Strong growth despite uncertainty

The European aviation market remained strong in 2013 despite recessions in some economies and sluggish recovery in others. Europe's GDP grew 0.4 percent in 2013 and is forecast to grow 1.9 percent annually through 2033. The Association of European Airlines reports that member airlines carried 0.2 percent more passengers in 2013 than in the previous year. Members of the European Low Fares Airline Association reported a 6.7 percent increase in passengers over 2012 levels. European airlines acquired more than 180 new airplanes in 2013, of which 78 percent were single aisle.

Aviation growth is expected to continue over the next 20 years, with European airlines forecast to acquire 7,450 new airplanes valued at $1,040 billion. Single-aisle airplanes will account for the majority of deliveries, representing a 79 percent share of total deliveries.

Although European aviation growth is not as rapid as aviation growth in the world's emerging economies, the region's large installed base of more than 4,300 airplanes supports a substantial demand for replacement airplanes. Replacement demand will account for 55 percent of Europe's total market for new airplanes.

Continued 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) became a reality in 2013 with the delivery of the 787 to 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 airline entered a global alliance, another acquired an equity stake in a European carrier, and another formalized 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 LCCs providing 40 percent of capacity on intra-Europe flights in 2013. 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 megahubs for long-haul traffic.