcelandDomestic GreenlandDomestic BulgariaDomestic Czech RepublicDomestic SlovakiaDomestic CyprusDomestic LatviaDomestic NetherlandsDomestic EstoniaDomestic Bosnia And HerzegovinaDomestic Macedonia FormerDomestic Lithuania4.0 5.0LCC AirlinesOther scheduled airlinesLCC Market share: 22%Source: Airbus, OAG, Sheduled seats (millions), September 2008Despite a challenging year for air transport in 2008,LCCs in Europe offered 10% more seats than in 2007.This strong performance largely benefited the twomajor LCC carriers in Europe, which account for over40% of the LCC market and saw capacity increaseby 21% between 2007 and 2008.
  40. 40. Global Market Forecast 43Traffic forecastThe US and European LCC markets are similar in size.However, while 95% of the US LCC traffic is carried bythe top four airlines, the European market is still largelyfragmented, with 30 carriers splitting 60% of the trafficand increasing capacity by 3.6% between 2007 and 2008.Though very few bankruptcies occurred in 2008, the last18 months have seen the European LCC market slowlybegin to consolidate, helped by the absence of newLCC start-ups and a more difficult environment wherenumerous survival plans involve mergers between LCCairlines or network carriers reabsorbing LCC affiliates.Two strong performersin a difficult environmentdominating a fragmentedbut now consolidating LCCmarket in EuropeEven with this consolidation, the European LCC marketwill remain more fragmented than its US counterpartbecause of the greater diversity of markets, travellersand airline business models. The difficulties facing somesecondary network carriers in Europe will continue toallow better placed LCCs to increase their share of keymarkets, while the trend towards greater Europeancultural and political integration will continue to providegrowth and new network opportunities. LCCs will conti-nue to play a key role in the mobility of Europeans,particularly to and from the more disparate destinationsin the European Community, with their weightedaverage route length having increased 20% to 1,050kmin the last five years.LCCs are flying longerroutes participatingin the unification of Europe010015050200250300350400450500Daily seats (Thousands)Ryanair & Easyjet+21%+3.6%> 30 other LCC carriersSource: Airbus, OAG, Scheduled seats (millions), September 20082008 total growth2007 seat capacity6008001,0001,200Average distance (km)2000 2004 2008Source: Airbus, OAG, LCC routes average great circle distances.Weighted by the scheduled seats, September 2008791 km924 km1,050 km
  41. 41. Organic growth, or growth of existing markets, is stillmodest, but is key to forecasting future LCC trafficgrowth as additional new network opportunities dimi-nish. For one major European LCC, 30% of the growthAsian market split. LCCs have captured the largest share(62%) in domestic ASEAN(1)marketsMore larger aircraft will be needed for theLCCs to operate higher density markets050100150200250300350400Number of airline routes2000 2004 2008 2012 2016 2020 2024 2028Source: Airbus, OAG. Number of LCC routes* > 500 daily seats*Airport pairs operated by a specific airlineLCC Routes* > 500 daily seatsHistory Estimates19%of the LCCcapacity41%of the LCCcapacityTotal: 2.5 million daily seats65%11%11%4%9%010203040506070% of seats offered by LCCsLCC share11%2%8%37%62%Domestic markets excl.ASEAN marketsDomestic ASEAN marketsIntl. Markets between ASEAN Nations(1) Association of South East Asian Nations (ASEAN) : Brunei, Darussalam, Cambodia,Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and VietnamIntl. Markets not linked to ASEANIntl. Markets from ASEANSource: Airbusin 2008 was organic. By the year 2028, it is estimatedthat 40% of the LCC traffic will be on routes with morethan 500 daily seats, so many will require larger aircraftthan the 737s and A319s typically used today.
