Global travel set to spike on back of growing Asian demand

13 February 2018 4 min. read

The commercial aviation industry is set to enjoy a period of solid growth on the back of growing demand from almost all quarters of the globe. This year Asia as a whole is projected to see an almost 7% increase in traffic, while over the next 20 years revenues per passenger kilometre are set to grow by 5.7% annually across the region, while the Americas, CIS and EMEA are all projected to see significant above GDP growth levels.

The commercial aviation industry has, over the past decade, seen a period of turbulence and high-altitude flight, as high fuel prices gave way to a period of low prices and increasingly optimised business models. And, with continued growth across Asia, demand is also set to increase. In a new analysis of the industry from consultancy firm Oliver Wyman, based on information from the ‘Global Fleet & MRO Market Forecast Commentary’, the firm considers the current and future growth projections for the industry.

Global passenger load factors

Various airliners have steadily increased their respective passenger load factors, on the back of relative discipline in the control of capacity as well as increased demand. Productivity improvements, as well as cost reductions, have peaked investor interest, with return on invested capital briefly increasing to 10% before falling to a forecasted 8.7% for 2017.

The increased breathing room has prompted airlines to invest in the future. Last year, a report predicted that over the coming decade, the demand for aircraft was likely to increase by 10,000 by 2027.

Passenger and cargo traffic

Passenger numbers have climbed steadily over the past three years, up from around 6.5 trillion kilometres travelled in 2015 to close to 8 trillion forecast for 2017. The growth in passenger numbers, according to the firm, reflects economic as well as industry-side changes, with the growing middle class in China and India increasingly keen to fly. At the same time, globally lower fuel prices have reduced costs – some of which has been passed onto customers who would have otherwise travelled less, bolstering demand in North America and Europe.

However, available seat kilometres have also increased, in part through the addition of new routes – which has further invigorated customer interest. China in particular has driven this boom, as more and more passengers travel by air domestically. The research also found that freight tonnage per kilometre has increased steadily, as larger planes were re-appropriated for the freight industry.

20-year GDP and RPK growth ratesThe new aircraft will, assuming global economic stability, provide additional capacity for the above GDP growth projections of the industry as a whole. The study shows that the revenue passenger kilometres (RPK) figure is set to grow by 5.7% annually for the next 20 years in Asia, well above the regional GDP growth projection of 3.9% over the same period. In Europe, meanwhile, growth of 3.7% in RPK is well above the regional 1.7% growth projection, while in Latin America and Africa, strong RPK is projected – running at 6.1% and 5.9% respectively.

Industry growth

The study suggests that growth in the industry is likely to see a considerable redistribution of capacity to emerging economies, particularly in the Middle East and Asia, where traffic growth is projected at 6.9% for 2018. Inter-China travel is projected for an increase of 6.2%, while the more mature market in the North Atlantic is set to see traffic growth at a much smaller 2.9%.

Spot prices jet oil

As it stands, the industry has benefitted from a sharp decrease in fuel costs – following the glut starting in 2014. At the time, many in the industry were locked into hedges, which held back cost benefits for a period. However, in recent years the benefits of a low price has flowed through the industry, with recent hedges at lower prices offsetting recent increases in price.

Reflecting on the current conditions, the authors say; “While low oil prices might spark adjustments to short-term fleet plans—for instance, prompting some airlines to delay retirements of older, less fuel-efficient models—there has been no indication of cancellations of orders for new aircraft. In fact, just the opposite is the case. While a short-term strategy change would allow higher returns by delaying expensive investments in new aircraft or costly aircraft restorations, the long lead times in aircraft orders and low interest rates discourage this option.”

Rising passenger numbers in Asia will in turn require infrastructure upgrades to existing airport facilities, with numerous projects currently underway across the region. French Airport consulting firm Groupe ADP was recently awarded contracts to advise on such projects in Indonesia, Vietnam, Bangkok and Beijing.