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Global Market Forecast GL Future Journeys AL OB R MA KE T 2013 2032 IN FL GD P UE NC SH E AR E OF E GI TR NG RE IGH TER P ASS ENG ER ET ET IN E EC IN CO DL M CL E AS S OM IE EV OL SE UT S IO N RV IN S ICE ERV FU E ID ON FIC FLE FLE SA M AF F O BL TH EM ER DI SP OF ICE EL P INTE RNATIO RICE NAL T INTERN ATIONAL RIPS STUDEN TS TICKET PR ICE URBAN POPULATION KETS ING MAR EMERG ON I AT IS U R S RA FA C A AD PE R LO M PT IO N ICE SU ERV MID D LAT LE EA S IN EUR AMER T OPE ICA CIS ASIA AFR -PACIF IC IC NOR A TH A MER ICA IN S LEE T F TO C IR SE AT FT L TI CO N VIAT A IES -CIT EGA M ION EL RAFT AIRC FU TION NERA GE NEW NCE OF INFLUE Global Market Forecast GL Future Journeys AL OB R MA KE T 2013 2032 IN FL GD P UE NC SH E AR E OF EM GI TR NG RE IGH TER P ASS ENG ER ET FLE ET IN E EC IN CO DL M CL E AS S OM IE EV OL SE UT S IO N RV IN S ICE ERV FU E ID ON FIC FLE SA M AF F O BL TH E ER DI SP OF ICE EL P INTE RICE RNATIO NAL T INTERN ATIONAL RIPS STUDEN TS TICKET PR ICE URBAN POPULATION NCE OF INFLUE W NE KETS ING MAR EMERG T CRAF N AIR RATIO GENE IES -CIT EGA NM IO VIAT A Traffic Economy Ecology environement Fleet in service Global markets ON TI SA LI Fuel consumption per seat New generation aircraft Aviation mega-cities S TO AT FA C PE R Eco-efficiency Fleet-in-service VIC E UM PT IO N SER MID D LAT LE EA S IN EUR AMER T OPE ICA CIS ASIA AFR -PACIF IC IC NOR A TH A MER ICA F LEE T IN NS FU EL CO Economy &c Demographics Aircraft utilisation Load Factors Middle East Latin America Europe CIS Asia Pacific Africa North America LO Traffic & Fleets Urban population Disposable incomes Influence of the middle class Influence of emerging markets Ticket price Fuel price AD Traffic evolution Passenger fleet in service Freighter fleet in service International trips Internation students R CR R AI SE T AF I UT Contents Introduction07 01. Executive summary 10 02. Demand for air travel 14 Economy16 Market drivers 24 Network development 33 03. Traffic forecast 40 04. Demand for passenger aircraft 48 Single-aisle50 Twin-aisle52 Very Large Aircraft 54 05. Demand by region 58 Asia-Pacific60 Europe 64 North America 68 Middle East 72 Latin America 76 CIS 80 Africa 84 06. Demand for freighters 07. Summary & methodology Summary of results Passenger methodology Freight methodology 88 100 102 108 112 Introduction Aviation at the centre of “Future Journeys” With each successive Airbus Global Market Forecast (GMF) we seek to deliver a 20-year view of the demand for civil passenger and freighter aircraft that will serve as a reference for airlines, airports, investors, government and non-government agencies, air transport and economic planners world-wide. We chose the title for this year’s GMF “Future Journeys” to remind us that, behind the data, the analysis and the predictions contained in our forecast, the community that constitutes the air transport industry essentially provides journeys. These journeys involve real people, each with their own particular reason to embark upon each journey. Very soon after the first flights of the early 1900s, flying became less about the challenge of flight itself and more about peoples’ journeys. As early as 1914 passenger flights were a regular occurrence and 1919 saw the creation of the first airline that is still operating today. People were quick to grasp the benefits aviation could bring to their journeys, beginning with the transport of high-value freight in the form of air mail. In this forecast we set out our view of the key economic and operational drivers of air transport markets in the next 20 years and their implications on the demand for passenger and freighter aircraft. But as in the past it is journeys, how they are performed, where they start and finish, when they happen and who will take them that will define the future. This future will steer us all towards the areas of innovation that will define the shape and structure of our industry at the end of this forecast’s coverage in 2032 and beyond. Our regular readers will notice some areas of greater focus in the 2013 GMF. It is our intent to provide you with analysis based on the most comprehensive sets of data and calling on the very best forecasting techniques to provide a useful source material for your own analyses. We realise, however, that there is always room for further improvement and we look forward to your feedback and your questions in order to make our future forecasts even more robust. Aviation continued to innovate to facilitate this need with a succession of significant airline firsts: across the Atlantic and Pacific in the nineteen thirties and the introduction of jet airliners in the fifties. Technological and operational firsts have continued to this day and behind each of them are the demand of peoples’ lives and their journeys. E-mail: [email protected] 6 Global Market Forecast www.airbus.com/ company/market/gmf2013 Global Market Forecast 7 The demand for air transport will grow Air traffic has doubled every 15 years in the past, and is expected to double again in the next 15. It rebounded each time demand was slowed by shocks, such as the 2008 global financial crisis. This is evidence of the value people place on the ability to fly to do business, visit friends and family or simply to relax on holiday. How much, how quickly and where air transportation will grow is driven by a number of factors. Some are economic and others linked to demographics and socio-economic development. It is the job of the forecaster to determine which of these will help explain air transportation’s future and which will shape its direction. People, where they choose to live, the work they do and their aspirations are all a big part of the story, and will drive factors such as urbanisation, wealth, disposable income and consumer spending, key factors in the growth of air transportation. In this year’s GMF, we will delve a little more deeply into these factors to show how they in turn drive our forecast and results. However, it’s not just about the benefits aviation can bring to people, but the benefits aviation can bring to countries for example look at contribution to GDP. Report after report has shown the scale of benefits aviation brings in terms of jobs and economic development. Good reasons to ensure that aviation is able to reach its potential in the future. 70 % Aircraft size is growing This growth has not been without a focus on the environment; new technologies have constantly driven down aircraft noise and emissions levels. In the last 40 years, noise has been reduced by 75% and CO2 by 70%. This focus will continue into the future, with the latest new products and derivatives either just coming onto the market or arriving in the next year or two like the A350XWB and A320neo delivering between 15-25% lower fuel burn and associated CO2 than the aircraft they are replacing. It is not just new technologies; over recent years a trend has developed to select larger aircraft. This is a simple way to reduce the fuel burn and cost per seat Ticket price has not grown doubt that it is possible for travellers from all corners of the world to identify flights they have made in the past that are now less expensive. Importantly, with cheaper flights has come a greater ability for people to fly, aiding a very real democratisation of flight world-wide. It is possible to believe that the ability to transport a person to anywhere in the world, with less than a day’s travel time would come at a very significant cost to the traveller. In fact, this was the case. In 1941, it could have cost the average American more than a year’s salary to fly from Los Angeles to Hong Kong. Today, they would have to work less than a week to do the same trip. According to data from Airlines for America, domestic US airfares (including fees) have reduced by 40% since the 1980s. This decline has not just been in the US, there is little There are few products in the world that have become cheaper in this way, in fact it is a struggle to think of more than a handful. Reducing air fares helping to democratise air travel - the us example Source: Airlines for America, Airbus Average fare (Real US$) paid per domestic round-trip journey CO2 reduction in the last 40 years for the airline and also to meet the growing demand on the routes that they serve. If the number of seats offered by the world’s airlines’ are divided by frequency, it can be clearly seen that average aircraft seating is increasing. So it is no surprise that when it is possible, airlines choose larger aircraft within each market segment to meet their needs. Airlines are also up-gauging aircraft in their existing backlogs and densifying, (adding more seats) existing cabin configurations. Manufacturers in turn are looking at ways to add seats to existing products and some considering or launching larger variants of existing aircraft families in order to meet demand. 500 450 400 -43% 350 300 250 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 200 Average aircraft capacity has grown by more than 25% over the last 20 years Source: OAG, Airbus Evolution of the aviation industry over the last 20 years Base year 1992=1 2.4 2.2 2.0 Traffic in ASKs 1.8 Growth in number of routes 1.6 Growth in frequencies Growth in per flight capacity 1.4 Growth in average distance 1.2 1 1992 8 1994 Global Market Forecast 1996 1998 2000 2002 2004 2006 2008 2010 2012 Global Market Forecast 9 01 Executive summary executive summary Background 36% Traffic In the last year, despite continuing social problems and sluggish economic growth in parts of the world, aviation has continued to grow through developments in world economic activity, demographics, positive socioeconomic progress and simply the abilty of aviation to deliver real benefits to real people. This is something we are reminded of every year when putting together the Airbus GMF as the data shows the further evolution of air transport. Positively the trends driving aviation are not short term in nature, propelling aviation through the last 30 years to a point where air traffic has doubled, twice, over that time. These trends will also form the basis on which aviation will continue to grow in the coming 20 years, with aviation becoming increasingly accessible to people in all parts of the world. Each year, Airbus forecasters take the best macro-economic and operational data and combine it with a forecasting methodology developed over 20 years, performing more than 208 traffic flow forecasts, over 100,000 Origin and Destination (O&D) city-pairs and modelling demand for nearly 750 individual airlines in order to deliver the forecast. Airbus analysis shows that traffic growth between advanced and emerging air transport markets will grow at an average annual rate of 4.9%, and will represent 30% of global traffic (RPKs) by 2032. Traffic between emerging markets will grow at an impressive 6.8% and will represent just over 40% of passenger traffic. On a world-wide basis, traffic growth is expected to average 4.7% per year. Even though emerging markets are the key and leading driver of future air transportation, the importance of advanced aviation markets cannot be under-estimated. Share of passenger and freighter aircraft delivered to Asia In fact by 2032, about 60% of all traffic will still involve the advanced aviation markets, primarily North America and Europe. As in GMF 2012, traffic carried by airlines from the Middle East airlines is expected to grow at the highest rate of 7.1% per annum, accounting for 12% of all traffic carried in 2032. But the three largest regions in terms of airline domicile will continue to be Asia-Pacific, Europe and North America, accounting for 34%, 22% and 18% of global traffic respectively in 2032. World-wide freight traffic is expected to grow slightly higher than passenger traffic at 4.8% per year. Fleet and Deliveries Highlights While GDP continues to be a strong explanitory variable for aviation growth, Airbus’ traffic forecasts also test and use other variables. For example, the Chinese market is also driven by real consumption and trade, which are used to forecast future demand. Last year, Chinese domestic traffic was identified as the largest flow by the end of the forecast period, a view that is re-asserted in this year’s forecast. The emerging markets as a whole, with their economic growth, large populations and growing middle-classes continue to be strong drivers on the forecast, with Asia-Pacific becoming more significant over time in terms of new aircraft deliveries, for both passenger and freighter types. The Single-Aisle market continues to be the most significant in terms of volumes. However, within this segment the evolution in terms of aircraft size continues. The largest segments, the 175 and 210 seat categories, with demand met by aircraft such as the A321 today, are forecast to take 44% of all Single-Aisle demand, with the largest demand expected to remain in the 150 seat segment. The forecast for larger Twin-Aisle categories, including the Very Large Aircraft, remain robust, driven by growth of significant existing city pairs, hubs and development across all regions, but in particular Asia. Single-Aisle: 69% of units; wide-bodies: 59% of value Passenger aircraft (≥ 100 seats) and jet freight aircraft (>10 tonnes) 20-year deliveries of new passenger and freighter aircraft 2013-2032 29,226 New deliveries 20,000 18,000 12,000 By 2032, the fleet of passenger aircraft (with 100 seats or more) and freighter aircraft (10 tonnes or greater), will be 36,556 aircraft more than doubling the 17,739 aircraft fleet in service today. Single-Aisle passenger aircraft represent the largest segment of the new deliveries with 20,242 over the next 20 years. The demand for TwinAisle aircraft will require 6,779 new passenger aircraft and 494 freight aircraft. Due to the growth in traffic demand in Asia-Pacific, it is no surprise that 47% of the demand for very large passenger aircraft (VLA) will be within this region. It is equally important to note that over 40% of all new aircraft deliveries over 100 seats will be within North America and Europe. Much of this demand, especially in North America, is for new, more fuel efficient aircraft to replace older less eco-efficient types. By 2032, the world’s airlines will take delivery of more than 29,220 new passenger and freighter aircraft worth US$ 4.4 trillion at current list prices. new Passenger aircraft delivered by region Passenger aircraft ≥100 seats 2013-2022 2023-2032 2013-2032 Africa 443 527 970 % of 20 years total new deliveries 3% Asia-Pacific 4,894 5,770 10,664 36% CIS 587 508 1,095 4% Europe 3,035 2,792 5,827 20% Latin America 1,040 1,239 2,279 8% Middle East 1,010 989 1,999 7% North America 2,968 2,553 5,521 19% Freighters 416 455 871 3% World 14,393 14,833 29,226 100% More than 29,200 new aircraft deliveries 8,000 Passenger aircraft ≥100 seats 28,355 4,000 29,226 New deliveries 871 0 Single-Aisle & Small jet freighters % units % value 69% 41% Small Twin-Aisle & Regional freighters 17% 26% Intermediate Twin-Aisle & Long range freighters 8% 17% Large aircraft & Large freighters 6% 16% Passenger Fleet 5,296 10,798 Global Market Forecast Freighter Fleet 12,193 Remarketed & stay in service 12 1,859 Converted Retired 1,395 Global Market Forecast 13 02 Demand for air travel Economy Finally, the on-going geopolitical tensions in the Persian Gulf and the rest of the MENA (Middle East and North Africa) region have helped to keep oil prices at elevated levels. Any adverse effects are however not expected to derail world economic growth. All in all, previously identified risks are expected to translate into loosening tensions, suggesting the idea that a more negative scenario will be avoided for now and that the global economies on-going expansion has staying power. This is illustrated by the fact that downward revisions of short term economic growth outlooks have stopped. This is the case for 2013 (expected world economic growth of 2.3% at the time of writing) and even more true for 2014 economic growth which has been slightly revised upwards recently (from 3.2% up to 3.3%). demand for air travel Over the first half of 2013, negative news concerning the global economy has gradually slowed, with previously identified threats beginning to look less likely to materialize. Although Europe’s recent performance has been an issue for the global economy, structural reforms made at the European Union (European Central Bank) and at a national level have helped a more optimistic outlook. The US economy faces some challenges in the form of the federal spending sequestration. Nevertheless, the underlying fundamentals of the US economy remain solid, which should translate into strengthening economic growth in the second half of 2013, especially given the resilience of the private sector. The risk of a hard landing for China is also seen by economists as less likely than previously thought. With 2012 economic growth at 7.8%, it is still a very impressive growth rate, even when compared to other emerging countries. forecast world economic growth rates are no longer being revised downward Source: IHS Global Insight, Airbus World real GDP growth (%) 4.5% 3.8% Commercial air transport development is driven by two main factors: economic growth and air ticket price stimulation. Economic developments can be measured by several elements including private consumption, disposable income, exports, imports or tourism growth (national and international). However, the variable that best combines these different dimensions is the more global Gross Domestic Product (GDP), as shown in the chart below. 3.3% 3.2% 4.0% 3.5% Expected world economic growth for 2014 3.0% 2.5% 3.3% Expected world economic growth for 2013 2.0% 2.3% 1.5% 2.3% 1.0% 0.5% World transport growth is closely correlated to economic growth Source: IHS Global Insight, ICAO, Airbus 0.0% J 16% Air Traffic growth (%) Real GDP growth (%) Global Market Forecast 2012 -2% 2010 -4% 2008 -1% 2006 -2% 2004 0% 2002 0% 2000 1% 1998 2% 1996 2% 1994 4% 1992 3% 1990 6% 1988 4% 1986 8% 1984 5% 1982 10% 1980 6% 1978 12% 1976 7% 1974 14% 1972 16 8% F M A M J J A S O N D J F M 2012 Over the medium term, the global economy’s performance is expected to improve gradually, thanks mainly to more aggressive business investment, which in itself is fuelled by accumulated pent-up demand in developed and emerging economies. As a result, the pace of growth may even strengthen and surpass the long-term trend level during 2015-2019, before gradually edging down to a rate close to its long-term trend (3.1% yearly growth) after 2020. The post-crisis journey shows further disparities between emerging and developed countries and even between developed countries: those that are agile/competitive and those more indebted/less competitive. Having been faster to implement structural reforms and debt de-leveraging A M J J A S O N D 2013 measures, emerging countries have rebounded faster and stronger to pursue their development growth, increasingly adopting some western consumption patterns including the use of air travel. The 54 emerging economies we use in our segmentation have an impressive cumulated population of almost 5 billion people. Contrary to perception, these 54 emerging economies are very diverse and not only located in the Asia-Pacific region but globally (11 in Latin America, 11 in Africa, 8 in Middle East, 14 in Europe-CIS and 10 in Asia-Pacific). Population of emerging economies 5 billion Global Market Forecast 17 economies in 2002 represented 6% of the world’s total trade. Currently, this share has grown to an impressive 16% and will continue to grow for the foreseeable future. As a result of their growing economic power, emerging economies have begun to build stronger political and commercial links between themselves, furthering world globalisation. To illustrate this, trade between emerging diverse emerging economies, not just located in asia-Pacific Source: IHS Global Insight, Airbus EUROPE-CIS • 14 emerging economies • 380 million people (2012) demand for air travel Strong trade growth between emerging economies* over the last 10 years Source: IMF, Airbus Share of world trade (%) 16.3% 20% 18% 16% ASIA-PACIFIC • 10 emerging economies • 3,500 million people (2012) LATIN AMERICA • 11 emerging economies • 500 million people (2012) 14% 12% 6.2% 10% 8% 4.6% 6% AFRICA MIDDLE EAST 4% • 8 emerging economies • 60 million people (2012) 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1992 1995 0% Emerging economies (54 countries) 1994 Advanced or developing economies (150 countries) 2% 1993 • 11 emerging economies • 430 million people (2012) * 54 emerging economies On their way to converge and eventually catch up with more mature/advanced economies, emerging economies have been and will continue to be the single most important engine of the world economic growth. Between 1992 and 1997, the 54 emerging economies identified contributed to a 22% share of the world economic growth, compared with a 75% share for the 31 more advanced economies. Over time these emerging economies have gradually increased their share of world economic growth, up to 55% during the 2007-2012 period (compared with 40% for the advanced economies). By the next decade, this trend is expected to continue to reach an impressive 70% of world economic growth from emerging economies. represented 12% of the world Foreign Direct Investment (FDI) in the early 2000s, currently represent more than one third (38%) of world-wide FDI flows. Emerging economies increasingly driving World economic growth A global world: Foreign Direct Investment increasingly directed towards emerging economies* Source: IHS Global Insight, Airbus Source: World Bank, Airbus World GDP growth share (%) Share of FDI towards emerging economies (%) 100% 45% 80% 22% 55% 70% 60% 40% Emerging economies (54) 40% Developing economies (119) 35% Advanced economies (31) 30% 75% 40% 25% 0% 1992 to 1997 1997 to 2002 2002 to 2007 History 2007 to 2012 2012 to 2017 2017 to 2022 Forecast 2022 to 2027 2027 to 2032 70 % of the world economic growth from emerging economies (2027-2032) Global Market Forecast 38% 25% 20% 18 Another illustration of this world globalisation lies with capital flows, which are increasingly spread amongst a growing number of countries. Emerging countries, which 20% 15% 12% 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 * 54 emerging economies Global Market Forecast 19 in 2002 to 22% in 2012. Over the same period, offered capacity share between advanced economies has declined from 63% to 47%. It is not surprising to see how increasing globalisation has democratised air transportation around the world, especially over the last 10 years. Passenger capacity offered between emerging economies grew from 12% Share of world offered capacity in 2012 for emerging nations demand for air travel A global world: air transports increasing distribution 22% Source: OAG, Airbus Share of world offered capacity (%) 100% 90% 80% 47% 70% Advanced-Advanced 63% 69% within emerging economies (measured in ASKs) has grown 55%, compared to a 4% growth in the capacity offered to/from/within the advanced economies. Overall, air transport growth during the last few years has been highly dependent on the emerging markets, which have regularly grown at a double digit year-over-year rate. Since 2007, passenger capacity offered to/from/ S ince 2007, air travel has grown 55% in emerging economies Source: OAG, Airbus Offered capacity (ASKs) (Base 100 in 2007) To/from/within 160 ASKs 150 130 120 60% To/from/within advanced economies (31) 110 Advanced-Developing 50% +55% To/from/within emerging economies (54) 140 To/from/within ASKs +4% 100 90 40% 24% Advanced-Emerging 80 2007 30% 22% 10% 12% Emerging-Emerging The reverse approach is also true: globalisation has been