Market Outlook for Air Travel: A Global Perspective
Market Outlook for Air Travel: A Global Perspective Randy Baseler Vice President of Marketing Boeing Commercial Airplanes
Air Travel Will Rebound To...
Market Outlook for Air Travel: A Global Perspective Randy Baseler Vice President of Marketing Boeing Commercial Airplanes
Air Travel Will Rebound To Long-Term Trend
1970
1980
1990
2000
2010
2020
Multiple Forces Drive Our Industry
Passengers Drive Airline Strategies
Air Travel Growth Has Been Met By Increased Frequencies And Non-Stops 300
Air Travel Growth
Index 1980=100
275 250
Frequency Growth
225 200
Non-stop Markets
175 150 125
Average Airplane Size
100 75 1980
1985
1990
1995
2000
Few Choices Prior To Liberalization
Liberalization Has Led To Market Fragmentation
Increased Frequencies And Non-Stops Meet North Atlantic Air Travelers’ Demands Index 1980=100
350
Frequency Growth
300 Air Travel Growth
250 200 150
Non-stop Markets
100
Average Airplane Size
50 1980
1985
1990
1995
2000
Frequency Growth Has Exceeded Air Travel Growth On The Asia-Europe Market Index 1990=100 450 Frequency Growth
400 350
Air Travel Growth
300 250 200
Non-stop Markets
150 100 Average Airplane Size
50 0 1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Trans-Pacific Air Travel Growth Has Been Met With Increased Frequencies And More Non-Stops Index 1990=100 200
Air Travel Growth Frequency Growth
150
Non-stop Markets
100
50
Average Airplane Size
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Bilateral Changes And New Airplane Capabilities Influences Service Levels And Fleet Mix Tokyo - U.S. Market
Very Large Airplanes Will Not Reduce Airport Congestion 350
300
• Flights by seat size at London-Heathrow airport
250
• OAG August 2002 Daily departures
200
• All scheduled passenger service
150
100
50
0 100 or less
101-150
151-200
201-250
251-300
301-350
Seat size category
350-401
401-450
Over 450
Air Travel Markets Have Unique Characteristics United States
Europe
Asia/Pacific
Deregulation 1978
Deregulation staged: 1997
1/6 population density of Europe Population centers are on opposite coasts Airspace and airports relatively open Rail is a minor competitor; autos compete for short distances
20% population & 24% GDP in 7% of territory
Highly regulated markets. Gvt. ownership/influence. Large geographic dispersion of population centers.
No loyalty to flag carriers (just $ and ff miles) Very little charter Price transparency
Congested airspace and airports High speed subsidized rail is a direct competitor Rail is a minor competitor; autos compete for short distances Lingering loyalty to national carriers: link to culture Vertically-integrated charter Prices becoming transparent Single currency adopted More leisure time
Congested gateway airports underutilized regl. airports Except for Japan, less competition from other transportation modes.
Strong loyalty at most national carriers. Very little charter Closely held pricing, generally. Low but rising average income levels in many countries.
In the European Market, Liberalization Stimulated Frequencies and Non-stop Flights Index 1980=100
Air Travel Growth
350 1997 Single Aviation Market
300 250 200 150
1987 First Package
Regulated Market
1990 Second Package
Frequency Growth
1993 Third Package
Non-stop Flights
Average Airplane Size
100 50 1980
1985
1990
1995
2000
Liberalization Is Changing Airline Segmentation
Low Fare Carriers
Network Carriers account for 78% of passengers
Leisure Carriers accounts for 13%
Low Fare Carriers account for 8-10%
Leisure Carriers
Network Carriers Based on European region passengers carried
European Outlook From:
Many independent Network Carriers
To:
Fewer Network airlines Most in strategic global alliances A few niche carriers
Consolidating Tour Organizations
Leisure and Low Fare carriers share some markets
Low Fare Carriers…
A shakeout of the most successful of the Low Fare Carriers
Most European Airlines Have Extensive Global Networks Airline
Mid & South Alliance Domestic Intra-Europe North Atlantic Atlantic
Aer Lingus Aeroflot
OTHER
Air France Alitalia Austrian British Airways Finnair Iberia KLM Lufthansa Olympic SAS Swiss TAP
OTHER
9 9 9 9 9 9 9 9 9 9 9 9 9 9
9 9 9 9 9 9 9 9 9 9 9 9 9 9
9 9 9 9 9 9 9 9 9 9 9 9 9 9
9 9 9
Far East
9 9 9
9 9 9 9 9 9 9 9 9
9
9 9
9
Africa Middle East
9 9 9 9
9 9 9 9 9
9 9 9 9
9 9 9 9
9 9
9
Few U.S. Airlines Have Global Networks
Airline
United American Delta Northwest Continental USAirways Southwest America West Alaska American Trans Air
Alliance
Domestic North Atlantic
9 9 9 9 9 9 9 9 9 9
9 9 9 9 9 9
Mid & South America
9 9 9 9 9 9 9 9 9 9
Far East
9 9 9 9 9
Africa
Middle East
9 9 9
Air Travel Markets Have Unique Characteristics United States
Europe
Asia/Pacific
Deregulation 1978
Deregulation staged: 1997
1/6 population density of Europe Population centers are on opposite coasts Airspace and airports relatively open Rail is a minor competitor; autos compete for short distances
20% population & 24% GDP in 7% of territory
Highly regulated markets. Gvt. ownership/influence. Large geographic dispersion of population centers.
