Post COVID-19 Aviation Growth Scenario
The health crisis resulting from the COVID-19 pandemic has been unprecedented and has shaken economic and productive expectations in all sectors worldwide. Even so, some light has already been shed on the uncertainty in the short and medium term.
According to IMF reports published last June, from 2021 onwards, the economy is expected to recover the pace of progress of 2019. As reflected in the table above, it is expected that, for next year, there will be an average positive variation in real GDP of 5.4 percentage points.
In addition, the International Air Transport Association (IATA) and the journal Tourism Economics have published a long-term view of the recovery in passenger demand after COVID-19 which shows that there is going to be a sharp rise in the number of travellers globally.
After more than a year of restrictions, it is clear that we are all looking forward to flying, whether it is to see family and friends, or to enjoy a holiday in our dream destination.
But to ensure that aviation can provide sustainable social and economic benefits while fulfilling this long-term demand, both IATA and Tourism Economics believe it is essential that governments increase their support for more efficient operations and encourage an effective energy transition.
The most salient forecasts emerging from the various studies and measurements are:
✓ In 2021, global passenger numbers are expected to recover to 52% of pre-pandemic levels.
✓ By 2022, it is expected to recover to 88% of pre-COVID-19 levels.
✓ By 2023, passenger numbers are expected to exceed pre-COVID-19 levels (105%).
✓ And finally, by 2030, global passenger numbers are expected to have grown to 5.6 billion.
Therefore, the commercial aviation growth forecasts presented below will eventually become effective in the medium term.
Global Aviation, a consolidated industry
Although commercial aviation, historically, has been characterized by recurring cycles of boom and bust, it is a fact that we speak of one of the most consolidated industries today.
Commercial aviation has experienced a period of unprecedented consolidation with three significant mergers in the last five years. Also, the year 2019 was the eleventh consecutive year of profitability for the global airline industry. This goal has set a new record in the sector.
In the future, commercial aviation is expected to become a capital-intensive industry, generating substantial economic returns and sustainable profits.
Based on the fact that commercial aviation is a global industry and is experiencing continued high growth, some markets are emerging on a significantly higher trend.
For this reason, and based on the annual reports of Boeing and Airbus published during 2020, we are going to analyse the forecasts for the future of commercial aviation at a global level, segmenting the different regions and breaking down specific data for each area.
But first, let us take a look at the different reasons that explain this increase in commercial flights and, consequently, this exponential growth in commercial aviation.
The demand for aviation personnel to meet the growth of commercial aviation globally is imminent; this is something we have confirmed in recent years.
Moreover, the figures are growing all the time, as air travel has become the most efficient means of transport for passengers and goods.
According to Airbus’ GMF 2019 study (Global Market Forecast), over the next two decades, the demand for commercial aviation professionals, segmented by region, will reach the following figures:
In the last 15 years, the number of passengers in commercial aviation has doubled. In 2018, for example, 4.3 billion people travelled with one of the 1,300 airlines currently operating. Also, more than 24,000 commercial aircraft took off around the world, making more than 38 million flights, in just one year.
According to the UNWTO, tourism accounts for 10% of global GDP; so with 57% of the world’s cross-border tourists travelling by air, this is one of the primary sources of wealth today.
About new routes, the trend is towards sustainability, eliminating less efficient ways and opening many new short-haul commercial aviation routes, on internal routes in China, and connecting routes between Europe and Africa.
For the next 20 years, Airbus forecasts average annual growth of 4.3% globally, with growth being most active in the early years of the period and weakest in the latter. The regions that will contribute most to this rate are the Asia-Pacific and the Middle East.
In the following infographic, you can see the average annual growth of passenger traffic in commercial aviation, segmented by region. Also, the bar graphs show, in a very visual way, the comparison between the volume of passengers in 2018 and those predicted for 2038.
Another clear consequence of the unstoppable growth of commercial aviation is the increase in the number of aircraft in service that is expected over the next two decades.
