China, India drive aviation growth in Asia

In India alone, in the last couple of years the airlines have ordered almost 1,200 airplanes from different aircraft manufacturers who are ‘gung-ho’ about the prospects in India. Low-cost carrier (LCC) IndiGo has a record breaking order of 530 A320 family aircraft with Airbus, while another LCC SpiceJet has ordered 205 Boeing 737 MAX. Neighbouring China is on a faster track than India and is soon expected to displace US to become the number one aviation market in the world. According to Boeing, China needs 6,810 aircraft valued at $1.025 trillion in the next two decades, while India will occupy the third place.

Both these countries are expanding multi-modal transportation to bridge the divide between rural, towns and cities and air network is one such route. After the NDA came to power in India, there have been accelerated efforts to develop air connectivity and the highpoint of this government is the new Regional Connectivity Scheme (RCS) which is expected to take off soon. What that means to aircraft manufacturers and operators is new window of opportunity. Different types of aircraft will have to be deployed to achieve remote and regional connectivity and this means that the demand for aircraft is going to go up exponentially, once the policy is up and running.

Surge in Middle Class Travel

The surge in travel by the middle class in Asia is the main reason for airline operators to go on an expansion binge. Besides India and China the other countries in Asia where hectic aviation activity is going on include Malaysia, Indonesia and Vietnam. To support this robust momentum, Boeing forecasts that over the next 20 years, the South East region will need 3,860 new airplanes, valued at $565 billion. Passenger traffic growth in South East Asia is expected to continue to accelerate at 6.4 per cent over the next 20 years, outpacing the world’s average annual growth rate by 1.6 per cent. These countries have major plane orders from either of the two behemoths.

The humongous growth is directly linked to new air passengers coming into the market in all these countries, thanks to the purchasing power going up and also due to low fares. LCCs have changed the game in these countries and airline travel is almost on par with AC II-tier train travel in India. The options for the traveller have increased.

Asia Has Healthy GDP

It all boils down to each country’s GDP and the Asian countries are showing vast improvement in economy. Boeing states that the Chinese economy continues its transition towards a more services- and consumption-based economy — away from the investment, export and heavy-industry focused growth of the past. While overall economic growth is slowing, consumer spending and services are forecast to grow faster than industrial output for the medium run. The new economic model holds large potential for future growth. Yet, it also depends on a continued reform effort to unlock productivity improvements. Over the next 20 years, it is forecast that the Chinese economy will grow at 5.1 per cent annually and airline passenger traffic will grow at 6.4 per cent annually. These two indicators, as well as other growth items, such as a growing middle class, help drive a need for 6,810 new airplanes, valued at more than $1 trillion.

Similarly, Airbus has forecast that China will need nearly 6,000 new passenger aircraft and freighters from 2016 to 2035, with a total market value of $945 billion. It represents 18 per cent of the world total demand for over 33,000 new aircraft in the next 20 years. The two behemoths are looking at the $1 trillion mark.

China, India Engines of Growth

Boeing said that the Asia region continues to demonstrate vigorous economic growth at a rate of 4.1 per cent per year, outpacing the global average by 2.9 per cent. Driven by China and India as the main engines of growth, the region’s share of world GDP is projected to rise from 31 per cent today to 39 per cent by 2035. The significant growth rate in this emerging market is expected to continue. As a result, airlines, airport capacity and passenger traffic are expected to experience a robust growth rate in the next 20 years. Demand in commercial aviation is also coming from the continuing expansion of the middle class in Asia, where a greater sector of the population is reaching income levels that make flying more affordable. Despite the presence of geopolitical conflict and currency fluctuation, Asia’s airlines are estimated to have earned a net profit of $5.8 billion in 2015 and are projected to earn a net profit of $6.1 billion in 2016.

16,970 Airplanes Needed in Asia by 2035

Boeing has forecast that the total air traffic for the region will grow at an average of 6.2 per cent, and by 2035, passenger traffic throughout Asia will constitute 48.7 per cent of global passenger traffic. Driven by the region’s strong economic development, highly effective industry structure, and increasing accessibility of air transport services, more than 100 million new passengers are projected to enter the market annually. To accommodate this significantly growing demand and modernise their fleets, over the next 20 years Asia will need 15,130 airplanes, valued at $2.35 trillion. The number of airplanes in the Asia fleet will nearly triple, from 6,350 airplanes in 2016 to 16,970 airplanes in 2035. Fast-growing LCCs within the region will help drive a need for 11,160 single-aisle airplanes. Airplanes like the 787 and 777 have enabled airlines in the region to open new markets. These market dynamics will lead to regional need for 3,680 new wide-body airplanes by 2035.

Over the next 20 years, it is expected that Northeast Asia that includes Japan, North and South Korea will have slower than average, but steady, growth. The GDP is forecast to grow at 1.2 per cent and airline passenger traffic (RPK) will grow at an average of 2.6 per cent. Airlines in the region will need 1,440 new airplanes, valued at $320 billion. Northeast Asia continues to see similar trends to what we are seeing around the world: strong replacement demand, fast-growing low-cost carriers, and movement from large wide-body airplanes to small- and medium-sized wide-body airplanes.

India Changes Policies to Help Aviation

India dominates the South Asian economies, contributing about 80 per cent of the region’s GDP. India’s GDP is forecast to grow at 6.6 per cent per year over the 20-year period. India’s domestic traffic has enjoyed the strongest growth of late with a 20 per cent year-onyear increase in revenue passenger kilometres. International traffic is also up, at 8 per cent year-on-year. But in the recent past, the proactive policies of the Indian Government are changing the dynamics of aviation, the results of which will be seen in the next 5 to 10 years. ‘Pure’ LCCs now account for about 65 per cent of domestic capacity in India, and full-service carriers are shifting additional capacity to their low-cost operations. LCCs further stimulate growth in aviation and tourism through lower fares and additional services on regional routes. Airports are getting activated and with increased connectivity, one can only expect the growth momentum to continue.

South Asia’s fleet count was 510 at the beginning of 2016, of which 80 per cent are single-aisle airplanes in service with both low-cost and full-service airlines. As traffic demand increases, the region will require 2,000 new airplanes by 2035, consisting of 1,690 single-aisle and 310 wide-body jets to satisfy demand for growth and replacement.

With the Indian Government pushing regional connectivity, one can expect regional jets and turboprops and even business jets coming into play on a major scale. In Asia itself, new regional jets in the 70/130-seat segment is going to increase. Embraer Commercial Aviation believes that airlines will take delivery of 1,570 new jets in the 70- to 130-seat segment over the next 20 years (valued at $75 billion, at list prices), representing 25 per cent of the worldwide demand for the segment, in the period. According to the global Embraer Market Outlook for the 70- to 130-seat capacity segment for the next two decades, the entire market will demand 6,350 new jets in this category, which is valued at $300 billion over the period.

Regional Airline Market Oportunities

Embraer sees untapped opportunities in Asia-Pacific, where more than 250 markets, or 30 per cent of narrow-body exclusive markets are served with less than one daily frequency. Markets like these would be better served with 70/130-seat jets, based on the average number of passengers per departure. Also, 37 per cent of intra-regional turboprop capacity is offered on routes longer than 200 nautical miles, which are better suited to jet operations, due to their higher network productivity, better operating economics, and superior passenger appeal. The markets are opening up and with liberal policies, aviation has only to soar to the next level.