Methodology

Practical value for Boeing and the industry

The long-term forecast contained in Boeing's Current Market Outlook guides product strategy and provides the basis for business plan development. We have shared the forecast with the public since 1964 to help airlines, suppliers, industry organizations, academia, and financiers make informed business decisions and benchmark other forecasts or analyses.

Air travel demand is resilient

Global and regional economic cycles profoundly affect air travel demand, so it is essential to take the current phase of the economic cycle into account in developing the long-term forecast. Historically, declines in economic activity are often associated with unexpected events. The resilience of air travel demand depends on the nature of the event and the extent to which the event affects air travel, directly or indirectly. For example, events related to personal safety, such as pandemic, war, or threats against aircraft, have a greater effect than commercial or political events. Perturbations from the long-term demand trend are typically relatively short lived, lasting around 12 months. The role air travel plays in the fabric of society is key to its resilience. Air travel is an essential part of personal and business life for many travelers. The Internet, mobile connectivity, and social media are increasingly integrated into daily life, including how we research, discuss, plan, and book travel. At the same

time, improved airplane technology and efficiency are allowing airlines to make air travel more affordable, so airfares generally represent a smaller portion of total trip costs.

Development process for air travel demand outlook

Our air travel demand forecast is developed by constructing and matching top-down and bottom-up analyses. Bottom-up analysis involves forecasts of traffic between and within individual countries, based on economic predictions, growth momentum, historical trends, travel attractiveness, and projections of the relative openness of air services and domestic airline regulation. Additionally, government statistics on inbound and outbound visitors and tourism receipts are included to identify and cross-check trends. Countries are grouped into geographical regions that generate air traffic flows between and within the regions. In the top-down approach, global and regional markets are similarly projected on aggregated variables. The bottom-up and top-down projections are then reconciled, allowing for the effects of industry and airline business model developments. Further, positive or negative region-specific developments, including population dynamics, shifts toward or away from other modes of transport, and emergence of new air services, are factored in. The resulting regional traffic forecasts are used in developing the airplane demand forecast.

Philosophy behind the forecast

Growth in air travel, measured in revenue passenger-kilometers (RPK), has historically outpaced economic growth, represented by GDP. At the global level, the relationship is RPK (growth) = GDP (growth) + f(t) where f(t) is a time-varying function that typically centers around 2 percent.

This leads us to conclude that, at the regional level, about 60 to 80 percent of air travel growth can be attributed to economic growth, which in turn is driven by trade. This conclusion is consistent with the observation that countries whose economies are tied to trade tend to have higher rates of air travel. Air travel revenues consistently average about 1 percent of GDP in countries around the world, regardless of the size of the national economy. Globally, air travel has consistently tended toward this historical share of GDP. With a few exceptions, most countries move toward the general trend over the long term. The time-varying function f(t) accounts for the 20 to 40 percent of air travel growth that is not directly associated with GDP growth. This component of growth derives from the value travelers place on the speed and convenience that only air travel can offer. For example, the value travelers place on choice of arrival and departure times, routings, nonstop flights, choice of carriers, service class, and fares stimulates increased aviation services.

Liberalization is the primary driver of value creation in the global air transport network, typically spurring a "bump" in traffic demand. Studies suggest that as the relative openness of a country's bilateral air service rises from the 20th to the 70th percentile, the resulting increase in traffic can boost air travel demand by 30 percent. Often, improved air services directly and indirectly stimulate economic growth, creating a virtuous circle that leads to further air transport growth, which in turn leads to added economic growth, and so on. The percentage of air transport growth that comes from economic development compared to the percentage that comes from the value of air travel services is an indicator of the maturity of an air travel market. Although individual regions may exhibit signs of slowing due to maturing markets, other regions continue or begin to grow vigorously. Current global percentages do not indicate that the world aviation market is nearing maturity in aggregate.