Boeing's Current Market Outlook is a long-term, noncyclical forecast that looks beyond short-term shocks to address underlying trends in the aviation industry. In this forecast, we examine travel demand for 63 intraregional and interregional traffic flows. Key indicators include
- Gross domestic product (GDP) development.
- Labor force composition.
- International trade (as a share of GDP).
- Emerging technology (e.g., new airplanes with improved economics and capabilities).
- Business model innovation.
- Quality of service (e.g., new nonstop city pairs, greater frequencies).
- Travel attractiveness.
- Industry competitiveness.
- Openness of air services and domestic airline regulation.
Different flows have different drivers and are therefore modeled differently. Flows touching emerging markets may emphasize GDP per capita, while mature markets may be driven more by time-series trends.
Forecasting requires more than just data because the future of a market is more than an extension of past performance. While some factors that drive demand (e.g., GDP) are easily quantified, other factors that may have an even greater effect on market performance (e.g., liberalization) are more difficult to quantify. When such factors are present, forecasting demand requires greater judgment than when the same factors are absent.
Although the air transport industry is subject to occasional shocks, demand for air transportation is resilient, because services are often seen as essential, and discretionary trips, such as vacations or family events, are often high-priority items. Over the past 30 years, the aviation industry experienced recessions, oil price shocks, near-pandemics, wars, and security threats, yet traffic continued to grow, on average, at 5 percent annually.
Changes in industrial structure can also result in short-term effects. For example, after consolidating, the US airlines have been focusing on matching demand with capacity. Although traffic growth (expressed in revenue passenger-kilometers [RPK]) has been minimal, airline profitability has improved. Conversely, low-fare carriers in other markets, and the competitive responses they provoke, led to falling fares and traffic stimulation, thereby supporting more rapid RPK growth than those same markets might have achieved in the past.
Evolving air travel demand
Demand dynamics are different for various levels of a country's economic development. Emerging markets throughout the world have shown that air travel is a discretionary expenditure, but it is one of the first discretionary items to be added as consumers join the global middle class. As emerging market demand begins to develop, it may take the form of nonscheduled services to leisure destinations. Later on, the same demand may migrate to scheduled services of low-fare carriers or to the network airlines.
In developed markets, demand for essential travel has been met, leaving growth to come from discretionary travel. GDP per capita matters less in these contexts. Factors such as availability of financing (for funding vacations), consumer confidence, service pricing, service quality (e.g., availability of nonstop flights), and vacation entitlements will tend to have a greater impact.
Propensity to travel, measured in trips or RPKs, generally increases with per capita income within any given region. The size of this increase varies considerably. Generally, markets that are more open will be more responsive to changes in per capita income as airlines are freer to add routes, frequencies, and seats to capture demand. In a more regulated environment, demand (i.e., desire to travel) may increase with GDP per capita, but lower service quality and higher pricing may restrain travel growth. Geography may also influence a region's propensity to travel, with island geographies or poorly connected land areas resulting in somewhat more air travel than might otherwise be the case.
As discussed in our methodology section, gross domestic product (GDP) is a strong indicator for the current market outlook. IHS Economics forecasts GDP to grow at 3.2 percent over the next 20 years. Emerging economies are expected to grow at 5.2 percent per year, outpacing the established economies, which will average 2.2 percent growth. Emerging and developing economies will grow from 27 percent of total GDP in 2013 to 40 percent by 2033.
The fastest growing economies are those in Asia Pacific (with a projected growth of 4.4 percent), Latin America (with a projected growth of 3.9 percent), and Africa (with a projected growth of 4.7 percent).
Based on the expected 3.2 percent growth in GDP, we project airline passenger traffic to grow at 5.0 percent and air cargo traffic at 4.7 percent. Passenger traffic within China will be the largest travel market, expected to grow at 6.6 percent annually. Travel within North America and Europe, while growing below trend, will be the second and third largest markets, with growth rates at 2.3 percent and 3.5 percent. Traffic to and from the Middle East and Asia Pacific, within Asia Pacific (excluding China), and within Latin America will be among the fastest to grow.
