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AIRLINE LEADER
LEADER
THE SHAPE OF
INTERNATIONAL
AVIATION
MARKETS
IN 2025
Long haul low cost
in the ascendance
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A generation ahead™
A
S IF WE NEEDED ANY REMINDER, national This is b d news for a world in which the foundations
boundaries and economic regulation are large of the open skies movement appear to be under threat; the
and often unpredictable checks on freedom of selective assault of the US big three on the Gulf carriers,
behaviour, but Britain’s Jul-2016 vote to leave the similar moves in some parts of continental Europe to roll
European Union still came as a shock to the system. back liberalisation and a ripple of anti-free trade sentiment
Brexit is a potential shock specifi ally to the aviation seemingly spreading from country to country.
system in several ways. As we examine in this issue the likely profiles of the
Most obviously it has created great uncertainty about the main long haul routes up until 2025, one brighter light is
future activity of the UK LCCs that have established outside shining in Asia Pacific The e, for the time being at least, the
their home territory, and operate under the freedom of the market is open, innovative and growing fast. New entrant
European single aviation market. The e is a better than even airlines, experiments with multi-brand airlines, partnerships
chance that, once the dust settles, something close to the and cross border investment are all producing a vibrant
status quo will be resumed. However that will not be without marketplace, where mutual interest tends to congregate
many dramas and much unproductive expense along the way. around an open market environment.
The e is also another important implication for the China is a large and increasingly influential pa t of that
international aviation community. Among its European evolution and its airlines are beginning to make their
neighbours the UK has typically been a strongly more liberal presence felt as they open new routes, engage in partnership
influence in ormulating policy and this has helped carry discussions and expand their long haul fleets and as
the EU into territory where it would not otherwise have Beijing adjusts its international strategy to the needs of
ventured. its peripatetic public and of an expanding national fleet
Thus – and this is not to d wnplay the enormous there is some hope that this new voice will spread a liberal
contribution of bureaucrats on both sides of the North message. The e is no doubt it will be a powerful voice by
Atlantic – were it not for the UK’s presence, there would 2025, whatever the song it sings.
probably be no EU-US open skies agreement. Its presence
has helped tip the balance, or simply neutralise conservative
forces on many occasions.
The UK has o ten been a leading voice in the EU’s
formulation of open skies agreements with third countries.
Now, even though the process of formal withdrawal from the
Union can take two years or more, it appears that the UK’s
PETER HARBISON
voice in aviation policy formulation will evaporate much EXECUTIVE CHAIRMAN
more quickly than that. CAPA – CENTRE FOR AVIATION
6 OPINION
Digital transformation of
6
the airline business
Airline leaders clearly understand
the continual need to identify new
frontiers in aligned value.
10 OVERVIEW
Long haul international
markets in 2025:
partnerships, joint ventures
and new airlines
10
As the longer established markets,
while more predictable, become more
mature, the attraction of international
markets, especially Asia, becomes too
great to ignore.
14 FEATURE
Long haul low cost
in the ascendance;
an unpredicted feature
14
of long haul
international travel
The new generation will be more
akin to classical network airlines,
converting between short-long haul.
64 FEATURE
The world’s top 20
international airports in
2025 will mostly reflect hub
64
connectivity expansion
Given the nexus between economic
growth and airline activity, the global
economy will play a major part in
defining the overall outcom .
26
54 60
34
EDITOR: Peter Harbison | MANAGING EDITOR: Liz Pinczewski | SUBEDITORS: Corinne Hitching & Blake Moore | DESIGN: Jenny Chen
SENIOR ANALYSTS: Head of Research: Liz Pinczewski; Chief Analyst: Brendan Sobie; Chief Financial Analyst: Jonathan Wober; Senior Analyst – North Asia: Will Horton;
Senior Analyst – Middle East: Simon Elsegood; Senior Analyst – Americas: Lori Ranson; Chief Airports Analyst – David Bentley; Profile Manager – Adam Basir
HEAD OF AVIATION DATA RESEARCH: Sharon Dai
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On the record
IAG Malaysia
On the impact of Brexit decision:
“ The UK now becomes more attractive for
Airlines
tourists….Corporates were pausing on the On priorities under new CEO:
uncertainty, and now we don’t expect them
to bounce back as we would have expected
“ Malaysia Airlines has seen
great progress in the last 10
had the vote been ‘Remain.’ In the long run, such months with many turnaround initiatives
demand effects tend to even out ” working...Our costs are on track now however we
WILLIE WALSH, CEO cannot for one second take our eye off the ball...A
lot has been done, the profit seen in the last quarter
shows that the financial gap between revenue and
KLM
are able to produce the types of margins
that we are in this environment….We have
to be able to pass through the increased
cost of our service to our customers..We are at On the evolving strategy for US
a point where oil has moved off pretty persistently market:
off the lows ” “ All the places where we
PAUL JACOBSON, CFO have a strong connection to
the network of Delta work very
”
well.
Ethiopian Airlines
PIETER ELBERS, CEO
American Airlines
On how most African governments fail to understand the value
of aviation:
“ You need to take a long-term view, and On how airline industry losses are a
this has to come from government, and
not just the airline, since you need clear thing of the past:
policy. The government has to answer “Our industry has been
the question about whether it sees fundamentally and structurally
the airline as a strategic asset or simply changed…Things are different
business….Most governments do not have now...When down cycles come,
an understanding of the value of aviation but you won’t see losses...The bad
rather see it as a cash cow to pay for other things – they see it years won’t be cataclysmic. They will
as a Minister of Transport for the Rich, so they tax it too high, and just be less good than the good years. ”
constrain growth and service. ” DOUG PARKER, CEO
TEWOLDE GEBREMARIAM, CEO
Pacific
from various states within the EU to extend our operations to countries beyond their
countries...So we’re a little bit perplexed as to why you would try to change this and
AirAsia Group
business has
been under
pressure for
some time On how India’s move from 5/20 to 0/20 is an improvement
but ‘not perfect’:
and recently
we have been “ India is a complicated country. The fact that they have
seeing more actually done it, which is more than any other government
weakness on the has done previously, is indeed a step forward. And we
passenger side of our business….. continue to lobby, we continue to change and we continue
We expect to see stronger passenger to seek better policies. But I applaud that they have done
demand over the summer, but the something. At least, for the first tim , we have clarity and we
outlook for the cargo business know what we need to do. That is not easy because there are so many vested
continues to be uncertain. Overall interests. Local airlines have been lobbying against the 5/20, they talk about
there is considerable fragility in ”
confusing credit systems and all this. But India is a fantastic market.
our business. The drive to contain TONY FERNANDES, CEO
costs and improve productivity must
continue to be our key focus.”
IVAN CHU, CEO
DIGITAL
TRANSFORMATION
OF THE AIRLINE
BUSINESS
tem
PHYSICAL
HUB-AND- systems are not unique (relative to the existing reservation and revenue
SPOKE competition), not able to give an management systems, could reduce
SYSTEM airline a tightly integrated marketing airline schedule planning time from
capability to produce aligned value, 12 months to more like a couple of
and not able to handle an incredibly months, and possibly even enable an
large number of options in a very short airline to run without budgets, similar
period of time and offer integrated to Aldi. AL
INTERNATIONAL
globally, so how those airlines and their
government behave will play a large role in
shaping the near term. With an apparently
MARKETS IN 2025:
lukewarm and leaderless US approach to
liberalisation, it has become a concern that its
influence wi l lean towards winding back open
skies; hopefully that is not the case, but the
and new airlines leader), along with many others, appear to see
various levels of bilateral partnerships as a vital
part of the future. For the major US operators
At IATA’s AGM and World Air Transport Summit in Jun-2016, Delta Air Lines there is a clear preference towards:
CEO Ed Bastian was asked what proportion of his airline’s operations would
be in 10 years on international routes – “50%”, was his simple response, on its • using closed, immunised JVs, generally
own and with partners. within the framework of the global
As the longer established markets, while more predictable, become more alliances to which the respective airlines
mature, the attraction of international markets, especially Asia, becomes too belong. Given the US government’s
great to ignore. Financial markets demand growth as well as profit, which position that these intrinsically anti-
means venturing into new and often differently competitive markets, not least competitive agreements are only
the Asia Pacific. This series of reports in Airline Leader reviews each of the permissible within an open skies
world’s main long haul markets and looks at how they might be characterised framework, the US big three may consider
in 10 years. it increasingly important to narrow the
description of “open skies” – including
B
defining “subsidy” and “fair competition”;
EHIND MR BASTIAN’S SIMPLE STATEMENT are some • codeshares of various kinds. Perhaps
important implications for the world’s aviation system. surprisingly, US airlines have for example
First of all, for Delta, he implicitly recognises that even more than a 30% share of Indonesia-US
though the US domestic system has been an oasis of profitabili y traffic – despite not op ating any services
for those airlines left standing after consolidation, the future growth must to Indonesia. This is chieved through
be outside the country. Secondly, it is hardly likely that Delta will be codeshares and interlines via various North
alone among the three major US airlines in having this outlook. In sum, Asian hubs; and
there will be a substantial expansion of US airline activity in international • acquiring minority equity shares in airlines
markets – and they will not be alone. in their key growth markets – in Delta’s
For the industry overall, it promises to rattle the foundations of case the North Atlantic (Virgin Atlantic),
international operations, both in sheer size of new entry, but also for the Latin America (GOL), China (China
likely impact on the regulatory framework and partnerships. Eastern). This p actice is likely to grow.
Currently, only 16% of Delta’s seats and 11% of its frequencies are
operated on international routes. These t anslate quite closely to the At the same time other governments and
180 million passengers it carried in 2015. However, Mr Bastian talked aviation markets are important ingredients in
in terms of changing the airline’s network mix “from 60:40 domestic-
international to 50:50”, so he was apparently using the measure of
available seat miles (ASMs). Since the British decision
The p obable impact of this planned expansion on regulatory norms
is less obvious and open to speculation. But a look at recent behaviour
to withdraw, there is now a
and pronouncements by Delta and other US majors may provide some question mark over the EU’s
foundation for projections of the likely future frameworks.
future posture.
liberal direction; and while intra-Middle East Predictability will not be the next decade’s
routes are not (yet) liberally oriented, externally
the region’s prominent entities in world profile for routes involving Asia Pacific, and
aviation, the Gulf States, are noted for their in particular the Asia-Europe market.
open trading markets.
Latin America too has become much more
fl xible in its approach to unravelling the as the balance of power shifts.
constraints of bilateral ownership and control Inherent in all the strategies for long haul international operations is
restrictions. The establishment of ATAM, finding wa s to circumvent the strict confines of wnership and control
along with a variety of cross border full provisions. Where it is generally impossible to merge across borders, or
service and mixed joint ventures has allowed to establish operations in another country, devices must be found. Until
a rationalisation of a complex market, without now, the most pervasive of these has been the use of branded global
unduly restricting the level of competitive alliances (BGAs), Star Alliance, oneworld and SkyTeam. Between them
options for travel. The Mexico ma ket in their membership includes most of the world’s major – and many minor
particular is potentially active domestically and – international airlines, the main exceptions being Emirates and Etihad.
– subject to US politics – an open skies zone The BGAs a e not about to disappear and they appear to be important
with the US. in providing a basis for immunised JVs, the closest of all partnerships.
The e have also been various foreign equity These bilate al JVs by corollary tend to lend some strength to their
investments in Latin American airlines, broader alliance.
generally linking in with partnerships of one As noted consistently across the various route projections contained
form or another. in this series of reports, partnerships of various kinds, often crossing
Most of Africa meanwhile is sadly little BGA boundaries, are now proliferating and coming to take on a more
changed, still essentially protectionist internally prominent role. Where they traverse two BGAs, the tendency is to
within the region and with a fragmented airline weaken the link with their multilateral partnership, one reason that the
system. Star Alliance has punitive provisions for such transgressions.
