Strength despite uncertainty

The European aviation market remained strong in 2012, despite uncertainties from the sovereign debt crisis and recessions in some economies. Europe's GDP was flat in 2012 and is forecast to grow by 1.8 percent annually through 2032. The Association of European Airlines reports that member airlines carried 1.5 percent more passengers in 2012. Members of the European Low Fares Airline Association (ELFAA) reported a 7.2 percent increase in passengers over 2011 levels. European airlines acquired more than 230 new airplanes in 2012, of which 74 percent were single aisle.

Aviation growth is expected to continue over the next 20 years, with European airlines forecast to acquire 7,460 new airplanes valued at $530 billion. Single-aisle airplanes will account for the majority of deliveries, representing a 73 percent share.

Although aviation growth in Europe is not as rapid as in the world's emerging economies, the region's large installed base of almost 4,400 airplanes sustains a substantial demand for replacement airplanes. This demand will account for 51 percent of Europe's new-airplane market.

Leading strategic change

Airline operations continue to evolve with the launch of new ventures and new business models. Long-haul service by European low-cost carriers (LCC) is becoming a reality in 2013 with the delivery of the 787 to LCC Norwegian Air Shuttle. The next 20 years are expected to bring additional mergers and acquisitions, along with increased collaboration with alliance partners around the world.

Large Middle East carriers have captured significant long-haul share from European network carriers by providing one-stop service from Europe to markets such as India, Australia, and Southeast Asia. These carriers are also changing the way that they compete for European business: one by entering an alliance, another by acquiring an equity stake in a European carrier, and a third through a cooperative agreement with a non-European partner.

Large network airlines are tending to shift away from short-haul traffic, which is targeted by LCCs, and toward flowing passengers through their hubs on longer itineraries. LCCs have continued to add service in short-haul markets, with ELFAA members providing 35 percent of capacity on intra-Europe flights in 2012. Smaller flag carriers and charter airlines will be challenged to compete in an environment where LCCs dominate short-haul, point-to-point service, and large network carriers and their alliance partners exploit the cost advantages of mega-hubs for long-haul traffic.