  42. 42. Traffic forecastAsiaLCC growth in Asia-Pacific has remained high. Over 30operators generated 19% more traffic in 2008 than in2007, with the top five carriers accounting for 68% ofthat growth. In addition, there are still opportunities forLCC markets to become more widespread, with poten-tial for new operations and even some new operators inparts of Asia where LCCs are not well established.However, the overall number of LCC operators in theregion should remain stable.In a very short time LCCs in Asia have captured 14% ofa regional market that is the same size as the domesticDomestic Asia markets: 14% market share for LCC’s5004003002001000 600 700Domestic ChinaDomestic JapanDomestic AustraliaDomestic IndonesiaDomestic IndiaDomestic Republic Of KoreaDomestic MalaysiaDomestic ThailandDomestic PhilippinesDomestic New ZealandLCC AirlinesOther scheduled airlinesDaily seats (Thousands)Daily seats (Thousands)58% of Asia-Pacific domestic trafficLCC share: 3%Half of the top 10 markets with aLCC market share > 40%Top 10 markets (95% of total domestic traffic)Source: Airbusmarkets in North American or Europe. However, whilesimilar in size, the Asian market differ with these moremature markets significantly. For example, in half of thetop ten domestic Asian markets, LCCs have over 40%market share, more than some western markets areexperiencing. However, LCCs are basically non-existenton the two largest domestic markets, Japan and China.Asian LCCs will continue to grow in their domesticmarkets by both increasing their market share and bybenefiting from impressive regional economic growth.However, they are also increasingly considering thepotential of international markets.Global Market Forecast 45
  43. 43. Intra-Asia: LCC’s have taken just an 8% market share,but increasing rapidly2520151050 30 35 40 45China-Hong Kong-ChinaChina-JapanChina-Republic Of KoreaHong Kong-ChinaJapan-Republic Of KoreaAustralia-New ZealandJapan-Chinese TaipeiSingapore-IndonesiaSingapore-AustraliaMalaysia-IndonesiaHong Kong-JapanHong Kong-ThailandChina-SingaporeSingapore-ThailandJapan-ThailandMalaysia-SingaporeMalaysia-ThailandHong Kong-SingaporeHong Kong-PhilippinesHong Kong-AustraliaMacao (Sar) China-Chinese TapeiJapan-SingaporeChina-ThailandHong Kong-KoreaRepublic Of Korea-ThailandThailand-AustraliaChina-MalaysiaPhilippines-Republic Of KoreaChinese Taipei-ThailandIndia-ThailandJapan-PhilippinesThailand-VietnamSingapore-VietnamIndia-SingaporeLCC AirlinesOther scheduled airlinesSource: Airbus, OAG, Scheduled seats (millions), September 2008Daily seats (Thousands)Top Asian markets(74% of total international traffic)LCC capacity between Asian markets grew by a stun-ning 37% in 2008. This was helped by more markets,like the Singapore-Kuala Lumpur route, being opened toLCC airlines, but in the third quarter 2008, operationslike this between markets in other ASEAN countries onlyrepresented 8% market share.
  44. 44. Global Market Forecast 47Traffic forecastIntra-ASEAN countries:LCC now represent morethan a quarter of the trafficTraffic from the ASEAN countries to other countrieswithin the region has increased by 67%, fuelled by agreater liberalisation that has mainly been achievedthrough bilateral agreements. Today, 60% of that marketis on routes with ranges below 2,000nm (3,700km),where LCC airlines traditionally operate. However, anumber of LCCs are operating at ranges above thatand are mainly using larger aircraft, particularly wide-body types.Today, 20% of all international Asia-Pacific traffic is over2,000nm (3,700km). Within the next 20 years, it isforecast that nearly 250 additional routes (includingadditional carriers on existing city pairs) will be added, aquarter of which will be over 2,000nm (3,700km), withmost requiring wide-body aircraft. LCCs are likely tograb a significant share of this traffic, while also develo-ping operations to further destinations, in particular toNorth East Asia, where LCCs are emerging, notablyfrom South Korea. For example, LCC traffic amongASEAN countries and between ASEAN countries andSouth Korea are expected to grow by an average of10% per year over the next 20 years. Should the mar-kets of Japan and China become more accessible toLCC operations, the growth rates would be muchhigher. The growth of these LCCs will continue to offer% of seats offeredbetween ASEAN countriesLCCsOtherScheduledservice27%73%• Market share > 25% (2008)• Passenger growth > 25% (2008 vs 2007)Source: Airbus40% of the demand from ASEAN countrieswith in Asia is on distances over 2,000nm0%20%10%30%40%50%60%100%% of total cumulative demand from ASEAN countries to the regionRange (nm-Great circle)90%80%70%0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000LCCsmarket share: 2%LCCsmarket share: 11%people in the Asia-Pacific region an opportunity to reapthe benefits of air transport through new routes andmore affordable travel, as well as helping to drive worldtraffic growth to its projected highs.