In sum, there is a developing contrast Minority equity acquisitions have also become much more a part of
between the growing conservatism of the the equation over the past decade. Necessarily these must be minority
incumbent interests on one side and the newer, shares, at a maximum 49.9% for bilateral purposes, or less if national
more liberal attitudes of the higher growth, regulations so decree; thus while Delta may buy and control a 49%
previously less important markets on the other. share in Virgin Atlantic, foreign investors in US airlines must observe
Each of these “regions” – some described the tighter US restriction that 75% of the voting interest be owned or
here embrace wide zones – has its own controlled by citizens of that country.
characteristics internally. But they must Etihad has made an art form of equity purchases, establishing its own
interact across the world and it is their alliance of equity partners, linking them in FFPs and in such areas as
confluence that orms the basis of the report joint purchasing, as well as operationally.
in this issue of Airline Leader. Flying between And China’s HNA Group, parent of Hainan Airlines, is among the
regions inevitably provokes variegations of local new breed of global investors in airlines and the travel chain. The e will
characteristics, producing compromise; but as undoubtedly be more.
is usual in international relations, it is generally These eatures combine variously among long haul markets. Most are
the stronger and their more influential vi ws relatively predictable and their evolution will continue to exhibit common
which prevail – if not immediately, then over strains – but predictability will not be the next decade’s profile or routes
time. involving Asia Pacific and in particular the Asia-Europe market. Here,
In the tight environment of bilateral the potential for new entrant airlines and new city pairs is greatest; the
agreements and their ownership and control competitive permutations are enormous, as are the opportunities and
restrictions, market access is the currency; so threats.
those which have the most to dispense are Asia Pacific is whe e the new world order will be formed, that is where
able often to call the shots. That among other the innovation is greatest; and it is where the potential exists for usurping
reasons, is why the role played by China will be norms that have – not always helpfully – weathered the test of seven
increasingly important over the coming decade, decades. AL
15 November
2016
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FEATURE
But there are currently eight LCCs operating 9,000km – Eurowings and Norwegian.
longer routes than Scoot. Scoot’s longest current Lufthansa Group’s Eurowings launched services from Cologne to
route is Singapore-Jeddah, which it took over Bangkok and Phuket in late 2015 using A330-200s. This attempt to
from SIA in May-2016. Jeddah is Scoot’s introduce a low cost long haul model into the Lufthansa Group is
only destination outside Asia or Australia. The designed to allow it to participate in lower yielding operations into Asia,
Singapore-Jeddah route is 7,355km long. while at the same time Lufthansa forges full service alliances on routes
Of the 11 LCCs operating scheduled routes where premium traffic ws are stronger. As at Jul-2016, Cologne-
of at least 7,000km (or more than nine hours), Phuket is the longest LCC route in the world at 9,386km; Cologne-
only two of those operate routes of at least Bangkok is slightly shorter.
RANK LCC/LCC Group LONGEST ROUTE DISTANCE OUTBOUND BLOCK TIME INBOUND BLOCK TIME AIRCRAFT TYPE
There are now 11 LCCs Norwegian Air and Eurowings are the other LCCs operating
Europe-East Asia routes. Eurowings became the second LCC in the
operating scheduled routes Asia-Europe market, after Norwegian launched services to Bangkok
longer than 7,000km. in 2013 with 787-8s. The orwegian LCC now serves Bangkok from
Copenhagen, Oslo and Stockholm. It became the first CC in the
Asia-Europe market since AirAsia X’s suspension of Kuala Lumpur to
London and Paris service. That oute was performed by A340s and, at a
time when network connectivity was still experimental, the rapid rise in
fuel prices undermined its financial p ospects. Kuala Lumpur-London is
10,600km.
Oslo-Bangkok is 8,665km, making it slightly longer than Stockholm-
Bangkok and Copenhagen-Bangkok. However it is slightly shorter than
Norwegian’s longest trans-Atlantic route – from Copenhagen to Los
Angeles. Copenhagen-Los Angeles is 9,024km long but Bangkok to
Oslo is a longer flight in te ms of duration.
The blo k time for Bangkok-Oslo is 12:20 compared with 11:20 for
Copenhagen-Los Angeles, so Bangkok-Oslo is the longest one-way
T
HE CONVERGENCE OF ASIAN Gulf airlines – Emirates especially – given the Chinese government’s top-
FLOWS TO EUROPE HAS BEEN level initiative to be linked to the Middle East.
UNDERLINED by Gulf airlines in the On northern routes, Chinese airlines are increasingly imposing their
south and mostly Chinese airlines stamp on Europe traffic ws, wresting back market share from airlines
in the north. Because of their geography, and hubs that fed off their ma ket while Chinese airlines were under-
Gulf airlines have only moderately circuitous represented. Th y now have the opportunity themselves to become hub
connections between Southeast Asia and airlines, for example replacing Seoul Incheon’s role as a hub for Japanese-
Europe. The lo al market has adapted quickly Europe traffi Mainland Chinese airlines already have an established
to travel on the Gulf airlines. Northeast Asia position in the Taiwan-Europe market.
is more difficul The mo e northern geography Some Chinese hubs will also be favourable for Southeast Asian
of the region means greater circuitry is connections. Backtracking and connections may be disadvantageous, but
introduced to European connections, with the the lower cost base of Chinese airlines and their available capacity can
backtracking highest for the prime markets like place favourable fares on the market. Some emerging hubs, like Kunming,
Beijing, Seoul and Tokyo. expect their intercontinental forte, even if small for a while, to be between
The Japanese ma ket is mostly focussed on Europe and Southeast Asia.
saving time and has a strong preference for The hallenge in Southeast Asia will remain the Gulf airlines.
using Japanese airlines. Korea has been frugal Lufthansa and Singapore Airlines together account for about 27% of
with traffic ights, leaving the Gulf airlines non-stop Southeast Asia-Western Europe seat capacity. But when also
with a single daily flight e ch. The e are counting passengers fl wn through all connecting points their share of
however some signs of optimism in China for the market is only 13%, according to OAG Traffic nalyser data for 2015.
20,000 50
18,000
40
16,000
14,000 30
12,000
10,000 20
8,000
10
6,000
4,000 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2,000
NE Asia Frequencies SE Asia Frequencies
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gulf Seats Lufthansa Seats SIA Seats
Emirates alone has 12% of the market, and For the time being they lack scale, a solid
once Etihad and Qatar Airways are added,
27% of passengers between Southeast Asia and transfer experience and premium traffic,
Western Europe now transit with the three but this will change remarkably by 2025.
Gulf carriers.
The ulf airline influence is s ill growing.
Oman Air is for example sprouting as a new, under fi e as Qatar for example launches service to thinner markets like
albeit smaller, airline. A second London Krabi. Gulf airlines have also used Bangkok Airways’ excellent regional
Heathrow service and new Manchester flight network to access smaller markets while other partnerships have formed:
reflect opportunities in the outbound European Emirates with Jetstar Asia in Singapore and more recently Malaysia
market. Kuwait Airways, although not close Airlines.
to even Etihad in size, is planning growth and Despite the Gulf airlines making inroads in the Europe-Asia market,
will need higher connecting traffic to sustai it took until 2015 for Singapore Airlines and Lufthansa to announce
limited O&Ds. Emirates has placed its 615 a JV. Seemingly mutual distrust diverted their attention from the real
seat two-class A380 behemoth on service to threat. The immediate ocus is not growth but preserving market share
Bangkok and, airports permitting, would like it and, possibly, yields. The sl w build-up of the relationship – in time and
elsewhere in Southeast Asia. market coverage – reflect the deep c nservatism at Singapore Airlines.
The lar est southeast Asian airline fl ing into In contrast, Malaysia Airlines bit the bullet. It has exited its European
Europe is Singapore Airlines, which is second routes except for London Heathrow, itself even marginal. A number
overall behind Lufthansa. SIA’s strategy, seen at of destinations were cut before its partnership announcement with
other Asian airlines too, is to focus connections Emirates.
on smaller Asian points Gulf airlines do Thai Ai ways was once number two in the market, larger than even
not serve. That st ategy is starting to come Singapore Airlines. It has fallen behind not only SIA, but Air France and
Turkish Airlines have overtaken it too. Thai has lost uch ground, and
even a new pragmatic management team may be unable to reverse years
of market share decline. But Thai unlike SIA, has greater independence
ASIA-EUROPE ANNUAL SEAT CAPACITY
and it should not be ruled out that Thai too orms a partnership with
OF TOP 10 CARRIERS: 2005 AND 2015 a Gulf airline. A Gulf partnership with SIA is probably too radical for
SOURCE: CAPA - CENTRE FOR AVIATION AND OAG
staunchly independent SIA.
2,000K Southeast Asia’s smaller flag ai lines – Vietnam Airlines, Philippine
Airlines, Garuda – are each now planning growth but without a strong,
or necessarily profitabl , strategy.
While the Europe-Asia market is also about airlines from a third
region – the Gulf – a fourth region is also relevant: Australia. Australia,
with New Zealand, is typically the largest offline m ket for a European
1,500K
airline. Its market size may be more signifi ant than some online Asian
markets. This t affic has hist ically fl wed over Southeast Asia but has
shifted to the Gulf and is now poised to shift again over coming years –
to mainland China.
With mainland Chinese airlines theoretically having larger O&D
1,000K demand on Europe-China and China-Australia flights they are in a
strong position to discount connecting traffi For the time being they
lack scale, a solid transfer experience and premium traffi but this will
change remarkably by 2025. China Southern has coined the “Canton
Route” for its aspiration to have a play at the Australia-Europe market
500,000 by having it transit in its home of Guangzhou. Although well marketed,
2005 2015 with the public surprisingly catching on, the traffic is st l understandably
small, given the large capacity levels fl wing over the Gulf and Southeast
Lufthansa Qantas Singapore Airlines
Asia. Shanghai and Beijing can make a play too, and their O&D traffi
KLM Finnair Cathay Pacific
British Airways Air China Thai Airways
will be stronger than China Southern’s. Korean Air and peers never
Air France Malaysia Airlines Japan Airlines
aggressively pursued the Australian market, let alone connections to
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China and one with Singapore Airlines. As Air reported to be considering a deep partnership, even JV, in the France-
China reshapes to offer sixth freedom traffi Singapore market. This could c eate some difficultie given the new
in coming years, it will target Japan and even JV with Lufthansa. The f ct that there is any discussion at all is due to
Southeast Asia. Air China will also play its France being a strong enough market for SIA that it does not want to
hand with connections to Australia and New leave access via Lufthansa hub connections.
Zealand, but not as prominently as China Oneworld’s British Airways would like to form a JV with SkyTeam’s
Southern is already doing. China Eastern, which senses an opportunity to be at the core of a
The e are very loose and limited partnerships partnership rather than fight or attention in a SkyTeam-dominated
between both China Eastern and China China-Europe market.
Southern and members of the AF-KLM Chinese partnerships have the potential to reshape global aviation.
Group. For its European debut, Xiamen BA’s advances also highlight how airlines are shifting from Hong Kong
Airlines is relying on a JV with fellow to mainland China as the preferred, larger destination, and market for
SkyTeam member KLM; both serve Xiamen- partnerships. This could also eflect a eeling that there are better deals to
Amsterdam. Smaller Chinese airlines are less be done than with Hong Kong’s Cathay.
fortunate as they do not have an immediate LCCs will grow faster in the Europe-Asia market than the market
European airline to call on. Th y consequently average but from a very low base. Their oppo tunities will be relatively
tend to focus on low yield but relatively stable niche. Until the arrival of the new generation of smaller widebodies it
tour agency sales that, over time, can migrate was generally considered that the long haul LCC sweet spot is around
to FIT. eight or nine hours, after which point fuel takes up such a large portion
The JV pat hwork could grow more of operating costs that the portion LCCs can differentiate on is limited.
colourful. Air France-KLM need a stronger New generation airlines like Gulf carriers are almost effectively long
solution, especially for Southeast Asia and haul LCCs given their greater efficiencies and wer cost structures,
offline ccess to Australia. A JV with Etihad which European airlines – even LCCs – struggle to compete with.
has been discussed for a few years but Air European long haul LCCs, Norwegian and Eurowings, have so far
France has a well known antipathy for the Gulf focused on Thailand a predominantly leisure market. To some extent
airlines. they are replacing historical charter airline capacity following the
Air France and Singapore Airlines were shrinkage of the charter model in Europe and the UK especially. Gulf
agreement would potentially change the shape Europe-Asia is arguably the global long
of the market, although the withdrawal of the
liberal voice of the UK from among the EU haul market that features the strongest
negotiators will cast a cloud over those talks. competitive elements.
Such an agreement would create a standard
access regime across each region and for
example allow an EU airline to fly to ASEAN once the two sides concluded a 10 year visa exchange. Schengen visas are
from any EU airport other than one in its going in the opposite direction as new requirements make it more time
home country, and an ASEAN airline to fly to consuming and logistically challenging to acquire a visa. It is yet to be
the EU from an ASEAN airport other than seen if this implementation period is smoothed out or presents a medium
one in its home country. So Lufthansa could term challenge until there is near liberalisation of visas.
fly ondon-Bangkok while Singapore Airlines The UK ma ket has been disadvantaged with Chinese visitors as
flies Jaka ta-Amsterdam. its visa only grants access to the UK; a Schengen visa grants access
Yet the history of EU-US open skies shows to the entire bloc. A Chinese tourist on a Schengen visa can take in
such routes are unlikely to eventuate; EU and multiple countries, a popular way of visiting Europe. The UK is lo king
ASEAN airlines rely on their hubs and would to piggyback by pairing its visa with a Belgium-issued Schengen visa.
find it difficult to sustain a vice without The B exit referendum and resulting decline of the British pound may
their local hub. Pragmatically, slot constraints increase the UK’s appeal to Chinese visitors. However, this and other
at key airports would make it difficult t inbound growth is unlikely to offset the large decrease in UK outbound.
launch a service. It would be more attractive to Europe-Asia is arguably the global long haul market that features the
use a slot on a local rather than long haul flight strongest competitive elements. At present North America-Asia and
not touching a hub. North America-South America may be characterised as wins for the
Long haul LCCs, with their propensity to consumer with overcapacity, but fundamentally the structure of Europe-
operate from outside their home base, may Asia is the most difficult or airlines. The e are strong, established
benefit f om additional access, but their growth competitors on either side with hubs throughout the region and strong
as noted will be relatively limited. Norwegian intermediaries.