If at the beginning of 2019, there were almost 21,000 Airbus commercial aircraft in service, this figure is expected to double by 2038, reaching nearly 45,000 aircraft. According to Airbus, more than 38,000 new aeroplanes are scheduled to be delivered, some of which will replace the older ones and serve to modernize the world’s fleet over the next 20 years.
In the following graph, we can see how the continuity of only 6,500 of the active aircraft is foreseen at the beginning of 2019. The rest will be replaced by new, more efficient and modern models, with consequent growth for the components manufacturing sector, for example.
European political uncertainty casts a shadow that is difficult to ignore, fuelled in large part by instability in the past and future elections, the impact of the Brexit agreement, the shift towards trade protectionism, and concerns about terrorism and security.
Still, despite the difficulties, the European commercial aviation market has remained stable in recent years. The reasons for its persistence are an increase in the flow of money, improved access to credit, a decrease in the tax burden and increased confidence among businesses and consumers.
According to Airbus’ latest report, air traffic in Europe has grown by 5.7% per year and has increased its share by 6%, making up a third of all flight capacity to, from and within Europe by 2018.
The airlines in the European network carried 4.3% more passengers than in the previous year. Besides, low-cost airlines in Europe recorded an increase in passenger traffic of 12.4%.
This increase in air traffic has occurred in contrast to the growth of European GDP, of only 1.8 %; which indicates that it is only one more element driving the increase in local traffic. Real GDP is expected to grow by 1.5% per year in the period 2018-2038, influenced by demographic developments in Europe.
In the coming years, the European Union faces major long-term challenges such as fiscal and financial union, as well as the need for structural reforms in the areas of labour, pensions and market liberalisation.
The rise of low-cost airlines,
a major boost to the Global Aviation industry
Perhaps the most surprising strategic development in Europe in recent years has been the rapid expansion of the low-cost long-distance business model.
For example, Norwegian continues to expand its long-distance services, adding bases in cities such as Paris and Barcelona for operations to North America; it recently launched the first low-cost service from London to Singapore.
The airlines in the European network are operating low-cost long-haul flights through their subsidiary airlines; for example, Eurowings, a subsidiary of Lufthansa, has been increasing this type of flying for several years.
Also LEVEL, the new long-distance low-cost operator, which belongs to International Airlines Group, has started to operate such flights. This fact is also the case of Air France-KLM, which has also announced plans to launch low-cost, long-haul flight operations next year.
The airlines Norwegian, Eurowings, Level, Wow Air, Canadian WestJet or Air Canada Rouge, have increased their low-cost flight operations the most. They are also the leaders in demand for airline pilots for long-distance flights between Europe and North America.
It is a fact that low-cost commercial aviation will support more than 48% of total flight capacity in the coming years.
Low-cost airlines’ strategic evolution
in European Commercial Aviation
The major low-cost airlines continue their incursion into Germany and France, where penetration has been relatively low. Ryanair managed to establish itself in Germany, together with Lufthansa.
EasyJet is now doing so in France, becoming the second-largest low-cost company in France, and in particular the largest at Charles de Gaulle airport, where they had been reluctant to accept this type of airline.
The willingness of low-cost airlines to move beyond the traditional model for additional growth is enabling them to give a real boost to the growth of European and global commercial aviation.
Scheduled airlines are challenged to compete with low-cost carriers in short-haul markets. In response, they are using their short-haul flights for long-haul passengers through their airports at route connection points.
At the same time, airlines are moving more short-haul and point-to-point flights to their low-cost subsidiaries, to compete more efficiently with independent low-cost airlines.
The wide variety of business models that the airlines are experiencing are leading these companies to offer more flights at lower prices. Thus, passengers are taking advantage of these lower fares to fly more, which increases the demand for aeroplanes and promotes the growth of commercial aviation.
Middle Eastern airlines are well-positioned to compete for traffic connecting the continents of Asia, Africa and Europe; because 80% of the world’s population lives within eight hours of the Persian Gulf area.