Passenger's options for air travel will continue to evolve. Twenty years ago, passengers were most likely to fly on an airline from Europe or North America. Over the next 20 years, passengers will see greater diversity among the world's airlines, with 62 percent of traffic being carried by an airline outside North America or Europe. Trends in passenger traffic growth are similar to those of GDP. Emerging markets will grow faster than established markets. Regions growing above trend are Asia Pacific (at 6.3 percent), the Middle East (at 6.4 percent), and
Latin America (at 6.2 percent), while Europe (at 3.9 percent) and North America markets (at 2.9 percent) will be below trend.
Today, nearly 21,000 jet airplanes are in commercial operation. The world's largest fleets are in the United States, China, Russia, the United Kingdom, and Germany. Over the next 20 years, the world's fleet will grow at an average rate of 3.6 percent annually, driving a need for more than 36,700 new airplanes, valued at $5.2 trillion.
Of these new airplanes, more than 30 percent, 13,000 airplanes, have already been sold. The countries with the largest backlog are the United States, China, Indonesia, Russia, and India. With this demand, along with the current fleet, the world's jet fleet will more than double, to more than 42,000 airplanes over the next 20 years.
Forty two percent of these new airplanes will be for replacement and 58 percent will be for growth. The replacement market tends to be driven by the more mature aviation markets, such as Europe and North America. Growth is being driven by the emerging markets, such as Latin America and Asia Pacific, and by the low-cost carrier(LCC) and sixth freedom business models.
Airline business models continue to evolve. What was once a clear division between network, low-cost, and charter models is now less clear, with network carriers operating low-cost, short-haul subsidiaries; LCCs providing frequencies and services to attract business passengers; and charter carriers venturing into single-seat sales. LCC s are even starting long-haul service, competing with network carriers on point-to-point routes.
The trend toward growth of the low-cost model is clear. LCCs have grown from 7 percent of the world market in 2003 to 16 percent today and are projected to capture 21 percent by 2033. Charter carriers are hardest hit by this transition, declining from 9 percent in 2003 to 3 percent today and in 2013. Broad network carriers also suffer declines, from 66 percent in 2013 to 62 percent today and 56 percent in 2033. The shift to a low-cost model is even more dramatic when we take growing low-cost subsidiaries in many broad network carriers into consideration.
The 160-seat size aircraft remains the heart of the single-aisle market
Single-aisle airplanes continue to dominate the world's fleet. In 2013, the single-aisle category composed 65 percent of the fleet. By 2033, we estimate that share to rise to 70 percent. Of the forecast demand for 25,680 new single-aisle airplanes valued at $2.5 trillion, 38 percent will replace older airplanes, while 62 percent will expand the fleet. Emerging markets drive demand for single-aisle airplanes. Asia Pacific airlines are expected to take the largest share of new deliveries and will need 9,540 new airplanes to expand their single-aisle fleets from 3,820 to 10,850 airplanes by 2033. LCCs, whose business models focus on fleet commonality, also drive demand for single-aisle airplanes and are expected to take 40 percent of single-aisle deliveries.
Over the past 20 years, average airplane size across short, medium, and long regional routes have been converging to 160 seats as the flexibility of today's single-aisle airplanes allow airlines to fly more directly, more often, and more efficiently. In the short sectors, increases in fuel price drove carriers to larger airplanes to achieve lower unit costs in a challenging sector of the market, and a similar trend is seen in the medium (1,000- to 2,000-mile) segment. On the longer haul regional markets, such as those with transcontinental missions, airplane size flattened over the past 15 years, right at 160 seats, as the capabilities of airplanes such as the 737-800 allowed for more point-to-point services and greater frequencies for passengers.
This size category (737-MAX 8 size) continues to be the heart of the market today and over the next 20 years. In today's backlog, approximately 75 percent of airplanes to be delivered are in this size category, and over the next 20 years, 70 to 75 percent of new deliveries will be of this size.
New widebodies providing more direct, more frequent service
The widebody fleet continues to grow as airlines expand their international footprint and open new markets. We forecast that 8,600 new widebody airplanes will be needed to meet this demand. Of these, 4,520 will be in the 200- to 300-seat size category (787-8 and 787-9), 3,460 will be in the 300- to 400-seat size category (787-10, 777, and 777X); and the remaining 620 will be in the greater than 400-seat size category (747-8i). As with the single-aisle airplanes, 38 percent of deliveries will be for replacements and 62 percent of deliveries will be for growth. Europe and North America tend to be a replacement market, while Asia Pacific and the Middle East are a growth market. Nearly 60 percent of all new deliveries will go to Middle East and Asia Pacific airlines.