International could operate on the strength of The t ans-Atlantic is controlled between three JV entities while the
its London Gatwick hub, but Norwegian also trans-Pacific lar ely relies on Northeast Asian hubs with no intermediary
has a Norwegian UK license. Early indications options or large-scale fi th freedom services.
are that one third of Eurowings’ traffi The oppo tunities for such orderly development in Asia-Europe are
connects onto the long haul flights The e less obvious. The lar e number of markets at each end of the market and
could be some value of open skies in allowing the great variety of airlines and legal systems will make similar coherence
Eurowings to operate from one of its hubs difficult to chieve.
outside of Germany, such as Vienna. Few markets can be protected from competition. Japan appears safe
The t affic ights situation is more complex but there is a capacity exodus and over the next few years, Japan’s airlines
in north Asia. In some markets, European must either reduce costs dramatically or allow more cost effective airlines
airlines account for all or most of the market to supplant them. Korea is keeping the Gulf airlines at bay but has
from their country to China, such as Finnair already unleashed opened access to Chinese airlines, a larger threat in the
and SAS. But in markets like Germany, which long term.
has bilateral rights, its airlines are unable Southeast Asian airlines meanwhile have arguably missed
to use them in full as they cannot secure opportunities to adjust to the new reality of competition by seeking new
Russia overflight ights. This is not a Chinese partners and business solutions. Th y are experimenting actively, for
restriction but one which hampers German example, by establishing groups and cross border JVs.
airlines’ expansion. Extending the EU open Overall, Europe-Asia appears likely to be a truly innovative and world
skies mandate from Qatar/UAE/Turkey to changing market. China’s ascendance inevitably will generate massive
China appears to be a leap for both the EU change, both in terms of new entry and routes, but also in influencing
and China. the nature of the bilateral system. And, from north to south, it is already
Wherever traffic om China is involved, apparent that this fast growing region is capable of great innovation and
reduction of visa restrictions has an important of absorbing high levels of competition. AL
impact on market growth; US traffic spike
CONFIRMED SPEAKERS
Pieter Elbers Vitaly Saveliev Jos Nijhuis David Scowsill John Byerly
CEO Chairman & CEO CEO President Consultant
KLM Aeroflot Amsterdam Airport Schiphol WTTC John R. Byerly
Bernard Gustin Arif Wibowo Mike Whitaker Giorgio Callegari Patee Sarasin
CEO CEO Deputy Administrator Deputy General Director, CEO
Brussels Airlines Garuda Indonesia Airlines U.S. FAA Strategy & Alliances Nok Air
(invited) Aeroflot
T
HERE IS GREAT POTENTIAL FOR MORE AND DEEPER
PARTNERSHIPS ACROSS THE PACIFIC. Whereas three joint
ventures ( JVs) account for some 80% of trans-Atlantic capacity,
two JVs – between ANA and United, and JAL and American
– account for approximately 20% of trans-Pacific apacity. And these
partnerships will not be easy, given the need to interweave multiple hubs
and their varying legal codes.
Despite Shanghai Pudong in 2015 being Asia’s fourth largest airport
and 13th in the world, the number of transfer options are few; the
constraints of runways and airspace in 2015 meant Pudong was less of
a hub and more focused on Shanghai originating/departing traffi By
2025 Pudong will be a contender for the largest airport in Asia and as a
major hub, particularly for the trans-Pacific ma ket.
The t ans-Pacific ma ket this decade has grown whereas the second
half of the previous decade was relatively flat unlike Europe and Asia
and North America-Europe. Those uch bigger markets are now
slowing. Between 2005 and 2008 average daily flights be ween Europe-
Asia increased by 24%, trans-Atlantic services increased 16% and trans-
The market balance tipped AVERAGE DAILY TRANS-PACIFIC FLIGHTS FROM THE 10
LARGEST CARRIERS: 2005-2015
in 2015 when Chinese SOURCE: CAPA - CENTRE FOR AVIATION AND OAG
airlines for the first time Note: To Canada and mainland USA only
3,859 100
3,495
9,184
2,952 6,251 50
4,254 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2,016
2,010 2015 2020E 2025E United Delta Cathay Pacific Korean Air ANA
% China POS ~40% ~70% Air Canada American Airlines JAL EVA Airways Air China
subsidies – about USD1 billion in 2014 – but Air and Asiana effectively cannot grow China-North America traffi
Delta, the loudest of the complainants against An added bonus, from a Chinese perspective, is that Korea as a
“subsidies” to the Gulf carriers, is sensitive to destination has grown in popularity with Chinese visitors, which can
the differences in calling out Chinese versus see Korean carriers give preference to higher-yielding O&D traffic tha
Gulf airlines. Yet Chinese airlines, themselves connecting North American itineraries. This O&D g owth is well-suited
masters of protectionism, have some concerns to Korea’s LCCs, which are in favour of liberalisation with China while
the US airlines will turn their anti-Norwegian Korean Air and Asiana now worry China open skies will benefit others
and anti-Gulf campaign to Chinese airlines more than themselves.
and other new airlines from Asia. As with Taiwan has not been a hub for mainland China-North America.
many “principles”, there may be exceptions, in Mainland China’s complex set of aeropolitics for cross-Strait flights
this case because the US airlines are anxious to has effectively prohibited Taiwanese airlines from carrying mainland
gain access to the Chinese market. Chinese passengers beyond Taiwan. The ai lines were allowed to carry
Long haul LCCs AirAsia X and Cebu other passengers, but high demand for cross-Strait flights eturned a
Pacific h ve not encountered regulatory healthy yield that would have to be sacrificed or lower yielding transit
problems so far in serving the US. The p ospect traffi The t ansit policy was revised in 2015. As expected with China’s
of long haul Asian LCC service is signifi ant incremental changes, cross-Strait transits were offered from an initial
in the 2025 timeframe as market growth three cities: Chongqing, Kunming and Nanchang. Th y are relatively
approaches maturity, Asian LCCs gain greater small markets for Taiwanese airlines; what the airlines want is access
recognition (especially in Northeast Asia) from primary cities.
and JVs inevitably moderate competition. The Incremental additions were expected, but this plan is now uncertain
LCC model could be of particular interest following Taiwanese elections that brought to power a party which is
in China, where outbound traffic is ten less Beijing friendly. Repercussions are already in sight as Beijing limits
leisure and extremely price sensitive. Beijing’s the number of cross-Strait visitor permits. It is this instability that made
Capital Airlines has contemplated becoming China Airlines and EVA Air unwilling to make signifi ant expansion
an LCC. It is part of HNA, which has short plans. EVA Air saw a conservative 3% increase in trans-Pacific t affic i
haul LCCs and established the world’s first allowed access to mainland source markets.
LCC alliance. Given the size of the domestic In comparison, Japan – like Korea – has favourable geography and
market, and Beijing’s encouragement of LCC airlines with strong North American markets. But with their high cost
establishment, a proliferation of Chinese base, Japan is pragmatic about its airline opportunities. The ma ket
LCCs, short and long haul, is likely over the between Japan and China is already liberalised (with usual Tokyo
next decade. China, subsidies and LCCs would exceptions) and Japan has been following a broad open skies agenda with
seem to be a trifecta of annoyance to US labour. its neighbours as it seeks to stimulate inbound tourism.
Chinese aeropolitics impacts the trans-
Pacific market conce ning more than just
Canada and the US. It is also relevant NORTHEAST/SOUTHEAST ASIA-NORTH AMERICA FREQUENCIES
for Korea and Taiwan. Korea has been an BY AIRCRAFT TYPE: 1H2006 VS 1H2016
important transit point for China-North SOURCE: CAPA - CENTRE FOR AVIATION AND OAG
America traffic with K ean Air in particular A340
leveraging its ideal geography, proficient eoul 1%
Incheon hub and large network of Chinese and
777
North American destinations (more than any 1H2016
A330 A380 747 767
54%
787
10% 4% 9% 7% 16%
other Asian airline) to create more one-stop
options than US or Chinese airlines; it is an DC-10/
Emirates of the trans-Pacific A330 MD-11
3%
Delta has pointed out that intermediary 3%
TIMELINE OF SINGAPORE AIRLINES’ ULTRA LONG HAUL HISTORY AND US GULF COAST JET FUEL SPOT PRICE
PER GALLON (USD): 1990-2015
SOURCE: CAPA - CENTRE FOR AVIATION AND US EIA
$3.50
$3.00
$2.50
May - 1998: SIA
signs LoI for 5
$2.00 A340-500s with 5
options.
Deliveries to start in
$1.50 2002.
Fuel: $0.42
Feb-2004: SIA’s Oct-2015: SIA to
$1.00 Nov-2013:
first resume
SIA’s final
ultra-long-haul ultra-long-haul ultra-long-haul in
$0.50 A340-500 flight , A340-500 flight, 2018 with
to Los Angeles from Newark A350-900ULR.
Fuel: $0.93 Fuel: $2.83 Fuel: $1.40
$0.00
growth. Southeast Asian transfer traffic an seek to combine fi th freedom rights with cross border JVs.
be larger than China’s, perhaps implying that The ulf carriers too are on the horizon. Emirates already has some
other airlines should look at partnerships or fi th freedom rights but would like stronger city pairs, a less cut-throat
equity in Southeast Asian airlines – either to local environment that has come with high capacity growth, and for now
facilitate or limit growth from the Southeast is focused on the Dubai hub. Globally such flights – Osaka- os Angeles
Asian airline. or Auckland-New York – could upset prospective partners, or at the very
Airlines not considering ultra long haul non- least, question if they should be incorporated into a JV model like those
stops will need to seek fi th freedom rights, that increasingly span long haul markets.
a sensitive topic and one which governments As Southeast Asian airlines plan non-stop flights to orth America
(against the strong advice of their airports) (generally operating under liberal access regimes), and Gulf and other
are reluctant to dispense. As Asian hubs assert airlines consider under-served city pairs, more ultra long haul routes will
themselves and focus shifts from national be introduced. The fa ourite – perhaps only – equipment so far is the
airlines to the aviation economy, fi th freedom A350-900ULR. Singapore Airlines has committed to fi e of the type to
rights will likely be more accessible. This allow it to resume non-stop Los Angeles and New York service, and a
applies particularly to Southeast Asian airlines third city will be added. Philippine Airlines and Garuda Indonesia are
– including airlines not currently in the market, also interested. A Garuda Jakarta-New York JFK non-stop would be
like the long haul low cost operators, both approximately 500 miles (5%) longer than Singapore Airlines’ Singapore-
independent and part of network airline groups. New York (Newark) service. Although it would seem Garuda would need
These CCs, include airlines such as AirAsia to build on what Singapore Airlines plans, the proposition from Garuda
X, Scoot and even perhaps Jetstar; there will be is signifi antly different. The hallenge is greater than another 500 miles
more. A feature of the Asian market, they may of fl ing.
raise multi-dimensional regulatory issues with The ingapore and Jakarta markets are not comparable (and even
the increasingly defensive US operators, as they Singapore Airlines may not be able to make its flights int insically
EUROPE TO NORTH
AMERICA IN 2025
A gradual evolution influenced
by market regulation and
aircraft advances
Immunised joint ventures (JVs) appear likely to continue to dominate
the North Atlantic, although their share will fall as LCCs and leisure airlines
grow faster from a much smaller base level – assuming the market remains
sufficiently liberal. LCCs like Norwegian, WestJet, WOW air, Air Canada rouge
and Lufthansa’s Eurowings, will continue to grow the market and their own
market share. (Norwegian’s rate of growth may depend on whether or not it is
given final approval for its Irish subsidiary’s US foreign carrier permit.)
As long haul low cost operation evolves into a more connective model,
others can be expected to adapt to the North Atlantic conditions. Meanwhile
US LCCs, most likely JetBlue, may start trans-Atlantic services with narrowbody
aircraft as new suitable equipment arrives. The US majors are unlikely to set
up LCC subsidiaries in this market. Turkish Airlines may eventually join the
Atlantic++ JV within the Star Alliance as it grows rapidly to North America. If
the UK’s existing traffic rights cannot be recreated post-Brexit, British Airways
and Virgin Atlantic could be forced out of their respective JVs. This currently
seems highly unlikely, but is a possibility while the future UK-EU relationship
remains unknown.
The next lar est operator, Virgin Atlantic, has Treating the three main JVs as three single
4.8% of ASKs and operates in a separate JV
with Delta. All told, the four JVs control 76.6%
competitors, the top 10 operators control
of the market. IAG’s Aer Lingus is expected to 89.3% of ASKs on the North Atlantic in
join the JV within oneworld by 2017 and this
would take the total JV share to 78.3%.
summer 2016.
Treating the three main JVs as three single
competitors, the top 10 operators control Aer Lingus is included in the oneworld JV. This m y be down from the
89.3% of ASKs on the North Atlantic in peak, but is much higher than the 23% share that was in immunised JVs
summer 2016, considerably more than the 10 years ago.