This fact allows the airlines of the Middle East to operate numerous flights in their centres that, in the absence of this type of airlines, would not be able to count on these direct itineraries.
The growth prospects for commercial aviation in the Middle East are optimistic. For example, Southeast Asia has a potential of 1.8 billion passengers. This figure is driven by the actual forecast of a 2.9% annual increase in GDP over the next 20 years.
The Middle East’s economic projection is very positive thanks to its significant oil resources, its proximity to emerging Asian economies that are major energy consumers, its growing tourism boom and its strategic geopolitical location.
Although growth is expected to be slightly less notable than in the other regions, commercial aviation in the Middle East is equally strong in and around Southeast Asia and Africa.
Increased demand for travel to and from these regions is a crucial factor behind Boeing’s forecast for the region of 3,350 aircraft in the coming years.
Oil prices, a critical factor in the
development of aviation in the Middle East
Low oil prices challenged many of the region’s economies between 2015 and 2016, resulting in government budget deficits, postponement of infrastructure investments and reduced foreign investment and economic activity within the area.
Currently, energy market analysts are forecasting a recovery in oil prices to levels that will alleviate many of these problems; this will help to encourage both long-haul routes to and from the Middle East and short-haul flights within the region.
Economic growth in Latin America is as varied as the continent is vast. Thus, we find a marked recession in the countries of the interior, as opposed to the coastal states, such as Brazil, Colombia, Peru or Chile, which have positive growth forecasts.
On the other hand, Mexico sees its economy as subordinated to trade with the USA through capital inflows and asset remittances.
Despite specific long-term challenges, such as the need for infrastructure or the marked inequality of the population, the growth prospects for commercial aviation in Latin America and the Caribbean are positive.
As a positive indicator of the excellent health of the Latin American economy, its GDP is estimated to increase by an average of 2.9% per year until 2038, as well as an increase in trade of 3.2% per year for the same period.
Long distances with a poor infrastructure
Due to its large size and the real limitations of land transport, commercial aviation in Latin America plays a vital role. With 60% of its roads unpaved, South America covers almost 22,000,000 km2.
In recent years, economic factors have meant that domestic traffic growth has only achieved a rate of 1.9% per year over the past five years.
Internal traffic growth grew somewhat faster, with an average annual growth rate of 4.1% over the same period, appearing less affected by economic fluctuations in the area and even by some of the more global cyclical downturns.
Part of the reason for these different growth rates is that as carriers face problems in national markets, they try to use spare capacity within the region.
Steps to increase air traffic
IATA reported in early 2019 that Cartagena’s Rafael Núñez International Airport has cut its fares by less than half, from $92 to $38, and that international arrivals are increasing, which is having a positive impact on the local economy.
Since the rate was decreased in 2015, the number of international passengers has increased by 26%, and tourist arrivals in Cartagena have increased by 38%. A more competitive cost framework has also allowed airlines to establish new ways, with the introduction of flights to Atlanta, Amsterdam, Fort Lauderdale and Madrid from this airport.
As with deregulation and border controls relaxation, policymakers can stimulate growth both in terms of tourists and their contribution to GDP by reviewing taxes in these areas.
North America is composed of two major and mature economies, US and Canada, which have established aviation markets. This area is forecast to be the leader in both per capita GDP and per capita travel rates.
After several significant crises in the last decade, as well as a series of subsequent mergers, the U.S. fleet has begun to grow again, increasing by 6% in the last two years and eclipsing its previous peak in 2007. The period of restructuring has considerably improved the productivity of the region’s airlines.
Cargo ratios have increased from 72% to 83% since 2000. The region’s carriers are also improving, and the region’s airlines are also optimising their aircraft capacity.
The fleet of single-aisle aircraft has remained unchanged since 2007; the 14% increase in flight capacity has been achieved through a combination of increased capacity and a denser cabin.
