Despite considerable challenges in many parts of the world, Asia Pacific will continue to lead global economic growth with an average forecast GDP of 3.9% annually over the next 20 years. Hence, the region’s share of global GDP is predicted to rise from 33% to 40% by 2036, as forecast by Boeing. Regional airlines are expected to post a 7.4 billion USD net profit in 2017 and play a critically important role in the ongoing development of worldwide aviation, driven by the robust economic growth of China, India, and Southeast Asia markets.
Bright Outlook Aviation Market
In July 2017 Association of Asia Pacific Airlines (AAPA) reported the region’s airlines carry 1,214 million passengers and 20 million tons of cargo, represent one-third of world passenger traffic and two-fifths of world air cargo traffic respectively. The report showed solid expansion in international air passenger markets and sustained growth in international air cargo demand, reflecting positive business during the first half of 2017.
Air travel demand is estimated to grow at 5.7% annually, and in next 20 years Asia-Pacific airlines will reach nearly 40% of worldwide passenger traffic. Meanwhile, the demand for new aircraft by 2036 could soar to about 35,000 with the value estimated at 5.3 trillion USD.
This significant increase has been largely due to regional economic development, new technology-enhanced airplanes expanding further market opportunities, robust foreign investment and successful evolution of new business models. Moreover, Asia Pacific accounts for 60% of the world’s population and with growing middle classes likely in China and India, the drivers are in place for continued contribution to air traffic growth and the region’s aviation development.
Dynamic Business Models Reshape Market
More and more regional airlines are modernizing their fleet by purchasing new generation airplanes to replace their ageing aircraft. Boeing disclosed that over the past decade jet fleets of Asian airlines have nearly doubled from 3,600 to 7,000. The number of airlines with jet fleets has grown from 200 to 250, while airplane orders by these carriers has increased from 1,940 to 4,400. The average capacity has grown by approximately 10% annually.
Moreover, different business models and airline strategies are starting to reshape the aviation industry in Asia, especially the low cost carrier (LCC) model which has gained success in increasing accessibility in the region. Noticeably, rapid LCC expansion has been the main driver of traffic growth and change in Southeast Asia market, whose biggest names are AirAsia, Lion Air, Tiger Air, Vietjet Air, and Cebu Pacific. Seat capacity provided by LCC airlines has grown on average by 22% annually, currently providing the most number of seats in the global LCC market.
This new model is capturing significant attention of many of the airline operators and worldwide investors as these carriers start to become profitable and more strategically able to effectively compete with the traditional carriers.