73.7% figu e attributable to the top 10 The summer of 2014 was the last time that the sha e of North Atlantic
individual airlines. capacity inside a JV increased in the summer schedule compared with
After the three main JVs, Virgin, Turkish the previous year. In that summer, US Airway’s capacity joined the JV
and Air Transat, the top 10 is completed by within oneworld, as a result of its acquisition by American Airlines, and
Norwegian, Aer Lingus, SAS and airberlin. Virgin Atlantic’s capacity entered its JV with Delta.
Once Aer Lingus moves into the oneworld
JV, Icelandair will be promoted to the list of
top 10 competitors, which will then control SHARE OF EUROPE-NORTH AMERICA ASKS THAT ARE OPERATED
90.6% of the market in aggregate (based on the WITHIN ALL JVS* WITH ANTITRUST IMMUNITY, SUMMER
summer 2016 figu es from OAG). SCHEDULE 2006 TO 2016
The sha e of North Atlantic capacity covered SOURCE: CAPA - CENTRE FOR AVIATION, OAG SCHEDULES ANALYSER
by the three immunised JVs peaked in summer
90%
2014 at 80.0% of ASKs. As noted, the JVs’
share in summer 2106 is 76.6%, or 78.3% if 80%
2%
5% 5%
5%
70%
4 Virgin Atlantic** 4.8% JV’s in 3 global alliances Virgin Atlantic Aer Lingus
5 Turkish Airlines 3.7% *Note that capacity share shown for the three global alliances relates only to ASKs in the JVs that operate
within the alliances and not to all alliance capacity on the North Atlantic; Aer Lingus has not yet joined the
6 Air Transat A.T.Inc. 2.4% oneworld JV, but is expected to do so by 2017
7 Norwegian 1.9%
8 Aer Lingus 1.7%
This market dominance is like y to be the highwater mark under this
9 SAS 1.6% type of regulatory oversight. The d op in the JVs’ combined share of
10 airberlin 1.5% North Atlantic ASKs between summer 2014 and summer 2016 has been
All others 10.7% accompanied by an increase in the share operated by leisure groups and
LCCs. These n w participants might loosely be termed disruptors and
^United/Air Canada/Lufthansa/SWISS/Austrian/Brussels Airlines give some comfort to those who worry about the anti-competitive effect
*Treats immunised JVs as a single entity
**Virgin Atlantic’s North Atlantic capacity operates in a JV with Delta of the JVs.
(separate from Delta’s JV with AF-KLM and Alitalia) Airlines owned by leisure groups (primarily Th mas Cook Group and
*Capacity share for the JVs within the alliances plus Virgin Atlantic from summer 2014; Aer Lingus capacity All others 78.2%
included from summer 2016 (although it is not expected to join the oneworld JV until 2017)
week of 2014, an increase of 18% over two the European Union at least raises questions about the JVs involving
years. Compared with one year ago, there are UK airlines. A condition of antitrust immunity from the US authorities
45 new routes in summer 2016. is that the overseas partner airlines in a JV are from countries that have
Of these new routes, 22 are operated by signed an open skies agreement with the US.
airlines with what might loosely be termed The etherlands and Germany had opens skies agreements with the
‘alternative business models’. This in ludes US before the EU started to negotiate EU-wide agreements, but the
LCCs, airlines owned by leisure groups EU-US open skies agreement of 2008 paved the way for the JVs to
and other new entrants. Legacy airlines are embrace multiple European members, including UK airlines. The U ’s
operating on 25 of the new routes (there are future relationship with the EU remains uncertain, but it will probably
two new routes that have an airline from both need to negotiate to remain part of the EU-US open skies agreement in
categories). order to preserve the integrity of the JV within oneworld (which includes
The f ct that LCCs and leisure groups British Airways) and the JV between Virgin Atlantic and Delta.
are responsible for almost half of the new The e is a precedent for non-EU countries to be parties to the EU-
routes, but have an ASK share of only 5% US agreement, since Norway and Iceland are signatories, and it may be
between them in summer 2016, highlights assumed that the UK could negotiate to enjoy a similar status to them.
the increasing importance of the alternative However, this may be conditional upon the UK’s acceptance of EU
business models in driving growth on the principles over the freedom of movement of people, goods, services and
North Atlantic. Their c mbined 5% share capital.
compares with 3% in summer 2015. It is currently far from certain that UK politicians will want to commit
The e are only two new entrant airlines on the UK to continued freedom of movement of people, since immigration
North Atlantic routes in summer 2016, namely control was a key theme of the referendum campaign. It may be two
Eurowings and Air Serbia. In summer 2015, years or more before the UK establishes its post Brexit traffic ights
WOW air was a new entrant. The e has been environment, both within Europe and on long haul routes.
market exit this summer by the bankrupt Alternatively, the UK could seek to negotiate a new UK-US open
Transaero. skies-style bilateral, but this would not in itself give UK airlines the
The 45 n w routes involve 26 European freedom to fly f om, say, Paris to New York. It may also, for example, call
airports and 27 North American airports. Only into question Norwegian’s rights to fly f om the UK to destinations in
15 of these involve an airport ranking in the the US in competition with UK airlines.
top 10 by ASKs between Europe and North A likely casualty of the Brexit decision, at least until the new UK-
America, although a further 25 involve an EU relationship is clarified is the application by Norwegian’s British
airport ranked between 11 and 20. subsidiary, Norwegian Air UK, for a US foreign carrier permit. Indeed,
The e are fi e airports that are new to trans- on 30-Jun-2016, the DoT dismissed NAUK’s request for an exemption,
Atlantic services, two in North America and while continueing to review the permit application. Norwegian’s Irish
three in Europe. This is not a lar e number, subsidiary, Norwegian Air International, has been given provisional
but represents almost 4% of the 132 airports approval for a US permit, but this has not been made final and the B exit
that have flights be ween Europe and North uncertainty (although not directly relevant) could be used as an excuse
America, a noticeable percentage. for the US Transportation Secretary to sit on his hands for longer.
The n w North American airports are San If the UK wanted to re-create synthetically the traffic ights
Jose Mineta (Lufthansa to Frankfurt and environment of the EU-US agreement, after coming to a new UK-US
British Airways to London Heathrow) and bilateral, the UK would also need to negotiate with the EU and US to
Winnipeg (WestJet to London Gatwick). allow non-UK airlines to fly UK-US outes and to allow UK airlines
The Eu opean airports that are new to to fly EU-US outes (BA’s Paris-based OpenSkies subsidiary could be
North Atlantic services in summer 2016 are threatened without such a negotiation).
Belgrade (Air Serbia to New York), Cologne British Airways and its parent IAG are currently fi m advocates of
Bonn (Eurowings to Boston and Miami) competition and market liberalisation, but future scenarios could arise
and London Stansted (Th mson Airways whereby UK airlines may lobby for a more restrictive stance on UK-US
to Orlando Sanford and Th mas Cook to competition from non-UK airlines. Under such scenarios, the UK could
Orlando – the latter not strictly new this feasibly look to retreat from a liberal trans-Atlantic traffic ights regime
summer, but only previously operated in the that continues to mimic the existing EU-US open skies agreement.
month of Jul-2015). Again, although it may now seem that the most likely scenario is that
The UK eferendum vote in favour of leaving the UK will re-negotiate the same US traffic ights for UK (and EU)
North Atlantic. Delta has specifi ally stated basis, it would make sense,” he said at CAPA’s Airlines in Transition
its Atlantic capacity will fall by 3%-4% for the 2016 event. “ He added that it would “add bulk”, providing a bigger
winter season versus the summer. network to offer corporate customers, but he did not expect it to happen
Among the leading Europeans, the any time soon. If Lufthansa and Turkish can resolve their differences, the
Lufthansa Group’s hub airlines’ ASKs to the case for embracing the Istanbul-based airline in Atlantic++ could become
Americas grew by 7.5% in the first five months stronger by 2025.
of 2016. This is not split be ween North and Technology is also changing the way the industry works, regardless of
South America, but is mainly focused on competition rules. Although collusion is only legal within the JVs, the
the North Atlantic and partly offset by JV revenue management systems of many of the leading operators adopt
partner United’s cuts. In spite of Lufthansa similar algorithms and prices tend to look alike regardless of the JV or
Group’s strong ASK growth, its 1Q2016 yield alliance. This is not to s y that pricing is uniformly high. Far from it,
performance on North American routes was competition between the alliances is strong and all offer a proportion of
better than average across its network. their inventory at discounted prices at any given time. However, much of
IAG’s North Atlantic ASKs were up by 2.6% the pricing in the market looks similar.
(with Aer Lingus included in the base figu es) Of course, LCCs such as Norwegian, WestJet and (in the indirect
and Air France-KLM’s by 4.2% in the first market) Wow air are disrupting the market structure up to a point,
fi e months of 2016. Air France is currently offering some very low fares, although they still have only a small share of
shrinking its long haul network, while KLM is the market. Although the LCCs are growing rapidly, the North Atlantic
growing, as part of its attempt to force its pilots market leaders have not generally been tempted to follow suit in terms of
to agree to new productivity improvements. capacity expansion.
New Air France-KLM CEO Jean Marc For the big players, premium cabins and routes with primary airports
Janaillac averted a planned strike by Air France at both ends are still a core focus and the LCCs are largely shut out of
pilots in Jun-2016 by suspending productivity these market segments. The majors nly really feel the growth of LCC
measures that had been implemented, asking and leisure airlines at the bottom end of the market, where their response
for four months to provide a fuller response. At is to engage in discounted pricing for a relatively small portion of their
this stage, the new CEO’s stance on long haul inventory.
growth is not known. The ini ial impact of LCC entry into aviation markets is often that
Turkish Airlines is growing faster in it grows the total market and there is some evidence of this on the
North America than in any other region and North Atlantic. All this suggests that the LCC share will continue to
increased its ASKs there by 34.1% in the first grow, generating incremental traffic in the m ket, but that the JVs will
fi e months of 2016. Turkish does not compete continue to pursue more measured growth plans.
in the vital Western Europe-North America Nevertheless, most of the leading JV airlines on the North Atlantic
O&D market, but it does provide competition (with the notable exception of IAG) have been involved in campaigns to
to that part of the major European airlines’ limit new entrants in recent times.
trans-Atlantic capacity that relies on feed Led by Delta, United and American and supported by Air France-
from/to points in the Middle East and Asia KLM and Lufthansa in addition to a number of labour organisations,
Pacific In this respect, it is similar to the three there has been highly visible opposition to Norwegian’s Irish-registered
Gulf based super connectors Emirates, Qatar
Airways and Etihad, all of whom are targeting
North America for growth, albeit from a fairly For the big players, premium cabins and
small base.
Turkish is the most signifi ant North routes with primary airports at both ends
Atlantic operator not to be included in are still a core focus and the LCCs are
a JV, although it is a member of the Star
Alliance. Moreover, tension between Turkish largely shut out of these market segments.
and Lufthansa led to the end of codeshares
between the two in 2013.
Nevertheless, Star Alliance outgoing CEO
Mark Schwab said that a case could be made
that Turkish Airlines could add value if it
joined the Atlantic++ JV. “On a theoretical
LATIN
AMERICA:
Weak economies
offer opportunities
for foreign
investment that
will reshape
policies and joint
venture prospects
O
Despite the current economic slump sweeping NE OF THE LARGEST COMPETITIVE CHANGES IN LATIN
much of Latin America, the region remains one AMERICA OCCURRING IN THE SHORT TERM that will
of the most promising for air travel expansion affect the landscape over the next 10 years is the introduction
over the next decade. During the remainder of of cross border joint ventures ( JVs); these are led by oneworld,
the current decade, many of the region’s weakest already the most powerful alliance in the region. During the next fi e
economies should start to improve, which means years independent airlines and those participating in other alliances will
demand for air travel will rebound. need to craft responses to the oneworld JV in order to remain viable
Investors looking to capitalise on a down cycle in two of Latin America’s most strategic long haul markets – North
are circling Latin American airlines in order to America and Europe.
gain footholds in the market once the region fully On a system wide basis, Gol, LATAM Airlines Group and Avianca
recovers. Brazil’s recession has necessitated a are forecast to represent 85% of Latin America’s seats in late Aug-2016
move by the country’s beleaguered government (according to data from CAPA and OAG). LATAM represents a 43%
to give serious consideration to changing share, and Avianca and Gol have shares of 19% and 22%, respectively.
foreign ownership restrictions of airlines, while Avianca, LATAM and Gol all posted losses in 2015 of USD139
Avianca, the entity responsible for kickstarting million, USD110 million and USD1.1 billion respectively. Each of those
consolidation in the region, is courting investment airlines is in the midst of deferring aircraft deliveries and working to
from foreign companies, including airlines. strengthen balance sheets in order to withstand the current economic
The Star and SkyTeam short term woes to determine how best to position itself over the long
alliances have no choice but term.