  45. 45. As well as economic and LCC growth, continued dere-gulation, particularly in the developing markets in Asia, isexpected to drive future traffic growth. Recent examplesinclude the expanded trans-Atlantic agreement betweenthe US and Europe. However, developments on oneimportant Asian flow, in particular, China to Taiwan, hasalso taken significant steps forward in recent months.Chinese Cross Straits traffic remains one of the mostregulated markets in the world, but is still one of thelargest intra-Asian traffic flows with almost five milliontravellers using all modes of transport each year. Themarket has experienced solid growth during the pastdecade with an average annual growth rate of 8.1%.Deregulation drives growth ininevitable growthChinese Cross Straits: as deregulationprogresses, more direct flights and a surgein air traffic demand are expectedCSXPEKTSNDLCTAONKGHGHPVGHGHWUHCGOFOCXIYKMGCTUCKGHAKCANKHHXMNSZXSource: Airbus• One of the most regulated markets in the world with fewscheduled direct flights.• Strong visitor growth: 8.1% per year on average duringthe last 10 years.• Has the potential to become the number one networkwithin Asia.January 2009 : direct non stop scheduled flights to mainland ChinaIn January 2009, following additional deregulation,over the Chinese New Year, 108 weekly scheduledflights were allowed to operate between mainland Chinaand Chinese Taipei. Thirteen carriers operated these fre-quencies and new routes.In the medium term, providing the trend continues andthere is full deregulation over time, the direct routesbetween Taiwan and mainland China could becomethe number one intra-Asian network in terms ofair traffic.
  46. 46. Global Market Forecast 49Traffic forecastemerging markets :from Cross Straits travelArrivals in mainland Chinafrom Taiwan by modeof transportationToday, most air traffic between these points goesthrough Hong-Kong or Macau, where scheduled directair links are allowed from Taiwan. Passengers thenconnect by air or other modes of transport to reach theirfinal destinations in mainland China. Others points ofentry to mainland China also involve non-aerial trans-ports. Overall, 60% of the visitors still complete theirjourney to their final destinations by using non-air modesof transport.Just five mainland Chinese destinations are responsiblefor half of the demand. These are cities mainly located inthe south easten parts of the country where social, his-torical and economic ties with Taiwan are the strongest.However, as more deregulation occurs, with as a conse-quence a surge in mainland Chinese nationals travellingto Taiwan, demand is expected to spread from manymore cities in mainland China, thereby increasing theaverage trip length and therefore aircraft utilisation.Chinese cross straits forecast:the number one intra-Asian network60%40%Source: Airbus, OAG,National Tourist Administration (September 2008)Other modesAirOn directflights andcontinuationfromHong-kong& MacauMosltythroughHong-kong& MacauPEKTSNTNADLCTAONKGHGHHGHWUHCGOFOCXIYKMGCTUCKGHAKCANNMGKHHKWLSZXYNTSource: Airbus• Air Traffic to almost triple within the next decade.(Includes traffic to Hong-Kong and Macau).• > 8 million air travellers per year on the direct routesto Mainland China only.• More routes, average distance to increase.• Single-aisle up to very large aircraft needed to operatethe different markets.Direct non-stop scheduled routes with regular flights to mainland China within the next decade
  47. 47. Many of the passengers expected to fly the new directair links between Taiwan and mainland China will bediverted from the current Hong-Kong and Macau routesto Taiwan, as two thirds of the traffic on these routesconsists of passengers connecting to mainland China.Overall 20% of Hong-Kong regional traffic has thepotential to be affected by the new direct air services.However, in the short term only 35% of this demand isexpected to effectively translate into lost traffic, asHong-Kong Airport will remain an attractive gatewayfor nearby mainland destinations, in Guangdong pro-vince, and will continue to offer more destinations andflights to mainland Chinese cities. While the connectingtraffic will continue to erode, direct traffic between Hong-Kong and Taipei will continue to increase at an averagerate estimated at 5.2% per year (2008-2020), morethan offsetting the decline of the connecting traffic tomainland China beyond the next 5 years. Therefore, by2020, the HKG-TPE route will increasingly become aroute serving origin and destination demand betweenthese points directly, with 72% of traffic being thosepeople only wanting to travel between the citiesof Hong Kong and Taipei.As well as being an example of the pro-active deregula-tion of an important market allowing significant growth,it is also an example of the strength of the resultingunleashed demand.The magnitude of the effects of the deregulation andwhen they will occur is uncertain, but recent eventsshow developments happen sooner rather than later.Frequencies will increase significantly in 2009, if weassume frequencies trebling to around 350 a week withthe additional new routes, this implies that 75% of thecurrent visitors will be able to fly to their desired destina-tions directly. There would also be enough flights tocapture all the demand on the routes served in January2009 with a mix of single-aisle and wide-body aircraft.Assuming progressive, total deregulation and with aconservative scenario, more than eight million air travel-lers will fly annually one way on the direct air routesbetween mainland China and Taiwan within the nextdecade. That is similar to Japan-PRC. Total trafficbetween Taiwan and China, including Hong-Kong andMacau, could almost triple within the same timeframe.This as deregulation, particularly for passengers frommainland China, will boost demand and some existingdemand switching to air travel. As traffic levels grow,average distance flown increases and top destinationswill continue to attract most of the demand, a largenumber of aircraft, ranging from single-aisles to verylarge aircraft will be necessary to fly Cross Straits.
