Growth Trends in the Aviation Industry
A top Boeing executive recently told CNBC that the aviation industry has seen robust growth and the market is currently in a very good place, which could lead to all kinds of growth opportunities for companies.
Randy Tinseth, vice president of marketing at Boeing Commercial Airplanes, told CNBC that passenger traffic has topped projections and the demand in cargo trading markets has returned the past few years, causing airlines to be at or near record profits. He added that Boeing had record deliveries in 2017 and is on track to deliver even more aircraft this year.
Boeing’s performance comes in the middle of shifting customer demands. Case in point: More airlines are moving in the direction of direct service flights rather than going through a hub.
Boeing’s own 787 Dreamliner is facilitating this shift, and Tinseth said the plane has opened up 180 new markets since starting service in 2011. The Boeing executive credited the opening of these new routes to having right-sized airplanes, efficient airliners and favorable economics.
Companies looking to take advantage of the current state of the aviation industry should be aware of the long-term global trends listed below.
Smaller aircraft will also unlock route potential
During the next two decades, more right-sized aircraft are expected to serve more intra-regional routes. In East Asia, for instance, the 100- to 150-seat segment has experienced 20 percent increase in global city-pair routes. In this region, there is still major potential for development in the low-cost carrier model using 100-150-seat aircraft.
In China, where the government is looking to stimulate growth by supporting services to underserved markets, the low-cost model would tackle lagging connectivity with point-to-point service in this fast-growing region.
City-pair growth around the planet, where 100- to 150-seat aircraft best serves routes, will drive the need for airlines to right-size their fleets. South Asia could increase new routes to around 1,200 by 2026, while routes in Africa could nearly double by 2026.
Growth by opening up intra-regional routes is not restricted to developing markets. In the US and Europe, 100- to 150-seat aircraft services can help alleviate stress on infrastructure and service back to currently-abandoned routes.
Airline profitability will rise by giving priority to profit-per-passenger
The current emphasis on high-volume, low-fare sales runs against the best interests of airlines. This approach turns seats into low-yield commodities, keeping the industry from seeing ample profits from operations. High traffic levels and a focus on cost-per-seat rather than yield-per-passenger, have also led to poor passenger experience.
As airlines aim to strengthen profitability, they will prioritize right-sized aircraft, allowing them to grab underserved or new intra-regional routes and alleviate traffic both outside of and inside the cabin. Effective planning of intra-regional routes based on regional demand, and the introduction of “closer to home” services in proper catchment areas can provide customers with a better airport experience. Right-sized aircraft will also facilitate a more passenger-friendly cabin design. This returns value to the equation, giving airlines the chance to charge sustainable fares for enhanced services.