United and Delta have also emerged as potential investors in Avianca
to respond to the dominance after the airline group, Colombia’s largest domestic operator representing
oneworld will achieve. a 61% market share in early 2016, sought a capital injection. Obtaining
a stake in Avianca would give either airline important access to two of
the fastest growing domestic markets in Latin America – Colombia and
Peru. Colombia posted nearly 11% domestic passenger growth in 2015
and Peru’s domestic passenger market expanded by 12% year-on-year.
Avianca Peru is the country’s third largest airline with a 12.3% market
share.
The outcome of l osening ownership restrictions in Brazil and
the opportunity for foreign airlines to invest in Avianca could result
in North American airlines strengthening their already signifi ant
influence in the lar est market from Latin America. During late Jun-
2016 approximately one million seats were deployed between Latin
America and North America, and North American Airlines controlled
roughly 69% of the seats on offer.
2%
2% 2% 1%
2%
2% 24% American Avianca
3%
3% United Air Canada
3% Delta Interjet
jetBlue Spirit
4%
Aeromexico Sunwing
5% Southwest Alaska Airlines
Copa WestJet
14%
9% Volaris
11%
that became the successful bidder for TAP in On long haul routes to North America and Europe, where the foreign airlines dominate, the
2015. Azul is the first l ng haul LCC operating prospects is for further cross border investment and establishment of JVs.
service from Latin America to Europe, and its
flight to Lisb n, propelled in part by TAP, is a
test case for the model being adopted in North
Atlantic markets.
The hances of upstart long haul LCCs
emerging in Latin America during the next
decade are slim given the barriers to entry
erected by some governments in the region, and
the pent up demand for low cost service within
certain countries in Latin America, and on
routes within South and Central America.
According to Mexican ULCC Volaris, trips
per capita during 2014 in Mexico were 0.25,
0.45 in Brazil, 0.42 in Colombia and 0.27 in
Peru. That c mpares with 2.05 trips per capita
in the mature US market.
Some positive signs for liberalisation are
emerging in historically closed off markets A
newly elected government in Argentina that landscape could feature two pan American LCC groups, and one to two
assumed control in late 2015 has adopted more independent LCCs. The e is also a reasonable chance that some of the
liberalised policies, allowing other airlines region’s largest airline groups could be influenced y foreign owners who
aside from government owned Aerolineas materialise in the short term.
Argentinas to expand domestically, and The e are signifi ant and necessary changes for Latin American
creating opportunities for the establishment of governments to undertake during the next decade in liberalisation,
new airlines. taxation and fees in order for the region to realise its full potential for
Avianca’s parent, Synergy, is working to untapped demand in both domestic and international markets. Countries
create a domestic airline from Argentina’s including Colombia, Mexico and Panama will benefit f om their more
second largest city Cordoba and the Viva liberalised perspectives, and previously protectionist countries such as
Group, parent to Mexico’s VivaAerobus and Argentina are signalling an encouraging new era of more liberalised
VivaColombia, is also reportedly examining perspectives.
low cost opportunities in Argentina stemming Brazil’s economic situation may force the government to rethink
from the country’s more liberalised attitude. its ownership and taxation policies. Recently, IATA cited the World
If liberalisation spreads throughout Central Economic Forum’s competitiveness ranking of ticket prices and airport
and South America, as seems likely, there charges in which Brazil ranks 118 out 140 countries, just behind Sierra
should be more LCCs established in the region Leone. Clearly, changes are necessary if the airline industry in Latin
by 2025. Mexican LCC Volaris has previously America’s largest country is to rebound and thrive.
outlined plans to develop a subsidiary in In many ways, Latin America’s current economic challenges could
Costa Rica, which was on Viva’s radar until create opportunities for a paradigm shift in foreign ownership, taxes
the company concluded tax and airport fee and liberalisation in a region that is still drawing attention from leading
constraints would prohibit it from achieving global airlines either through the creation of JVs or potential expanded
price points necessary for market stimulation. or new equity stakes in Latin America’s largest airlines.
Another low cost opportunity could emerge Much of the onus for future success lies with the region’s governments;
in Chile, which has a more liberalised stance they hold the power to foster a robust aviation sector, or inhibit efforts
toward the aviation sector. The count y’s of Latin American airlines to reach their full potential in a region where
second largest airline, Sky, is transitioning to residents will demand more affordable air travel both domestically and
a low cost model, perhaps as a defensive move internationally in the coming decade.
to discourage another would be LCC from Meanwhile, on long haul routes to North America and Europe, where
establishing a foothold in the country. the foreign airlines dominate, the prospect is for further cross border
By 2025 the Latin American aviation investment and establishment of JVs. AL
centreforaviation.com/data/flee
REGIONAL
The
Middle East
long haul
Looking back in 2025, the Middle East might
appear little changed from 2016: the world will
be aghast, and some displeased, that three Gulf
airlines and a fourth (not strictly from the Arabian
markets:
peninsula but with favourable geography and
a domestic market) have defied the odds to
become global airlines with high growth, and
more to come.
Yet these airlines may not be Emirates, Etihad,
250
200
150
100
50
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Etihad Emirates Qatar Emirates & flydubai
T
Iran Air has the greatest potential given the
HE SUCCESS EVIDENT IN 2016 OF GULF NETWORK size of its local market, geography and national
AIRLINES IS INSPIRING OTHERS TO IMITATE THE willingness to return to the days when Tehran
STRATEGY, and claim back some of the traffic their peers h e was a hub. It gives the Gulf three cause for
funnelled to support their hubs. At play in 2016 are ambitions concern.
from smaller airlines to grow exponentially and take a role in transfer Oman Air recently reportedly spent a record
traffi This in ludes Kuwait Airways, Oman Air and Saudia. Extending USD75 million for a single Heathrow slot pair,
the geographic borders of this populous and well positioned region, Iran apparently a record although only a minority
Air and Pakistan International Airlines are also eyeing not just a revival of transactions are public and Oman Air’s slot
but surpassing previous achievements. is at prized, and most valuable, hours: it will
Egypt Air, Middle East Airlines (MEA), Jazeera and Gulf Air are not have the earliest arrival into Heathrow of the
so motivated. Egypt Air’s future is tied to local stability and final emoval Gulf airlines. The slot is Oman Ai ’s second
of government interference. MEA and Gulf Air have smaller local Heathrow service, and Manchester will also be
markets while Syrian Air, Yemenia and airlines in Afghanistan and Iraq launched as Oman Air builds up hub traffi Yet
remain small players. all of this is from a country with a population
Physical positioning is not a guarantor of success. Geography is only under 4 million; the UAE is under 10 million.
one ingredient and mastering all the components is a hurdle even for Despite these startling growth spurts, Oman
established airlines like Lufthansa and Singapore Airlines. For the Air cautions it will never reach the size of an
Etihad. Etihad, in turn, says it will not ever be An EU mandate has been established
the size of Emirates. Yet change in the Middle
East happens quickly; Emirates is twice the
to negotiate open skies with some GCC
size it was in 2010, when it was already large. countries.
It might be asked if Oman Air will not match
the size of Etihad at the same time or might
in 2025 be the size Etihad was in 2010. Oman as it seeks to win back local traffic Saudia is working to overcome this.
Air in 2016 has 14 widebodies; Etihad had Now that oil revenue is under pressure, the government is reviewing the
approximately 30 in 2010. hub strategy and looking to boost tourism. Yet aside from religious trips,
Since late 2016 Iran has received attention local attractions are few and a tourism embrace will necessitate a whole
for its potential hub capability; Tehran’s of country change. Dubai may also have been built in the desert, but it
geography and the country’s large population took more than a generation.
and diaspora give it a head start. Another Iran is more of a ready-made market and, unlike Saudi, has an efficien
lurking sleeper may be Saudia. Saudi Arabia local workforce. Iran also has a sizeable and experienced, educated
has disadvantages for the flag arrier: split hubs workforce abroad that could return. Existing capacity is small, so that
across two or even three cities and government signifi ant change could happen quickly.
interference (similar on both accounts to PIA Market access is perhaps a greater unknown. Here Dubai was
advantaged from early in its life, signing favourable or liberalised air
service agreements. Many were signed when the benefit at the time was
EMIRATES, ETIHAD AND QATAR ANNUAL to foreign airlines. Over the years, the benefit (if lo king only at national
CAPACITY (ASKS): 2006-2016F airline interest and not holistically) has fi mly shifted to Dubai. But that
SOURCE: CAPA – CENTRE FOR AVIATION AND OAG outcome was only possible because, from the start, Dubai (and Emirates’
400 owners) insisted on totally open skies.
TheDubai-Singapore bilateral allowed Singapore Airlines to hub from
Dubai to other Middle East destinations. These se vices have now been
300
2010-2016 withdrawn but Emirates, besides its multiple daily flights to ingapore,
+ 99%
offers continuing service from Singapore to Australia. In hindsight,
200
would Singapore – and other countries – have granted so much access
BILLIONS
that will be difficult or others to replicate. In the long term these areas Abu Dhabi Doha Dubai
probably hold greater potential than cost efficie y improvements.
An important and unique issue for Emirates is the future of the A380.
ADDITIONAL PASSENGERS FROM
No other airline comes close to depending on the A380 as Emirates
does. Peers Etihad and Qatar have token A380 fleets and ran Air’s PREVIOUS YEAR AT ABU DHABI, DOHA
A380 order may not eventuate at all. Emirates CEO Sir Tim Clark in AND DUBAI (GROWTH PERCENTAGES
Jun-2016 displayed an uncharacteristic pessimism about the future of FOR WHEN ABU DHABI AND DOHA
the A380. The e are still a few years for this aircraft programme to play JOINTLY OUTPACED DUBAI): 2004-
out, but uncertainty could lead Emirates and Boeing to develop an even
2015
larger version of the 777X.
SOURCE: CAPA - CENTRE FOR AVIATION AND AIRPORT REPORTS
Where the Middle East leads in aircraft orders, partnerships are a
small part of their profil . This va ies in the region. Etihad has seen 10,000k
airlines to have joined an alliance, but an early foray for oneworld peer 2008
158%
Cathay Pacific saw the JV disso ved. 5,000k 2011
102%
An IAG JV with Qatar is supposedly forthcoming and could indicate
future potential for JVs with Gulf airlines. IAG and Qatar Airways 2,500k
Qantas is more strategic systemwide than it is profitabl . For IAG and Dubai Doha Abu Dhabi
Lufthansa partnership, the Gulf airlines have SELECT GULF AIRPORT DEPARTURE TAXES: JUL-2016
had to stand on their own, becoming so large SOURCE: CAPA – CENTRE FOR AVIATION AND AIRPORT AUTHORITIES
and strong that Lufthansa may no longer be DEPARTING PASSENGER TRANSFER PASSENGER
seen as a useful partner – other than perhaps to AIRPORT CHARGES CHARGES
neutralise its opposition. Doha Total: QAR50 (USD13.73) 0
The Air rance-KLM Group has for a few Passenger service charge:
years been exploring a deeper partnership with QAR10
Etihad but nothing has eventuated; Air France Airport fee: QAR40
has enough difficu y with its unions even Abu Dhabi, Dubai Total: AED80 (USD21.78) 0
making small adjustments. Singapore Airlines International/Dubai World Passenger service charge:
is unlikely to dance with the devil but Thai and Sharjah – travel until AED75
Airways, becoming more commercial, agile 30-Jun-2016 Security fee: AED5
and free of government influenc , could form a Abu Dhabi & Dubai Total: AED115 (USD31.31) Total: AED35
Gulf partnership. International/Dubai World Passenger service charge: (USD9.53)
All three Gulf airlines would like a deep and Sharajh – on/after AED75 Service fee: AED35
partnership with a US airline, and surely by 1-Jul-2016 Security fee: AED5
2025 at least one such partnership will have to Service fee: AED35
emerge. American Airlines is the most obvious
candidate, having partnerships with both case elsewhere, LCCs can be a catalyst for change at full service airlines
Etihad and (oneworld’s) Qatar, and actually even if there are valid structural differences between regions. One of
growing them while complaining against the the biggest challenges for LCCs is full service overcapacity in regional
Gulf three to the US government in 2015. markets, where too often access restrictions remain. Market share battles
Aside from their (very signifi ant) North should have ended by 2025 as airlines become smarter with capacity,
Atlantic JV partners, there is particular synergy perhaps by shifting production to lower cost platforms.
in working with the Gulf airlines, with little The mo e immediate future requires a solution to air traffic co rol
route overlap. congestion. Reported changes to be implemented in Dubai in late 2016
Qatar Airways is looking at partnerships, are encouraging steps for the needed sweeping changes that cannot wait
from Royal Air Maroc to Meridiana in Italy, until 2025 – or even 2020. Increased airport fees and introduction of
often due to sovereign interests. Emirates is transfer charges is not welcome but perhaps pragmatic from the point of
selectively expanding partnerships – TAAG view of governments in need of revenue and without unlimited airport
and Malaysia Airlines – and could continue capacity. The g eater concern is that other airports, with less guaranteed
to do so. It has shown particular interest in sources of traffi replicate what they see as a role model in Dubai.