Besides, the financial results have been enormously positive, with this area representing half of the profitability of the global airline industry since 2013. The airlines’ right financial condition in the region places it in a privileged position to continue with its expansions, as well as the renewal of its fleets for the next 20 years.
A reliable internal network of air routes
North America is home to some of the most massive passenger air traffic flows in the world, including the largest today, the US domestic market. Two decades ago, over 80% of the seats offered were in local markets.
Today, while the internal market has grown, its overall share has declined to 75%. This change has been largely due to American international market growing, which now accounts for 22% of the seats offered to and from the region.
International markets growth over the last ten years was also higher than that of domestic and intraregional markets, with a 5.6% growth rate, compared to 2.1% and 3.6% respectively.
Since 1998, the proportion of seats offered to and from the region by North American carriers has been relatively stable. While there has been some fluctuation, with North American airlines reaching about 54%, interestingly at the time of the last financial crisis, their share is about the same today as it was twenty years ago.
The world’s largest inter-regional
commercial aviation market
North America is the largest intra-regional market, representing 18% of global passenger traffic in 2018. Although the long-term traffic growth rate is estimated at 2.6%, below the world average, the size of this market contributes significantly to the increase in demand for single-aisle aircraft.
In the long term, international traffic is expected to grow faster than the local market, by approximately 4% per year. This increase is driven by the opportunities that are emerging from emerging markets.
Wide-body aircraft, which will account for 72% of deliveries over the next 20 years, offer US airlines the ability to operate non-stop flights profitably from both their primary and secondary hubs, thereby taking advantage of market opportunities.
By 2038, single-aisle aircraft, will
account for 75% of the US fleet
With load factors remaining close to historical levels and traffic growth above standards, the fleet has expanded at a faster rate to provide the necessary flight capacity.
This improving trend is expected to continue, with an estimated 3% annual increase in traffic in the area over the next 20 years, exceeding 1.8% of the yearly fleet growth.
Single-aisle aircraft in the North American fleet has increased in recent years and will continue to expand to represent 75% of the fleet in twenty years, compared to 62% today.
Medium-sized aircraft, such as the Boeing 737, remain the most common size used by network airlines and low-cost carriers, comprising the majority of new deliveries: 5,660 single-aisle aircraft.
Currently, the North American fleet represents 30% of all commercial aircraft in service worldwide. This large fleet of more than 7,000 jets constitutes an essential market for renewal during the forecast period. This area will need 5,970 new aircraft over the next 20 years, 65% of which will be used to replace aircraft in the fleet currently in operation.
After two years of recession, mainly as a result of falling commodity prices, the Russian economy, the region’s largest economy, is recovering led by increased consumer spending and fixed investment.
The weight of other CIS economies has increased 5% for both GDP (30%) and the private consumer sector (29%) over the past ten years. Besides, real GDP in the CIS region is expected to grow at 2.1% per annum over the next 20 years.
A large Middle Class, which is the key of the growth
While the population in the CIS is expected to increase moderately in the coming years, the Middle Class is expected to continue to grow more rapidly. Since 2003, the Middle Class in the CIS has improved dramatically.
Today, about 60% of the population is considered to be Middle Class, and at the end of the forecast period, it is expected to be about 75%.
This growing wealth has to turn into strong growth in the Available Seat Kilometre (ASK) this trend of increasing wealth is expected to turn into a higher propensity to fly in the region.
A region with a high international capacity
These factors have been based by impressive capacity growth in the region, which until 2016 had international and internal growth at similar levels.
However, since 2016, international capacity growth has outpaced that of the region. In addition to these advances, the region’s operations have become more efficient, with nearly 60% more requests for assistance per aircraft in 2018, compared to only ten years earlier.
This fact has been mainly because the average age of the fleet has decreased by two years to just over 13 years of age; this, in turn, is due to an increase in the number of more eco-efficient modern aircraft in the region’s fleet.
Rising commodity prices and increased exports are expected to revive the region’s economic growth.