No loyalty to flag carriers (just $ and ff miles) Very little charter Price transparency
Congested airspace and airports High speed subsidized rail is a direct competitor Rail is a minor competitor; autos compete for short distances Lingering loyalty to national carriers: link to culture Vertically-integrated charter Prices becoming transparent Single currency adopted More leisure time
Congested gateway airports underutilized regl. airports Except for Japan, less competition from other transportation modes.
Strong loyalty at most national carriers. Very little charter Closely held pricing, generally. Low but rising average income levels in many countries.
Many Asia/Pacific Airlines Have Extensive Global Networks Airline
Air New Zealand ANA Cathay Pacific China Airlines Air China China Eastern China Southern Garuda Japan Airlines Korean Malaysia Qantas Singapore THAI International
Alliance Domestic Asia-Regional
9 9 9 9 9 9 9 9 9 9 9
9 9 9 9 9 9 9 9 9 9 9 9 9 9
Europe
9 9 9 9 9 9 9 9 9 9 9 9
North America
Africa Middle East
9 9 9 9 9 9 9 9 9 9 9 9 9
9 9 9 9 9 9
9 9 9 9
Asia Pacific Outlook From:
To:
Relatively low income base
Rapid demographics & economic progress in many countries
Congested, high cost gateway airports
Bypass large hubs to underutilized regional airports
Regulated markets
“Soft liberalization” with limited risks to national flag carriers
No low fare carriers
Emergence of stand-alone and subsidiary low cost carriers
A collection of distinct National based aviation markets
Emergence of cross-country ownership & co-operation
Summary
Liberalization is moving around the world and creating a competitive marketplace
Passenger’s demands will drive airline strategies towards more frequencies, non-stops and lower fares
Competitive marketplace will cause airline consolidation and business model changes
Economic growth will return and traffic growth will rebound to long-term trend
U.S. Transport Evolution Continues annim could show pulldown into bankrupcy if that occurs?
History: People’s Express PSA Eastern Pan Am Trans World Reno Piedmont Allegheny Braniff Republic Morris Hughes Air West Frontier Air CAL
Global Network Carrier
Short Haul Start Ups:
Low Cost Start Ups:
Regional Airlines:
Bankruptcy US Air United Vanguard Midway AMR?
Entry Barriers
Asia Pacific Is Different
More regionally diverse, more populous, lower income/GDP
Larger geographical area
No unified market like U.S. or E.U., national interests
More regulated but loosening, gov’t owned/influenced
Even with this, International competition results in frequency and nonstop growth in the International markets
Short Haul and Low Cost Carriers Have Pick Up U.S. Market Share -17% Revenue 2000
Short Haul 14%
Revenue 2000 Low Cost 11%
Low Cost 8%
Short Haul 14%
Global NW 78%
While total airline revenue decreased by 17% low cost airlines increased market share by 3 pts to 11% of total system Revenue.
Global NW 75%
777 Is Fragmenting The North Pacific As 767 Did the North Atlantic
China Airline Consolidation through Government Air China (Beijing) China Southwest (Chengdu)
Air China Group
Zhejiang Airlines (CNAC)** (Hangzhou) China Southern (Guangzhou) China Northern (Shenyang) China Xinjiang (Urumqi)
China Southern Group
China Postal (Beijing) Xiamen Airlines (Xiamen)* China Eastern (Shanghai) China Northwest (Xi’an) Yunnan Airlines (Kunming) Wuhan Airlines (Wuhan) *China Southern Group has a 60/40 share in Xiamen Airlines **CNAC Holding s include Zhejiang Airlines, Dragonair, Air Macao
China Eastern Group
China Airline Consolidation through Government Hainan Airlines (Haikou) China Xinhua (Beijing)
***All belong to China Sky Aviation Enterprises Group: a loose alliance with code share and spares pooling, ticketing, etc.; not an official consolidated airlines group.
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