  48. 48. Global Market Forecast 51Traffic forecastAir travel will doublein the next 15 yearsAir travel remains a growthmarket0199019801970 2000 2010 2020 2030246810World annual traffic - RPKs trillionAir trafficwill doublein the next15 yearsAir traffichas doubledevery 15 years+ 10.5% per yearSource: ICAO, AirbusAirbusGMF 2009ICAOtotal trafficAs a result of drivers such as these, worldwide RevenuePassenger Kilometres (RPKs) will grow at an average of4.7% per annum over the next 20 years. Among thelargest submarkets, annual RPK growth on domesticIndian and PRC flows are expected to average 10% and7.9% respectively. This reflects optimistic long-term pro-jections for economic growth in these countries, as wellas a growing tendency for their populations to travel byair, reaping the benefits of vastly reduced journey timesfor largely similar prices. Growth will also be driven byincreased wealth and improved access to air transportgenerally. Some other markets linked to the IndianSubcontinent are expected to grow strongly, with an ave-rage annual RPK growth of 5.8% for the IndianSubcontinent-Western European market and 5.8% forthe Middle East-Indian Subcontinent market for example.For other, more mature markets, such as the domesticUS and the intra/domestic European market, Airbusforecasts average annual RPK growth of 2% and 3.3%respectively. Although these seem to be relatively smallnumbers, they are still significant due to the already highlevels of traffic in these regions. The pace of growth onIndian and Chinese domestic flows is set to increaseseven-fold and five-fold respectively over the next 20years. However, by 2028 the total volume of traffic,including growth, will still be larger in the US andWestern Europe.
  49. 49. History and forecast of world top ten traffic flow by RPK1. Domestic US2. Intra - Western Europe3. US - Western Europe4. Domestic PR China5. Asia - Western Europe6. South America - Western Europe7. Japan - US8. Domestic Western Europe9. PR China - Western Europe10. Central Europe - Western Europe1. Domestic US2. Intra - Western Europe3. US - Western Europe4. Japan - US5. Asia - Western Europe6. Domestic PR China7. Domestic Western Europe8. South America - Western Europe9. Domestic Japan10. Asia - US1. Domestic US2. Intra - Western Europe3. US - Western Europe4. Japan - US5. Asia - Western Europe6. Asia - US7. Domestic PR China8. Domestic Japan9. Domestic Western Europe10. South America - Western Europe1998 2003 2008Largest 20 traffic flows in 20284.3%4.4%4.6%3.0%5.8%6.8%5.4%5.5%5.6%4.2%10.0%6.7%7.1%4.6%5.7%7.0%4.0%3.3%7.9%2.0%1,0008006004002000 1,200 1,400 1,600RPKs (Billions) 20-yeargrowth1.3%1.3%1.3%1.3%1.5%1.5%1.5%1.8%1.8%1.8%2.2%2.3%2.3%2.5%2.5%2.6%6.8%8.4%8.7%12.2%% of 2028World RPKs2008 traffic 2009-2028 growthDomestic USDomestic PR ChinaIntra West. EuropePR China - West. EuropeUS - West. EuropeSouth America - West. EuropeAsia - West. EuropeAsia - PR ChinaCentral Europe - West. EuropeDomestic IndiaJapan - USAsia - USMiddle East - West. EuropeIntra-AsiaPR China - USIndia Sub - West. EuropeDomestic West. EuropeDomestic AsiaNorth Africa - West. EuropeCanada - West. EuropeSource: Airbus20-year worldannual trafficgrowth 4.7%
  50. 50. Traffic forecast1. Domestic US2. Domestic PR China3. Intra - Western Europe4. US - Western Europe5. PR China - Western Europe6. South America - Western Europe7. Asia - Western Europe8. Asia - PR China9. Central Europe - Western Europe10. Domestic India1. Domestic US2. Intra - Western Europe3. Domestic PR China4. US - Western Europe5. Asia - Western Europe6. South America - Western Europe7. PR China - Western Europe8. Central Europe - Western Europe9. Japan - US10. Asia - PR China1. Domestic US2. Intra - Western Europe3. US - Western Europe4. Domestic PR China5. Asia - Western Europe6. South America - Western Europe7. Japan - US8. Central Europe - Western Europe9. PR China - Western Europe10. Asia - PR China2013 2018 2028India and China the fastest growing,but US remains the largest marketx1 x3 x5 x7x2 x4Traffic volume in 2028RPKs(billions)Domestic USDomesticJapanRatio to 2008 traffic2004006008001,0001,2001,4001,600Domestic PR ChinaDomestic IndiaWestern Europe - USWestern Europe - Asia PRC - USWestern Europe (Dom + Intra)Indian Subcontinent - PRCSource: AirbusGlobal Market Forecast 53

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