helped thanks to the development of air transportation. Although there were 1,500 country pairs served with 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 0% 1993 2010 2011 2012 Developing-Emerging 10% 1992 2009 Developing-Developing 18% 14% 20% 2008 scheduled air transport 40 years ago, this has increased over time and is expected to reach 3,000 country pairs in the near future. n early 3,000 country pairs now served with scheduled air transport Source: OAG, Airbus air transport productivity improvements from both airline operations (aircraft utilisation, fleet maintenance, improved passenger load factors, etc) and more efficient and capable aircraft. Air transport liberalisation and emergence of low cost carriers have also played a decisive role in this productivity improvement and price stimulation. The second pillar of the commercial air transport development over time has been the air ticket price stimulation with an average yearly decrease of 3% per unit of passenger traffic over the last 30 years (in real terms, inflation removed). This impressive achievement was helped by outstanding S trong decrease of cost per unit of traffic helping to lower air fares Source: ICAO, Airbus Unit cost (cents/RPK in 2012 US$) 25 Number of country pairs linked by air (scheduled service) 3,000 20 2,500 15 2,000 10 1,500 5 1,000 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 500 1981 1980 0 20 Global Market Forecast 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 0 Global Market Forecast 21 demand for air travel The trend towards increasing oil prices, which has been observed during the last decade, is expected to continue in the long-term, the main explanation being basic supply/demand fundamentals. As experienced over the last five years, price volatility is not expected to diminish in the short term. At the time of writing, global oil prices have been under pressure due to weaker global demand growth and additions to supplies from North America, the Middle East and Central Asia. As a result, the price of Brent crude was hovering close to US$100 per barrel. Were it not for a US$10-20 per barrel geopolitical risk premium, Brent’s price could be well below US$100. However, oil supply growth (mainly triggered by high prices) is not expected to cope with long-term oil demand trends. In the baseline scenario, it is expected that oil demand will grow at an average yearly rate of 1.5% from 2011 to 2020 and 0.8% from 2021 to 2030. Long term increasing oil prices are then expected to be the adjustment variable of supply and demand imbalance. Long term World oil demand trend Source: IHS CERA, Airbus High oil prices here for the long-term Source: EIA, IHS CERA (May 2013), Airbus Annual average percent change in world oil demand Brent oil price (current US$ per bbl) 9% 180 8% 160 7% 140 6% 120 History Another element worth mentioning is the rise in production of non-conventional oil and alternative energy, especially in North America (oil sands, tight oil and gas). As a consequence, it is interesting to note that the 2040 2038 2036 2034 2032 2030 2028 2026 2024 2022 2020 2018 2016 2014 2012 2010 2008 2006 2004 2002 2000 0% 1998 0 1996 1% 1994 20 1992 2% 1990 40 1988 3% 1986 60 1984 4% 1982 80 1980 100 5% Forecast 8.1% Oil supply shocks reduce demand growth 3.0% Low prices support demand growth Emerging market demand boom tempered by rising prices and economic recession 1.5% Emerging market demand and economic recovery 1.3% 1.5% 0.8% 2001-2010 2011-2020 2021-2030 -0.8% -1% Structural demand changes in response to price shocks -2% US has become the biggest source of growth in liquid production in recent years (2.4 million barrels per day growth in production in the US from 2008 to 2012) and could become a net exporter by 2020. Slowing population growth and structural changes slow oil growth 1961-1970 1971-1980 1981-1990 1991-2000 History Forecast he Great Revival: the US has become the biggest source of growth in liquids production T in recent years 2.4 Source: EIA, IHS CERA, Airbus Growth in production in million barrels per day 3.0 2.5 2.0 Total change in liquids* production from 2008 to 2012 1.5 million barrels per day growth in US production from 2008 to 2012 This trend in oil prices and its translation into an increasing share of airline operating costs, together with the volatile nature of fuel prices, has meant that the focus of airlines and manufacturers has been to minimise fuel burn and costs. Manufacturers like Airbus invest the majority of their R&T spending on reducing fuel burn. In recent years airlines have focused on reducing seat mile costs by purchasing larger aircraft and even converting existing orders to larger types or variants or densifying existing aircraft cabins. All of these economic and industry drivers, and many more not mentioned here, are used in our traffic forecast in an attempt to correlate them with historical and future air traffic developments. By doing so, we hope to derive a more comprehensive and detailed understanding of the factors driving our industry. 1.0 0.5 22 Global Market Forecast Colombia China Nigeria United Arab Emirates * Liquids include crude oils, condensate, natural gas liquids, biofuels, GTL and CTL Qatar Canada Iraq Russia Saudi Arabia United States 0.0 Global Market Forecast 23 demand for air travel Market drivers Urbanisation and emergence of a new global middle-class According to the United Nations, Department of Economic and Social Affairs (DESA), the world’s population will grow to 8.4 billion people in 2032. Associated with this, two other phenomena will occur: strong and rapid urbanisation, and middle-class growth in emerging countries, especially in Asia. World population (billions) – 1950-2050 Source: United Nations DESA, Airbus 2.5 3.7 5.3 6.9 8.3 9.3 1950 1970 1990 2010 2030 2050 61% Up to 2050, the world’s urban population will increase at twice the pace of the global population. In 2032, 61% of the world population will live in a city compared to 52% in 2012. This will represent an increase of 1.5 billion urban dwellers. Uban share of world population in 2032 It is well known that economic growth is a key factor when explaining air traffic growth. However, forecasters will often look to demographic trends as another explanatory variable, as these also play a major role in air traffic evolution: population growth, urbanisation and new middle-class emergence in developing countries are all factors that explain why and how frequently people travel. Another lever of air traffic is the increasing connectivity between people, between regions. At first, it can be viewed as a consequence of economic growth but it is also a facilitator: directly with the multiplication of new routes and the increasing capacity in airports which extend the supply for future journeys; and indirectly by stimulating the economy through infrastructure investments and the business they attract. Urban and Rural populations 1950-2050 (billions) 2050 Source: United Nations DESA, Airbus 2045 Urban 2040 Rural 2035 Air traffic 1955 1950 2030 1960 1965 2025 1970 10 8 billions 6 4 2 1975 2020 Connectivity 1980 2015 1985 Demography Economy 2010 1990 1995 24 Global Market Forecast 2000 2005 Global Market Forecast 25 demand for air travel An increasing proportion of the urban population will live in large urban agglomerations of over 5 million people. United Nations DESA anticipates that 23% of urban population, representing 1 billion people, will live in these cities by 2025 compared to 18% in 2012. The number of these cities will dramatically increase between 2012 and 2025 by more than 50%, jumping to 96 cities of over 5 million. In other words, more large urban centres, with more people. 5 to 10 million 10 to 15 million 15 to 20 million > 20 million largest population centres focused in asia in 2025 Source: United Nations DESA, Airbus Historically, urbanisation goes hand in hand with the emergence of a middle-class. This is illustrated with World Bank data highlighting the strong relationship between urban population share and GDP per capita over time. One noticeable element is the fast evolution in the last three decades of this relationship for Asian countries, region which tends to overtake more advanced economies. E volution of the relationship between Share of urban population and GDP per capita by region – 1980-2011 Source: OECD, Airbus GDP per capita North America 40,000 Dhaka 30,000 25,000 20,000 Beijing New Delhi Europe & Central Asia 15,000 10,000 East Asia & Pacific Tokyo New York Shanghai Mexico City 5,000 Middle East & North Africa Mumbai Latin America & Caribbean Karachi South Asia Sub-Saharan Africa Sao Paulo 20% Tokyo will remain the largest city with more than 38 million inhabitants in 2025, followed by Delhi (33 million), Shanghai (28 million) and Mumbai (27 million), making these four Asian cities the most populated in the world by 2025. Seven out of the top 10 cities with more than 20 million of inhabitants in 2025 will be located in Asia, two in Latin America and one in Northern America. These are places where increasing numbers of people will live, work and want to travel between and, therefore, focal points for a large amount of future aviation growth. 40% 60% Based on a study published by OECD (The Emerging Middle Class in Developing Countries - Working Paper No. 285), the global middle-class (defined as households with daily expanditures between $10 and $100 per person at purchasing power parity), will grow by 60% between 2012 and 2022 and by 134% in 2032. Most of growth will come from Asia, which will represent 2/3 80% Urban Share (%) of the middle-class population in 2032, with 3.5 billion people. In parallel, middle-class consumption will grow at the same pace. This will constitute a tremendous lever for global consumption in the next two decades and a marker of the consumption shift to Asia, after the shift of production. The world’s producers becoming the world’s consumers. Top 20 cities in the world – 1950-2025 global middle-class* expected to rise to more than 5 billion people by 2032 Source: United Nations DESA, Airbus Rank Rank New York 1 1 Tokyo Tokyo 2 2 Delhi London 3 3 Shanghai Paris 4 4 Mumbai Moscow 5 5 Mexico City Buenos Aires 6 6 New York Chicago 7 7 Sao Paulo Kolkata 8 8 Dhaka Shanghai 9 9 Beijing Osaka 10 10 Karachi Los Angeles 11 11 Lagos Berlin 12 12 Kolkata Philadelphia 13 13 Manila Rio de Janeiro 14 Source: Kharas and Gertz, Airbus Global Middle-Class* (Millions of people) 5,000 3,576 15 Shenzhen Mexico City 16 16 Buenos Aires Mumbai 17 17 Guangzhou Detroit 18 18 Istanbul Boston 19 19 Cairo Cairo 20 20 Kinshasa 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 757 x2 Other 3,526 x4 Asia-Pacific 4,000 3,000 2,228 2,000 432 578 2,038 856 1,000 14 Los Angeles Saint Petersburg 15 5,211 0 265 262 253 675 698 675 2012 2022 2032 7,100 7,800 8,400 32% 46% 62% North America Europe & CIS World population % of world population 2025 * Households with daily expenditures between $10 and $100 per person (at PPP) 26 Global Market Forecast Global Market Forecast 27 The aviation industry directly benefits from the growth in the number of new middle-class consumers and the progression margin is huge. The propensity to travel of Asian countries is not at the same level of maturity compared to more developed economies, but they are catching up fast. middle-class population and consumption demand for air travel Source: OECD, Airbus Middle class population (millions) Middle class consumption (2005 PPP $ in billions) International tourism is an important source of revenues for all regions. For example, Europe was the most popular destination receiving more than half of all International tourist arrivals (millions) T op 10 tourism destinations (millions) Source: WTO, Airbus Source: WTO, Airbus 1,200 France 100,000 10,000 international tourists in 2012, representing $458 billion (43% of tourism receipts), followed by Asia-Pacific (23% of tourists, 30% of receipts). United States 1,000 China Middle east 800 50,000 5,000 600 1,000 Spain Africa Italy Americas 400 Asia-Pacific 200 Europe & CIS Turkey Germany United Kingdom Russian Federation 10,000 2009 2020 As seen in the following chart, a small increase in GDP per capita results in a large increase in trips per capita in 2030 1990 less developed economies but only a small increase in mature economies. Propensity to travel in 2012 - india and china on the upward curve Source: Sabre, IHS Global Insight, Airbus 1995 2000 2005 2010 Source: WTO, Airbus 10 0 Historically driven by Europe, international tourists are increasingly coming from the Asia-Pacific. For the first WHERE DO THEY COME FROM? Trips per Capita 2012 2011 Malaysia 0 Americas 17% Middle East 4% Africa 3% 20 40 60 80 100 time, in 2012, China was the number one country in terms of tourism spending with a total of $102 billion. Not specified 1% USA 1 China Europe 53% Asia-Pacific 22% 0.1 India 0.01 0 20,000 40,000 60,000 80,000 100,000 2012 nominal GDP per Capita ($US) Reasons to travel According to the World Tourism Organisation, a billion people travelled outside their own country in 2012, mainly by air (52%) and for leisure or visiting friends and relatives (78%), this number will nearly double to 1.9 billion by 2032, according to estimates. Why do they travel? Source: WTO, Airbus Visit family & friends /Health/Other 15% Business/ Professional 7% Not specified 28 Global Market Forecast 27% 51% Leasure/Recreation /Holidays According to the World Travel & Tourism Council (WTTC), most of the spending on inbound and domestic travel generated in 2012 came from leisure travel (76%). This is expected to grow at 4.6% per year. The share of leisure travel spending will continue to increase due to the growth of the new middle-class in emerging countries. As a result, in ten years China is expected to become the number one contributor to travel and tourism GDP, overtaking the USA. Business travel represented 24% of travel and tourism spending in 2012 and is expected to grow at 4.1% per year. To better understand the crucial role of business travel in the economy, the WTTC launched a study with Oxford Economics to evaluate the impact on global GDP and employment of a 25% budget reduction in business travel during two consecutive years. It was found that, after five years, Global GDP would be 5% lower compared to the baseline forecast (no budget cut) and 30 million jobs would be lost. Business and Leisure travel Source: WEF 2013 report on Travel & Tourism competitiveness, Airbus 24% Business 76% Leisure Global Market Forecast 29 Migration is also an air traffic vector. According to the United Nations DESA, Latin America, Asia and Africa were net emigration regions whereas Northern America, Europe and Oceania were net immigration regions in 2010. North America is the number one immigration region whereas Latin America is the number one emigration region. Evolution of the number of students studying abroad Source: OECD, Airbus Millions demand for air travel 4.0 3.5 Net migration (Total immigration stock – Total emigration stock) in 2010 Source: United Nations DESA, Airbus 3.0 2.5 Pacific 2.0 North America 1.5 1.0 Latin America & Caribbean 0.5 Europe & CIS 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1975 Asia & Middle East 1976 0.0 Africa (million) -30 -20 -10 0 10 The chart below gives a snapshot of migrants world-wide, their region of citizenship and where they now reside. When looking at the migration flows in detail, most 20 30 40 50 migration is within the region. The main exception is the migration of 23.5 million people from Latin America to Northern America. Migration by origin and destination region In terms of the flow of students, one million international students come from East Asia & Pacific. Approximately half of them are studying within the same region, whereas the other half is studying in North America Finally, simplification of visa policies, with more and more visa on arrival programmes replacing the traditional visa, a form of deregulation, is also having a positive impact on air traffic growth. Source: United Nations DESA, Airbus Pacific and Western Europe, which is the number one hosting region with two million international students (Global Education Digest 2012 - UNESCO). 7million International students by 2020 North America Latin America Visa policies facilitated Source: WTTC, Airbus e-visa Europe & CIS 2% No visa 18% Asia & Middle East 17% 17% Africa Origin With the globalisation of the economy, more and more students feel that studying abroad is positive for their future careers. Governments also encourage their students to study abroad with programs, such as Erasmus exchange program in Europe, with many universities also seeing foreign students as an important source of revenue. 30 Global Market Forecast 8% 77% 75% 6% 64% Traditional visa Destination As a result, the number of students enrolled outside their country of citizenship has increased to reach 3.7 million students in 2009 (OECD). In a 2009 UNESCO report, the international student population in 2020 is expected to be around seven million. 16% Visa on arrival or e-visa (2008-2010) 2008 2010 2012 Global Market Forecast 31 Connectivity demand for air travel Both the number of airports with at least one flight with a 100-seater aircraft or larger and the total number of flights have increased over time. This is a consequence of economic globalisation and the increasing number of tourists chich are likely to continue. For example, Istanbul and Beijing plan to build additionnal airports before 2020, and according to press reports, China plans to build 82 new airports between 2011 and 2015 to meet demand. Network development Evolution of the number of airports and number of flights Source: OAG, Airbus Number of airports served by 100-seater aircraft and above and number of flights 2,000 1,800 Number of airports 1,600 1,400 1,200 1,000 800 Number of flights (thousands) 600 400 200 1992 1997 2002 2007 2012 Air traffic has grown at a steady pace over the last 20 years. Since 1992, air traffic, as measured by revenue passenger kilometres (RPK), has grown 4.7% annually. Evolution of long-haul and short-haul traffic (seats offered), 1990-2012, Index 100 = 1990* 300 250 1990-2012 Long-haul 200 CAGR +4.2% 150 1990-2012 Short-haul CAGR 100 +2.9% 50 2012 0 2010 Sydney Airport’s total economic contribution The total economic contribution of the Sydney Airport precinct – that is, the economic contribution encompassing both the direct and indirect impacts – in 2012 can be summarised as follows: • The activities of businesses operating on the Sydney Airport precinct contributed an estimated $9.3 billion in value-added, with associated employment of 49,930 full time equivalent (FTE). • The contribution of tourism and freight facilitated by the airport represented a further $18.3 billion in value-added and generated an estimated 234,000 FTE jobs. Source: OAG, Airbus 2008 Source: The economic value of Sydney airport - Deloitte Access Economics, Airbus Long-haul traffic grows faster than short-haul traffic, but is more sensitive to external shocks 2006 T he impact one airport can have… Examining air traffic growth in seats offered by flight length between 1990 and 2012, and despite the two major external shocks (20012002 and 2008-2010), both shorthaul traffic (flights of less than 2,000 nm) and long-haul traffic have grown at a robust pace. Longhaul traffic grew faster than shorthaul traffic, growing at an annual 4.2% rate during 1990-2002, compared to 2.9% for short-haul traffic. Interestingly, while growing faster, long-haul traffic was more negatively impacted by adverse economic shocks, compared to short-haul. This suggests that long-haul passengers are more price sensitive, as the cost of travel of one of these trips represents a higher proportion of an individual income. 2004 increase in connectivity in the past 20 years has provided an additional $200 billion in global GDP, and because GDP growth is a key driver for aviation sector, the latter indirectly benefits from greater connectivity. A kind of virtuous circle. 2002 The growth of aviation networks provides new opportunities for both tourism and business, making the aviation sector an important contributor to global economic growth. According to an Oxford Economics study included in the IATA Annual Review 2013, the 2000 Note: month of September of each year 1998 1987 1996 1982 1994 1977 1992 1972 1990 0 * Long-haul traffic: flight distance >2,000 nm 32 Global Market Forecast Global Market Forecast 33 Over the last 20 years, air traffic growth has been possible through more frequent departures, which have increased 44% since 1992; through an increase in the number of non-stop city pairs, which have grown 47% since1992, and through larger aircraft, whose average capacity grew 28% over the same period. Air traffic is getting more concentrated Source: OAG, Airbus Average ASKs per airline operating on long-haul routes 1992-2002 1,400 1982-1992 1,200 1972-1982 1,000 Air traffic grows through network and capacity expansions Source: OAG, Airbus 800 Evolution of long and short-haul traffic, 1992-2012, Index 100=1992 Number of airlines 2002-2012 Monthly ASKs (millions) 500 +50% 450 +15% 400 +55% 350 300 +35% 250 600 250 200 150 400 Flights Capacity 28 % 100 50 50 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 0 1972 0 Routes 150 100 Since 2005, there are less airlines operating long-haul traffic 200 1974 ASK 200 Note: Long-haul route >2000 nm - excluding domestic routes Average long-haul ASK per airline has increased by 50% over the last 10 years. Long-haul and short-haul networks have experienced different network development models 0 2012 Average number of seats offered by city-pair Base 100=1972 200 180 Long-haul 160 Short-haul 140 120 100 80 60 40 20 2010 2008 2006 2004 2002 0 2000 The growth in average aircraft capacities since 1992 Source: OAG, Airbus 1998 28% S hort-haul and long-haul networks have developed differently since 2000 1996 has increased even faster. Airlines have extended their networks and have organised it around major hubs, and since 2007 the long-haul traffic concentration process has become more significant. For the first time in 40 years, the number of airlines operating on long-haul routes is decreasing, primarily due to several significant mergers around the world. Code-share agreements and joint ventures are becoming more common between airlines and an increasing number of airlines belong to global alliances, all driving the concentration of long-haul traffic. 1994 What is the impact of increased air traffic on the competitive landscape? Except for the crisis period following 9/11, long-haul air traffic has still increased at a faster rate than the number of long-haul operating airlines. As a result, average capacity (ASKs) per operator has multiplied by 2.5 in around 30 years (1972 and 2002). Nevertheless, successive deregulation of air transport and the development of emerging markets have given opportunity to new entrants in long-haul markets. While 70 airlines were operating long-haul routes in 1972, there were more than 200 in 2005; however, long-haul traffic This process has been driven in part by the spread of the low-cost model more globally. On the other hand, long-haul traffic increases have been absorbed to a greater extent by the existing long-haul network. This is achieved by either the addition of frequency, new routes or increased aircraft capacity. 1992 Airlines are accommodating more traffic The average number of seats offered on short-haul routes has been stable between 1985 and 2000 and has been decreasing since 2000. This does not mean, of course that short-haul traffic is decreasing. However, the shorthaul market has experienced many new routes openings, as opportunities arise, thus offering more direct services. 