In addition to developments in world commodity markets, the expansion of domestic markets, the growth of the middle-class population and further regional integration will support long-term economic growth.
Economic growth is an active driver of commercial aviation and is, therefore, an important variable when traffic forecasting.
When looking at Africa, it is encouraging to note that in 2018, four of the ten fastest-growing countries were from the continent.
In the longer term, Africa’s real GDP is expected to grow at a rate of 3.6% per annum over the next 20 years. Improvements in infrastructure, more excellent political stability, economic diversification and regional integration would enhance this vision by helping the region to exploit its economic growth potential better.
Air transport liberalisation in Africa
The concept of air transport liberalisation in Africa emerged in 1988 with the adoption of the Yamoussoukro Declaration, followed in 1999 by the Yamoussoukro Decision.
This agreement provides for the entire intra-African air transport services liberalisation in terms of market access, free exercise of traffic rights for scheduled passenger air services, and free exercise of traffic rights for cargo services by eligible airlines.
It also removes ownership restrictions and provides for full liberalisation of frequencies. To implement this decision, the African Union has developed a flagship project called the Single African Air Transport Market (SAATM) as part of its Programme 2063.
In the following graph, you can see the evolution of the working population in Africa over the next 20 years. From it, we can conclude that this is a region with incredible business potential for future commercial aviation.
To date, 28 countries have accepted SAATM since its launch in 2018: Burkina Faso, Benin, Botswana, Cameroon, Central African Republic, Cape Verde, Congo, Chad, Côte d’Ivoire, Egypt, Ethiopia, Gambia, Gabon, Guinea Conakry, Ghana, Kenya, Lesotho, Liberia, Mozambique, Mali, Niger, Nigeria, Rwanda, South Africa, Sierra Leone, Swaziland, Togo, and Zimbabwe.
These countries account for more than 80% of the current aviation market in Africa. About half of them have also signed a Memorandum of Implementation, committing themselves to unlock the benefits of aviation in their respective states.
Commercial aviation provides a bridge for internal and external communication
Africa is the second-largest continent in the world, behind Asia, and covers about one-fifth of the Earth’s total land area.
About half the continent lies on equator either sides and is surrounded by the Indian and Atlantic Oceans, with the Red and Mediterranean Seas to the north and east.
Theories suggest that it was the origin of humanity, with its current population of about 1.3 billion people with challenges to the development of land infrastructure coming from investment or simply from its geography and climate.
Data from the African Development Bank suggest that the region has two kilometres of built roads for every 100 km2 of land area and 46,000 km of railways, compared to 122 km for every 100 km2 and 86,000 km of road and railways in Europe.
Consequently, air transport plays an essential role in connecting African countries to each other and the rest of the world.
A slower pace of liberalisation than in other countries
In the last 20 years, 138 million additional seats have been added to routes to, from and within Africa, almost tripling since 1999.
This impressive growth has been achieved even though the pace of liberalisation in Africa, particularly among the African States, has been slower than in other continents.
So it is not unreasonable to suggest that the pace of growth and the benefits obtained could have been more significant during that time with further liberalisation.
The relaxation or simplification of immigration procedures can also be a powerful and instantaneous driver of growth in commercial aviation. The African visa opening rate stated in 2018:
- African citizens do not need a visa to travel to 25% of other African countries (compared to 22% in 2017 and 20% in 2016).
- Also, 24% of other African countries (even 24% in 2017, and 25% in 2016) can obtain visas on arrival.
- Africans need visas to travel to 51% of other African countries (compared to 54% in 2017 and 55% in 2016).
Since 1970, the share of Asia and the Pacific in the added global GDP volume has been gradually increased. It grew by 21% between 1970 and 1980, to 54% between 2010 and 2018.
Currently, only India outperforms China in economic growth. Still, the entire Asia-Pacific region remains dependent on the Chinese economy’s focus on services and domestic consumption.
On the other hand, although the slowdown in China’s growth is no longer a priority concern, growing trade tensions with the US may pose a risk in the short term.