Since the 777 came to the market, the top 25 long-haul markets have expanded, and capacity has increased by 60 percent. This increase in capacity has been met by an increase in frequencies (up 60 percent) and by the addition of new cities being served (up 46 percent), while the number of seats per airplane has decreased slightly (down 2 percent). This market flexibility will continue as the 787 family and 777X come to market. The 787 is allowing airlines to provide customers the ability to fly where they want to, when they would like to fly, as in the cases of London Heathrow to Austin, Texas: San Francisco to Chengdu: and San Jose to Tokyo. Airlines are also announcing how they will be using the 787-9 in conjunction with the 787-8 to provide the right-size airplane on the right day.
The new twin-engine airplanes coming to market are also helping airlines to evolve airline business models. The 787-8 allows LCCs to move from the traditional short-haul flight into more medium-haul flying, expanding their customer base while using an airplane with lower operating costs. The range and efficiency of the 777-300ER allow airlines to take advantage of their geographical locations.
Asia Pacific, Europe, and the Middle East account for more than 90 percent of large-airplane demand in the 20-year forecast. These planes will serve as passenger jetliners on high-traffic trunk routes and as dedicated commercial freighters. We forecast 620 deliveries, composing 5 percent of total delivery value, will be required. The Asia Pacific region will receive 34 percent of these deliveries, while Europe will take 10 percent and the Middle East
48 percent. Although the large-airplane share of long-haul traffic will diminish over the next 20 years, large airplanes remain an important part of the commercial airline fleet.
Air cargo traffic stagnation amid market challenges
An unusually challenging environment over the past several years left traffic levels relatively flat and resulted in persistent overcapacity and weak yields. Nevertheless, air cargo remains indispensable for a variety of industries that require transport of time-sensitive and higher value commodities. These commodities include perishables, consumer electronics, high-fashion apparel, pharmaceuticals, industrial machinery, and high-value intermediate goods such as auto parts. The unparalleled speed and punctuality advantages of air freight ensure that it will continue to play a significant role in the global economy despite improving surface modes that can offer a cheaper transportation alternative.
Dedicated freighters and passenger airplane lower holds both carry air cargo. Cargo capacity on passenger flights has expanded as airlines deploy new jetliners, such as the 777-300ER, that have excellent cargo capability. Dedicated freight services, however, offer shippers a combination of reliability, predictability, and control over timing and routing that passenger lower hold cargo operations cannot often match. Thus, we expect that freighters will continue to carry more than half of global air cargo traffic and that market capacity balance will to be restored within a few years, as world trade recovers.
Air cargo traffic, as measured in revenue tonne-kilometers (RTK), is projected to average 4.7 percent growth per year over the next 20 years as global GDP and world trade growth accelerate. In spite of multiple exogenous shocks arising from economic and political events and natural disasters, this figure is slightly below the 5 percent average annual rate achieved over the past three decades. Replacement of aging airplanes, plus the industry's growth requirements, will create a demand for nearly 2,200 freighter deliveries over the same period. Of these, 1,330 will be passenger airplane conversions. The remaining 840 airplanes, valued at $240 billion, will be new. The freighter fleet will increase by more than half, from 1,690 airplanes in 2013 to 2,730 in 2033.
All standard-body freighters will be conversions from passenger airplanes
We forecast a need for 960 standard-body freighters, all passenger conversions, which are attractive for standard-body operations owing to their low capital cost. Demand has recently been and will continue to be especially strong in emerging markets.
Express carriers drive medium widebody demand
Two hundred fifty medium widebody purpose-built freighters will be delivered during the forecast period. This freighter market is driven by express carriers that mitigate the lower economic efficiency of medium widebodies with higher yields. Passenger airplane lower hold capacity and competition from less expensive surface transport both constrain the use of medium widebody freighters in regional markets.
While the performance, efficiency, and reliability of new, purpose-built freighters are valued in many applications, the lower purchase prices for converted freighters often offer opportunities for carriers where very high utilization and more market-dependent demand are more significant considerations. Thus, nearly 400 widebody conversions will be needed over the forecast period.
Intercontinental operations favoring new, large freighters
Nearly 600 new, large freighters will be required where high cargo density, larger payloads, and extended range are crucial.