1990 2010 1988 2008 1986 2006 1984 2004 1982 2002 1980 2000 1978 1998 1976 1996 1974 1994 1972 1992 2012 demand for air travel Airlines extend their networks by opening new routes, as well as expanding the capacity of their existing networks by offering more frequencies and/or using higher capacity aircraft. As air passengers value both low prices and frequent, convenient flights; understanding when a new route can be opened and the application of capacity vs frequency is the key for assessing how todays network will develop in the future. Note: Long-haul route >2000 nm - excluding domestic routes Long-haul network development is more concentrated than short-haul. 34 Global Market Forecast Global Market Forecast 35 City-pair traffic forecast (as measured, for example, by income per capita). This is significant because different city pairs, even in the same country, may have different behaviours in terms of traffic and these need to be accounted for when studying how the network will evolve. Interestingly, when examining expected passenger traffic growth between city pairs belonging to the same country or region, city pairs in more mature economies are more likely to behave in a similar manner, than city pairs in emerging economies. demand for air travel By introducing more detailed data at a country and city pair level, we are able to increase the granularity of our forecast. Starting from 208 traffic flows, we enlarge our scope to consider more than 15,000 country pairs and more than 250,000 city pairs. When predicting passenger traffic between cities, it is important to consider the factors that make a city attractive for passengers; amongst them are the size of the city’s population and its socio-economic development Even though the network development process of various airlines around the world involves techniques ranging from trial and error to very sophisticated schedule optimisation engines, it appears that the overall quality of new route forecasting has improved over time. The survival rate of new routes after five years of operation has increased from 65% in the 70’s to more than 75% today. a irlines targeting more resilient new routes Source: OAG, Airbus New routes survival rate after 5 years 80% 78% 76% 74% 72% More heterogeneous traffic growth between cities in emerging economies Source: IHS Global Insight, Airbus 70% 66% PRC Asia Africa 68% 64% 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 60% 8% 1974 62% 1972 9% South America CIS Canada USA Australia Middle East CAGR O&D city pair passengers 2012-2032 10% Europe 11% Japan O&D city-pair traffic growth and economic growth: 2012-2032 7% 6% Shifting toward emerging countries 5% 4% Very much like the total traffic evolution shift towards emerging countries, a larger number of new route openings have come from the emerging economies. This expansion is mainly driven by the liberalisation of aviation and the emergence of low-cost airlines, which help to make air travel more convenient and affordable, therefore 3% 2% 1% 1% 2% 3% 4% CAGR GDP, 2012-2032 5% increasing passenger demand. We forecast this trend will continue in the future, maintaining significant potential for new routes between advanced countries. However, the bulk of the network development will involve at least one emerging country per new route. 6% New route development typically slows as markets mature: More new routes involving emerging economies Note: Domestic O&D city pairs with more than 40 daily passengers in 2012. Size of the bubble represents 2012 daily passengers Source: OAG, Airbus More new routes Estimating airline network future development is a challenging, yet necessary task which drives the overall shape and scope of the future aviation network. The overall number of routes operated has increased over time, although the net addition of airport pairs only accounts for 50% of the total new airport pairs opened between 1992 and 2012. The remaining 50% are routes that have previously been tried, dropped then re-opened when development of demand or other positive factors allow. 36 Global Market Forecast Only 40% of today’s network was there 20 years ago Source: OAG, Airbus Number of airport pairs served 4 25,000 DROPPED between 1992 and 2012 20,000 15,000 10,000 NEW between 1992 and 2012 3.5 3 2.5 13,823 -6,041 12,494 20,276 5,000 0 Number of services evolution (routes by airline) Base 1=1972 4.5 Advanced-Advanced 2 Advanced-Emerging Emerging-Emerging Domestic USA Domestic Australia Domestic India 1.5 1992 2012 1 1972 1982 1992 2002 2012 2022 2032 Global Market Forecast 37 Long-haul traffic growing and more concentrated on Mega-Cities DEMAND FOR AIR TRAVEL Aviation Mega-Cities, by our definition, are cities that handle more than 10,000 long-haul passengers per day. In 2012, out of some 850 cities handling long-haul passengers in their airport(s), only 42 met this criteria, most of them being located in the northern hemisphere. The long-haul network connecting Mega-Cities with each other represents 51% of the total world-wide long-haul traffic, and if we consider the traffic from or to MegaCities (including both the traffic between them and connecting Mega-Cities to secondary cities), 93% of world-wide long-haul traffic passes through one of these aviation Mega-Cities. CITIES WITH MORE THAN 10,000 DAILY LONG-HAUL PASSENGERS IN 2012 AND 2032 2012 The aviation Mega-City network will grow to 89 in 2032. This growth will be particularly noticeable in the southern hemisphere. For example there will be 10 Mega-Cities in Latin America in 2032, growing from two today. Similarly, the number of Mega-Cities will increase from one to eight in Africa over the next 20 years. Extending the aviation Mega-City network will concentrate an increasing share of the total long-haul traffic. More than 75% of longhaul traffic will be operated between these main aviation centres in 2032. TRAFFIC BETWEEN MEGA-CITIES IN 2032 WILL BE HIGHER THAN TOTAL LONG-HAUL TRAFFIC TODAY 2012 42 2032 89 Aviation Megacities 0.8M 2.2M Daily Passengers: Long Haul traffic to/from/via Mega-Cities traffic 93% of long-haul traffic >42 (Mega-cities) on routes to/from/via % Mega-cities & cities >89 (cities) 99 2012 Long-Haul traffic 2032 Long-Haul traffic 26 million 67 million Monthly Passengers Monthly Passengers Traffic between secondary cities 2032 Traffic between Mega-Cities and secondary cities Traffic between 2032 Mega-Cities Traffic between 2012 Mega-Cities Traffic to/from/via London Note: Surface is proportional to traffic on this chart - Long-haul traffic: flight distance >2,000nm, excl. domestic traffic. >50,000 daily long-haul passengers >20,000 daily long-haul passengers >10,000 daily long-haul passengers Long-haul traffic will be more concentrated on main aviation centres. Traffic as of month of September. Long-haul traffic: flight distance >2,000nm, excl. domestic traffic. 38 Global Market Forecast However, due to the importance of Mega-Cities on the long-haul market, they will enjoy the majority of the future global growth these flows. While there were only seven cities in the world handling more than 50,000 longhaul passengers a day in 2012, there will be 26 such cities in 2032. As an illustration of the growth that will be experienced by Mega-Cities in the future, the traffic between these 42 cities in 2032 will be greater than today’s entire world-wide long-haul traffic. Global Market Forecast 39 03 Traffic forecast T he World economy will progressively get back to its long-term potential in 2014 Source: IHS Global Insight (January 2013), Airbus Contribution to the world GDP growth, by region 5% Pacific 4% CIS 3% Central America Africa 2% Middle East 1% South America traffic forecast 0% Indian Sub Europe -1% Asia -2% North America PRC -3% -4% Air transport continues to be a growth industry, resilient to external shocks, as it has been since the start of the jet age. The industry’s resilience is illustrated in the rapid recovery of world passenger traffic after the 2008-2009 economic downturn. Over the period 2009-2012, world passenger traffic, as measured by Revenue Passenger Kilometres (RPK), has grown at an average 5.9% annually, above the 4.1% observed during 2000-2008. Source: ICAO, Airbus Oil Crisis Oil Crisis Asian Crisis Gulf Crisis WTC Attack SARS 2008 2009 2010 2011 Financial Crisis 5.0 2012 2013 2014 2012 was another good year for air transport Despite the widespread economic concerns throughout 2012, especially in Europe, it was a good year for air transport. Air passenger demand grew 5.0%, slightly below the 5.8% observed in 2011. Air traffic growth in 2012 was mainly driven through the strong performance of the fastest growing regions, including the PRC, South East Asia and the Middle Air travel has proved to be resilient to external shocks World annual traffic (RPKs - trillions) World average East. Very high load factors, reaching 79%, was another takeaway from 2012, illustrating the attention that airlines give to managing aircraft capacity. This means that on average more than three quarters of all aircraft and flights are full. This underlines how increasingly eco-efficient a form of mass transportation aviation is. Since 2000 61% 4.0 3.0 A lmost 50% of the total RPK traffic growth in 2012 came from the PRC, South East Asia and Middle East Source: Airbus 2.0 Contribution of each region* to the world traffic growth in 2012 world RPK traffic (trillions) 5.6 1.0 0.0 1970 1975 1980 1985 1990 1995 2000 2005 2010 5.5 Other The speed at which air transport returned to its long-term trajectory after a shock has even outperformed the world economic recovery. While economic activity is expected to recover its 3.2% long-term potential by 2014, world traffic recovered to its long-term trend one year after its 2009 drop. Many factors have permitted the impressive and steady growth of air transport. Some key factors have been: • Growing population, in particular, the expanding urban population. • Macro-economic growth, which has spilled over to 42 Global Market Forecast wealth creation, allowing people to travel more, or quite simply for the first time. • Greater globalisation, leading to the need for more air traffic rights and a greater spread of economic activity and air travel. • Liberalisation of air transport, which has allowed new services or airline business models, like Low Cost Carriers, which have become one of the key drivers over the last decade . • Entry into service of more capable long-range aircraft. 5.4 Middle East South East Asia 5.3 PRC 5.2 5.1 2011 2012 *Traffic from/to/within the region Intercontinental traffic: 50% allocated to each region Global Market Forecast 43 Air traffic and macro-economic theory The long-term perspective world traffic will grow at an average 4.7% annually, with a 5.1% average annual increase in the first decade and a 4.4% expansion per year over the second. Traffic will double in the next 15 years Source: ICAO, Airbus Share of world RPK, by type of flow 100% 90% % 80% 70% 60% 50% % 40% 30% 20% % 10% 0% 0 1972 1977 1982 1987 1992 1997 2002 When looking more in detail at what is behind the expected traffic growth over the next 20 years, there are several features to highlight. The first is the two speed air transport growth model, which is likely to dominate in the future. On the one hand, 2007 2012 2017 2022 2027 2032 the fastest growing are the emerging regions, which will drive future demand. On the other hand, the advanced economies, with more moderate growth rates, are still expected to be amongst the largest traffic regions in 2032. merging regions will drive the World traffic growth, but advanced economies E will remain foremost +6.8% The second feature to highlight is the reduction of emphasis on mature markets. With emerging regions growing faster than advanced economies, although their growth is still high, forecast traffic growth will be less concentrated. Supporting this idea, the index of concentration (as measured by the Herfindahl– Hirschman Index) of the largest 50 traffic flows is expected to decrease 27% from 2012 to 2032. Note that a lower index means that the demand of air transport is less concentrated on mature markets. If we now focus on the differences between origin and destination (O&D) traffic flows, there are two complementary ways to look at it. On the one hand, to 2032 41% 2031 Emerging-Emerging 2030 28 2029 +2.6% 2028 29% 2027 2 Advanced-Advanced 2026 2012 4 Air traffic will double in the next 15 years 43 2025 Air traffic has doubled every 15 years +4.9% 2024 6 30% 2023 8 Advanced-Emerging 2022 +5.1% 29 2021 2012-2022 20 years World annual traffic growth 2020 12 10 E merging markets will drive traffic growth 2019 traffic forecast world annual traffic growth 2018 +4.4% 14 +4.7% 2017 2022-2032 2016 16 Exemplifying this idea, starting from a lower share in 2012, air traffic between emerging regions will grow at a strong 6.8% annual pace over the next 20 years, to reach a 41% share of world RPKs by 2032. This growth is well above the 2.6% expected annual growth between advanced economies over the same period. 20 years Airbus GMF 2013 2015 ICAO total traffic 2014 World annual RPK (trillion) Air transport is an example of relative convergence theory at work. Meaning that air travel should grow faster in regions where today’s population has a smaller propensity to fly, than in advanced economies, who already fly in large numbers. Good macro-economic performance of these emerging economies, in turn creates new potential for air travel demand. 2013 We expect world traffic to double over the next 15 years, reaching the 11 trillion RPK threshold by 2027. On a 20122032 forecast horizon, we maintain our expectation that look at the largest O&D traffic flows, and on the other, to consider the fastest growing. When looking at the first dimension, Domestic PRC will be the largest region in 2032, thanks to an impressive 7.0% annual growth, representing 10.4% of total world RPKs. With an expected growth of 1.9% per annum, domestic USA ranks second, reaching 8.5% of total 2032 world traffic, followed by Intra Western Europe and Western Europe-USA. The latter two will account for 5.1% and 4.2% of world air travel demand in 2032, respectively. These figures also demonstrate that advanced economies will continue to play a major role in future air transport growth. Source: Airbus Contribution of each region* to the World RPK traffic growth (2012-2032) L argest O&D flows World RPK traffic (trillions) 16 14 12 Emerging 10 8 Mature 6 4 2 0 2012 *Traffic from/to/within the region Intercontinental traffic: 50% allocated to each region 44 Global Market Forecast 2032 20-year CAGR Domestic PRC Domestic USA Intra Western Europe Western Europe |} USA Asia |} Western Europe Domestic India Asia |} PRC Domestic Brazil Intra Asia Western Europe |} Middle East Western Europe |} South America Domestic Asia Asia |} Middle East Western Europe |} PRC Indian Sub |} Middle East Asia |} USA PRC |} USA Central Europe |} Western Europe South America |} USA Indian Sub |} USA 7.0% 1.9% 2.9% 3.0% 4.3% 9.8% 6.2% 7.0% 6.1% 4.8% 4.8% 5.7% 8.0% 5.7% 6.1% 4.2% 6.5% 5.9% 5.3% 6.6% 2012 2032 0 200 400 600 800 1,000 1,200 1,400 2012-2032 billions RPK Global Market Forecast 45 Fastest growing O&D flows 20-year CAGR traffic forecast Domestic India Indian Sub |} South America Indian Sub |} PRC Africa Sub Sahara |} Middle East Middle East |} South America Asia |} Indian Sub Middle East |} South Africa Middle East |} Russia Central Europe |} Middle East Asia |} Middle East North Africa |} PRC Africa Sub Sahara |} Japan PRC |} Russia CIS |} PRC Middle East |} PRC North Africa |} South Africa Japan |} Middle East Central America |} South America Africa Sub Sahara |} CIS Indian Sub |} South Africa 2012 2032 0 50 100 150 200 9.8% 9.6% 9.1% 8.9% 8.9% 8.7% 8.5% 8.5% 8.3% 8.0% 8.0% 7.8% 7.7% 7.7% 7.7% 7.5% 7.5% 7.5% 7.5% 7.5% 250 300 350 2012-2032 billions RPK passenger traffic between the Indian Sub-Continent and PRC, with a 9.1% annual growth forecast over the period. This is not surprising when we consider that over recent years, air traffic from/to/within these emerging economies have been steadily growing at a two-digit a year rate. The fastest growing O&D passenger traffic flows forecast between 2012 and 2032 will be in emerging economies. Domestic India ranks first, with an annual average increase of 9.8%; followed closely by O&D passenger traffic between Indian Sub-Continent and South America, with 9.6% forecast annually; and lastly Airlines in Asia-Pacific and Middle East driving traffic growth Airlines based in Africa and in the CIS are also expected to register growth higher than the world’s 4.7% average annual growth to 2032. Finally, North America and Europe, which have more mature growth rates are expected to grow at a slower pace, +3.0% and +3.8%, respectively, but will still contribute 40% of the world’s air traffic by 2032. On a regional basis, the airlines located in the Middle East, Latin America and Asia-Pacific will enjoy higher than average traffic development, growing at 7.1%, 6.0% and 5.5% respectively. This is fuelled by the aspirations of airlines to benefit from privileged access to fast growing markets which will generate a higher ability and desire to travel as time passes. % of 2012 world RPK 20-year CAGR Asia - Pacific 29% 5.5% 34% Europe 26% 3.8% 22% 25% 3.0% 18% 8% 7.1% 12% 5% 6.0% 7% 4% 5.8% 4% 3% 5.1% 3% North America 1,000 2,000 3,000 4,000 5,000 2012 2032 Middle East Latin America CIS Africa 46 Global Market Forecast Low-Cost Carriers (LCCs) are now a global phenomenon, especially in Europe and increasingly in Asia, the Middle East and Africa. As the propensity to travel is highly correlated with economic growth and air ticket price stimulation, LCCs have been able to open new markets and allow more people to fly more often. Distinguished by their fleet simplicity, their predominance on short-haul routes, fast turnaround times and rapid growth, we expect LCCs to continue to increase their global traffic market share to reach 21% by 2032, above the 17% they represent today. Regionally, some shorthaul markets such as the Intra-Europe or Domestic ASEAN for instance, are expected to have greater low cost market presence, potentially taking a 60% share of the short-haul market on these flows by 2032. However, it is clear that whether considered low cost or full service, airlines are taking the best from each other’s models. This makes a clear differentiation more difficult in some cases, particularly as we project 20 years into the future. g lobal network carriers are the largest in 2012, but low-cost carriers are the fastest growing between 2012 and 2032 2012 and 2032 share of World RPK traffic by airline type Small Network 21% Charter Regional and Affiliate Asia-Pacific to lead in world traffic by 2032 0 LCCs will fly an increasing amount of air traffic 20 years +4.7% world annual traffic growth % of 2032 world RPK 3% 4% Major Network 10% 3% 4% 4%4% Share of LCC traffic in 2032. 9% LCCs 21% 17% 62% 59% Global network 2012 2032 Global Market Forecast 47 04 Demand for passenger aircraft Single-Aisle more range, more seats Today, there are nearly 12,600 Single-Aisle aircraft serving as a key element of the world’s aviation network, enabling journeys to take place quickly and efficiently around countries and regions, as well as feeding the hubs who themselves enable journeys between continents. They represent 78% of the total commercial airline fleet of aircraft over 100 seats. demand for passenger aircraft By 2032, the number of aircraft will more than double to more than 24,600 aircraft. Some 20,242 of these will come from new deliveries between now and 2032 with around 40% replacing older aircraft and around 60% targeting new growth in the industry. A large number of these deliveries will come from new more fuel efficient aircraft like the new A320neo. This variant delivers 15% lower fuel burn through the continuing application of new technology at the right time, specifically through aerodynamic and engine improvements. Geographically, North America and Europe will drive the demand, as they look to replace their aging fleets. These two regions combined will account for 46% of the overall demand for new Single-Aisle aircraft. Asia, with its growing inter-regional and domestic networks and demand will also take a significant share of the market with 34% of Single-Aisle demand. The seating configurations in the Single-Aisle market are broad, with the types segmented between 100 to 210 seats. Our forecast predicts that the centre of gravity for the category will remain at 150 to 175 seats. Larger capacity types will be more significant in volume than smaller types, with for example more than 8,900 deliveries or 43% of all Single-Aisle demand, expected in the 175 and 210 seat categories over the period. This broad variation in operations, ranges and seating capacity is why Airbus believes providing a family of aircraft, with the broadest capability, will remain key to meeting the needs of airlines and their passengers in the coming years. Single-Aisle fleet in service evolution Fleet size 20,000 Growth 12,013 15,000 12,589 Source: OAG, Airbus Replacement 8,229 5,000 Stay in service & remarketed 4,360 0 New deliveries & open demand for Single-Aisle aircraft Neutral Seat category 3,039 210 20% 5,928 23% 6,912 150 1982 1992 2002 31% 3,179 125 2012 1,000 5% 1,000 19% 1,184 7% 100 1,500 2032 Beginning 2013 Route distance (nm) 2,000 New deliveries 20,242 10,000 175 In 30 years, the average short-haul aircraft capacity increased from 129 to 151 seats Short haul operations frequency distribution index vs. distance and aircraft capacity 24,602 25,000 2,000 10% 3,000 15% 4,000 20% 5,000 25% 6,000 30% 7,000 35% Number of new aircraft % of open demand New deliveries of Single-Aisle aircraft by region 500 Europe Total market 4,584 units ~$1.80 trillion North America 0 0 75 100 150 225 0 75 100 150 225 0 75 100 150 225 0 75 100 150 225 4,676 units Aircraft capacity Low number of operations The Single-Aisle market has evolved over time, with not only the number of aircraft in this segment increasing, but also the size and range over which these aircraft operate. In 2012, around 5% of the fleet was used on what is traditionally considered long-haul routes, over 2,000nm; a trend that it is likely to continue, with the introduction of newer, more range capable variants over the forecast period, like the A320/A321neo. It is noticeable from the heat map above that ranges have increased, but there has also been a very noted increase in size with average 50 Global Market Forecast High number of operations aircraft used in this segment growing from 129 to 151 seats. One reason for this is simply that existing routes have grown and the simplest, most efficient way to meet demand is through up-gauging in terms of aircraft size rather than adding extra frequency. This has been achieved by the purchase of larger Single-Aisle units like the A321 and 737-900, but also through the densification of existing aircraft cabins through the use of such innovations as slim back seats. 23% 23% World 20,242 units 34% AsiaPacific 6,809 units Latin America 9% 1,794 units 4% CIS 4% 3% 871 units Middle East 779 units Africa 729 units Global Market Forecast 51 Twin-Aisle New deliveries of Twin-Aisle aircraft by region Middle East 875 units North America 783 units Latin America a focus for new technology 449 units The future importance of this segment of aircraft is clear: not only because it will generate value from aircraft deliveries over the next 20 years, but because of the effort aircraft manufacturers will make to deliver aircraft, with the latest technologies, meeting airline demand, which has already created a significant backlog for these types. 