African LCCs, which are increasingly linking Overall the internal challenges in the largest Gulf markets are
the continent and do not have any long haul comparatively few, but require action. The e are greater challenges in
traffic that could be jeop dised by partnerships other Gulf markets and the wider Middle East, and it is mostly from
from airlines outside of Africa. here there could be the largest changes in competitive landscape by 2025.
By 2025, Emirates will be at its new Dubai For all of them, a liberal access regime will delineate their success or
World Central hub and re-united with otherwise. A rollback of liberalisation may be possible, but there are also
fl dubai. Like Emirates, fl dubai is owned signs of acceptance of new hubs. AL
by the Dubai government but Emirates and
fl dubai are managed separately and have little
to do with each other. Timing will be good for 2025 will bring a
the two. Th y will be back at the same airport,
able to have the flexibili y needed to make a
larger population of
partnership that benefits ubai. Oman Air and foreigners, already
Saudia will need to work with their countries’
new national LCCs, Salam Air and fly deal.
inclined to use
2025 will bring a larger population of LCCs, and a greater
foreigners, already inclined to use LCCs, and
a greater willingness by locals to use LCCs.
willingness by locals
This bodes ell for Air Arabia, fl nas and to use LCCs.
any future additional LCCs. As has been the
Following the success of the historic CAPA Iran Aviation Summit shortly after sanctions were lifted in Jan-2016, Iran’s aviation
authorities have invited CAPA back to hold a unique follow-up event on 17-18 Sep-2016, combining an Aviation Finance and Travel
Summit. This a seminal event, opening Iran’s marketplace to the world for the first time in four decades and intended to move the
industry forward.
The CAPA Iran Aviation Finance and Travel Summit brings together airlines, aircraft manufacturers, lessors, banks, export credit agencies, regulators and law
firms, along with airport operators and investors, and infrastructure developers for panel discussions and networking sessions to identify financing solutions
for transactions related to aircraft acquisition, leasing and infrastructure development; a parallel stream also addresses the key travel industry issues such
as distribution, travel technology and corporate travel.
With the opening up of Iran this region now represents one of the most exciting aviation markets in global aviation.
Description Speakers and panel discussions to identify solutions to facilitate transactions for the acquisition and leasing of aircraft and for
the expansion and modernisation of Iran’s airport and airspace infrastructure.
Delegate registrations are now open: To exhibit or sponsor please email CAPA on
www.capaevents.com/iranSEP16 events@centreforaviation.com
REGIONAL
AFRICA’S
INTERNATIONAL
MARKET:
VISION 2025
F
Route evolution in African international markets has always been defined RAGMENTED AND USUALLY
by intra-African protectionist policies that cause long haul route networks to HIGHLY INEFFICIENT AFRICAN
focus on Europe and, more recently, the Gulf. With typically weak national AIRLINES have a relatively small
flag carriers, foreign airlines are likely increasingly to dominate Africa’s presence in the international market
intercontinental market, particularly Emirates, Qatar Airways and Turkish and struggle to compete against larger players
Airlines. With the exception of Ethiopian Airlines, African carriers will continue from outside their region. Traffic to and om
to struggle and lose market share. Africa will grow signifi antly in percentage
terms over the next 10 years off the existing
low base, particularly between Africa and Asia.
However, African airlines appear destined to
continue to lose market share to competitors.
Europe is the largest intercontinental market
from Africa with approximately 1.2 million
4%
9% 15%
4%
7%
6%
6%
8%
5%
5%
12%
5%
10% 4%
Air France - KLM Other European groups
Turkish Royal Air Maroc
IAG Air Algerie
Lufthansa Group Tunisair
TUI EgyptAir
Ryanair Other African groups
Aigle Azur Other groups
Note: Air Arabia Maroc and Alitalia capacity counted under others
as their parent is not based in Europe or Africa
weekly nonstop return seats. African airlines account for less than 40% of Europe’s three main airline groups – Air
this capacity, according to CAPA and OAG data for Jul-2016. France-KLM, IAG and Lufthansa – all have a
Air France-KLM is the largest airline group in the Africa-Europe strong presence in Africa which they are keen
market while Turkish Airlines is the second largest and the fastest to grow, although the rate of growth will be
growing. Turkish has expanded its share of capacity in the Africa-Europe much slower than Turkish. Th y particularly
market from less than 5% to approximately 7% over the last three years as have an advantage over African competitors in
it has rapidly grown its African network. the long haul markets connecting Europe with
Turkish Airlines now serves 43 destinations in Africa and plans to central, eastern, southern and western Africa.
expand further in Africa with new destinations and, more signifi antly, In the larger north Africa-Europe market,
additional capacity to existing destinations through extra frequencies, the African airlines are relatively stronger.
decoupling destinations and up-gauging. Turkish’s share of nonstop North African airlines allocate nearly all of
capacity in the Africa-Europe market could reach 15% in 2025, enabling their capacity to nearby Europe. However they
it to overtake Air France-KLM as the market leader. have the disadvantage of having to compete
against European LCCs in addition to of total Africa-Europe bookings in the year ending Mar-2016, making
Europe’s main full service airline groups. it one of the top 10 airlines in the Africa-Europe market and the only
European LCCs now account for 22% of airline in the top 10 that does not compete in the sizeable north Africa-
capacity in the north Africa-Europe market, Europe sector.
led by a 7% share from Ryanair. North Africa- The e are approximately 800,000 weekly nonstop seats between Africa
Europe accounts for approximately two thirds and the Middle East. The Mid le East is a large local market from
of total Africa-Europe capacity. Europe’s Africa, particularly for northern and eastern Africa. However a large
LCCs will continue to expand in north Africa portion of Africa-Middle East traffic avels beyond the Middle East as
over the next decade and use new generation the Gulf is geographically well placed for Africa intercontinental traffi
narrowbody aircraft to push further into Africa. Emirates is the largest airline in the Africa-Middle East market
Given the challenges they face, African and is also the largest foreign airline in Africa overall. Middle Eastern
airlines will likely experience over the next airlines combined account for approximately a 60% share of seat capacity
decade a steady decline in their share of between Africa and the Middle East, led by an 18% share for Emirates –
capacity in the Africa-Europe market. Africa’s or 20% when including its sister airline fl dubai.
airlines generally lack the scale to compete
effectively and have not been able to follow
the European airline sector in pursuing AFRICA-MIDDLE EAST NONSTOP CAPACITY SHARE (% OF SEATS)
acquisitions or mergers. BY AIRLINE: JUL-2016
Ethiopian Airlines has made some SOURCE: CAPA – CENTRE FOR AVIATION & OAG
moves towards consolidation, although 8%
its acquisitions have been relatively minor 3% 18%
in terms of the airlines acquired and the 4%
Emirates Other Middle Eastern airlines
size of the stakes. The politi al – essentially 4%
Saudia EgyptAir
protectionist – environment in Africa 4% Qatar Ethiopian Airlines
makes it very difficult to pursue meani ful 11%
Etihad Nile Air
consolidation. As a result most of Africa’s
flydubai Nesma Airlines
airlines will likely continue to struggle from 17% flynas Air Cairo
both a profitabili y and growth perspective. In 9%
Air Arabia Other African airlines
the Africa-Europe market this means ceding 4%
market share to stronger competitors from 9%
3% 3% 3%
Europe and the Middle East.
Note: Air Arabia Egypt and Air Arabia Maroc capacity counted under other African airlines
According to OAG Traffic nalyser data,
European airlines accounted for 60% of all
Africa-Europe bookings in the year ending African airlines account for the remaining 40% of total Africa-Middle
Mar-2016. African airlines accounted for East capacity. When excluding Egyptian airlines, their share is less than
only 35% and Middle Eastern airlines the 10%. Egypt-Africa accounts for approximately 60% of total Africa-
remaining 5%. Middle East capacity. The e are more than 10 Egyptian airlines serving
Gulf airlines have become signifi ant players the Middle East with a combined 63% share of Egypt-Africa seat
in the eastern Africa-Europe and southern capacity.
Africa-Europe markets. Emirates and Qatar On non-Egypt routes, the Middle Eastern airlines dominate with an
Airways are particularly strong in Africa 80% share of total seat capacity. African airlines will likely see their share
with 22 African passenger destinations each. of this market continue to decline as they are not well positioned to
Emirates accounted for more than a 3% share compete against much larger Gulf airlines.
The ulf hubs are particularly well suited for Africa-Asia traffic an
also attract a signifi ant share of Africa-North America traffic and ven
European airlines some regional intra-Africa traffi According to OAG Traffic nalyser
data, Middle Eastern airlines accounted for 45% of total Africa-Asia
accounted for 60% of all bookings and 11% of total Africa-North America bookings in the
Africa-Europe bookings in year ending Mar-2016. African airlines accounted for a 40% share of
bookings in the Africa-Asia market and 30% share in the Africa-North
the year ending Mar-2016. American market.
4% 5%
The e are currently only approximately 50,000 weekly nonstop return 4%
seats in the Africa-North American market and approximately 12,000
seats between Africa and Latin America. European airlines have 6%
33%
traditionally dominated these markets, making it difficult or African
airlines to pursue growth in the Americas. European carriers currently
7%
account for approximately a 38% share of passenger traffic in the A ica-
North America market.
8%
AFRICA-NORTH AMERICA MARKET SHARE (% OF BOOKINGS) BY
AIRLINE REGION: YEAR ENDING MAR-2016 9% 12%
SOURCE: OAG TRAFFIC ANALYSER
12%
11% Ethiopian Airlines Other African airlines
Air Mauritius Qantas
38% EgyptAir Cathay Pacific
21% Kenya Airways Singapore Airlines
South African Other Asian airlines
European airlines
African airlines
Ethiopian has rapidly expanded in Asia,
North American airlines growing its network from only six destinations
Middle Eastern airlines in 2011 to 11 currently. Africa-Asia traffi
has been the main driver of Ethiopian’s
30%
rapid ascent over the past fi e years as it has
more than doubled its total passenger traffi
Ethiopian has been the only African airline in recent years to launch and emerged as Africa’s largest (and most
new destinations in the Americas. Ethiopian added Los Angeles in profitable) ai line group. Ethiopian also has
Jun-2015 and New York in Jul-2016, giving it four destinations in North pursued rapid growth regionally in Africa
America and fi e in the Americas. Ethiopian will add at least two more which has complemented the expansion of its
destinations in the Americas in the coming years – most likely Chicago Asia operation, which requires signifi ant feed
and Houston – but is more focused on growing in Asia. as the local Ethiopia-Asia market is very small.
Asia is the fastest growing international market from Africa but has Ethiopian is planning more expansion in
a relatively limited amount of nonstop capacity. The e are currently Asia in the coming years and will likely at least
approximately 90,000 weekly return seats between Africa and Asia double its Asia seat capacity by 2025. However
Pacific making it a larger market than Africa-Americas but signifi antly the total Asia-Africa market will also double or
smaller than Africa-Europe or Africa-Middle East. even triple in size, with other African airlines
Unlike the Europe or Middle East markets, African airlines have a targeting a piece of the fast expanding pie.
larger share of nonstop capacity to and from Asia than their overseas East African airlines are particularly well
competitors. Currently African airlines have an 81% share of Africa- placed for Africa-Asia given their geographic
North America nonstop seat capacity, led by a 33% share for Ethiopian. location. Air Mauritius is in the process
African airlines have an advantage over Asian competitors as they can of establishing a new Africa-Asia hub and
offer connections throughout Africa – and in some cases even to South Rwandair is pursuing the same pool of sixth
America. freedom traffic as it epares to launch services
to China and India using a newly acquired AFRICA-ASIA PACIFIC MARKET SHARE (% OF BOOKINGS) BY
widebody fleet AIRLINE: 12 MONTHS ENDING MAR-2016
EgyptAir and Kenya Airways, which have SOURCE: OAG TRAFFIC ANALYSER
been restructuring following instability in their
home markets, are also keen to resume Asia 22%
expansion over the next several years. Kenya 17%
Airways has suffered some setbacks after a
fruitful partnership with KLM was established
Emirates Etihad Airways
and is currently undergoing a management
overhaul, but looks unlikely to become a major Ethiopian Airlines Air Mauritius
force in the next decade. 5% Qatar Airways EgyptAir
16%
Asia represents a ray of hope for African Kenya Airways Others
6%
airlines as they try to improve their overall
position in a very challenging market. 6%
11%
However competition in the Africa-Asia 7%
market is intensifying. Gulf airlines are very
well positioned to capture a large share of recent years and should be able to continue growing its market share.
the anticipated Africa-Asia growth as they Ethiopian has the largest order book in Africa and plans to again double
continue to expand their networks in both in size by 2025.
regions. Ethiopian should be able to grow its share of Africa-Asia traffi
Middle Eastern airlines already fly mo e from 16% currently to over 20% by 2025 and its Africa-North America
passengers between Africa and Asia Pacific share from 6% to at least 10%. Ethiopian is not as well positioned
than African airlines. While there are geographically for the more mature Africa-Europe market, but should be
opportunities for more nonstop services from able to modestly grow its current 2% share.
