Growth in many emerging markets continues to outpace that in developed economies. Momentum has slowed, however, in recent quarters, with weakened demand from developed economies and withdrawal of government stimulus. Strengthening demand in Europe and the United States is expected to boost exports from emerging economies. Economic prospects in Asia will be shaped by capital rotation out of emerging markets, key elections in several countries, and the pace of domestic macroeconomic reforms. Rapid credit expansion in China has created vulnerabilities in real estate, banking, and local government, but government spending and fiscal policies support near-term growth. Elections in India and Indonesia should help resolve policy uncertainties, which will support stronger economic growth. The outlook for consumer spending in Asia is bright, thanks to robust income growth and deepening financial markets. In emerging markets outside Asia, commodity prices, political stability, and government response to inflationary pr essures driven by weakening currencies will be key watch items.
IHS Economics forecasts an extended period of strong performance. There is a growing chance that pent-up business and household demand and idle production capacity in many parts of the world will fuel above-trend growth over the next several years, resulting in an upside growth surprise. Structural reforms will be key to sustaining these prospects.
Airline passenger traffic sustained a growth rate slightly above 5 percent during 2012 and 2013, despite consecutive years of weak global GDP growth. The global airline industry grew at or above the long-term growth rate on sound fundamentals. Productivity continues to increase, with historically high airplane utilization and passenger load factor. In 2013, load factor was 79 percent, showing that airlines are matching demand without oversupplying capacity. Unit revenue (passenger revenue per available seat-kilometer) was stable at the global level in 2013, indicating that airlines did not cut fares to fill seats. Unit cost was down slightly Better unit revenue, combined with reduced unit cost, indicates a more profitable industry.
Airline traffic in developed economies grew at a respectable pace in 2013, although mature markets generally lag the world average. Economic growth was flat in Europe, but the region's passenger traffic increased nearly 4 percent from 2012. Profitability was sluggish, however, as network carriers restructured to compete with low-cost carriers in short-haul markets and sixth-freedom carriers in long-haul markets. In North America, consolidation and capacity discipline held growth to about 2 percent, but airline earnings in the region lead the global industry with an estimated $7 billion net profit. Their performance is expected to climb to $9 billion in 2014, representing approximately half the entire industry's projected profit.
Overall, emerging markets, led by China and the Middle East, continue to grow faster than the global average, with double-digit traffic growth. Some emerging markets, however, such as Brazil and India, have seen slower growth owing to recent economic softness and volatile exchange rates that reduced traveler purchasing power. Weakening currencies in many emerging markets have also quickly and materially raised airline costs, such as jet fuel and financing, which are generally priced in US dollars. These higher costs, combined with growing competition, have led to near-term profit challenges for many emerging market airlines. Longer term prospects remain bright, however, as a result of the strong demand outlooks associated with growing middle classes and liberalizing air travel markets.