13% 15% Europe demand for passenger aircraft Like the smaller Single-Aisle aircraft, Twin-Aisle aircraft also provide a varied and broad operational capability to the market. These aircraft take passengers on their journeys on high density, short-haul routes, like many in China or other parts of Asia, or low-density long-haul routes, many between the more mature markets and emerging economies. Some 37% of all RPKs were flown on the 3,399 Twin-Aisle aircraft in service at the beginning of 2013. By 2032, the fleet of Twin-Aisle aircraft will more than double to almost 7,670 aircraft. These aircraft will be used to connect major aviation hubs across the globe, but also to connect major hubs to secondary cities. 37% of the deliveries, 2,510 aircraft, will replace existing, less fuel efficient aircraft with new, eco-efficient aircraft like the A350XWB. Some 4,270 aircraft will be used for growth. Asia-Pacific will be the largest contributor to the demand for growth in this market segment with nearly half of all Twin-Aisle deliveries over the next 20 years. World 6,779 1,034 units Africa 12% 6% 3% 3% 213 units CIS 192 units units 48% Twin-Aisle fleet in service evolution Source: Airbus Fleet size 7,666 8,000 Total market 7,000 6,000 AsiaPacific Growth 4,267 5,000 4,000 New deliveries 3,233 units ~$1.82 trillion 6,779 3,399 3,000 Replacement 2,512 2,000 1,000 Stay in service & Remarketed 887 0 In terms of the size of aircraft, the Twin-Aisle segment incorporates aircraft between 250 and 400 seats. The centre of gravity in this segment is in the 250-300 categories, which is expected to represent 70% of the Twin-Aisle demand, a market where the A350XWB, A330 and 787 compete today. But, aircraft in the 350400 category will still represent nearly 2,100 units over the next 20 years, a segment where the A350-1000XWB and other competing types will meet demand in the years to come. 2032 Beginning 2013 New deliveries of Twin-Aisle aircraft Neutral Seat category 779 400 1,306 350 2,256 300 2,438 250 500 52 Global Market Forecast 1,000 1,500 2,000 2,500 3,000 Number of new aircraft Global Market Forecast 53 Very Large Aircraft urbanisation trends, it is unsurprising that the region’s airlines will take 47% of these aircraft over the next 20 years. The Middle East will be the second largest region in terms of demand for VLAs, at 26%. This can be seen today in the size of the backlog of A380s within Middle Eastern carriers. The requirement for VLAs will grow with the world’s network and as the ability of more and more of the world’s people to fly grows. By 2032, this demand will result in a need for more than 1,300 VLAs. Given the projected growth in Asia-Pacific, both economic and air passenger traffic growth, the regions demographics and Moving people between the big points Concentration of flights in long-haul markets August 2012 Schedules - Source: OAG, Airbus Number of departures per hour In 3 hours 700 50% 600 North America of the flights 500 In 8 hours 400 90% of the flights 300 A380s link the world’s aviation Mega-Cities Europe A380 weekly departures: December 2013 - Source: OAG, Airbus 100 Top 10 A380 airports ranked by average weekly departures 150 Singapore Lufthansa Emirates 100 Singapore Qantas Malaysian Emirates British Airways Thai Singapore Malaysian Emirates Air France Thai Emirates 50 Singapore Qantas Korean Emirates Singapore China Southern Qantas Malaysian Emirates Thai China Southern Air France Singapore Air France Thai Singapore Lufthansa Thai Singapore Qantas Malaysian Emirates British Airways Dubai Singapore London Heathrow Paris-CDG Bangkok Sydney Los Angeles Narita Frankfurt Hong Kong 23:00-23:50 22:00-22:50 21:00-21:50 20:00-20:50 18:00-18:50 19:00+19:50 17:00-17:50 16:00-16:50 15:00-15:50 14:00-14:50 13:00-13:50 12:00-12:50 New deliveries of Very Large Aircraft by region Total market AsiaPacific 0 11:00-11:50 10:00-10:50 08:00-08:50 07:00-07:50 06:00-06:50 05:00-05:50 04:00-04:50 03:00-03:50 02:00-02:50 200 01:00-01:50 0 Qantas Emirates 00:00-00:50 250 200 09:00-09:50 demand for passenger aircraft Because the Airbus GMF is based on demand rather than a pure supply model, it identified the need for Very Large Aircraft (VLA) many years ago. It is only today, with more than 100 aircraft in operation, aircraft like the A380, that the benefits of this segment have become more than analysts’ predicted. VLAs are truly connecting the world, whether major hub or secondary city, with well over 100 flights a day carrying more than a million passengers every month. Many of these passengers have chosen to fly on a VLA due to the comfort and overall passenger experience this category of aircraft can provide. Middle East 622 units ~$519 billion 345 units 26% Over 150 flights per day carrying more than a million passengers per month. Today, some airlines are operating the A380 for example, at an extremely comfortable 407 seats. Offering airlines the opportunity to pamper their high yield passengers, and at the same time giving passengers at the back of the plane more space and comfort than other aircraft types. Airline customers have chosen various seating configurations from this luxurious arrangement, right up to single class layouts of 840 seats, 13 less than the maximum capacity of 853 seats. This gives airlines’ the flexibility to mix comfort, revenue and cost per seat to more precisely match their own distinct brands and business models. Today, A380 configurations are typically between 500-520 seats, and include three and four class configurations. 54 Global Market Forecast At an operating level, this capacity flexibility allows airlines to deploy the right capacity at the right time, critical to optimally serve their trunk routes, which are the driver of revenue on their networks. Long-haul flights, especially between mature and expanding markets, are characterised by two daily demand peaks. VLAs allow an airline to capture these peaks in the most cost efficient way by reducing or eliminating the need for closely spaced multiple departures, which add complexity and cost to the network. There is also a revenue advantage as these peaks are in part also driven by passenger preference to have a night or convenient day flight option, for which they will pay a premium. 46% Europe World 1,334 units 209 units 16% 2% 5% 2% 3% North America 62 units Africa Latin America 28 units 36 units CIS 32 units Global Market Forecast 55 C oncentration of flights between Mega-Cities August 2013 Schedules – Source: OAG, Airbus A380 London to Singapore 6:00 0 12:0 0 18:0 0 Others 6:00 24:0 Departure time London 4 flights within 3 hours Singapore Singapore to London 6:00 0 12:0 0 18:0 0 6:00 24:0 Departure time demand for passenger aircraft 4 flights within 2 hours Slot and time zone constraints drive frequency concentration. The A380 is the most efficient solution for growth. 56 Global Market Forecast Global Market Forecast 57 05 Demand by region Asia-Pacific S easonality is increasing on the PRC-Pacific flow Source: OAG, Airbus Billions of ASKs 5.0 +30% 4.5 More flying, near and far 4.0 +5% 3.5 +10% +27% +17% +9% 3.0 2.5 2.0 2006 2007 2008 2009 2010 2011 2012 % is based on the difference between peak and end of seasonal period Increasing seasonality signifies growing regional tourism. rapidly; faster than in the rest of the world and in particular traffic within the region itself. Domestic traffic will increase 6.4% on average every year over the next 20 years. In 2012, Asia-Pacific’s domestic traffic represented 36% of +30% global domestic traffic in terms of RPKs and will reach 52% by 2032. Domestic and intra-regional traffic for Asia-Pacific combined will account for more than 25% of +10% total global RPKs by the end of our forecast period. If we take the specific example of China, the weight of tourism and leisure travel is becoming increasingly important. China’s expenditure on travel abroad reached US$ 102 billion in 2012, which represents an increase of 40% from 2011. It is, therefore, not a surprise that China has become the number one source in the world in terms of tourist spending according to UNWTO. With these positive drivers, Asia-Pacific traffic has grown Already developed but much more to come demand by region After a decade of tremendous growth, the Asia-Pacific region is recognised as one of the world’s major economic centres. Taking in the five biggest economies in Asia, it is actually the most important in terms of GDP, ahead of North America and the EU. While a number of countries in the region can be considered emerging, they are by no means small or insignificant. In fact, they contribute meaningfully to the strength, diversity and future growth that the region as a whole represents. The people of Asia will continue to enjoy the economic development the region has witnessed in the past. Looking at the evolution of household earnings, forecasts published by The Economist Intelligence Unit, show that the share of households earning more than 10,000 US$ per year in China will grow from 5.9% in 2012 to 14.9% in 2017. Similarly, in India it will increase from 5.3% to 8.8% over the same period. In addition, the size of the middle-class in the region is currently booming with this influential socio-economic group characterised by people mainly living in urban areas and already highly connected to the world, with easy access to information and communication technology. Historical data shows these positive developments have already started to shape the aviation market. Examining traffic evolution on some intraAsia flows, it can be seen that seasonality, for example, is increasing. This trend towards higher seasonality in regional traffic shows that leisure travel associated with holidays and tourism seasons are increasingly driving the shape of demand for air travel in Asia. western area, heralding the prospect of greater need and, therefore, greater development in air travel to and from these regions. In China, there are currently three aviation Mega-Cities in coastal areas (Beijing, Shanghai and Hong Kong), while there are none in the western part of the country. Using a tool to indicate concentration, such as the Herfindahl index, it is possible to compare the split of traffic in different regions in the world. Using this index we can see that the concentration of air traffic is twice as big in China than in the US and four times more than Europe. However, western regions of China are catching up: if we look at real GDP growth in the third quarter of 2012 for China, IHS Global Insight indicates that economic growth was 9.4% in the coastal areas, and 11.9% in the Projected future global network development in AsiaPacific will have an important role in shaping the future global network as a result of the dynamic air travel market in the region. Examining just the longhaul routes, more than 50% of the new routes created between 2013 and 2032 will be connected to AsiaPacific. This gives a flavour of the dynamic nature of air transportation in the region. Network development will be particularly active in Asia-Pacific Share of new long-haul* routes opened on the 2013-2032 period Repartition of destinations of new routes opened from Asia-Pacific to the rest of the world 100% 22% North America 49% Within rest of the world 12% Africa 7% CIS 50% 51% 39% 31% Through Asia-Pacific Europe 0% * Route length > 2000nm 12% Within Asia-Pacific 27% 1% Middle East Latin America More than 50% of new long-haul routes will touch the Asia-Pacific region. 60 Global Market Forecast Global Market Forecast 61 Traffic from Asia-Pacific to the rest of the world will continue to increase and will experience the most significant growth in origin and destination (O&D) traffic on flows connecting Asia-Pacific to other emerging regions. As a result we are moving to a more balanced air transportation network. RPK TRAFFIC GROWTH FROM/TO ASIA-PACIFIC BY REGION Traffic between Asia-Pacific and emerging regions will increase at a high rate 6.1% 4,000 2012-2032 CAGR 3,500 From Asia-Pacific to emerging regions 3,000 2,500 4.6% 1,500 500 Europe North America Asia-Pacific 4.6% 5.1% World Domestic and Intra-Regional Asia-Pacific From Asia-Pacific to Western regions 2,000 TOTAL RPK TRAFFIC GROWTH Size of bubbles proportional to RPK volumes O&D RPK from Asia-Pacific to other world regions (billions) 1,000 Results 6.1% 5.1% 5.1% 7.0% 6.9% 6.7% Africa CIS 5.1% 6.5% 2012 2032 0 Europe Latin America Middle East With its unique combination of characteristics including geography, country mix, economic potential and large North America 5.8% 6.3% 4.4% 4.7% 20232032 20-year growth CIS Intra Asia-Pacific 6.7% Latin America 6.5% population centres, Asia also has distinct aviation market characteristics. Africa Middle East 6.9% 7.0% 20132022 Average capacity on intra-regional routes Source: OAG, Airbus – September 2012 Average aircraft capacity (seats) FLEET IN SERVICE EVOLUTION NEW DELIVERIES BY SEGMENT Fleet size* Number of new aircraft 250 Asia-Pacific Europe North America 12,000 200 demand by region 10,000 150 +4.5% 8,000 7,000 per annum 6,000 8,000 5,000 Growth 6,514 6,000 100 4,650 New deliveries 10,664 4,000 Replacement 50 4,150 0 200 400 600 800 1,000 1,200 Intra-regional routes are operated with higher capacity in Asia-Pacific. As previously mentioned, intra-regional traffic volumes are very important in Asia-Pacific. Combined with a relatively high concentration of traffic, this results in routes that are enjoying huge and growing volumes of traffic. As a result, the way the need for capacity is handled in Asia is different to other regions, such as Europe and North America; aircraft size plays a bigger role. For example, the average aircraft capacity on routes of around 400nm is between 150 and 200 passengers in Asia, much higher than in North America where the average capacity 62 Global Market Forecast 1,,400 1600 Range (nm) is between 50 and 100 passengers. It is not a surprise therefore, that the Asia-Pacific market is one where the A380, the largest passenger aircraft in the world can be used effectively on intra-regional routes. Another differentiating aspect of Asia-Pacific, is the aircraft average age of its fleet. Asian carriers’ fleets are among the youngest in the world. Contrary to other emerging regions the weight of remarketed aircraft (i.e. aircraft coming from another operator), is low in the region, with airlines favouring new more efficient aircraft to meet their requirements. 2,220 4,000 1,013 3,000 622 2,000 2,000 0 6,809 11,164 1,000 Stay in service & Remarketed 0 500 0 2032 Beginning 2013 ECONOMY** TRAFFIC** Intra-regional & domestic Real GDP Real Trade 4.5% Urban population 6.5% 6.1% Inter-regional 1.9% 5.5% * Passenger aircraft ≥100 seats Singleaisle Small Intermediate Very Large Twin-aisle Twin-aisle aircraft FLEET* Total traffic Fleet in service 5.8% 4,650 Beginning 2013 In 2032 11,164 20-year new aircraft deliveries 10,664 ** 2013-2032 CAGR Global Market Forecast 63 Europe which saw airlines cutting flights to match lower levels of demand. In this GMF it is projected that aircraft utilisation improvement trend will continue in the future, with up to a 5% improvement by 2032. Top 20 european airlines average aircraft utilisation has improved Source: ASCEND, Airbus Utilisation (annual flight hours per aircraft) flying through the turbulence 3,500 3,400 3,300 3,200 3,100 3,000 2,900 2,800 2,700 2,600 2,500 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Except during crisis, European airlines keep increasing their aircraft average utilisation. demand by region Although the long-term trend of a more equitable distribution of global wealth will reduce the weight of developed countries in the future, Europe, whose airlines contributed 26% of world-wide ASK in 2012, is a heavy weight of the air transport market. Its in-service fleet is forecast to represent 20% of the world‘s total by 2032. Another aspect that needs to be examined is hub efficiency, which is particularly important for airlines that rely on connecting traffic to feed their network. The numerous hub and spoke systems in Europe provide passengers with a large set of different possible travel itineraries. These appeal more or less to the potential customer depending on, amongst other things, total elapsed time of the journey or the time available for the passenger to connect at a hub. Obviously flight schedules, as the primary product offered by an airline, have to be attractive to passengers, and airlines have taken the opportunities to offer more connections with fewer flights. Considering a hub efficiency indicator, which is constructed by dividing the number of good on-line connections offered by the theoretical maximum number of connections, it can be illustrated that many European hub and spoke airlines have improved their flight schedule at their respective hub over the last five years. Hub efficiency index evolution for major european airports Source: OAG, Airbus Hub efficiency index Economy 80% 2007 The Eurozone economy is beginning to stabilise, even if today confidence levels remain relatively low. IHS Global Insight forecasts a slight contraction in Europe in 2013 and then returning to low growth in 2014 onwards. Southern Europe is expected to see a slightly longer period before a return to growth, partly due to tough austerity programs, tight credit and a strong euro. But, by 2015 this is expected to change and southern Europe will return to growth. By 2022, Southern European economies are expected to surpass their pre-2008 peaks in GDP. Even with these on-going difficulties. Europe will still represent 23% of the world economy by 2032. Real trade is one area of the European economy that is expected to see strong growth, with a forecast of 3.6% CAGR over the next 20 years, signalling the continued importance of Europe to the global economy. Market trends The European air transport market landscape has changed dramatically in the last 15 years. Low-cost carriers have not only stimulated demand on short-haul markets, but also captured some market share from flag carriers and charter operators. Traditional carriers have in many cases, adjusted their operating mode to take the best from the LCCs recipe: increased aircraft utilisation, unbundled fares, etc. This quest for a lower cost base has also paved the way for more airline alliances, mergers and acquisitions. Given the financial difficulties some 64 Global Market Forecast 75% 70% 65% 60% 55% European airlines still face, this round of consolidation is likely to continue in the coming years. With an increasingly challenging environment, airlines seek productivity improvements wherever they can. A very common avenue is to maximize aircraft utilisation, because the fixed cost of ownership can be amortized on a higher number of flight hours. This is what the top 20 European airlines have achieved over the last 15 years, with the notable exception of 2009/2010 crisis, 2012 CDG LHR MAD AMS FRA MUC European majors have improved their flight schedule connectivity wherever possible. While the efficiency index increased at most European hubs, it appears that flight schedule connectivity at the most congested airports, London Heathrow and Frankfurt International, hasn’t improved over time. This is mainly due to the difficulty of optimising a flight schedule with extreme slot constraints, whilst at the same time accommodating market growth. Congestion at major European airports has been a long standing issue that has not yet been fully addressed. Even though Frankfurt inaugurated a fourth runway in 2011, London airports future remains unclear, with no existing short-term plans to expand Heathrow or build a brand new airport. One possible solution for constrained airports in the short to medium term is for airlines to increase the average size of their aircraft to preserve their market positioning. Global Market Forecast 65 Results Focus on the "Kangaroo route" With nearly 1,500,000 passengers a year, the market between Australia and the United Kingdom, also known as the Kangaroo route, is the largest non trans-Atlantic international market from Europe. Through its membership of the Commonwealth, Australia has always had strong links with UK both economically and demographically, leading to significant demand levels both on the business and Visiting Friends and Relatives (VFR) segments. TOTAL RPK TRAFFIC GROWTH RPK TRAFFIC GROWTH FROM/TO EUROPE BY REGION Size of bubbles proportional to RPK volumes Asia-Pacific Domestic and Intra-Regional Europe 4.6% World Europe The kangaroo route is one of Europe’s largest markets 3.3% Source: Sabre Global Demand Data, Airbus 5.1% 4.4% 4.7% 4.2% 3.8% 4.0% 20132022 20232032 20-year growth 2012 Top international country pairs from/to Europe, ex trans-Atlantic Annual RPKs (millions) 0 5,000 10,000 15,000 20,000 25,000 North America 3.1% CIS Australia |} United Kingdom 5.8% India |} United Kingdom China |} Germany Latin America Canada |} United Kingdom 4.4% Middle East 5.0% Africa 4.6% France |} Japan Hong Kong |} United Kingdom Germany |} Thailand FLEET IN SERVICE EVOLUTION South Africa |} United Kingdom China |} United Kingdom +3.1% Fleet size* Germany |} Japan 8,000 per annum NEW DELIVERIES BY SEGMENT Number of new aircraft 6,000 7,127 4,584 5,000 demand by region 6,000 A very concentrated market Source: Sabre Global Demand Data, Airbus 2012 Top origin/destinations between Australia and United Kingdom 30% 29% Others LON-SYD 11% 17% LON-BNE LON-MEL 13% LON-PER 66 Global Market Forecast Unlike the majority of international markets from Europe, the kangaroo route is challenging as it can not be achieved with direct flights, and it is relatively concentrated with only four origin/destinations contributing to 70% of the total demand. This configuration has prompted many airlines to organise their flight schedule to address specifically this market, significantly increasing the level of competition. Thus, the number of one-stop connecting opportunities between Australia and the UK rose 80% between 2003 and 2012. At the same time, the market share of UK and Australian carriers dropped 10 percentage points, primarily to the benefit of Middle Eastern airlines which now carry about one third of the demand. Recent partnerships formed by Gulf carriers with traditional network airlines should contribute to further evolve the market, enabling passengers to benefit from an expanded and increasingly attractive offer. Over the next 20 years, traffic on the Kangaroo Route is expected to grow at a robust average annual rate of 4.0%. Despite the challenging context faced by European airlines, their traffic is expected to grow at 4.1% per year over the next 20 years, generating a demand for 5,800 new aircraft, 56% of which to accommodate the market growth. Growth 3,264 3,863 4,000 New deliveries 5,827 Replacement 4,000 3,000 720 2,000 2,563 2,000 1,300 0 Singleaisle 2032 Beginning 2013 ECONOMY** TRAFFIC** Intra-regional & domestic Real GDP Real Trade 1.8% Urban population 3.6% 3.3% Inter-regional 0.5% 4.3% * Passenger aircraft ≥100 seats 209 1,000 Stay in service & Remarketed 0 314 Small Intermediate Very Large Twin-aisle Twin-aisle aircraft FLEET* Total traffic Fleet in service 4.0% 3,863 Beginning 2013 In 2032 7,127 20-year new aircraft deliveries 5,827 ** 2013-2032 CAGR Global Market Forecast 67 North America Where mature means big Market Trends There are several trends in North America that cannot be ignored, such as the pending replacement demand for ageing aircraft and the on-going wave of consolidation. These two trends have a large impact on how airlines will purchase aircraft and satisfy demand in coming years: one driving demand mostly for Single-Aisle aircraft and the other driving up-gauging. In recent GMFs, we have discussed these trends and how they will affect our industry. There are three other trends that we have not as emphasised that are worth exploring; capacity management/profitability, pockets of growth in mature markets and the contribution of Visiting Friends and Relatives (VFR) traffic in North America. Over the last ten years, airlines in North America have given a great deal of focus to increasing profitability through stricter capacity management and revenue from ancillary services. As an example of their success in ancillary revenue, carriers in the US have increased their revenue from baggage fees by 650% over the last five years; reaching $3.5 billion in revenue last year. Capacity management has also been key. Focusing on increasing aircraft utilisation and increasing load factors means that airlines in North America were able to absorb growth while their fleet size has remained relatively stable. However, the amount of demand by region The importance of aviation to North Americans and the importance of North America to the aviation industry today and in 20 years is undeniable. There are more than 800 million passengers originating and/or ending their trips in North America, driving a 29% share of all world passengers in 2012. Even with slower growth rates in North America compared to emerging markets, a small amount of growth in such a huge market has a profound impact. Over the last ten years, origin and destination (O&D) passengers to/from/within North America has grown at a rate of 1.9% per year. If in 2013 O&D passengers grow again by 1.9%. The delta in number of passengers between 2013 and 2012 is about one and a half times the population of New York City. Airbus recognises the great importance of this region and has displayed its commitment this year by starting work on the new final assembly line in Mobile, Alabama. growth that can be absorbed through these mechanisms is limited, and airlines in North America will need to expand their fleet size or up-gauge their aircraft to meet this demand. Over the past 20 years, airlines from the region have grown load factors from 61% to 82%. Some airlines from North America are setting the standard for strong load factor performance. Over the same period, the level of ASKs carried by each Twin-Aisle and SingleAisle aircraft in the North American fleet has grown by 21% and 15% respectively. But, to continue the growth in the number of passengers airlines can capture they will need to increase their capacity either through more frequencies or through larger aircraft. As explained in the GMF Methodology section, for each of our regions/flows we analyse a number of factors to determine whether it is probable for an airline to increase frequencies, increase frequencies and aircraft size or solely through increases in aircraft capacity. North America is known for favouring increases in frequencies over increases in capacity; but over the last 20 years, the average size of aircraft flying on domestic routes and routes between the US and Canada have grown by 9.5%. This is a trend that we see continuing into the future. 