Market Developments

Dynamic industry

Aviation is a dynamic industry that continuously adapts to various market forces. Key market forces that impact the airline industry are fuel prices, economic growth and development, environmental regulations, infrastructure, market liberalization, airplane capabilities, other modes of transport, business models, and emerging markets. Each of these forces can have both positive and negative impacts on the industry. Fuel is now the largest component of an airline's cost structure. This has driven manufacturers to produce more efficient airplanes, such as the 787 and the 737 MAX, while encouraging airlines to pursue cost reductions and revenue enhancements in other areas in order to maintain profitability, even with higher fuel costs.

These market forces are incorporated into the long-term forecast that Boeing produces annually. The economy, as reflected by gross domestic product (GDP), one of the main contributors to airline growth, is forecast to rise 3.2 percent over the next 20 years, which will drive 5.0 percent annual growth in passenger traffic as well as 5.0 percent annual growth in cargo traffic (which is also highly dependent on global trade).

Airlines responding and adapting

Airlines continue to adapt to the dynamic business environment. Operating statistics suggest that airlines are deploying capacity strategically to help boost yields and cover higher fuel expenses. Passenger traffic continues to grow at or above trend. Passenger traffic grew 5.3 percent in 2012 compared to 2011, while capacity grew at a rate of 3.9 percent. This led to an industry-high load factor of 79.1 percent in 2012. Despite a challenging economy, 2012 was one of the best years the airline industry has had since the Great Recession. In 2012, airlines earned $7.6 billion profit. Asian airlines and North America contributed the most to profitability. IATA forecasts an even more profitable year in 2013, with traffic following the trend of at least 5.0 percent annual growth.