The global airline industry consists of over 2,000 airlines operating more than 23,000 aircraft, providing service to over 3,700 airports.
Definition / Scope
The international aviation industry provides services to probably every corner of the world and also proves to be an integral part of the global economy. The global aviation industry includes air transport service providers of passenger and cargo. Industry services are used by individuals and business,—international, domestic, and regional— and governments around the world.
The United States, China, Russia, United Kingdom and Germany had some of the world’s largest fleets in the years 2013 and 2014. Emerging markets such as Latin America and Asia Pacific remained the high growth markets for aircraft manufacturers.
Today, the global airline industry consists of over 2000 airlines operating more than 23,000 aircraft, providing service to over 3700 airports.
Top Market Opportunities
- According to Boeing, low oil prices along with exchange-rate depreciation, this trend could grow into inflationary pressures and corresponding capital movements and pose great revenue challenges for most of the world exporters but it has also proved to be a boon in disguise for the world economy.
- Although the effects will differ from country to country, lower oil prices represent a net gain for global economic growth as a result of shift of resources to efficient economies, consumer spending is stimulated in the world’s largest oil-importing economies.
- The decrease in fuel prices will bring opportunities for China’s and U.S.A’s aviation markets.
- The airline companies will enjoy the benefits of increased demand and decreased operation costs which in return will increase the profit margins.
- Increase in the demand from emerging economies
- Continuous demand for new low-cost carriers; deregulation
- Worldwide commerce.
- Emerging technology (e.g., new airplanes with improved economics and capabilities).
- Rise in the individual net income of middle class, thus increase in the consumer spending; are some of the factors influencing the growth especially in markets such as Asia and Middle East.
The Aviation Industry is working as a fuel for the growth of the global economy and more so in the Asian continent where many residents are first time travellers.
Flying today is extremely safe. But right from the beginning there was an understanding among governments and industry that safety was not a competitive issue. In 2013 there were some 36.4 million flights and 16 fatal accidents.
And among the three billion passengers that flew (the equivalent of about 40% of the world’s population) there were 210 fatalities. Every day some 100,000 flights take-off and arrive safely at their intended destination. According to IATA, it is working with other partners in order to track aircraft better.
The recent tragedies of MH 370 and then MH 17 is absolutely unprecedented in aviation history and has somewhat left a negative impression in the minds of the passengers.
Aviation auditing will continue to be an important safety tool. But the real advancements in safety will be driven by data. Enormous amount of data is generated by every flight. Governments, airports and air navigation service providers also have data of great importance…
Convenience or Passenger Experience
According, International Air Transport Association (IATA) director general Tony Tyler, “The experience of travel has improved tremendously over the years. The quality of airline products provides a huge range of choice from absolute luxury to a very basic seat.”.
Indeed it is very important to improve passenger experience and some of the challenges that the IATA faces and exist are:
- Finding a framework on which to share the crucial data among all those involved in the passenger’s travel.
- A smarter approach to security that is informed by what we know about the traveller.
- Sustainability is important for any given industry let alone the aviation industry. It is more challenging for airlines because it burns fuel to propel the aircraft.
- The IATA, from 2020 will cap the emissions and their growth will be carbon neutral. Another is the development of sustainable biofuels. Over 1,500 commercial flights have been fuelled by sustainable biofuels.
- Government regulations, fluctuating oil prices, rising security concerns, and continuous growth in high-speed trains in many countries are some of the other challenges before the industry.
Other Key Market Trends
The story or the survival and emerging growth of the aviation industry lies between the high sky levels and ground levels; much like an aircraft. The trends that are and would continue to drive this story are as follows:
Focus on the Regulatory and Standardized Route
Regulations and authoritative instructions on standardization will dominate the aviation business environment now as well in the future, most of which are towards finance and accounting, environment and consumer rights.
While regulations would increase safety of passengers and improve market sustainability, aviation and airlines companies have of bare the total cost of operations- for instance airlines in the Europe Union are penalised if emissions are above the limit specified by the authorities or American airlines are adapting new pricing rules wherein they have to include all taxes and fees while advertising fares for their flights according to the U.S Department of Transportation.
The airlines can ease these effects and increase revenue by carefully looking for a partner and a program that will be cost-effective and help process optimization.
Retaining customer’s – online and offline holds the success
The online route consisting of travel agencies and websites, today is a powerful revenue generator for airlines. According to market research data, almost 75 percent of air tickets today are bought online.
But as we speak of online routes the personal touch of offline booking service will still continue to be a critical touch point between the airlines and its passengers. Sometimes the passenger may drop the idea of online booking because of technical errors, during the billing process using debit / credit card and thus want to have human satisfaction from customer service agent.
Change in the course of revenue generation
Increasing competition and retaining the customers are leading to become the revenue barriers for the industry. Airlines are thus exploring newer ways of changing the course in revenue generation. Some of the ways explored are selling ancillary products and services across the value chain or stopping revenue leakage via the total revenue integrity route.
According to a PwC report, the top five U.S. carriers generated more than US$ 12 billion in ancillary revenue during 2011. Some of the preferred services are paying for checked baggage, booking a preferred seat and Wi-Fi connectivity.
Market Size and Forecast
The global airline industry continues to grow rapidly, but consistently as it can be seen in the profits. Measured by revenue, the industry has doubled over the past decade, from US$369 billion in 2004 to a projected $746 billion in 2014, according to the International Air Transport Association (IATA).
Talking in terms of future growth the industry is expected to reach an estimated $832.8 billion in 2020 with a CAGR of 3.7% over the next seven years (2013-2020).
The growth of the industry can be bifurcated according to the regions of the world:
- Growth of the North American market is driven by growing demand in long-haul international services.
- European market is led by the development of air transport in Eastern Europe and intra-continental travel within the European Union.
- Asian growth is driven by rising per capita GDP in emerging economies such as China, India, and countries in the Middle East such as UAE and Saudi Arabia.
- Growth in international travel and the tourism industry as well as the globalization of the service sector is driving air travel industry.
It is forecasted that in the next 20 years there would a need for 30,050 airplanes valued at more than $5.6 trillion. Aviation is becoming more diverse, as 40 percent of all new airplanes being delivered to airlines based in the Asia Pacific region.
Single-aisle airplanes command the largest share of new deliveries, with airlines needing approximately 26,730. These new airplanes will continue to be the driver for growth for low-cost carriers and will provide needed replacements for older, less efficient airplanes. Beside, wide body fleets will need an additional 8,830 new airplanes, which will allow airlines to serve new markets more efficiently than in the past.
Key Market Players
The emerging markets are the key players in the aviation industry;
- The low-cost carrier (LCC) business model has proved successful throughout the world but particularly so in Asia Pacific.
- Asia is expected to be the largest travel market in the world, growing at 6.1 percent annually. The main factor in this growth is the region’s GDP, which is expected to grow by 4.3 percent annually over the next 20 years.
- Asia GDP and passenger traffic will drive an estimated need for 14,330 new airplanes valued at $2.2 trillion.