82% Average load factor for the region’s airlines North American carriers still more efficient Source: OAG, ASCEND, Airbus North American carriers’ aircraft utilization, expressed in ASKs per aircraft in service Millions of ASKs per aircraft 900 800 Economy The economy of North America is moving in the right direction: unemployment rates remain below that of other mature markets and the general economy is again seeing growth. Unemployment rates are expected to return to below 6% per year by 2016 and continue its decline through 2020. Over the same period, private consumption, which represents around 70% of the US GDP is expected to rise at a rate of 2.3% over the next 700 ten years. There are still some on-going concerns around national debt levels, but the worst concerns seem to be decreasing. Over the next 20 years, the real GDP of North America is expected to grow at 2.5% per year, slightly lower than the world-wide average of 3.1%. However, this means that the North American economy will still represent over 17% of the world GDP in 2032. Twin-aisle 600 500 400 Single-aisle 300 200 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Over the last 20 years, ASKs per aircraft in service have grown by 21% and 15% for Twin-Aisle and Single-Aisle aircraft respectively. 68 Global Market Forecast Global Market Forecast 69 between North America and Europe (representing 7% of passengers in 2012). Both of these flows are highly mature with a huge number of seats being offered. But, it is not all low growth for North America; there are a number of regional O&D passengers flows that are displaying strong growth rates. Over the past ten years, O&D passengers to/from/within the region have grown at 1.9% per year according to Sabre. This low level of growth is mostly a result of the maturity of the region. The two most important flows in the region are domestic and intra-regional traffic (which represent 75% of passengers for the region) and traffic Results TOTAL RPK TRAFFIC GROWTH RPK TRAFFIC GROWTH FROM/TO NORTH AMERICA BY REGION Size of bubbles proportional to RPK volumes Pockets of growth in a mature economy North America Europe Source: Sabre, Airbus 3.1% World Domestic and Intra-Regional CAGR 2002-2012 % of 2012 international traffic Top ten fastest growing O&D flows with North America North America 5.1% 1.9% 6.5/1.1 3.9/17.1 North Africa Caribbean 5.9/0.6 Central America with Mexico 3.4/16.0 South America Sub-Saharan Africa* 6.3/8.5 Middle East 5.0/4.6 Latin America 4.6% 7.6/1.3 South Africa * excluding South Africa demand by region Africa Middle East 4.7% 6.5% 20232032 20-year growth Number of new aircraft +2.2% per annum 6,000 There are also a large number of international students in North America which further contributes to the amount of VFR to, from and within North America. According to UNESCO, there are over 780,000 international students studying in North America, representing 22% of all international students in the world. Of these, over 680,000 study in the US making it the largest destination in the world for foreign students. 4,104 4,000 4,676 5,000 6,394 4,000 2,290 the UN Population Division, there are over 50 million immigrants living in North America with nearly 43 million living in the United States; making the US the largest destination country in the world. Immigrants represent nearly 20% of the population of North America between the ages of 20-64 making it a major contributor to the demographic landscape within the region. Internal migration within North America is another major contributor of air traffic. According to a survey by Gallup, 24% of all adults have changed cities within the North America in the last 5 years. Asia-Pacific 5.1% Growth New deliveries Replacement 3,000 5,521 600 2,000 3,231 2,000 183 62 1,000 Stay in service & Remarketed 873 0 0 Singleaisle 2032 Beginning 2013 ECONOMY** TRAFFIC** Intra-regional & domestic Real GDP Real Trade 2.5% Urban population 4.7% 1.9% Inter-regional 1.0% 4.4% * Passenger aircraft ≥100 seats Global Market Forecast 20132022 Fleet size* 6,000 70 3.5% NEW DELIVERIES BY SEGMENT 8,000 Immigration and International students are major drivers of air traffic, as it drives traffic back to home countries and VFR. In 2011, 42% of American residents selected VFR travel as their primary purpose for traveling overseas. North America is one of the largest destinations for both immigrants and international students. According to 3.3% FLEET IN SERVICE EVOLUTION The top ten fastest growing international O&D flows for North America represent more than 55% of all international O&D traffic. Each of the top six fastest growing flows to/from North America has grown faster than the world-wide average over the last ten years. In 2002, these flows represented 14% of inter-regional O&D traffic to/from/within North America, whereas today these flows represent over 20%. This growth highlights many of the topics that have been discussed in the drivers of traffic section. When examining the last decade in terms of country-pair O&D growth, it is important to note that the majority of the fastest growing flows to/from North America are in relation to Canada. An example of this is the growth in traffic between Canada and Mainland China which has grown at more than 10% per year over the last ten years. 3.6% PRC 6.8/3.2 2.9/0.4 4.7% 4.8% CIS Indian Sub-continent 7.5/3.7 4.4% CIS Small Intermediate Very Large Twin-aisle Twin-aisle aircraft FLEET* Total traffic Fleet in service 3.5% 4,104 Beginning 2013 In 2032 6,394 20-year new aircraft deliveries 5,521 ** 2013-2032 CAGR Global Market Forecast 71 Middle East Economy The Middle East is a very diverse region, with some of the fastest growing countries in terms of GDP and some of the most troubled. Overall, the Middle East is forecast to have slower economic growth in 2013 (up 2.6% over 2012) due to lower fuel prices and continued weak demand due to the on-going economic difficulties of some major importers. But, strong growth is expected to return in 2014 with IHS Global Insight forecasting an average of 4.1% annual growth from 2014 to 2020. Over the full 20year period, almost all of the countries of the Middle East global scale with a global presence are forecast to surpass the global average growth rate. Part of the forecast growth in GDP comes from continued increases in private consumption; over the next 20 years, real private consumption is expected to grow at 4.6% per year, far above the world-wide average of 2.9% per annum. The Middle East is expected to further leverage its position as a key economic hub between Africa, AsiaPacific and Europe to continue to enhance their global status in trade and economic development. Middle East aviation’s impressive numbers • 81%, the world’s population is less than 8 hours flight from one of the Middle East’s major hubs • 22%, the market share of LCCs between countries in the Middle East region • 200 million passengers were handled by Middle Eastern airports in 2012. Further investments are ongoing to boost the airport capacity to accommodate ever increasing demand • 200 international routes with over 500 daily passengers departing from or arriving to Middle Eastern airports in 2012. In comparison, there were only 43 such routes in 2002 • $1.5 billion profit generated by Middle East airlines in 2011 and 2012; up by 10% in comparison to 2010 despite the gloomy economic situation in Europe and the civil unrest affecting some parts of the region • Almost 1 million seats offered on A380s every month at Middle Eastern airports underlining the need for bigger and fuel efficient aircraft The region’s diversification goals enabled by aviation demand by region The last three decades have been witness to the tremendous changes in the Middle East region. From the hot sands of the gulf desert striking new skyscrapers have risen into cloudless skies, artificial islands have been created, major business centres developed, leisure areas for booming tourism, highways connecting expanding cities, with major airlines and airports on a global scale providing the connectivity and capacity needed for this dynamic region to continue its rise. The Middle East is a very diverse region, with some of the fastest growing markets and economies in the world in some countries, and on-going economic and geo-political difficulties in others. Despite some difficulties, many governments in the region, are aware of the rising importance of aviation to the world economy and to their own. They have made its development a cornerstone of strategic plans to establish the region as a key element of globalisation and in the world’s current and future aviation network. The result of this voluntary policy is the impressive growth of the Middle Eastern carriers who enjoyed a remarkable 8.2% traffic growth rate in 2012. Major carriers have confirmed their resolution to pursue ambitious commercial strategies to expand both their short and long-haul networks by confirming orders for latest new and efficient aircraft, including the A320neo, A350XWB and A380. If the unique geographic situation of the region is enabling the local carriers to be best positioned to capture and satisfy travellers coming from all over the world, with intra-regional air transportation also growing. teady growth of the traffic from, S to or within middle east countries Source: OAG, Airbus Middle East monthly traffic evolution ASKs (billions) Gulf countries are using the funds generated by their oil and gas industries to invest and extend their global influence especially in emerging markets. The investment internationally is not solely focused on oil and gas: Gulf countries are looking at numerous fields such as other energy sources, chemicals, financial services or even sports. In 2012, the Gulf Cooperation Council (GCC) members had more than US$160 billion worth foreign direct investment abroad. To illustrate the region’s commitment to be recognised and play a more important global role, Qatar, is going to host 2022 World Cup, bringing the world’s attention to a country which has just two million inhabitants. Today, Qatar is one of the world fastest growing economies with a yearly average growth rate above 15% per annum between 2005 and 2012. In addition, the Qatari government plans to invest more than US$225 billion over the next 5 years, to transform the country into a regional and world-wide business hub. The aviation industry will receive its part being considered in Qatar and in the Middle East in general as a powerful tool for economic development. middle east connecting the world 70 Source: OAG, Airbus Monthly available seats on wide-body aircraft in 2012 (thousands) 60 50 40 30 800 20 JFK 10 0 GLA AMS HAM MAN BHX DUS MUC LHR LGW FRA VIE CDGZRH VCE MXP FCO MAD 2007 2008 2009 2010 2011 2012 72 Global Market Forecast ISB LHE DEL KHI BOM ADD LOS CMB MLE NBO 400 PEK ICN NRT PVG CAN DAC HKG BKK MNL KUL SIN CGK MRU JNB This has been very clearly displayed in the rapid expansion of LCC operations and the capture of traffic by LCCs, both within the region and to/from the region. This is largely driven by a young and dynamic population, many sharing the same language and eager to seek opportunities for work and leisure both abroad and within the region. The traffic within Middle Eastern countries has doubled during the last decade. Both international and regional air transport are expected to keep growing, with billions of dollars being invested in airlines and airports to meet increasing demand and regional aspirations. IST CAI 600 2006 SVO DME 200 PER SYD 0 78 distinct routes departing from a Middle Eastern airport were offering more than 1,000 daily seats in 2012. Global Market Forecast 73 Dubai, with its two million inhabitants, is one of the seven Emirates of the United Arab Emirates. The city-state has a long history with aviation and since 1960 government and industry have been carrying out a consensus-based partnership favouring a liberal environment to drive the local carriers and benefit the Emirate’s economy as a whole. Investments in the infrastructure have propelled Dubai to become a major actor in the aviation sector, with an open skies policy making it possible for 150 airlines to operate out of Dubai International Airport. To date, the UAE has signed full liberalisation agreements with 113 countries. According to Oxford Economics, aviation supported 150,000 direct and indirect jobs in Dubai and another 160,000 in the tourism industry in 2012 and for the first time more than 10 million tourists visited. Aviation contributes to over $22 billion of Dubai’s GDP, from which $10 billion is generated by the tourism sector. The study predicted that the contribution of the aviation sector to rise from 19% today to 32% of the Dubai’s GDP by 2020. Abu Dhabi also expects 162,000 jobs to be supported by the aviation industry and will contribute up to $11 billion to its GDP by 2016. Results TOTAL RPK TRAFFIC GROWTH RPK TRAFFIC GROWTH FROM/TO THE MIDDLE EAST BY REGION Size of bubbles proportional to RPK volumes Middle East Domestic and Intra-Regional North America World Middle East 6.5% 5.2% Middle East tourism continues to grow 7.3% Source: UNWTO, Airbus Europe Middle East tourism evolution 5.5% 5.0% 70 Arrivals (millions) 60 Latin America 50 8.3% 6.4% 5.1% CIS 4.4% 7.8% 4.7% 40 Africa 30 Receipts ($billions) 20 Asia-Pacific 7.6% 7.0% 10 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 In 10 years, the number of tourists visiting Middle East has doubled. Fleet development demand by region The surge of the aviation industry in the Middle East is second to none in the world. In the last 20 years, the fleet size of the region’s carriers has quadrupled from 218 aircraft of over 100 seats in 1992 to 875 at the beginning of 2013. More than half of these aircraft are operated on medium and long-haul routes, highlighting the global strategy adopted by the region’s airlines, which aim be able to connect any two cities in the world. But, there has also been a very impressive growth rate in the SingleAisle market, largely driven by the emergence of LCCs in the region. The growth in the fleet of Single-Aisle aircraft 20132022 for the region has outpaced the growth in Twin-Aisle and VLA aircraft at 8.1% per year, compared to 6.5% per year for widebody aircraft. The influx of new fuel efficient aircraft into local carrier fleets, has helped them offer their customers the best and most comfortable aircraft available in the market. Today, the average aircraft age domiciled in the Middle East is nine years old compared to 13 years in 1992. Some airlines statistics are even more impressive, with an average age of only five years for the aircraft in their fleets. Middle East twin aisle fleet multiplied by 2.5 in the last 10 years FLEET IN SERVICE EVOLUTION NEW DELIVERIES BY SEGMENT Fleet size* Number of new aircraft +5.5% 3,000 2,500 900 2,606 Growth 1,708 1,500 898 Average seats per widebody 320 370 345 500 400 300 291 200 Stay in service & Remarketed 100 607 0 0 2032 Beginning 2013 310 Single-aisle 800 600 Replacement 500 Widebody New deliveries 1,999 1,000 505 700 2,000 20-year growth 779 800 per annum Source: ASCEND, Airbus Aircraft units 1,000 20232032 Singleaisle Small Intermediate Very Large Twin-aisle Twin-aisle aircraft 300 Average widebody seats per aircraft 290 600 ECONOMY** TRAFFIC** FLEET* 280 400 270 260 200 250 0 240 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 The twin aisle fleet is growing in number and in size, with the average seat count increasing by 12% in the last 10 years. 74 Global Market Forecast Intra-regional & domestic Real GDP Real Trade 3.7% Urban population 3.8% 5.2% Inter-regional 2.0% 6.5% * Passenger aircraft ≥100 seats Total traffic Fleet in service 6.4% 898 Beginning 2013 In 2032 2,606 20-year new aircraft deliveries 1,999 ** 2013-2032 CAGR Global Market Forecast 75 Latin America A vibrant region with vibrant growth As global economic conditions improve in 2014 and beyond, the economic development of Latin America is expected to reap the rewards. Longer-term, we expect the region to be amongst those emerging regions driving long-term economic growth, with economic growth of 4% per annum, well above the 3.2% world annual increase over the next 20 years. Because air transport is highly correlated with economic growth, this economic expansion will help drive air traffic growth in the region. Latin America’s economy will perform above the world average Source: IHS Global Insight, Airbus Real GDP average annual growth 2012-2020 9% 8% 7% Europe 6% Latin America US & Canada Africa China World average 5% 4% South-East Asia 3% 2% India Middle East 1% 0% 0% 2% 4% 6% 8% Real consumption per capita 10% average annual growth 2012-2020 Bubble diameter proportional to real GDP at PPP (Purchasing Power Parity) in bn. US$ in 2020 demand by region Latin America has a long tradition in aviation. With aviation links to other parts of the world going back to its earliest days. One of the pioneering aviation companies, Aéropostale, founded in Toulouse in 1918, had regular flights between Toulouse and Rio de Janeiro as early as 1927, which later were extended to Argentina and Chile. Aviation has developed significantly in recent years in Mexico, Argentina, Chile, Colombia and, notably, Brazil. There is no doubt of either the importance or the need for aviation for the people of Latin America. This is particularly true when one considers the long distances that separate the southern most point, Tierra del Fuego, in Argentina, and the northern most point in Tijuana, Mexico; or when we think of the need to navigate across the Andes Mountains, the Atacama Desert or the Amazon Basin. In the future, Latin America will continue to be a successful story in aviation. Benefitting from sound macro-economic fundamentals, growing tourism and a high level of urbanisation, the region’s long-term perspective is good. With 5.3% annual air traffic growth expected over the next 20 years, the region outperforms the forecast for world air transport expansion at 4.7%. As IATA noted recently concerning Latin America: “…the economic potential of this vast and varied geography can only be realised with a successful aviation industry.” Apart from economic growth, tourism and urbanisation are key drivers of Latin America air transportation Tourism has been and will continue to be a major driver of air transport in the region, again outperforming the world tourism developments. Exemplifying this, as reported by the UNWTO (United Nations World Tourism Organisation), international tourist arrivals in Latin America have increased 4.6% per annum since 1990, above the 4% increase at a world level over the same period. Tourism will continue to stimulate air transport growth. u rbanisation levels in latin america are near the highest in the world Source: United Nations, Department of Economic and Social Affairs, Airbus Percentage of urban population, 2011 and 2020 100% Strong fundamentals, to spill over to air traffic Most Latin American countries have sound macroeconomic fundamentals, improving debt profiles, substantial foreign-exchange reserves and increasingly stable financial systems. Central American countries and Mexico, the second largest Latin American economy, are highly tied to the economic development of the US and have felt the strain of the economic slowdown in that region. But, as the North American economy is expected 76 Global Market Forecast to continue its recovery, this will provide significant growth opportunities for the region. Brazil, the largest and one of the fastest growing markets in Latin America, is expected to see accelerated growth rates in GDP as foreign investors consider greater investment after a slight decline in 2012. Brazil’s government has also put in place a number of monetary and fiscal stimuli ideas to help boost the economy in the coming years. Urbanisation is the second key driver. According to United Nations Department of Economic and Social Affairs, the region has an exceptionally high level of urbanisation (79%), higher than that of Europe and closer to North America. As urban populations tend to fly more often, this is good news for air transportation prospects in Latin America. 