The growth of the air transport sector

The Aviation industry, as any industry, faces several challenges: political turmoil, natural disasters, financial crises, etc. Nevertheless, as can be seen in Figure 2.1, the world annual traffic grew tremendously over the last decades.

Figure 2.1 - Development of air traffic for passengers and cargo (1975 - 2010) (source: ICAO)

The air transport sector has been able to overcome the challenges it was faced with (see Figure 2.2) and, looking at Figure 2.3, one might say that the air transport sector has also overcome the recent crisis. The financial crisis of 2008-2009 reached a low point at the beginning of 2009 with a negative growth of almost -4%. Moreover, forecasts predict that the air transport sector will grow even more in the future. The emergence and development of several drivers act as engines to this growth.

Figure 2.2: Air transport and external shocks (source: AIRBUS)

0 20000 40000 60000 80000 100000 120000 140000 160000 180000 200000

0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Passenger-km (million)

Freight tonne-km (million)

Passenger-km (billion) Freight tonne-km (million)

About 60 to 80 percent of the air travel growth can be attributed to economic growth, which in turn is driven by international trade. This is consistent with the observation that countries whose economies are tied to trade tend do have higher rates of air travel. The remaining 20 to 40 percent results from the value travelers place on air travel (Boeing, 2011). First of all, it became clear that people want and need to fly and therefore global mobility will expand strongly. Nowadays the miracle of flight is taken for granted. Travelling to the other side of the world is only a few mouse clicks and a trip to the airport away (Airbus, 2011, p.5). Moreover, it is observable that people

“have” to fly for various reasons such as travelling to family that live abroad, visiting clients in another continent³, etc. Migration and the globalization ensure the continuous urge to fly. What’s more, at industry level, the continuing deregulation drives growth. On the one hand, the increased competition results in low airfares, which makes travelling by air also accessible for the people who are less wealthy. The advent of the low cost model also created demand. More and more people around the world are provided with the ability to fly. On the other hand, air travel becomes more attractive since a larger amount of destinations offered by various airlines.

Figure 2.3 - The recovery of air travel after the recent (economic) crisis⁴ (Source: AIRBUS)

The ratio between the growth that comes from economic development and the growth that is a result of the value of air travel services is an indicator of the maturity of an air travel market. For example, Western Europe and the North America are more mature markets and are therefore faced

3Although new technologies, such as video conferencing, lowered the need for face-to-face contact.

4 RPK = Revenue Passenger Kilometers

with lower growth rates, compared to countries in Africa, South America, etc. Figure 2.5 shows the difference in (traffic) growth in the different regions.

Although there was a rapid rebound after the crisis, it has to be acknowledged that the crisis accentuates that the growth is unbalanced. Emerging countries accounted for 69% of the world population in 2010 and they account for 56% of the economic growth. Furthermore, rates of urban growth in developing countries have been higher than those of developed countries (Airbus, 2011, p.47), which results in the rise of the emerging economies global middle class.

Developed markets are more mature in the air travel market, which means that they will grow at a slower pace compared to the emerging markets. Therefore, in the coming years, a shift in the global power from west to east, and in some extent to the south (Embraer, 2011, p.6) is observable; from Europe and North America to e.g. Asia and Africa (see paragraph about Traffic Flows).

Figure 2.4: Growth of world regions over the next 20 years (Source: Boeing)

The Transport Outlook 2011 of the International Transport Forum predicts high and roughly constant growth rates on global level that leads to a tripling or quadrupling of the global passenger transport volumes by 2050 compared to 2000. The growth in the developed economies can be expected to be slow and gradual while the emerging economies grow very fast. (International Transport Forum, 2011)Forecasts from aircraft manufacturers predict an average annual growth of 5%. Airbus (2011) foresees an annual growth of 4.84% from 2010 to 2030. They say that many of

the driver’s growth will lead to more traffic to and from the emerging economies but that mature markets will still account for a significant share of 2030 traffic volumes. For example, the single biggest traffic flow will be the US domestic with 11.1% of all RPK’s flown. Intra Western European traffic, with its well established global and LCC, will be the third largest flow with nearly 8% of world RPK’s. The Chinese domestic market is forecast to grow at more than 7% per annum, moving it from the fourth largest flow in 2010 to the second.

Figure 2.5 shows that Boeing (2011) predicts a long-term growth rate of approximately 5% per year, 5.1% growth in passenger traffic and the cargo market will grow at 5.6% annual rate over the next 20 years.

In its forecast for 2011 to 2030, Embraer (2011) foresees that the world air traffic demand will grow by 5,2% per year.

Figure 2.5: Forecast of market developments (according to Boeing)