African (and Asian) airlines, the majority of Most other African airline groups do not have the scale, profitabili y
passengers in this market will travel via the and backing to increase their market share over the next decade. Several
Middle East. As previously mentioned Middle are likely to contract – or even exit – unless they quickly are able to
Eastern airlines currently account for 45% of reform. Th y do not have the cost structures to compete internationally
total Africa-Asia Pacific bo kings compared and the current protectionist policies and interventionist ways of several
to a 40% share for African Airlines, a 9% share African governments are detrimental to their long term health.
for Asia Pacific ai lines and a 6% share for TheYamoussoukro Decision, which was adopted as long ago as 1988,
European airlines. and designed to improve intra-African market access, has still not been
Emirates is already the leader in the Africa- implemented. Given the current environment it seems unlikely the long
Asia market with a 22% share of bookings overdue open skies regime, or even signifi ant liberalisation, will take
and should be able to expand its share to 30% place by 2025. LCC group fastjet is attempting to negotiate its way
by 2025 as it continues to pursue expansion through international markets within Africa, but again runs afoul of the
in Africa and Asia. Given the expected rapid persistent protectionist policies that characterise so many markets.
growth in the Africa-Asia market, total traffi It is hard to be optimistic about the prospects for Africa’s airline
for Emirates in this market could triple or even sector. The ma ket must grow, as the continent is resource rich and
quadruple. currently greatly underserved by global standards. But continuing
Qatar is currently the third largest player in political instability, government interference and poor management
the Africa-Asia market, behind only Emirates make for a difficult outl k. African airlines are less profitable than their
and Ethiopian. Qatar’s 11% share could reach counterparts in all other regions. Without major structural changes the
20% by 2025. African airline sector is unlikely to be profitable y 2025. Africa in a
Competing against Emirates and Qatar is decade will be even more dominated by foreign airlines, particularly the
not an easy proposition for any airline from big Gulf groups.
any region. For African airlines the challenge is The e is the potential for one or two more local success stories to
even more intense as they are generally small, join Ethiopian, particularly if partnerships are embraced and some
inefficient and un ofitabl . consolidation is pursued. However by and large the current situation
Ethiopian has been the only exception in unfortunately is not about to change. AL
BUILDING YOUR
BUSINESS?
South Pacific F
OR BOTH AUSTRALIAN AIRLINES AND AIR
NEW ZEALAND, the China market and Asia
more generally offer enormous potential and
markets will
securing access across the region will help define
their futures. Virgin’s virtual airline strategy will support a
move into Beijing and Hong Kong during 2017 as part of
its Singapore Airlines and HNA Group partnerships, while
be defined
Qantas seeks positions via its Jetstar JVs and a partnership
with China Eastern, as well as with Japan Airlines and
Vietnam Airlines.
Over the next decade, Qantas Group will steadily expand
by China’s
its international footprint further with the arrival of its
Boeing 787-9 fleet while the Virgin Group reviews its
international moves. Contrasted with Qantas, international
has always been a challenge for the carrier, which lacks
expansion
economies of scale and reach with a handful of services to
the US, South Pacific and outheast Asia.
Asia will be the key for these airlines’ growth, as it is for
many others. The outh Pacifi ’s geographic proximity to
these emerging markets make it an attractive first opti n
for airlines testing the international waters, while existing
operators in the South Pacific a e likely to continue focus
The nature of the region’s geography makes finding the on a hub-to-hub strategy with partners before adding more
right partners for South Pacific airlines essential for survival in dots to the map.
international long haul markets – as most are. Air New Zealand and Fiji Airways are both quiet
The region is characterised by relatively liberal access achievers – the former in bedding down its Pacific Rim
regimes and by partnerships of varying levels – in New strategy and becoming a key connecting point for the
Zealand especially, where Air New Zealand’s international region. Some 30% of traffic n its recently-launched
network is dominated by JVs. Virgin Australia has built a Auckland-Buenos Aires service originates in Australia,
‘virtual alliance’ alongside HNA, Singapore Airlines, Etihad and for example. Fiji Airways has typically focused heavily
Delta, with very little of its own metal flying outside Australia. on Australia and New Zealand, but has recently pivoted
At Qantas Group, international performance has improved toward North Asia – especially China, which is likely to be
markedly following its Emirates partnership, as its operating a key growth market for Fiji.
focus has shifted from Europe toward Asia, with local JVs, and South Pacific arriers have embraced virtual long
close partnerships with American Airlines and China Eastern haul networks more than any other region, mostly a
continuing to grow and mature. consequence of geography. While Qantas and Emirates
For all airlines in the region, the China market will define have paved the way for a seismic shift in how alliances
much of the growth over the coming decade. are formed, Virgin Australia has steadily added to its
airline partnership stable, which now includes Etihad,
Delta, Singapore Airlines, Air New Zealand and Hainan
Airlines; another Chinese, non-airline, investor Nanshan,
has recently joined the share registry. Air New Zealand
has added JVs with Singapore Airlines into Asia and
800k 0.8
700k 0.78
10k
600k 0.76
500k 0.74
5k 400k 0.72
300k 0.7
0k
200k 0.68
Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 100k 0.66
Air New Zealand American Airlines United Airlines
0k 0.64
Jan-2015 Apr-2015 Jul-2015 Oct-2015 Jan-2016
Jetstar Group CEO Jayne Hrdlicka mirrors TOP 10 CITY PAIRS WITHIN THE SOUTH PACIFIC, RANKED BY
the sentiment, and the carrier plans to suspend SEATS, WEEK STARTING 270JUN-2016
twice weekly Brisbane-Honolulu service in SOURCE: CAPA – CENTRE FOR AVIATION AND OAG
Oct-2016. The ai craft will instead be deployed
Y-O-Y
to Indonesia and Thailand more profitable RANK ORIGIN DESTINATION SEATS
CHANGE
markets for the group: “It’s fair to say we’ve
seen a moderate dip in demand out of Brisbane 1 Auckland International Sydney Kingsford Smith 43,239 13.50%
and we believe it is the right time to move this 2 Singapore Changi Sydney Kingsford Smith 38,843 1.60%
capacity to Asia where more Australians want
3 Singapore Changi Melbourne Tullamarine 36,917 18.30%
to travel.”
High inbound growth rates to Australia 4 Auckland International Melbourne Tullamarine 29,728 12.80%
from most Asian countries have continued, 5 Singapore Changi Perth 28,024 6.40%
but more liberal bilateral agreements remain 6 Auckland International Brisbane 25,117 26.60%
necessary with several key markets including
China, Hong Kong and Malaysia – especially 7 Kuala Lumpur Melbourne Tullamarine 23,688 -6.60%
International
in advance of capacity requirements.
8 Hong Kong International Sydney Kingsford Smith 23,446 17.20%
LARGEST INTERNATIONAL GROWTH 9 Los Angeles International Sydney Kingsford Smith 23,051 8.90%
MARKETS BY CAPACITY FOR AUSTRALIA 10 Bali Denpasar Ngurah Rai Perth 22,850 6.30%
IN 2016 VS 2015*
SOURCE: CAPA - CENTRE FOR AVIATION AND STATISTICS NEW
ZEALAND
Many non-Asian countries could look at
*Data for week starting 23-May-2016 vs p-c-p in 2015 today’s Australia as an indicator for their
+35.6% +28.0% +20.7% +13.2% future.
Japan China Indonesia Hong Kong
AUSTRALIA INTERNATIONAL MARKET SHARE BY SEATS
SOURCE: CAPA – CENTRE FOR AVIATION AND OAG
Other markets, such as Qatar and the
Philippines, have recently entered in to new 20.4%
agreements, though others remain problematic
– indeed Hong Kong is unlikely to be 32.6%
expanded, and even so airport capacity in Hong New Zealand United States of America
Kong remains challenging. For now, China Singapore Malaysia
13.8% United Arab Emirates Others
remains the biggest growth story for Australia Indonesia
– reaching 1 million visitors during 2015. The
7.1%
average Chinese tourist also takes between two 9.8%
and three domestic legs while in the country. 7.8%
8.5%
While Australia considers its future with
Chinese tourism and air services, many
NEW ZEALAND INTERNATIONAL MARKET SHARE BY SEATS
non-Asian countries could look at today’s SOURCE: CAPA – CENTRE FOR AVIATION AND OAG
Australia as an indicator for their future. In
2016, the largest outbound aviation markets 16.5%
from Australia are predictable: New Zealand,
Singapore, United Arab Emirates, Indonesia 2.5%
3.6%
and the US. China’s absence is notable; there
Australia Singapore
the fl w is predominantly inbound to Australia. 5.1% United States of America Hong Kong
From New Zealand, Australia, US, China, Fiji China Others
5.2% 59.4% Fiji
and Singapore top the list – though Australia
dominates with 60% of seat capacity. 7.8%
Australia’s future growth will align heavily
market in Jul-2016. China Eastern holds about 20% and Air China 40k
around 15%. The ecent entry of smaller airlines, as well as secondary
20 international
Global and local economic development
Overall air travel growth correlates with
economic expansion; but local/national GDP
airports in 2025
fluctuations generally have a larger impact on
traffic at individual airports. In countries where
there is significant end-to-end traffic, this helps
underwrite connecting frequencies, in turn
hub connectivity
to change the shape and availability of air travel.
It has also allowed a shift away from the older
hubs, allowing new airports to grow faster. It may
expansion
be however that we have passed the zenith of
liberal times.
Geography
Geographic positioning has always been
an important determinant of a hub airport’s
There is a variety of factors that will influence the evolution of
effectiveness. As aircraft technology has
international airport leaders over the next decade. Inevitably, given the
changed, so the profile of geography has
nexus between economic growth and airline activity, the global economy
evolved.
will play a major part in defining the overall outcome.
But to project which specific airports will grow over that period A national airline
requires an overlay of other elements, partly derived from local Having a strong national airline based at the
influences, partly from regional and global developments. hub has typically been a vital characteristic. That
Thus, for example the rise of the Gulf hubs over the past two decades this was due to the protective nature of bilateral
has resulted from a combination of factors: aircraft technology, allowing aviation regulation means that this may be
long haul connectivity; supportive government strategies, generating changing – for example in the EU, where foreign
a climate in which traffic growth can thrive; and a more liberal global airlines are able to establish across borders, or
access regime. in Asia, where cross border JVs achieve a similar
There are many other factors in the mix, but it is reasonable to assume change.
that the future airport leaders in international market growth will be
those that accentuate transfer traffic. Global alliance presence
The established hubs tend to have a major
member of a global alliance present, so that
other members converge on it. This is more a
case of chicken and egg though, as it was often
the largest, established airlines which formed
the core of the alliances. Clearly the Gulf carriers
have changed the nature of global networks, so
that the alliances have only minimal presence at
their hubs (even though their open skies regimes
allow foreign operations freely.
The int iguing question though is not what is not clear. Depending on its timing, on current growth trajectories, it
sort of short term changes to the table can be should become established as global front runner.
expected but rather what the longer term ones No European hub airport is increasing in global importance. It is
might be, and why. What will the picture be evident that while the European airports are growing, apart from Istanbul
like in 2025? (which is on the Europe-Asia boundary) airports in the Middle East
20 years is often the maximum period for and Asia Pacific a e growing more substantially; only Madrid is actually
which an airport will even attempt to forecast moving up the earlier table (+2 places). The Eu opean continent has its
because so many of these variables are so own economic problems, it is no longer the world’s natural aviation hub
unpredictable. Even a 10 year period allows and politically it faces the prospect of breaking up, led by Britain’s exit
for the unanticipated introduction of variables. from the EU following the referendum on 23-Jun-2016.
Thus in addition to the relatively exhaustive While there will always be international travel to/from Europe for both
listing of influential eatures, matters such business and leisure reasons it appears as if that hub role will continue
natural events and pandemics impact airport to diminish over time. Moreover, there are political issues preventing the
planning. addition of runways, the prime examples being at London and Munich.