2011 82% 73% 2020 50% 39% 79% 71% 44% 0% Africa Asia Europe North America Oceania Latin America & the Caribbean Global Market Forecast 77 Results Challenges and opportunities Being one of the success stories in aviation in recent years, the need for airport infrastructure developments could potentially become a constraint to future growth in the region. Investment in airport infrastructure, runways and other airport facilities, will be key to ensure the rapid expansion of the sector. To give some examples, Sao Paulo Guarulhos and Mexico City international airport, which handle 17% and 34% of Brazil’s and Mexico’s air traffic, respectively, are two of the largest Latin American airports facing congestion and delay issues. Moreover, the upcoming 2014 World Cup and 2016 Olympic Games in Brazil may add additional pressure. Governments, however, are aware of the issue, and are acting. Brazil has set out several initiatives to address this, for example privatisations, modernisation of Infraero airports and a new airport to replace Congonhas. The Brazilian government is not alone. Other governments in the region are following similar initiatives, with planned investment developments in Buenos Aires, Lima and Bogota airports; and the newly inaugurated airport in Quito. TOTAL RPK TRAFFIC GROWTH RPK TRAFFIC GROWTH FROM/TO LATIN AMERICA BY REGION Size of bubbles proportional to RPK volumes Latin America Europe Domestic and Intra-Regional World 4.4% Latin America 5.7% 6.3% 4.8% 5.1% Traffic and Fleet 4.6% Traffic to, from and within Latin America is expected to grow at 5.3% annually over the coming 20 years. Looking at the distribution of this traffic growth, it can be seen that from the 60 flows studied in the GMF that link Latin America, 40 of them are expected to grow at an annual pace above 4.7%. Consistent with the recent history, over the next 20 years, traffic within the region is forecast to grow at 5.2% annually, above the overall regional 6.3% average annual increase. The largest intra-regional traffic flow is Domestic Brazil, with a predicted 7% annual expansion, to represent 43% of total traffic within Latin America, in 2032. Reinforcing the integration of the region, the traffic flows that connect countries in Latin America with each other, are expected to evolve at a robust pace: Central Traffic to and from Latin America is forecast to grow at 4.8% annually. Within inter-regional traffic, the two largest traffic markets for Latin America are Europe and North America. We expect that they will grow at a 4.4% and 4.6% annual pace, respectively, to account for almost 86% of inter- regional traffic, in 2032. Finally, rapid growth is expected to come from traffic to the emerging economies, like the Indian sub-continent, the Middle East, PRC and Africa. The top five fastest growing traffic flows will expand at almost 8.0% per year until 2032. demand by region 20-year CAGR Domestic India Indian Sub |} South America Indian Sub |} PRC Arfrica Sub Sahara |} Middle East Middle East |} South America Asia |} Indian Sub Middle East |} South Africa Middle East |} Russia Central Europe |} Middle East Asia |} Middle East North Africa |} PRC Africa Sub Sahara |} Japan PRC |} Russia CIS |} PRC Middle East |} PRC North Africa |} South Africa Japan |} Middle East Central America |} South America Africa Sub Sahara |} CIS Indian Sub |} South Africa 9.8% 9.6% 9.1% 8.9% 8.9% 8.7% 8.5% 8.5% 8.3% 8.0% 8.0% 7.8% 7.7% 7.7% 7.7% 7.5% 7.5% 7.5% 7.5% 7.5% 50 100 150 200 250 300 350 2012-2032 billions RPK 2012 2032 6.4% Global Market Forecast 5.7% MiddleEast Asia-Pacific 8.3% 6.5% 20132022 20232032 FLEET IN SERVICE EVOLUTION NEW DELIVERIES BY SEGMENT Fleet size* Number of new aircraft +4.6% 3,000 2,500 20-year growth 1,794 2,000 2,833 1,800 per annum 1,600 Growth 2,000 1,691 New deliveries 2,279 1,500 1,142 1,400 1,200 1000 346 800 1,000 600 Replacement 588 500 400 Stay in service & Remarketed 0 0 2032 Beginning 2013 ECONOMY** TRAFFIC** Intra-regional & domestic Real GDP Real Trade 4.0% Urban population 4.5% 6.3% Inter-regional 1.2% 103 36 200 554 4.8% * Passenger aircraft ≥100 seats 78 4.7% CIS Africa to South America will expand at a strong 7.5% per year, Intra-South America at 5.4% and Intra-Central America, at a 5.2% per annum. three out of the top 20 fastest growing O&D traffic flows in the world link to Latin America 0 4.4% North America 5.2% Singleaisle Small Intermediate Very Large Twin-aisle Twin-aisle aircraft FLEET* Total traffic Fleet in service 5.2% 1,142 Beginning 2013 In 2032 2,833 20-year new aircraft deliveries 2,279 ** 2013-2032 CAGR Global Market Forecast 79 CIS Russia’s middle-class will continue to develop Source: EIU, Airbus Income distribution in Russia 100% 90% Aviation facilitating change 80% 2015 2010 2005 2000 Share of households earning more than each income threshold 70% 60% 50% 40% 30% 20% 10% 0% 1,000 3,000 5,000 10,000 15,000 According to IHS Global Insight, this trend will continue in the long-term: Russian consumer purchasing power will be close to convergence with major advanced economies by the time the end of our forecast period in 2032 is reached. Real disposable personal income is expected to increase by 3.5% per year on average between 2012 and 2022, whilst it will remain below 1.5% per year for major advanced economies. The development of a middleclass in Russia and the rest of CIS, and their willingness to diversify their consumption basket, has helped to drive demand by region 100: The number of airlines in the CIS region studied by the GMF. Even if in 2012, the 10 biggest airlines represented more than 70% of the total RPKs produced by the airlines of the region, this number of airlines and the variety of business models in the region underline the importance of CIS for the worldwide aviation market. The dynamics of CIS favour a large potential for growth in air transport for the region. From 2000 to 2012, ASK traffic from/to/within the region increased by almost 10% annually, and real GDP increased by 5.1% per year on average, which had a positive impact on the economic development of its population. Combined with this high growth potential, the region is characterised by a large demand for replacement: in 2013, only 53% of the CIS fleet is new generation aircraft, with 72% remarketed aircraft. 25,000 35,000 50,000 75,000 Household yearly income (2005 $ US) outbound tourism. Between 2002 and 2012, the number of Russian international tourists increased at 7.9% per year on average. According to the UNWTO, this number reached almost 40 million in 2010, the main destinations being Ukraine, Turkey, Egypt, China and Kazakhstan (these five countries received more than 15 million Russian tourists). This endogenous development of tourism through the middle-class will in turn have positive impact on the Russian economy and air transport industry, thanks to the induced additional services which will be put in place. Outbound tourism has been stimulated by the wealth effect Source: UNWTO, EIU (estimates), Airbus Outbound tourism from Russia (number of departures) Millions 50 CAGR 2009-2012 8% CAGR 2000-2008 9% 45 40 35 30 25 Economy 20 15 10 The CIS region is forecast to have strong economic growth up to 2020, despite some countries experiencing difficulties from the fallout of the global economic situation, particularly from Europe. The fastest economic growth rate is expected to be in the second and third largest economies in the CIS, Ukraine and Kazakhstan. Even with the faster growth in the smaller economies in the region, Russia is expected to continue to represent more than 70% of the regions GDP in 2032. International trade, a key driver for the region, is expected to grow strongly over the 20 year period with growth in imports tripling and growth in exports doubling. Aviation, tourism and the middle-class The strong development in consumer behaviours and the rapidly growing middle-class have perfectly set the stage for growth in air transportation within the region. The successes of the CIS economic transitions were keenly felt from 2000 to 2012, with a GDP annual average growth rate of 5.1%, which translated into the economic development of its population. In 2012, 43% of the Russian households earned more than $10,000 per year (US$ 2005), this figure being expected to reach 50% in 2016. 80 Global Market Forecast 5 0 1999 2000 2001 2002 2003 2004 2005 Over the same period of time, the number of international air passengers (including foreigners) with Russia as the origin or destination, increased by 13.7% per year on average, this faster than outbound tourism. This increase of the air transport markets share with respect to other modes of transportation, underlines the importance of the aviation sector in a more connected and globalised world, where mobility is key for economic development. Inbound tourism, which was below its potential in recent years, is expected to boom in the next decade: the WTTC forecasts that international arrivals will reach 56 million in 2023, from 31 million in 2012. As a result, visitor 2006 2007 2008 2009 2010 2011E 2012E exports will increase by 5.1% per year on average, so that they will represent almost 4% of all Russian exports in 2023, compared to 3% in 2012. This will be achieved through a simplification of travel procedures, notably with the facilitation of visa procedures. Many policy changes have been applied during the last decade (2000–2010), but a recent study from the WTTC shows that in 2011, 28% of all tourist arrivals in Russia required visas, less than the US (36%) or South Korea (35%), but above the G20 group average (17%). The study also shows that the facilitation of visa procedures may enable the G20 group of countries to receive between 20 and 112 million additional international tourists by 2015. Global Market Forecast 81 International tourists will boost Russia’s economy: from 3% of all exports in 2012 to 4% in 2023 Source: WTTC, Airbus Visitor exports Billion 2011 $US 35 56M International arrivals (millions) 31M Results TOTAL RPK TRAFFIC GROWTH RPK TRAFFIC GROWTH FROM/TO CIS BY REGION Size of bubbles proportional to RPK volumes 30 Europe 25 20 15 CIS 10 5.5% 5 North America 0 4.8% 2010 2011 2012 2013 2014 2015 2016 2017 According to the UNWTO, Kazakhstan was the fastest growing country of the region for tourism in the last decade: its international attractiveness made the number of arrivals increase by 7.6% per year on average from 2018 2019 2020 2021 2022 World 6.7% 5.1% 2023 2002 to 2012. Over the same period, personal disposable income per capita, expressed in real 2005 $US, increased by 9.1% per year on average, which made the number of departures increase by 17.3% per year on average. 5.9% 5.1% 4.4% 4.7% AsiaPacific Latin America 6.7% 5.7% Africa Kazakhstan was the fastest growing CIS country for tourism Middle East 6.8% 7.8% Source: UNWTO, EIU (estimates), Airbus Thousands CIS 5.8% Domestic and Intra-Regional 20132022 Number of departures/arrivals in Kazakhstan 20232032 20-year growth 9,000 8,000 FLEET IN SERVICE EVOLUTION NEW DELIVERIES BY SEGMENT Fleet size* Number of new aircraft 7,000 6,000 Outbound CAGR 2002-2012 5,000 17.3% 3,000 +4.5% 4,000 2,500 3,000 demand by region 2,000 Inbound CAGR 2002-2012 1,000 7.6% 0 2002 All of the growth in middle-class and expansion of the tourism in the region will continue to stimulate the air transportation industry to/from within the region. This development coupled with the continuously increasing 2012 economic activity in these countries and their increasing connection to other emerging markets, such as China, will stimulate growth both in lower-yield economy traffic and higher-yield business traffic. per annum 2,000 900 800 1,987 1,500 700 Growth 1,095 New deliveries 1,095 829 1,000 The dynamics of the Russian and other CIS countries’ middle-classes and the appeal of outbound and inbound tourism provide a strong platform for the development of LCCs in the region. In May 2013, the LCC market share reached 14% of total ASK from Russia to Middle East, 8% from Russia to Western Europe, 4% from Central/ Eastern Europe to Russia. The potential for growth is significant for European and Russian carriers that have already expressed their interest in this market: the lowcost market share from Europe to Russia could eventually reach the same levels as in the intra-Europe zone (around 50% of ASK in 2013). 82 Global Market Forecast 500 400 Stay in service & Remarketed 500 0 ECONOMY** TRAFFIC** Intra-regional & domestic Real GDP Real Trade 3.3% Urban population 3.3% 5.5% Inter-regional 0.3% 44 32 100 2032 Beginning 2013 6.2% * Passenger aircraft ≥100 seats 148 200 0 Russia will likely follow in Ukraine’s steps, where LCCs are now well established on the markets to Europe, within CIS and to the Middle East. In May 2013, the LCC market share on international traffic from/to Ukraine is now more than 20% in terms of ASK. Remarkably, the LCC market share from Ukraine to Middle East reached nearly 60% in May 2013. Development of LCC traffic to/from/within the region is expected to further stimulate traffic growth and as a result is likely to increase the demand for Single-Aisle aircraft here. 600 300 892 Potential for low-cost carriers 871 1,000 Singleaisle Small Intermediate Very Large Twin-aisle Twin-aisle aircraft FLEET* Total traffic Fleet in service 5.9% 829 Beginning 2013 In 2032 1,987 20-year new aircraft deliveries 1,095 ** 2013-2032 CAGR Global Market Forecast 83 Africa Migration, a driver for aviation demand aviation facilitating economic diversity Movement of people seeking to improve their economic situation and to help provide for their families is nothing new. But this demographic phenomenon is particularly strong in Africa. In a recent Gallup survey, residents of Sub-Saharan Africa remain the most likely worldwide to express a desire to migrate permanently. Sub-Saharan African residents are also the most likely world-wide to say they would like to work temporarily in another country, with nearly half of adults across the subcontinent expressing this desire. Aviation, and its increasing accessibility, both physically and economically will no doubt aid this process, with the Visiting Friends and Relatives (VFR) component of air travel also likely to increase. Tourism, significant growth, coming or going! Africa’s tourism growth faster than the average for emerging economies Source: UNWTO 2012 Tourism Highlights Report, Airbus International tourist arrivals (millions) 2005-2011 60 CAGR +6.3% 50 40 30 7.9% Sub-Saharan Africa 3.5% North Africa 20 demand by region Africa is a huge and diverse region, in terms of its people, languages, landscape, history and importantly, in the way its aviation infrastructure has developed. It has long been a region where analysts have seen a huge potential for growth in the use of aviation. After all, what better way to get to where you want to go, either travelling from outside the region or within it, with its large distances, patchy ground transportation infrastructure and at times difficult terrain. In the past, aviation had its strongest presence in northern and southern Africa. Then the west of the continent with its large population centres and its eastern region started to grow strongly. Today, the whole region is seeing positive development, as airlines both from within Africa and from outside seek to capture growing demand. New airlines are also emerging, who are adopting the low cost model seeking to further tempt Africa into achieving its aviation potential. Africa’s economic activity taking new directions, mainly up A recent Frost & Sullivan report stated that much has changed since The Economist labelled Africa as “The Hopeless Continent” ten years ago, with the latest predictions forecasting that seven of the world’s top ten fastest growing countries in 2015 will be in Africa. Long relying on its much sought after natural resources, Africa is now beginning to achieve some success in economic diversification. In numerous countries, valueadded processing of agricultural commodities, light manufacturing, the retail sector, and the services sector are now the principal drivers of economic expansion. A tendency towards convergence of the GDP growth rates of oil-exporting countries and non-oil-exporting nations is a welcome indication of this development. Primary, extractive industries typically have less employment potential and have a low economic multiplier, compared to value-added processing and the range of tertiarysector activities that make up a consumer-based economy. In the best-managed African countries, a self-sustaining cycle of consumer-oriented economic expansion involving the growth of retail trades and skilled services is starting to take a hold. It is in this environment that aviation will have its biggest impact and benefit, not only in terms of the skilled jobs it brings itself, but by facilitating connectivity and acting in some cases as a nucleus for the business diversification that is developing. 10 0 1990 1995 2000 Tourism is another important component in the growth in air transportation in the region. Over 50% of tourists world-wide arrive by air, with international tourist arrivals in Africa growing almost five times since 1990, at an impressive rate of 6.3% per annum. Taking SubSaharan Africa alone, tourist arrivals have grown even more quickly at nearly 8% per year, faster than the average for all emerging countries which stood at 5% between 2005 and 2011 according the to the UNWTO. World tourist arrivals grew at 3.5% per year over the 2005 same period. Latest data shows that the resulting tourist receipts for African nations in one year totalled some $30.4 billion ($US). But tourism has not been one way, with the growing wealth and middle-class in the region, tourism from Africa has also grown significantly in recent years. Over the same period, international tourist arrivals originating from Africa have reached close to 30 million people, having grown at more than 7% per year since 2005. Increasing wealth driving increased tourism from Africa Source: UNWTO, Airbus International tourist arrivals originating from Africa (millions) 35 30 25 20 2005-2011 15 CAGR 10 +7.2% 5 0 84 Global Market Forecast 2011 1990 1995 2000 2005 2011 Global Market Forecast 85 Africa’s aviation developments Results 2012 traffic to/from and within Africa well above 2000 levels Size of bubbles proportional to RPK volumes Traffic to/from Africa (Available Seat Kilometers), 2012 vs. 2000 6.2% +577% Europe Asia/Pacific Latin America CIS +134% 6.4% 6.8% Latin America Middle East +118% Despite the continued impediments to growth that exist in Africa, including some protectionism, high taxation on departures and fuel, and high air fares in some cases, there have been postive improvements across the region in all of these areas. Very often where this has happened, strong growh in aviation traffic has followed, a fact that will not be lost on countries where progress has been slow. A 2006 study quoted by Aviation Week found selected markets that had been opened up benefitted from increased passenger numbers. For example, the route between Nairobi and Johannesburg grew 69-fold once liberalised. In other markets, fares fell and passenger numbers went up. This is clearly not a lone example, with traffic within Africa having grown 86% over all since 2000. However, the difficulties that some new carriers faced to cut through the barriers that persist, in terms of access and cost, shows there is still much yet to be achieved. International travel has also grown significantly since the start of the new millenium, with 90% more international traffic since 2000. A significant portion of this is flown by airlines from outside of the region, with Africa’s airlines carrying just under 40% of passenger traffic in 2012 and their share having fluctuated around 45% for much of the last two decades. However, given the level of new capacity flying to and from Africa in recent years, it shows that African airlines are both able and willing to compete with the higher levels of competition they have been facing. Today, many airlines are developing their own effective hub strategies to compete more effectively in Africa’s future market. 90% 4.4% 6.9% 20132022 20232032 FLEET IN SERVICE EVOLUTION NEW DELIVERIES BY SEGMENT Fleet size* Number of new aircraft +4.8% 1,800 1,600 1,540 900 per annum 1,400 Growth 932 1,000 New deliveries 970 700 600 500 400 608 600 400 38 300 Stay in service & Remarketed 200 570 200 0 2032 ECONOMY** TRAFFIC** Intra-regional & domestic Real GDP Real Trade 4.4% Urban population 4.9% 6.2% Inter-regional 3.1% 58 28 100 0 5.6% * Passenger aircraft ≥100 seats 155 Replacement Beginning 2013 20-year growth 729 800 1,200 800 4.7% 1,000 More international traffic since 2000. Global Market Forecast 5.1% 4,6% +86% Intra-Africa traffic: +86% International traffic: +90% Overall traffic: +89% 5,7% AsiaPacific 7.6% Intra-Africa demand by region 6,4% 5.0% Middle East +307% World Africa CIS +80% Domestic and Intra-Regional 4.7% +49% North America Africa North America Europe 86 TOTAL RPK TRAFFIC GROWTH RPK TRAFFIC GROWTH FROM/TO AFRICA BY REGION Source: September traffic from OAG, Airbus Singleaisle Small Intermediate Very Large Twin-aisle Twin-aisle aircraft FLEET* Total traffic Fleet in service 5.7% 608 Beginning 2013 In 2032 1,540 20-year new aircraft deliveries 970 ** 2013-2032 CAGR Global Market Forecast 87 06 Demand for freighters Air freight industry in 2013 Source: ASCEND, Airbus World figures 2013 Operators 197 34 798 North America Latin America Europe & CIS 22 77 51 339 47 314 15 61 28 56 Fleet 1,645 Asia Pacific Middle East Africa There is no disguising that recent years have been very difficult for the freight industry. On a world-wide basis, freight traffic has stagnated for the last three years. The financial crisis has had a direct impact on people’s willingness to spend and on international trade growth. In total, world trade has grown at just 2% in recent years with that growth largely driven by emerging economies. The mature markets, especially Europe, have been the most negatively impacted by on-going debt issues and as mature markets have been the biggest consumers of high value products (which tend to use air freight) this has had an increasingly important knock on effect on air freight. However, air transportation, with 30% of its value, is still hugely important to world trade. demand for freighters These issues have caused many to question whether or not there has been a significant long-term shift away from air freight to other modes. However there are positive signs. The world economy is showing improvement, and as discussed in the economy chapter, many of the risks we were monitoring last year, whilst not gone completely, have become less of a concern. This is why Airbus has the view that growth will return to the air freight industry over the next year. Customers still value the speed, reliability and quality of air transportation. Even with some on-going trends that we are monitoring in modal shift and near-sourcing, we believe that industry will continue to value these unique aspects of air freight. According to the data provided by Seabury, we see no clear trend indicating a modal shift. In fact, the split in terms of weight carried by aircraft vs shipping (after removing bulk commodities, such as oil and grains) has remained stable with around 1% of total weight carried by aircraft. In terms of near-sourcing, it is too early to say definitively how much of an impact this will have on traffic, but what is visible today, is that large multi-national corporations will continue to strive to optimise their supply chain and manufacturing costs based on global and regional trends. Traffic today Even during this difficult period, air freight remains key in the supply chain of almost every industry in the world. The speed and reliability offered by main deck freighters services has a positive impact on the effectiveness and efficiency of high tech industries for example, who rely heavily on air cargo. Pharmaceutical businesses use temperature controlled containers to transport sensitive bio-chemicals and drugs by air. Flowers, cars parts, machinery, horses, fruits, mail are all commodities where air transportation is the only viable option. In 2012, world traffic in FTKs decreased 3% year on year, with the shift towards emerging economies continuing. Today, 70% of air freight traffic is with or between emerging countries, compared to just 64% 10 years ago. N orth America, Asia-Pacific and Europe combined