The aviation sector is experiencing rapid growth worldwide, propelled by booming tourism industries, lower air fares and the push for greater connectivity in an increasingly globalised economy. Middle-class expansion has also spurred growth in air travel, as more people are able to afford flights for holidays or business-related travel. According to Boeing, commercial airlines experienced annual average passenger growth of 6.2% between 2012 and 2017. The manufacturer also estimated that by 2036 an additional 41,000 plane deliveries will need to be fulfilled in order to meet service needs for both passengers and cargo. To accommodate these developments, civil aviation authorities and airlines are investing in airport infrastructure, route expansion and fleet capacity, among other efforts. However, the speed at which the industry is growing poses challenges, particularly in regard to human resource needs, safety and congestion, leading to concern that the industry is expanding too rapidly. Significant investment will be needed in aviation to ensure it will be ready to meet long-term demands.
The International Air Transport Association estimated that the global commercial airline industry would see profits increase from $34.5bn in 2017 to $38.4bn in 2018. Growth in emerging markets will likely continue to be driven by the low-cost carrier (LCC) segment, which in recent years has transformed air travel from a luxury to an affordable means of transportation. Since 2008 fares have decreased by an approximate average of 0.9% per year, in large part due to the impact of LCCs on market competition. This has enabled a greater number of people to choose air travel, particularly those in growing middle-class economies where disposable income is on the rise.
Challenges & Potential
However, air travel remains cost prohibitive in some regions, namely Africa, where the LCC segment has yet to take hold and there are few options to fly between countries. As of February 2018 foreign airlines covered 80% of air travel throughout the continent. The largest African country by land coverage, Algeria has 36 airports, and between 2015 and 2016 it recorded an increase of 9.1% in commercial flights. Nevertheless, the sector remains challenged by the high costs of infrastructure upkeep and minimal investment in tourism. There is great potential for growth throughout the continent, and a recent agreement signed by 23 African countries aims to give it the boost it needs. The Single African Air Transport Market, launched in January 2018, is expected to reduce bureaucratic intervention and air fares, increasing the number of direct international flights. It also provides a framework for easing visa requirements, which will likely trigger tourism growth in the signatory markets.
While air travel has become more accessible, the rapid expansion in services has also led to air traffic congestion, delays and concerns about the industry’s impact on the environment. This has prompted new initiatives, including reforms to the regulatory framework for carbon dioxide emissions and design solutions to improve fuel efficiency. To combat the rise of airspace congestion, the UAE recently launched a new air traffic control system, which is an industry first. Developed by the General Civil Aviation Authority, the Airspace Restructuring Project was launched in December 2017. The new system adopts performance-based navigation, through which it relies on satellites and aeroplane computers to guide aircraft along their routes, rather than transmissions from terrestrial beacons.
May 2018 brought an end to long-standing tensions between US and Gulf carriers with the signing of the Partnership for Open and Fair Skies (POFS) policy. Previously, Gulf carriers faced pushback from US industry figures who have argued that they are at a disadvantage due to alleged government financial support for airlines like Emirates, Qatar and Etihad. According to the POFS, government subsidies for the Gulf carriers violated the open skies agreement with the US, and the carriers were unfairly benefitting from fifth freedom routes, which allow flights operated by Gulf carriers to depart from a foreign country.
However, governing bodies in the Gulf have denied the accusations, maintaining that airlines do not receive unfair government subsidies. Representatives of various US carriers and aviation associations argued that these conditions could potentially threaten US jobs and afford the Gulf carriers an unlawful competitive advantage. Therefore, under the POFS agreement, UAE carriers will disclose their accounting records and refrain from adding fifth freedom routes to US airports in the future.
Aircraft manufacturers are set to enjoy sustained growth over the coming years as airlines around the world respond to rising demand for new routes and bigger fleets. Demand for narrow-body aircraft will primarily come from the LCC segment, while major carriers will continue to diversify their fleets with long-haul aircraft like the Airbus A380 and the Boeing 787 Dreamliner.
In 2017 narrow-body aircraft comprised 64% of the global fleet; by 2036 it is forecast at 75%. Boeing has estimated that 38% of orders for commercial aircraft will come from Asia Pacific in 2017-36. However, doubts were raised in early 2019 – notably about the 737 Max line of Boeing aircraft – following two high-profile crashes. There were suspicions among some air traffic safety regulators across Asia, Europe and Africa, which banned the model from flying pending further investigation, though as of mid-March 2019 there was no conclusive information available.
For Airbus, business in the Gulf has sustained its A380 programme, with Emirates signing an order for 20 aircraft in 2018. The deal could see Emirates order an additional 16 craft, bringing the value of the transaction to roughly $16bn. Airbus’ biggest aircraft, the A380, has a passenger capacity of 575 and has become an increasingly popular choice for long-haul flights. However, only 13 airlines have purchased the A380, and many of the world’s airports do not have runways that are long enough to accommodate it. New developments – such as Turkey’s Istanbul New Airport, which will have capacity for 90m annual passengers once fully operational – will also contribute to increased demand.
Air cargo transport was forecast to increase yearly by an average of 4.2% until 2036, according to Boeing. This has triggered demand for more dedicated freighters and passenger planes with larger cargo holds. With unprecedented numbers of aircraft orders on the books, the lead-up until then will see approximately $6trn in manufacturing deals. However, major Western companies may lose significant orders in the wake of US President Donald Trump’s decision on May 8, 2018 to pull out of the Joint Comprehensive Plan of Action, otherwise known as the Iran Nuclear Deal. Airbus and Boeing were among the manufacturers that previously signed a total of $38bn in orders from Iranian carriers, all of which will face cancellation if sanctions are reimposed. Regardless, aircraft manufacturers are poised to enjoy continued growth over the long term as the aviation industry continues its rapid expansion.
Facing annual passenger increases and higher competition in global tourism and aviation markets, countries around the world are investing in air transport infrastructure to boost capacity and accommodate growing fleets. While many airports are refurbishing runways or extending them to accommodate wide-body aircraft, others are embarking on bigger feats, with some aiming to position themselves as regional hubs for passenger or freight transport.
As airlines continue to expand with new routes and growing fleets, the industry is struggling to meet demand for qualified personnel, particularly in positions that require meticulous training and adherence to strict international standards.
According to 2017 Boeing estimates, the global commercial aviation industry will require an additional 2.1m pilots, maintenance staff, cabin crew members, air traffic controllers and other workers by 2036. While this presents a positive opportunity for job growth, greater investment in education will be needed to ensure emerging markets can meet demands with local staff, instead of relying on international recruitment.
You have reached the limit of premium articles you can view for free.
Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.
If you have already purchased this Report or have a website subscription, please login to continue.