The e are short and long term influencers And it is not only within Europe that runway infrastructure has a
For example the US economic recovery gave controlling say in future growth patterns. Hong Kong for example, where
a boost to airports such as New York JFK in the international passenger increase was 8.3% in 2015, like Heathrow,
2015, even if it did not improve its ranking. On needs a new runway; there is strong opposition in both places, although
the other hand the US is beset by problems of Hong Kong has at least gone through a process which might end in
congestion and under-investment, constraining going ahead.
infrastructure growth. The e is a crossover between the ideal size for an airport. But it
In a small number of countries, airports depends on the ingredients of a particular airport. The e is no template
are being built which will replace the existing for determining how big an airport can get before its operations become
leaders. For example the new Istanbul Grand impractical. This has not eally been tested yet. Atlanta’s 100 million
Airport is likely to have superseded the passengers p/a travel mainly on Delta, concentrating the control more
main Istanbul Atatürk long before 2025. It narrowly. An airport handling 125 or 200 million ppa on a range of
is intended to host 200 million passengers airlines, many of them international is a different proposition; and
p/a eventually. Istanbul Grand will slow or operating more than six runways can pose organisational problems of its
displace the expansion of the city’s other own.
airport, Sabiha Gokcen Airport, accelerating its Another question, as the industry evolves, is whether or not the
own role as a super-connector. existing hub and spoke system and the three branded global alliances
A new airport for Mexico City is under (BGAs) will continue to prevail or whether the more recent practice of
construction, with ultimate capacity of 125 ad hoc, often promiscuous alliances, often involving smaller airlines that
million ppa, 24 million more than Atlanta were previously ‘unaligned,’ will influence passen ers towards hub by-
handled in 2015. Both of these airports have a passing (which will adversely affect the established hubs in Europe more
large focus on transfer traffic and e replacing than their counterparts elsewhere). The g owing importance of selective
airports that are currently at capacity – the partnerships is a theme of this series of reports, but in many cases they
implication being that they are likely to expand continue to operate in parallel with the BGAs. The unde lying causes of
faster than others, all other things being equal. limited and artificial c oss border relationships are in the archaic bilateral
New, supplementary, airports are being system and its essentially mercantilistic restrictions; as these evolve, the
constructed elsewhere in cities that will need for and shape of international partnerships changes.
probably feature in the table before long, Interacting with this is the performance of the new aircraft types that
such as Beijing (Daxing) and Chengdu, as enable these hub by-passing operations such as the now established
international business and leisure travel to/ Boeing 787, the newer A350 and the Boeing 777x.
from China starts to grow again. Supported Even the Airports Commission in the UK, which spent GBP25
by farsighted construction, the sheer size of million over three years trying to establish whether an additional runway
China’s various domestic markets prompts should be built at London Heathrow or Gatwick airports, or somewhere
synergistic growth of international operations. else, or not at all, stopped short of predicting future major alliance
In Dubai more use of being made of Al trends. It admitted in its final eport that it could not be certain that its
Maktoum Airport but when and whether or assumptions about the survival and continuation of the formal airline
not it will take over from Dubai International alliances and their hub and spoke systems were accurate.
08
09
10
11
12
13
14
15
n*
-Ju
20
20
20
20
20
20
20
20
20
followed by Oceania, then South America GLOBAL MEGA-CITIES IN 2014 AND 2034
(none of which have an airport in the top 20), SOURCE: MCKINSEY, UNPD, AIRBUS GMF2015
followed by a tie between North America and 47 Aviation Mega-Cities in 2014
Asia, with Europe coming in last. 2014 Aviation Mega-Cities
No fi m conclusion can be drawn from this
other than that most of the population growth 47 0.9M 90%+
Daily Passengers: of long-haul traffic
long-haul traffic to/ on routes
Aviation
in the future, whatever the rate, will come Mega-cities
from/via Mega-
Cities
to/from/via
47 cities
influence n long haul travel and global GDP Source: McKinsey, UNPD, Airbus GMF2015
•
•
>20 000 daily long-haul passengers
>10 000 daily long-haul passengers
to that of 2034.
The c ntrast between the two maps is stark: ALPHA, BETA AND GAMMA CITIES (UPDATED 2015)
© AIRBUS all rights reserved. Confidential and proprietary document.
the focus is on Europe in the 2014 map (and SOURCE: GLOBALISATION AND WORLD CITIES RESEARCH NETWORK
growth continues there to 2034) but most of
the growth of the mega-cities takes place in the
Asia Pacific egion though the Americas gain
several of them, Istanbul and Moscow appear
for the first time and Af ica gets its first ne.
One interesting point about the Airbus
(2034) chart is how it correlates with that of
the rankings issued by the Globalisation and
World Rankings Research Institute.
Both organisations agree with where the
economic focus is, and will be – the northern
part of Asia Pacific North America (mainly
east coast) and Europe.
The e is an argument that the economic
power of cities and city-regions should be Assuming that the calculations are accurate and allowing for the
viewed in a wider context. difference in the year of measurement, it is particularly interesting that,
The Global Ec nomic Power Index (shown while four of the top 10 economic cities figu e in the top 10 airports list
on the next page) reflects th ee key three (London, Paris, Hong Kong and Seoul) the majority do not.
dimensions of economic power – economic, Boston Logan was merely the 48th busiest airport overall in 2015 and
financial and innovative (expressed as the does not figu e at all in international passenger rankings. Beijing Capital
number of patents issued) and lists the top 25 comes in at #13 in the cities league, was the world’s second busiest airport
cities by that measure. overall last year but is nowhere in the international passenger league.
authorities anticipate air traffic owth by ASIA-PACIFIC TO LEAD IN WORLD TRAFFIC BY 2034
continent in the following 10 years or longer. Asia-Pacific
SOURCE: to lead in world traffic by 2034
AIRBUS GMF2015
The e is a degree of commonality amongst RPK traffic by airline domicile (billions)
% of 2014 20-year % of 2034
them. Airbus and Boeing project average 4.75% 0 1,000 2,000 3,000 4,000 5,000 6,000 world RPK growth world RPK
passenger growth from 2014 to 2034, mainly in Asia-Pacific 2014 traffic 2015-2034 traffic
29% 5.7% 36%
that period, indicating a doubling of RPKs in © AIRBUS all rights reserved. Confidential and proprietary document.
that period. Boeing, in its forecast for a similar average passenger growth running at 4.1%, slightly less than the more
period, envisages 4.9% passenger traffic owth. recent Airbus and Boeing RPK forecasts which were also for a slightly
In both cases and signifi antly for regional different time period. Again, the largest growth was envisaged in Asia
market development, growth is expected to Pacific but on this occasion the Middle East ranked just behind Latin
come more from economically expanding America (the ACI forecast was made before economic difficulties bese
regions rather than advanced nations and Asia Brazil and other countries in Latin America – a warning of how quickly
Pacific wi l be the leader. winds can change). Overall there are broad similarities between these
Airports Council International (ACI), in its forecasts and it is clear that much of the growth is going to come from
2012-2031 Global Traffic orecast Report has Asia Pacific and the Mid le East.
made a bold statement for passenger traffi Moreover the Middle Class – from which the bulk of new travellers
growth in the period 2011-2031, which had come – will continue to grow much faster in emerging countries, more
than doubling there from 1.1 billion to 3.9 billion to 2034, while
remaining close to static in North America and Europe. (The total
AIR TRANSPORT GROWTH IS HIGHEST IN percentage of the Middle Class will reach 55% of the global population
EXPANDING REGIONS by 2034 from 37% in 2014 according to Oxford Economics.)
SOURCE: AIRBUS GLOBAL MARKET FORECAST 2015
Another interesting statistic is that while propensity to travel remains
YEARLY RPK at its highest in Europe and North America, 25% of the population
COUNTRIES POPULATION 2014 GROWTH 2015 of the emerging countries took a trip a year in 2014. By 2034 it is
- 2034 anticipated that in China the number of trips taken per head of
China, India, 6.8 billion +5.8% population will have risen close to current (2016) European levels.
Middle East, This alls into question not only global growth but the traffic ws that
Asia, Africa, growth will stimulate.
CIS, Latin Perhaps this is why Delta Air Lines is focussing so strongly on the
America, China market, despite lacking a nonstop flight to the count y from its
Eastern Europe home city of Atlanta (which as previously reported does not figu e in the
Western 1 billion +3.8% top 20 international passenger airports).
Europe, North Capacity growth in the US-China aviation market has been explosive
America, Japan in the last few years and 2016 should be the largest on record for US-
China air traffic ws. Delta’s new CEO, Ed Bastian, recently said the
airline foresees shifting its focus from Tokyo to Shanghai, its likely future
Airbus and Boeing project Asia hub, as the city grows as a regional financial cent e and the country’s
average 4.75% passenger massive internal population grows ever more internationally mobile.
Shanghai Pudong airport’s international passenger traffic in eased
growth from 2014 to by 18.3% in 2015 as it gained four places in the busiest international
2034, mainly in emerging airports league to #25.
These individual oute examples are interesting in their own right but
countries. are part of a much bigger picture of course. These a l form part of how
0.3
0
India China Europe North America 20
27
international traffic ws in general will change over the next decade. 35
The hart below is from ACI’s Global Passenger Traffic orecast 2012, Inner circle: 40
in association with DKMA. Again, a new forecast is in production but 2014
not yet available. The eport claimed: “In line with global economic 20
development, international traffic w l post healthy growth over the next 23 3
8 5
twenty years, especially in Asia Pacific Latin America, and Africa, while
the Middle East, taking advantage of its geographical position, will 8 4
continue to expand. The t ansatlantic route area is currently the largest 5
in terms of volume but, by 2031, it will be surpassed by the Europe-Asia Asia Pacific Africa Middle East
Pacific oute.”
South America North America Europe
Actually, while Europe–Asia Pacific and Eu ope–Middle East have
suggested average growth rates of 5.7% to 2031, the largest growth
posited is Middle East–Asia Pacific at 6.5% The Asia acific– orth IATA O&D forecasts reinforce positive
America fl w would only grow by 4.8%, running contrary to the projections for China, US, India and
suggestion arising out of Delta’s expansion to China, which goes to show Indonesia. The final hart is an IATA forecast
how quickly things can change in a matter of a few short years. that looks at passenger growth between 2014
and 2034 from the perspective of origin and
departure passenger journeys to, from and
ACI/DKMA PASSENGER TRAFFIC GROWTH BETWEEN REGIONS within countries, which includes domestic
TO 2031 (AVERAGE ANNUAL GROWTH RATES) traffic and wh h therefore shows how the
SOURCE: DKMA top 10 passenger markets will expand in that
period. It is a traffic w projection by country
rather than by region.
MARKETS 400
350
India 180
Germany
France
2014-2034 300 UK
160
140
Italy
100 80
2014 2034
50
2014 2034
This hart confi ms much of what has been • Long haul LCCs and ad hoc alliance hub by-passing will redirect traffic from
indicated previously with both Chinese and global hubs but not sufficiently to have a material traffic effect on the larger
US passenger journeys increasing strongly and primary airports within this timescale;
Chinese ones marginally overtaking US ones • New airports may be built to replace or part-replace those in the 2015 busiest
by 2034. While growth is expected this is a airports table;
powerful statement for one very mature market • The physical size of airports may be restricted – the industry is entering new
and another that is heading towards maturity. territory beyond 100 million ppa;
India also climbs dramatically from 100 • Runway infrastructure may be enhanced at some leading airports but not
million journeys p/a to 380 million while others. Existing hubs where infrastructure growth is constrained for one
Indonesia climbs from 85 million to 220 reason or another will lag competitors;
million. Another climber is Brazil, doubling • Political decisions will affect traffic flows both within and between regions;
from 100 million to 200 million ppa. The • The global population will increase by up to one billion by 2025, with Africa
current turmoil in Brazil has mainly taken increasing at the fastest rate but with Asia Pacific easily remaining the most
place since this forecast was produced and may populous area, while the European population will stabilise;
or may not have a longer tern effect. • Analysts suggest the trend towards the congregation of air services within an
The losers so to speak a e again the ever-increasing number of aviation mega-cities, which will number around 70
European countries such as France, Germany by 2025. While they are located across the globe many of the new ones will
and Spain, which continue to grow but in most be in Asia Pacific;
cases not as quickly as the emerging countries • The economic power of a city or city region does not however necessarily
mentioned previously. The UK sh ws a slightly correlate with the size of its airport(s), indicating the importance of transit
higher growth rate to 290 million ppa but traffic;
one wonders how that will be impacted by • The regulatory trend is generally still mainly towards deregulation, notably
the UK referendum result which has already in Asia; and there has been an easing of travel restrictions for international
forced a further delay to the construction of an travel, from China in particular. But the ever-changing political landscape
additional London runway. does encourage contrary measures in some influential countries. Bloc to bloc
These p edictions have much in common, travel need not feed through hubs at each end but the influence of point to
with growth in and between Asia Pacific and point budget travel that bypasses regional hubs is, again, unlikely adversely to
the Middle East the focus of attention in influence those hubs;
coming years. Interestingly Airbus believes • The main airframe manufacturers envisage growth of around 5% p/a
that 70% of traffic owth until 2034 will be throughout the period and beyond and that it will be centred on emerging
coming from existing networks rather than countries, specifically in Asia Pacific. ACI, in its last forecast, concurred but
from new routes. As many new routes presently added the Middle East as a high growth area;
are in the point to point LCC domain, that • The Middle Class is expected to continue to grow at a faster rate in these
lends support to the theory that says that countries, notably India and China, and the number of trips per capita,
the hub and spoke principle will continue to especially international trips, will increase with it;
prevail and this backs up Airbus’ prediction • Traffic flow projections by Canadian analysts (DKMA) suggest that the Europe-
that 95% of long haul traffi will travel between Asia Pacific and Middle East-Asia Pacific zones will be the fastest growing
airports in mega-cities. flows by the end of the next decade. This prediction is largely supported
This o ten contradictory data makes by IATA, which additionally focuses on individual country flows and which
conclusive findings on fu ure directions a anticipates strong growth involving China, India and Indonesia, and, outside
hazardous task. But some conclusions can be Asia Pacific, in Brazil. AL
drawn:
connecting the
connecting
world of travel the
world of travel
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