represents 81% of the air cargo traffic Air cargo traffic wheel, FTKs in 2012 North America Asia Pacific Africa Latin America Europe Freighter fleet today During the last five years, the total number of freighters has changed little, remaining between 1,600 and 1,700 units. Today, North America represents 49% of the world’s main deck freighter fleet followed by Asia-Pacific at 19% and Europe at 17%. Together, these three regions represent 85% of the fleet. High fuel prices and the persistent crisis in the air freight market, has triggered the early retirement of older freighter types such as the 747 classics and DC10F aircraft. In most cases these 90 Global Market Forecast Middle East CIS Freight growth drivers freighters were replaced by more fuel efficient aircraft in a bid to drive down unit costs. Moreover, in some markets heavily affected by overcapacity issues, a number of large freighters have been parked in order to try and increase yields that are continuously driven down by a negative relationship between capacity and demand. For example, at time of writing, 33 large Asian freighters were parked compared to 17 just before the crisis with similar demand. On top of the drivers from the airline and freight forwarders, there are a number of general economic trends that have a very large impact on the freight industry, namely: • Economic activity, expressed in GDP • World trade flows, combined imports and exports • Private consumption • Industrial production Each one of these factors, though inherently connected in the global economy, play a key role in the freight market. World trade has continued to struggle since the depth of the crisis in 2009 when it was down 11% from 2008. In 2010 and 2011, emerging markets reacted quickly with trade rebounding to 27% above pre-crisis levels. But, trade is still depressed with IHS Global Insight forecasting improvements in the short to medium term. Over the 20 year period, trade is expected to grow at 3.8% per year with the recovery in 2014 expected to positively drive the freight industry to an improved result. Global Market Forecast 91 orld-wide economic growth is expected W to strengthen through 2013 orld-wide trade volumes are expected W to more than double in the next 20 years Source: IHS Global Insight, Airbus Source: IHS Global Insight, Airbus Year-over-year quarterly evolution of GDP by market type Based on the econometric variables previously described and many others, Airbus forecasts an annual CAGR of 4.8% per year for the next 20-years. Today, Asia-Pacific, including PRC and the Indian Sub-continent, represent the largest share of world traffic, 36% overall. These are followed by Europe & CIS and North America which jointly represent 51% of world-wide traffic. Unsurprisingly, PRC Total world-wide trade evolution 35 10% 30 8% Emerging markets 6% World 4% 25 Advanced economies 0% F astest growth from traffic between and within emerging regions Source: IATA, Seabury, US DOT, CAAC, Airbus 10 Forecast 5 FTKs (billions) 600 History Outside of the key general economic trends driving the freight industry, there are two more economic indicators that have a key impact on freight volumes: industrial production and private consumption. The topics discussed in the earlier economic section of two speed worlds are even more apparent in these two indicators. Over the last 20 years, industrial production in emerging markets more than tripled, whilst at the same time, 2030 2026 2022 2018 2015 Q1 2014 2014 Q1 2010 2013 Q1 2006 2012 Q1 2002 2011 Q1 1998 0 2010 Q1 1994 -2% 2009 Q1 industrial production in advanced markets grew by only 30%. Over the next 20 years, advanced markets will grow by nearly 50% and emerging markets will grow by nearly 180%. All of this growth in production is expected to spur the air freight market into further growth. On the opposite side of the market, private consumption is expected to return to substantial growth by Q4 2013, positively driving air freight growth. 500 20-year world annual FTK growth 400 4.8% Emerging to Developed private consumption Source: IHS Global Insight, Airbus Source: IHS Global Insight, Airbus Quarter-over-quarter evolution (%) demand for freighters 300 2032 Emerging markets 6% 1992 200 4% World 150 2% 100 Advanced economies 0% 50 -2% 0 Advanced 92 Global Market Forecast Developing Emerging World 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2.9% 6.2% 200 5.2% 100 5.3% 2000 2004 2008 2012 2016 2020 2024 2028 2032 Forecast Belly capacity versus main deck 8% 2012 250 CAGR Growth Rate 2012-2032 Developed to Emerging History industrial production by market Emerging to Emerging Developed to Developed 300 1996 Industrial Production by market (base year 2012 = 100) is one of the largest drivers of international air freight traffic and will represent 22% of the global market by 2032, up from 15% today. Overall, traffic will be the fastest growing between emerging regions and the slowest between mature regions. Between mature and emerging regions, goods flowing from mature to emerging will grow at a slightly faster growth than the reverse flow. 20 15 2% Focus on freight traffic growth 2013 Q1 2014 Q1 2015 Q1 Belly capacity is increasing due to new Twin-Aisle aircraft which are more cargo capable. The A350-900XWB for example will be able to transport 20 tonnes of revenue cargo over 5000nm. Belly cargo is viewed as a complementary and opportunistic source of revenue for passenger operations. However, belly cargo will not completely replace dedicated freighter operations. This is because dedicated freighters offer reliability and quality of service not matched by belly freight operations, mainly because freight operations are secondary to the passenger business in some airlines. Also on some routes, demand for air cargo transportation far exceeds belly capacity: for example belly space alone is far from being able to cope with the demand between the PRC and North America. In addition even if the belly capacity exists, some airlines won’t use it because it would add in the complexity of their operations, slowing turnaround times for example. Moreover a specific department (sales/ logistic) would have to be created adding surplus costs. According to US Department of Transportation data, the average load factors of revenue cargo transported in the belly of Twin-Aisle aircraft departing or arriving to the US does not exceed 30%. Some airlines are using more intensively their belly space, while others do not transport cargo in their passenger aircraft. Global Market Forecast 93 Express T he integrators fleet for domestic purposes in the US is shifting for bigger and more fuel efficient modules Source: ASCEND, Airbus In a world where time equals money, the express business model has been a great success, since it was first introduced in the US in the early 1970s, enjoying double digit growth in the US domestic market for more than two decades. Forty years later, it continues to go from strength to strength, even when other parts of the freight business are suffering due to the recent economic situation and enlarging its market share versus general cargo. Next day delivery service has value for both end consumers wanting the product they have just acquired as quickly as possible and for industries to keep their supply chains as lean as possible. US integrators fleet evolution Nr A/C 500 450 350 300 Source: Seabury, Airbus 250 30% 35t < Widebody < 55t 2.5 2 1.5 20% 0 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 FedEx commences 4% 1% 1983 8% 1981 0 1979 General Cargo 4% 0.5 50 1977 11% 1 100 Express 20% 5% 3 150 25% 25% 10% 10t > Narrow-body <35t 200 % traffic growth 15% 3.5 Fuel price 400 Express market has proved more resilient to the crisis Jet Fuel price $US/gallon* UPS commences * Real price 0 -5% -7% Distribution of the wide-body freighter operations -12% 800 Regional operations 700 94 Global Market Forecast Small wide-body < 75t 500 Large wide-body >75t 400 300 200 100 5,400 5,200 5,000 4,800 4,600 4,400 4,200 4,000 3,800 1,800 1,600 1,400 1,200 1,000 800 0 600 Fleet evolution High fuel prices and the crisis are accelerating the retirement of old freighters which are being replaced by more fuel efficient aircraft. To stay profitable in a tough period where demand is weak, carriers are trying to reduce their costs by all means possible. In addition to modernising their fleets, airlines are striving to reduce their unit costs by replacing narrow-body aircraft with mid-sized aircraft and rationalising their networks, especially in more mature markets. One of the best examples is the domestic US fleet, where small wide-bodies are replacing the old fleet of 727s and DC9s. On the inter-regional and long-haul markets, range becomes one of the main criteria 600 400 This said, the crisis has obliged the main integrators to review their strategies. One example is a greater focus on the emerging economies. The biggest potential for express business in the future is, without any doubt, China. Although it is difficult to get a clear picture on what quantity of the cargo carried domestically in China is express cargo, from the values provided by CAAC, express is rapidly taking a large share of the growth in the market. This trend is also visible in the carriers themselves, with foreign integrators investing in the region and a corresponding increase in investment by Chinese carriers. 200 demand for freighters To satisfy an ever increasing demand for their services, integrators have rationalised their fleets in order to optimally organise their networks using small freighters as feeders or on thin routes, mid-size aircraft for their intraregional routes and large freighters to transport packages between intercontinental hubs and some few large longhaul destinations. Today’s integrator fleet comprises 96 small freighters, 459 mid-size freighters and 145 large freighters. Express services have proven resilient even during the on-going crisis with a 4% growth in 2012, while international general cargo traffic has decreased by 5%, according to Seabury data. Intercontinental operations 3,600 2012 3,400 2011 3,200 2010 3,000 2009 2,800 2008 Weekly operations 2,600 2007 Source: OAG, Innovata, DoT, Airbus 2,400 -15% ~ 8500 weekly scheduled operations are performed by wide-body freighters 2,200 -10% -20% -1% -3% 2,000 -5% Distance (nm) when it comes to selecting an aircraft for a network. When long distances and big demand meet, such as on the Asia – North America route, big wide-bodies are often the chosen aircraft, combining range and impressive tonnage capabilities over 90 tonnes. On shorter routes, carriers try to optimise networks and adapt the correct size of aircraft to the demand they have to satisfy. Thanks to a higher flexibility and good adaptation to the market demand requirements, mid-size aircraft are often the choice on a large number of inter or intra-regional routes. Under 3000nm, 61% of the wide body operations are performed by medium-size widebodies more suited to these markets. It is not a surprise that the cargo market is considered a very opportunistic business. Routes operated by carriers frequently change to accommodate evolving demand. New factory equipment in Kenya can generate extra operations; a drought in North America will stimulate the demand for fruit and vegetables from Latin America, etc. This has direct consequences on the type of aircraft a carrier will choose. While new-build aircraft are directed to scheduled operations on traffic intensive routes to take full advantage of their fuel efficiency and their reliability, smaller markets subject to big seasonal effects will favour low capital converted aircraft adapted to lower utilisation rates. Over the next 20 years, the air cargo industry will require over 1,800 converted aircraft and over 870 newbuild freighters. Africa, Latin America, Europe and North America are the regions with the highest percentage of their fleet that are converted aircraft. CIS is at the other end of the spectrum, with only 18% of their fleet converted freighters, this due to the large number of Ilyushin purpose-built freighters in the region. Due to the on-going difficult situation in the air freight industry and the sustained high price of fuel a decline in the number of conversions has resulted in recent years. Global Market Forecast 95 Fleet in service in 2013: conversion vs new-build. 39% of the freighters are new-build aircraft Source: ASCEND, Airbus Converted Europe & CIS Africa Middle East North America Latin America Results Asia Pacific 371 New-build F reighters fleet in service evolution (2013-2032) 172 37 < 45t 9 54 26 7 > 45t 26 5 7 108 798/1,062 146 53 28 2 Mid-Size Freighters demand for freighters Mid-size freighters, such as the A330-200F, are the perfect aircraft to accommodate demand on regional routes where the demand is big enough to require a capable aircraft but where the capacity of a large aircraft is inherently higher risk. General carriers often adopt this solution to minimize the risk while maximizing the revenue that they can generate when operating in intra-regional markets. These markets are expected to experience very high growth rates in the emerging regions. For example, the traffic within the Asian region is expected to grow at 6.1% over the next 20 years boosting the demand for regional freighters. Midsize freighters are also used by integrators who need all capacities and capabilities of freight aircraft to optimise their hub system. This segment is expected to grow significantly to 1,294 units by 2032, up from 744 units in 2012. Large Freighters Due to the combination of high market demand and range capability, large freighters are the only freighter type operating on trans-Pacific routes. They are also the most popular freighters category on the US-Europe flow representing 10% of the world traffic, just behind the belly space of passenger aircraft. The segments growth is mainly driven by the high density trade lanes forming the tripod Asia, Europe and North America, which require bigger aircraft to accommodate the demand. It is forecast that the fleet of large aircraft will nearly double in the next 20 years. Fleet in service: small, mid-size & large freighters 1,294 Units 1,002 1400 609 800 481 Source: Airbus 380 376 2013 4 2032 Global Market Forecast 687 521 57 2013 2032 Mid-size freighters 2013 15% 22% 21% 21% 30% 24% 6.6% Europe & CIS 4.8% North America 3.9% 7% 7% Africa & Middle East 6% 6% 5.0% % 744 Small freighters 96 T he cargo market centre of gravity is slowly but constantly moving toward the east 2012 229 0 Middle East 3% 4% Indian Sub-Continent 6.3% PRC 18% 16% AsiaPacific 4.1% Growth 600 400 2013 2032 Africa 5.2% 550 1000 56/89 Latin America Latin America 1200 Asia Pacific 61/164 77/139 Small freighters have a broad spectrum of utilisation thanks to their versatility and flexibility. Carriers operate them to transport commodities over geographically difficult terrain such as mountains, forests or between islands where surface modes are inefficient or impractical. Today, their main activity is to serve as feeders for integrators. Thanks to the huge development of the express business, small freighters capable of transporting between 10 and 20 tonnes have replaced the smaller Dassault Falcon 20s used at the start of the express service business. The expected boom of the express services in emerging countries like China, India and at a lower scale Brazil, will boost the number of small freighters from 380 today to over 600 in 2032. World Fleet in service 2013: 1,645 2032: 2,905 15 North America Small Freighters 314/970 Europe & CIS A focus on… 200 339/481 7 6 147 142 134 5 Source: ASCEND, Airbus 138 407 Replacement 114 Stay in service 2032 Traffic volumes & share evolution per region Traffic growth rate (2012-2032) 2032 Large freighters Global Market Forecast 97 reighter fleet to nearly double F over the next 20 years Freighter Aircraft Fleet 3,500 3,000 2,500 x1,8 2,000 1,500 2,904 1,000 2,905 1,645 500 0 2013 2032 O ver 870 new-build aircraft will be required during the next two decades 1,237 Units 1,400 888 Converted 1,200 New built 1,000 824 800 430 600 400 605 200 demand for freighters 0 Small freighters 413 458 Mid-Size freighters Large freighters he business volume for new-build freight T aircraft will reach $234 billion over the next 20 years Business volume for new built freight aircraft (2012-2032) $77billion Mid-Size Freighters $157 billion Large Freighters 98 Global Market Forecast Global Market Forecast 99 07 Summary & methodology Summary of results Passenger Traffic Flow Passenger Traffic Flow CAGR 2013-2032 Passenger Traffic Flow CAGR 2013-2032 CIS - South Africa 6.8% Mexico - United States 4.2% CIS - South America 5.3% Middle East - North Africa 6.3% CIS - United States 4.7% Middle East - Pacific 6.6% CIS - Western Europe 5.8% Middle East - PRC 7.7% Domestic Asia 5.7% Middle East - Russia 8.5% Domestic Australia/NZ 3.1% Middle East - South Africa 8.5% Domestic Brazil 7.0% Middle East - South America 8.9% Domestic Canada 2.3% Middle East - United States 6.7% Domestic Caribbean 1.3% North Africa - Pacific 6.8% Domestic Central America 5.7% North Africa - PRC 8.0% 4.7% Canada - Western Europe 3.7% Domestic Central Europe 3.5% North Africa - Russia 6.7% Asia - Canada 4.4% Caribbean - Central America 5.2% Domestic CIS 5.4% North Africa - South Africa 7.5% Asia - Caribbean 4.0% Caribbean - Central Europe 3.1% Domestic India 9.8% North Africa - South America 5.4% Asia - Central America 4.6% Caribbean - CIS 4.3% Domestic Indian Sub Continent 3.3% North Africa - United States 5.0% Asia - Central Europe 5.6% Caribbean - Indian Sub Continent 4.8% Domestic Japan 1.7% Pacific - PRC 6.2% Asia - CIS 6.3% Caribbean - Japan 2.2% Domestic Mexico 5.0% Pacific - Russia 5.7% 3.2% Pacific - South Africa 6.1% 5.2% Pacific - South America 5.5% 4.4% Pacific - United States 2.3% 7.0% PRC - Russia 7.7% 5.1% PRC - South Africa 6.4% 5.0% PRC - South America 7.2% 5.8% PRC - United States 6.5% 6.6% Russia - South Africa 6.4% 6.8% Russia - South America 5.7% 1.9% Russia - United States 5.1% 2.1% South Africa - South America 6.7% 5.6% South Africa - United States 4.9% 6.1% South America - United States 5.3% 6.9% Asia - Japan Asia - Middle East Asia - North Africa Asia - Pacific Asia - PRC Asia - Russia Asia - South Africa summary & methodology Passenger Traffic Flow CAGR 2013-2032 Asia - Australia/NZ Asia - Indian Sub Continent 102 CAGR 2013-2032 Passenger Traffic Flow 8.7% 2.7% 8.0% 7.4% 5.1% 6.2% 6.4% 6.8% Caribbean - Middle East Caribbean - North Africa Caribbean - Pacific Caribbean - PRC Caribbean - Russia Caribbean - South Africa Caribbean - South America Caribbean - United States 4.7% 4.4% 2.3% 5.4% 6.1% 4.0% 5.4% 2.4% Domestic Middle East Domestic North Africa Domestic Pacific Domestic PRC Domestic Russia Domestic South Africa Domestic South America Domestic Sub Saharan Africa Asia - South America 7.1% Caribbean - Western Europe 3.5% Asia - United States 4.2% Central America - Central Europe 3.6% Asia - Western Europe 4.3% Central America - CIS 4.7% Australia/NZ - Canada 4.0% Central America - Indian Sub Continent 6.3% Australia/NZ - Caribbean 4.0% Central America - Japan 4.3% Australia/NZ - Central America 4.3% Central America - Middle East 4.3% Indian Sub Continent - North Africa 6.2% Sub Saharan Africa - Asia Australia/NZ - Central Europe 5.1% Central America - North Africa 4.8% Indian Sub Continent - Pacific 6.2% Sub Saharan Africa - Australia/NZ 4.9% Australia/NZ - CIS 6.0% Central America - Pacific 2.5% Indian Sub Continent - PRC 9.1% Sub Saharan Africa - Canada 4.3% Australia/NZ - Indian Sub Continent 5.0% Central America - PRC 6.3% Indian Sub Continent - Russia 6.8% Sub Saharan Africa - Caribbean 5.4% Australia/NZ - Japan 3.3% Central America - Russia 5.2% Indian Sub Continent - South Africa 7.5% Sub Saharan Africa - Central America 4.9% Australia/NZ - Middle East 5.8% Central America - South Africa 5.4% Indian Sub Continent - South America 9.6% Sub Saharan Africa - Central Europe 5.9% Australia/NZ - North Africa 4.6% Central America - South America 7.5% Indian Sub Continent - United States 6.6% Sub Saharan Africa - CIS 7.5% Australia/NZ - Pacific 4.8% Central America - United States 5.4% Intra Asia 6.1% Sub Saharan Africa - Indian Sub Continent 6.9% Australia/NZ - PRC 6.0% Central America - Western Europe 4.1% Intra Australia/NZ 3.2% Sub Saharan Africa - Japan 7.8% Australia/NZ - Russia 5.6% Central Europe - Indian Sub Continent 6.0% Intra Caribbean 1.3% Sub Saharan Africa - Middle East 8.9% Australia/NZ - South Africa 5.5% Central Europe - Japan 3.7% Intra Central America 5.2% Sub Saharan Africa - North Africa 7.0% Australia/NZ - South America 6.2% Central Europe - Middle East 8.3% Intra Central Europe 5.0% Sub Saharan Africa - Pacific 4.5% Australia/NZ - United States 3.7% Central Europe - North Africa 4.7% Intra CIS 6.1% Sub Saharan Africa - PRC 7.1% Australia/NZ - Western Europe 4.3% Central Europe - Pacific 3.3% Intra Indian Sub Continent 6.5% Sub Saharan Africa - Russia 7.1% Canada - Caribbean 6.0% Central Europe - PRC 6.5% Intra Middle East 5.5% Sub Saharan Africa - South Africa 6.0% Canada - Central America 6.1% Central Europe - Russia 6.5% Intra North Africa 5.5% Sub Saharan Africa - South America 7.1% Canada - Central Europe 3.9% Central Europe - South Africa 6.0% Intra Pacific 2.3% Sub Saharan Africa - United States 4.7% Canada - CIS 4.5% Central Europe - South America 5.4% Intra South America 5.4% Sub Saharan Africa - Western Europe 4.5% Canada - Indian Sub Continent 6.4% Central Europe - United States 4.2% Intra Sub Saharan Africa 7.2% Western Europe - Indian Sub Continent 5.2% Canada - Japan 2.6% Central Europe - Western Europe 5.9% Intra Western Europe 2.9% Western Europe - Japan 2.8% Canada - Middle East 5.6% CIS - Central Europe 5.7% Japan - Middle East 7.5% Western Europe - Middle East 4.8% Canada - North Africa 4.6% CIS - Indian Sub Continent 4.4% Japan - North Africa 6.8% Western Europe - North Africa 4.5% Canada - Pacific 3.3% CIS - Japan 5.1% Japan - Pacific 2.9% Western Europe - Pacific 3.1% Canada - PRC 6.2% CIS - Middle East 7.2% Japan - PRC 5.7% Western Europe - PRC 5.7% Canada - Russia 4.0% CIS - North Africa 6.5% Japan - Russia 4.2% Western Europe - Russia 5.6% Canada - South Africa 4.6% CIS - Pacific 6.8% Japan - South Africa 6.6% Western Europe - South Africa 4.9% Canada - South America 5.9% CIS - PRC 7.7% Japan - South America 5.3% Western Europe - South America 4.8% Canada - United States 2.2% CIS - Russia 6.3% Japan - United States 3.0% Western Europe - United States 3.0% Global Market Forecast Domestic Turkey Domestic United States Domestic Western Europe Indian Sub Continent - Japan Indian Sub Continent - Middle East Global Market Forecast 103 Freight Traffic Flow summary & methodology Freight Traffic Flow 104 CAGR 2013-2032 Freight Traffic Flow CAGR 2013-2032 Freight Traffic Flow CAGR 2013-2032 Freight Traffic Flow CAGR 2013-2032 Africa to Asia 4.9% CIS to Indian Sub Continent 5.5% Intra Europe 4.0% North America to Pacific 3.5% Africa to Central America 5.7% CIS to Japan 3.7% Intra Indian Sub Continent 6.6% North America to PRC 6.3% Africa to CIS 6.1% CIS to Middle East 3.0% Intra Middle East 3.2% North America to South America 4.8% Africa to Europe 4.7% CIS to North America 3.6% Intra North America 3.1% Pacific to Africa 4.4% Africa to Indian Sub Continent 7.2% CIS to Pacific 4.8% Intra Pacific 1.5% Pacific to Asia 2.7% Africa to Japan 2.2% CIS to PRC 7.0% Intra South America 6.1% Pacific to Central America 6.1% Africa to Middle East 5.3% CIS to South America 5.1% Japan to Africa 4.0% Pacific to CIS 5.7% Africa to North America 4.8% Domestic Brazil 4.1% Japan to Asia 2.7% Pacific to Europe 2.5% Africa to Pacific 4.4% Domestic India 8.3% Japan to Central America 2.4% Pacific to Indian Sub Continent 3.8% Africa to PRC 