New manufacturing centres in Vietnam or Indonesia have the potential to enhance growth in commercial aviation traffic.
Regional sources of growth, in particular, private consumption, led by China’s economic conversion to services, will play a more critical role in the next years.
Despite the recent modest slowdown, the Asia-Pacific region will continue to lead global economic growth, with average real GDP growth projected at 4.1% per annum over the next 20 years.
Asia-Pacific accounts for 40%
of global aircraft deliveries
Ten years ago, Asian low-cost airlines barely operated wide-body aircraft for the medium and long-range market segments. Today, Asian-based low-cost carriers are flying nearly 100 wide-body aircraft, with many more in the pipeline.
Meanwhile, wide-body aircraft represent the most cost-effective way to continue opening up new markets that were not accessible or productive in the past. In China, international growth continues to accelerate at over 20% per year.
Small wide-body aircraft such as the Boeing 787 have been vital in opening new routes in smaller secondary markets; while larger wide-body aircraft have been instrumental in opening up routes from major centres to North America.
This market dynamism will lead to the need for new aircraft for the area; in particular, it is estimated that more than 16,000 new aircraft will be delivered by 2038. Of these, around 4,000 will be used to replace older units, while more than 12,000 aircraft will be new additions to the Asia-Pacific fleet.
The new Asian Middle Class
We have often said that the middle class is a crucial socio-economic group in terms of air travel. Of all the regions, the middle class’ transition is the most impressive in terms of speed of change, proportion and number of people.
In 2008, 32% (1.2 billion people in Asia and the Pacific) could be considered middle class. By 2018, this figure had grown to almost 50% (2 billion people) and by the end of 2038 or is projected to grow further to 72% (3.3 billion people).
As this picture of growing wealth has developed, so has the region’s importance for air transport. Twenty years ago, Asia and the Pacific’s share of capacity was 23% and had since grown on average by 6.5% per year, significantly faster than Europe and North America.
System dynamism reorients
the commercial aviation market
In addition to huge economic growth in the area, liberalisation is responsible for relevant expansion in the aviation industry of Asia.
For example, ASEAN open skies policy has allowed the market to expand further than national borders and has supported airlines in implementing new business models. Visa policy relaxation has also led to a considerable increase in travel both within and outside of Asia.
The Asian aviation industry is being reworded thanks to several business models, as well as different strategies that airlines are implementing.
Traditionally, the low-cost business model adopted a strategy focused on operating at secondary airports, using single-aisle aircraft with a single-class product; thus achieving high aircraft usage and minimizing airport and cabin services.
Now that this model has been successful in Asia, especially in South and Southeast Asia, companies are beginning to extend the model to long-haul routes.
Although these routes are currently limited to this area, this new model is generating high expectations among airline operators and investors, who are aware that it is beginning to be profitable and strategically viable to compete effectively with the traditional airlines.
Aviation in China, the big market for working as a pilot
The increase in airspace liberation in countries like China, which is expected in the next decades, will undoubtedly help increase connections to new destinations and the number of flights between different cities in the country and international flights.
Currently, only 20% of this space is used for this purpose, as military aviation controls the rest. Airlines such as China Eastern, Air China and China Southern have long demanded an increase in airspace that is expected to continue to open up in the coming years. An opportunity to be able to work in this economic giant.
Learning to fly a plane is a recurring dream for many people. Not everyone succeeds, as the requirements demanded to make it a complex task and all those students who want to realize this dream must strive to achieve it.
At present, pilot training has become international, that is, the crisis that the sector has experienced in Spain has caused many pilots to seek new professional adventures in other countries.
Looking for employment alternatives in other countries is one of the tangible realities of pilots, both national and international. Because of this, commercial aviation is committed to quality training with the latest technologies and the best facilities.
Al Grupo One Air, we know that this fact opens a range of essential possibilities to become reference pilots among the significant companies in the aviation sector.
