Air Transport in 2010
Air transport will continue to be an essential influence on the tourism industry
Structural changes in the airline industry will be crucial to the future success of the industry. The insatiable growth of low cost carriers will continue to open new markets and the long-haul aircraft will provide new supply to far flung destinations. Research projections show an expected transition from the extremely volatile swings in demand of the last four years to a period of stable growth which will be led by routes within Asia Pacific, largely due to the strength of economic expansion and the liberalisation of markets in China and India. Routes in Central and Eastern Europe are expected to grow at a faster pace than in Western Europe. However, whilst the above indicators paint a picture of stable growth, the industry continues to be haunted by the twin spectres of global pandemic and economic slowdown.
“Over 1.6 billion passengers worldwide use the world's airlines for business and leisure travel. Research indicates that by 2010, this number could exceed 2.3 billion.”
We have selected five key issues and tried to explain what the airline industry might look like in the future. Although the reality may turn out to be different, it is worth examining each aspect along with its impact on the industry and economy worldwide.
From North to South
In 2005, more than 50% of total passenger traffic was generated within North America and Europe. This will change dramatically in the next few years. The insurgence of China and India as new economic superpowers will capture around 15% of the expected global growth of passengers.
Business vs. Leisure traffic
There is no doubt that people will continue to fly for both business and leisure reasons. The real question is: does the difference matter? What we have seen in the last few years, both in America and in Europe, is that the distinction in product offering is blurring.
LCCs: growth or decline?
We can expect some major overhaul in the LCC segment amongst its players, especially in Europe and in Asia, where the phenomenon is more recent (eight and three years respectively) and where LCCs are experiencing unprecedented challenges. With new market creation that is reaching saturation (at least in Northern Europe) and strong reaction from network carriers (which in Europe and Asia are in much better shape than in the US) and charter airlines alike, what can be expected is a wave of consolidation among the LCCs, either through acquisition or the market exit of many start-ups.
Hub & Spoke vs. Point to Point
Will the transformation of the LCC model imply an end to the ‘Point to Point’ network promoted by budget airlines? Although the Point to Point model is overall less economically efficient, it better serves the needs of passengers moving from A to B. Other things being equal (especially the price!), it will always be preferred over any network link that requires a connection. Furthermore, in the last few years the economic benefits of the Hub & Spoke model (essentially asset allocation and slots utilisation) have been more than balanced by the cost of complexity built in by airlines to run huge network operations.
Super Jumbos vs. Sub Jumbos
Differing views on what business models will prevail in the future is what lies behind the investment decisions that airlines are now taking. Those who believe that the Hub & Spoke model will eventually prove its potential economic superiority are ordering the so called “Super Jumbo”, such as the double deck Airbus A380 (with 550-800 seats), but also its Boeing archrival stretched B747-800 or smaller B777 or A340. Those who believe that passenger preference is for Point to Point travel are ordering the new “Sub Jumbos”, i.e. the 250 seats aircraft like Boeing 787 and the renewed Airbus 350.
Continue reading about the future of airline industry in full-text article attached below.