6.9% Domestic PRC 7.5% Japan to CIS 4.0% Pacific to Japan 3.5% Africa to South America 4.2% Domestic United States 2.1% Japan to Europe 2.9% Pacific to Middle East 4.7% Asia to Africa 5.3% Europe to Africa 4.7% Japan to Indian Sub Continent 5.2% Pacific to North America 2.2% Asia to Central America 5.7% Europe to Asia 5.2% Japan to Middle East 3.4% Pacific to PRC 5.1% Asia to CIS 5.6% Europe to Central America 4.4% Japan to North America 2.5% Pacific to South America 5.6% Asia to Europe 3.9% Europe to CIS 4.9% Japan to Pacific 3.4% PRC to Africa 6.3% Asia to Indian Sub Continent 5.8% Europe to Indian Sub Continent 7.0% Japan to PRC 4.6% PRC to Asia 5.6% Asia to Japan 2.9% Europe to Japan 2.2% Japan to South America 3.9% PRC to Central America 6.7% Asia to Middle East 4.3% Europe to Middle East 4.2% Middle East to Africa 4.3% PRC to CIS 6.2% Asia to North America 4.2% Europe to North America 3.3% Middle East to Asia 4.0% PRC to Europe 6.6% Asia to Pacific 4.1% Europe to Pacific 3.7% Middle East to Central America 5.5% PRC to Indian Sub Continent 8.5% Asia to PRC 5.0% Europe to PRC 6.7% Middle East to CIS 5.3% PRC to Japan 4.3% Asia to South America 5.1% Europe to South America 5.0% Middle East to Europe 2.9% PRC to Middle East 6.7% Central America to Africa 5.3% Indian Sub Continent to Africa 6.5% Middle East to Indian Sub Continent 6.2% PRC to North America 6.4% Central America to Asia 5.9% Indian Sub Continent to Asia 6.7% Middle East to Japan 2.2% PRC to Pacific 6.3% Central America to CIS 4.6% Indian Sub Continent to Central America 7.7% Middle East to North America 3.3% PRC to South America 6.8% Central America to Europe 4.1% Indian Sub Continent to CIS 5.0% Middle East to Pacific 3.5% South America to Africa 5.2% Central America to Indian Sub Continent 7.8% Indian Sub Continent to Europe 5.5% Middle East to PRC 5.6% South America to Asia 5.5% Central America to Japan 3.6% Indian Sub Continent to Japan 4.3% Middle East to South America 4.4% South America to Central America 5.9% Central America to Middle East 5.5% Indian Sub Continent to Middle East 6.6% North America to Africa 4.8% South America to CIS 5.7% Central America to North America 1.9% Indian Sub Continent to North America 4.1% North America to Asia 4.1% South America to Europe 4.5% Central America to Pacific 5.7% Indian Sub Continent to Pacific 4.8% North America to Central America 2.4% South America to Indian Sub Continent 6.4% Central America to PRC 7.1% Indian Sub Continent to PRC 7.6% North America to CIS 5.2% South America to Japan 4.3% Central America to South America 5.7% Indian Sub Continent to South America 6.5% North America to Europe 4.3% South America to Middle East 4.7% CIS to Africa 4.5% Intra Africa 5.1% North America to Indian Sub Continent 6.4% South America to North America 4.5% CIS to Asia 4.6% Intra Asia 4.5% North America to Japan 1.4% South America to Pacific 5.5% CIS to Central America 3.4% Intra Central America 5.2% North America to Middle East 4.8% South America to PRC 6.5% CIS to Europe 2.8% Intra CIS 4.1% Global Market Forecast Global Market Forecast 105 Summary data New passenger aircraft deliveries by region Africa AsiaPacific CIS converted freight aircraft deliveries by region Europe Latin America Middle East North America Total Single-Aisle 729 6,809 871 4,584 1,794 779 4,676 20,242 Small Twin-Aisle 155 2,220 148 720 346 505 600 Intermediate Twin-Aisle 58 1,013 44 314 103 370 Very large 28 622 32 209 36 970 10,664 1,095 5,827 2,279 Total AsiaPacific CIS CIS Europe Latin America Middle East North America Total 29 342 11 65 61 7 90 605 4,694 Mid-size 29 147 24 123 38 39 424 824 183 2,085 Large 11 158 12 56 2 28 163 430 345 62 1,334 Total 69 647 47 244 101 74 677 1,859 1,999 5,521 28,355 Europe Latin America Middle East North America Total total freight aircraft deliveries by region Europe Latin America Middle East North America Total Single-Aisle 729 6,809 871 4,584 1,794 779 4,676 20,242 Twin-Aisle 223 3,349 205 1,095 475 906 1,020 Very Large 36 783 40 273 38 390 988 10,941 1,116 5,952 2,307 Europe Total AsiaPacific Small New passenger & freight aircraft deliveries by region Africa Africa Africa AsiaPacific CIS Small 29 342 11 65 61 7 90 605 7,273 Mid-size 37 228 37 170 64 60 641 1,237 151 1,711 Large 21 354 20 134 4 83 272 888 2,075 5,847 29,226 Total 87 924 68 369 129 150 1,003 2,730 Latin America Middle East North America Total Passenger aircraft ≥100 seats and freight aircraft ≥10 tonnes New freight aircraft deliveries by region summary & methodology Africa 106 AsiaPacific CIS Small 0 0 0 0 0 0 0 0 Mid-size 8 81 13 47 26 21 217 413 Large 10 196 8 78 2 55 109 458 Total 18 277 21 125 28 76 326 871 Global Market Forecast Global Market Forecast 107 Passenger methodology Forecasting traffic The objective of the traffic forecast is to assess the quantity of passengers travelling by air. Initially, all countries are grouped into 19 traffic regions, based on geographical proximity and level of socio-economic development. Each region pair defines a non-oriented traffic flow, assuming that outbound and inbound passenger traffic is balanced. Whenever a part of a traffic region develops very differently from the rest of the region, a new, specific flow is created, taking into consideration some more country-related specific characteristics. This process resulted in 208 flows for the GMF 2013. The main input data for the traffic forecast are historical traffic volumes as well as large sets of historical and forecast socioeconomic data from external data providers. For each traffic flow several socio-economic variables are selected and fed into econometric equations to identify the one set or combination of variables that explains best the historical traffic evolution. Once the model and variables with the best fit are identified, economic forecast data is used to derive future traffic volume. Forecasting the network Airline networks evolve over time and airlines keep on adding and removing routes from their network, changing the supply of travel from the passenger standpoint. The evolution of the network, with new opened and closed routes, shifts the demand from one routing to another. The impact sometimes even visible at a level as high as the traffic flow. Furthermore, new routes tend to fragment the market as they partially absorb traffic from the existing network and, therefore, impact the route-per-route traffic evolution. The network forecast aims to quantify these impacts. The making of the Airbus Global Market Forecast follows a process that has been continuously improved for more than 20 years. Each major change in the industry (such as the appearance of low cost business models or the strong development of hub and spoke operations) has been the occasion for Airbus to refine and improve its modelling in order to best identify and forecast current and future trends. The GMF process consists of three main steps: the traffic forecast giving the overall shape of traffic evolution, the network forecast identifying the future evolution of the airlines networks, and the demand forecast estimating the number of aircraft required to accommodate the traffic growth. GMF Process steps Demand Forecast Backlog & retirement assumptions summary & methodology Airlines Calibration Among the very large set of potential new routes, a subset of reasonable candidates is devised for each airline, based on the carrier’s current network and the potential size of new markets. This set of routes is fed into a ‘Quality of Service Index’- based model, which determines for each new route the traffic potential and the point in time when it could be opened. Forecasting aircraft demand The demand forecast estimates the number of aircraft that will be required over the next 20 years to satisfy the world’s airline needs. The new demand identified by the Airbus GMF (on top of current fleet and known orders) is expressed in neutral seat categories. The use of such virtual aircraft allows a view of future demand unconstrained by the product supply. This theoretical demand represents a solution that would best match the airlines needs in terms of aircraft size, if no considerations of supply (specific product performance, production availability, etc.) are made. Based on this undistorted view, the results can be used to consider such things as new product introduction, size requirements and timing. Examining the market at a route by route and airline by airline level then also supports a large number of other activities from discussions with airlines to our supplier partners for example. Forecasting Aircraft Demand Open Demand Traffic Forecast Airlines Operations Forecast Capacity Frequency Model Airlines Fleet Build-Up Remarketed aircraft Backlog Remarketed Stay in service Network Forecast 108 Global Market Forecast Virtual aircraft by seat category Real aircraft (known product) Real aircraft (existing product) Real aircraft (existing product) New Deliveries Global Market Forecast 109 The airline calibration process A dedicated model handles the Frequency/Capacity split Typical evolution on a route enjoying growth: The Airbus GMF 2013 covers 741 passenger airlines and their subsidiaries world-wide. Traffic (RPK index 100=year) 250 Airlines distribution per region Asia Canada Central America Central Europe CIS Europe Indian Subcontinent Middle East North Africa Pacific PRC South America Sub Sahara USA 30 17 d talle Ins Regional & Affiliate seats in ser 100 36 8% LCC 40 58% Global Network 11% 49% 16% 5% 8% Major Network Small Network 60 81 80 Number of airlines 100 120 As a first step and for each of these airlines, a dedicated calibration process is carried out. It aims to take the best of several sources of information concerning the airlines in order to understand how an airline is operating each of its aircraft. Precise fleet data allows us to calibrate the detailed operations of a given airline (either scheduled or unscheduled) and, therefore, deduce which type of aircraft has been flying on which sector for a particular month of the year. This detailed adjustment allows us to determine the way an airline utilises its aircraft on their network. summary & methodology Airline operation forecasts Once the calibration of an airline has been carried out, real aircraft are converted into virtual aircraft in a way that keeps the overall number of seats in the fleet constant. The whole forecast is then based on neutral seat categories e.g. 100, 125, 150, 210 for SingleAisle types. Traffic growth rates are applied to each airline’s routes, also taking into consideration future developments, as anticipated in the network forecast process. There are few ways an airline can accommodate traffic growth: load factor improvement, improvement of its aircraft utilisation, frequency or capacity increase. The split between frequency increase and/or capacity increase is one of the most important factors influencing the shape of the future demand. A dedicated model (the Airbus Capacity/Frequency Model) has been developed to address this issue. The general principle is that airlines grow on a route by adding frequencies up until a minimum level of service is reached. Beyond this 110 Global Market Forecast Capacity increase 50 Airlines distribution per type 5% 6% Frequency & capacity increase Frequency increase vice r of airlin es mbe Nu 20% 9% 5% 150 109 50 43 20 200 100 64 0 Charter 37 19 32 82 41 Threshold depending on market characteristics minimum level airlines grow with a mix of both frequency and capacity increase, until the maximum level of service is reached, above which time differentiation through additional frequencies does not bring any further value to the passenger. Above this maximum service level the most efficient way to accommodate further growth is to increase the average aircraft size to achieve lower costs per aircraft seat. Each market in the world has its own characteristics. Passengers in North America for instance, are used to a high level of service (i.e. very frequent flights between two airports) which is not true for other regions in the world. A market in this case can be defined as a set of routes on a given traffic flow for a certain type of airlines business model. For each of these markets one or more airlines may compete and each route might have a different length. Taking all this into account allows us to specify how frequencies and capacity will develop over time, for a given traffic growth. 0 Time (years) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 The calibration of this model has to be reviewed each year based on the market definitions and in light of any market evolution (e.g. infrastructure development plans). As a result, the airline operation forecast outputs year by year, the demand in terms of aircraft numbers (yearly utilisation, flight frequencies and capacity) expressed in neutral categories for the complete network of each airline. Airline fleet build-up Once the overall neutral demand is forecast, each airline fleet build-up can be carried out. This demand is reallocated to the existing fleet and the known orders. Generic assumptions are made for each region regarding the retirement age of the fleets adapted for each airline. Elements such as replacement plans (new aircraft replacing older types), end of contract lease, airline business models or economic and financial environment have to be taken into account in determining replacements. The remaining demand, which cannot be satisfied by the current fleet or the known orders, corresponds to the open market. As well as identifying demand, the GMF also allows us to extract all forecast operational detail e.g. traffic flow, route, frequencies, utilisation, load factors, etc. Remarketed aircraft The final step of the GMF process is estimating remarketed deliveries, which account for a significant share of the total demand. Survival curves applied to the GMF start fleet and backlog per aircraft type, allow identification of the gap between the statistical world fleet attrition and the shape of those that stay in service from the GMF fleet build-ups. The delta corresponds to the maximum potential for remarketed aircraft. In parallel to this, candidate aircraft are identified amongst the existing fleet and reallocated as deliveries to another airline if the corresponding demand exists. This study is carried out on a world-wide basis and then refined by region and by airline. At the end of the process, these remarketed deliveries are subtracted from total deliveries, leaving only the new deliveries which are the figures given in this publication. Global Market Forecast 111 Freight forecast methodology Traffic forecast Once the calibration of an airline has been carried out, the first step in the traffic forecast is assessing the relationship between macro-economic trends and the cargo traffic. GDP, Real Income, Investments, Exports/ Imports, industrial production and many other parameters are used in our econometric models to assess the best comparison to growth in traffic. Alongside these macroeconomic factors, the analysis of historical data allows us to identify and understand the multiple trends involved in the evolution of the market, such as modal shifts for certain commodities. Traffic forecast methodology Consumption behaviours Economic Cycles Air cargo trends Growth Industry changes Models: driver correlation with trends Exports/ Imports Forecast GDP Drivers The freighter GMF has been part of the Airbus forecasting process for more than ten years and is constantly enhanced to account for all the key aspects of the cargo market, as well as their evolution. It is closely linked to the GMF passenger forecast, drawing on results from this forecast to derive future belly hold capacity. Real consumption Industrial production Fuel Price summary & methodology The freighter forecast process can be divided into three main steps: the traffic forecast resulting from econometric projections for each directional flow, the integration of the belly traffic co-ordinated with the passenger aircraft forecast and the demand forecast evaluating how many freighters will be needed in the next 20 years (and whether they will be new build or converted freighters). The freighter forecast process Historical traffic data analysis Belly capacity and base year calibration Airline fleet calibration Passenger forecast Cargo capacity needed Belly capacity available Econometric models Total traffic forecast Retirement Aircraft Once the traffic flow forecasts have been established. It is important to split the future demand between belly capacity and the dedicated freighters. Thanks to the passenger aircraft GMF, it is possible to estimate the belly capacity each airline will offer on its network. In addition, Airbus monitors how airlines use their belly holds to carry cargo to establish trends in belly capacity load factors. As a result, the combination of the airlines’ passenger network development and the cargo hold load factor evolution gives an estimation of the share of freight transported on the passenger aircraft belly on each flow. In parallel, a calibration is conducted on today’s freighter fleet. An assessment of multiple data sources is performed to arrive at the best estimate of airlines’ network, aircraft utilisation and load factors for the base year. Projections based on historical data collected for more than a decade with current market perspectives gathered from stakeholders across the industry to ensure the latest data and trends are incorporated. Freighter demand 112 Global Market Forecast Global Market Forecast 113 Air freight industry in 2013 World figures 2013 Fleet: 1,645 Operators: 197 798 339 Europe & CIS 34 North America 51 314 61 15 Latin America 77 22 56 28 47 AsiaPacific Middle East Africa Freighter forecast The freighter forecast for the next 20 years estimates the number of aircraft required to accommodate the cargo traffic growth. The demand is divided into four neutral size categories starting at ten tonnes, including new build and converted aircraft. Thanks to these virtual categories, it is possible to assess which aircraft size, on which flow, best suits the market. summary & methodology Domestic express analysis To address the specific question of the domestic express market, a dedicated forecast model has been developed and deals with four countries: the US, which today is the largest player in express traffic, as well as Brazil, India and China, who are all expected to become large consumers of express services over the next 20 years. This model analyses a distinctive set of parameters to understand the customers’ need for express services resulting from well-known or new behaviours, such as online purchasing, next-day delivery for business purposes, service reliability and traceability. The model for domestic express consists in two parts. The first estimates the US express traffic and fleets based on a 40 years historical data to identify the main drivers of growth. The second, used for the emerging markets, takes US express development as a benchmark, while taking into account the unique characteristics of each country including infrastructure development, labour costs, internet penetration, for example. Our freighter forecast is the result of the analysis of the behaviour of nearly 200 different airlines. When forecasting an airline’s choice of new build or converted freighters, a detailed study of historical trends is used to identify the trend in activity per aircraft size category. On top of using historical trends, an analysis of current and future fuel prices is performed to simulate their effect on this decision making process Express and general cargo in 2013 Source: ASCEND, Airbus Freighter fleet in service in 2013 General cargo Units Mixed carriers 800 744 700 Express 177 600 73 500 400 380 300 129 200 95 100 156 521 329 494 45 147 0 Small 114 Global Market Forecast Mid-Size Large Global Market Forecast 115 116 Regional Global Market Forecast A318-100 737-500 CS100 MD-80-87 737-200 ERJ-195 717 737-600 DC-9-50 A319neo A319-100 737-700 737-300 CS300 MD-80-88 MD-80 737-400 MD-80-83 Tu-154 MD-90 727 IL-62 A320-200 707 MS21-200 C919 737-8 max A320neo 737-800 Tu-204 A321-200 737-900 757-200 737-9 max 767-200ER A321neo A321-100 MS21-300 A310-300 A340-500 767-200 757-300 767-300ER A310-200 787-8 767-400ER A340-200 A330-200 767-300 A340-300 IL-96 A300 A300-600 747SP A300-600R 777-200LR DC-10 777-200ER A350-800 A330-300 747-400C 787-9 MD-11ER A340-600 A350-900 L1011 777-300ER 787-10 777-200 A350-1000 747-8 747-400ER 747-400 777-300 747-100 747-300 747-200 747HD A380-800 Y-12 An-28 EMB-110 L-410 Dorn 228 Jet31 Beech1900 Metro DHC-6 SK-105 Arava CASA 212 Gulfstr Nord 262 An-38 DC-3 Jet41 EMB-120 Saab 330 Yak-40 Do 328 Do 328JET Saab 340 An-26 Short 360 An-74 ERJ-135 An-72 HS 748 CN-235 Dash 8 ERJ-140 An-32 Convair ATR 42 Dash 7 Y-7 An-24 Saab 2000 ERJ-145 CRJ200 CRJ100 F50 F27 An-140 IL-114 MA60 YS-11 Tu-134 ATP DC-9 CRJ700 ATR 72 ERJ-170 An-148 F28 Q400 F70 ERJ-175 CRJ900 Avro 85 SSJ ARJ-21 BAe 146 An-158 MRJ90 CRJ1000 Hercules Avro 100 ERJ-190 F100 Tu-334 DC-9-30 IL-18 Yak-42 A319CJ Aircraft type 0 summary & methodology 100 200 300 400 500 Aircraft capacity 600 700 800 900 Capacities Single-Aisle Twin-Aisle & VLA Global Market Forecast 117 Safe Harbour Statement Disclaimer This presentation includes forward-looking statements. Words such as anticipates, believes, estimates, expects, intends, plans, projects, may, forecast and similar expressions are used to identify these forwardlooking statements. Examples of forward-looking statements include statements made about strategy, ramp-up and delivery schedules, introduction of new products and services and market expectations, as well as statements regarding future performance and outlook. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include but are not limited to: • Changes in general economic, political or market conditions, including the cyclical nature of some of EADS’ businesses; • Significant disruptions in air travel (including as a result of terrorist attacks); • Currency exchange rate fluctuations, in particular between the Euro and the U.S. dollar; • The successful execution of internal performance plans, including cost reduction and productivity efforts; •P roduct performance risks, as well as programme development and management risks; •C ustomer, supplier and subcontractor performance or contract negotiations, including financing issues; •C ompetition and consolidation in the aerospace and defence industry; •S ignificant collective bargaining labour disputes; •T he outcome of political and legal processes, including the availability of government financing for certain programmes and the size of defence and space procurement budgets; •R esearch and development costs in connection with new products; •L egal, financial and governmental risks related to international transactions; •L egal and investigatory proceedings and other economic, political and technological risks and uncertainties. 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There is no use of basic dyes or dangerous metals from the cadmium, lead, mercury or hexavalent chromium group. The printer, Art & Caractère (France 81500), is engaged in a waste management and recycling programme for all resulting by-products. Traffic Economy Ecology environement Fleet in service Global markets Traffic evolution Passenger fleet in service Freighter fleet in service International trips Internation students Urban population Disposable incomes Influence of the middle class Influence of emerging markets Ticket price Fuel price Fuel consumption per seat New generation aircraft Aviation mega-cities Traffic & Fleets Economy &c Demographics Eco-efficiency Aircraft utilisation Load Factors Middle East Latin America Europe CIS Asia Pacific Africa North America Fleet-in-service