Future Travel Trends Between Different Countries - Case Study Example

Future travel trends between different countries (2005-2025) Globalization coupled with increasing urbanization and liberalization in developing countries will go a long way in determining the shape of the future network. Following is a brief insight into the predicted trends of travel, region wise: ASIA: Growth potential for the intra Asian market is enormous. The pace of expansion however will depend on the pace of deregulation in the emerging Asian economies. The ASEAN is expected to open skies in 2008.Estimates suggest, that a fully liberalized Asian market could initiate 1600 LCC routes. India and China remain the largest submarkets registering 12.3% and 8.2% growth rates respectively.Intra regional travel seems more promising that international travel for Asians. International traffic is slated to grow at 6.1% during the next decade and is likely to slow down to 5.5% over the 2015-2025 period.1 NORTH AMERICA: North America remains the most mature and the largest market in terms of traffic volume. Since it is a mature market the twenty years growth estimates are lower than the world average. However the market was occupy an important position because of the sizeable volume of traffic flows. International travel prospects are more promising than inter regional, therefore the passenger fleet size will enlarge to 7402 units in 2025 from its current size of 4133 units(in 2005).2 LATIN AMERICA AND CARRIBEAN: Agreement between Brazil, Argentinia, Chile and Peru allows for a level of fifth freedom rights.ElSalvador, Guatemala, Hondauras and Nicaragua have moved a step closer to a single Central American Aviation market with an agreement that calls for more relaxed customs and immigration controls. Traffic growth projections for Latin America, for the review period are higher than the world average at 5.3%.The annual average rate for inter regional traffic is anticipated to be 6.1%.3 EUROPE:Inter regional traffic within Europe will remain the second most significant flow accounting for nearly 12% of the total world’s traffic within that region. In 2005 Transatlantic load factor stood close to 83%.European traffic growth forecast stands at 4.8% equally the world annual growth rate. International traffic growth is likely to be robust. Therefore Europe’s passenger fleet will double by 2025.4 Europe-Asia Pacific traffic flows will increase at 6.0%, with Latin America at 6.0%.CIS and Europe traffic flows will hit a 6.6% growth rate and a strong 7.3% with Middle East. CIS: International traffic flows from CIS will see a 6.8% increase, marginally above the world average rate. Russia dominates the aviation market landscape in CIS.In September 20005, more than 88% of CIS available domestic capacity was with Russia. Strategic destinations for international travel will be-Asia Pacific, North America and Middle East and Latin America.5 AFRICA: Angola and Nigeria are increasingly becoming an important business destination, mainly because of the accessibility to natural resources like oil, gas and copper. India and China besides other nations have struck trade partnerships with these African nations. In 2005, 100,000 Chinese tourists visited Africa, doubling the figure from 2004.Sub Saharan Africa is saw a 13% increase in international traffic inflows in 2005 as against 5% in 2004.6 MIDDLE EAST: Dubai has climbed from the 26th to the 10th position as a global hub over the last decade.Globally, the route exhibiting the highest growth in terms of traffic volume is London-Dubai. Middle East also has a geographical advantage with a 8,000 nautical miles circle around it.Also, the benefit of having three emerging economies (Russia, China, India) in its “backyard” makes it an advantageous location. International traffic growth is anticipated to be 7.2% for the next ten years and 6.3% over the span of 2015-2025.7 Potential for New Markets. BRIC: Vast consumer base and a consistent high growth rate. The emerging economies in Asia with their large populations and buoyant economies are expected to be the most promising markets for air travel over the next twenty years.Brazil, Russia.India and China (BRIC) are grouped as the emerging econmies, with China leading the way registering a consistent and blistering rate of GDP growth over the past few years. It is estimated that one in five aircraft deliveries will be to the emerging markets in the next twenty years. Currently the consumer base of BRIC countries is 1.5 billion; however with their high population growth rate they are likely to add 80 million (BRIC combined) new flyers every year. Another indication of their growing and untapped potential is the fact that BRIC represented only 5% of the world’s aircraft orders in 2004 but in 2005 their share had shot to 35%.8 Clearly the propensity to consume has been increasing with increase in per capita income. The reasons driving this growth are the deregulation of their home markets, vast population base and increasing disposable income. A brief examination of the growth trends and opportunities available in India and China follows: India-The Indian economy has grown impressively over the last three years. Currently the rupee is strengthening against the dollar and India is a favored FDI destination next only to China, and ahead of US. After the introduction of economic reforms in the country in 1991 many sectors have been liberalized, privatized and deregulated. The aviation sector was deregulated a few years back, resulting in more players in the airline industry, increased competeion, reduced fares and the roll out of no frills airlines. India is playing a strategic role in the global economy and is poised to become the second largest manufacturer in the world. Over the last three years international tourism to India has increased by 60% and business travel has increased by a staggering 140%.This trend will translate into a high demand for aircraft fleets in the future. It is estimated that to meet the increasing demand for domestic and international travel, the Indian aircraft fleet will grow from 190 aircrafts at the end of 2005 to 939 aircrafts at the end of 2025.9 The domestic traffic growth rate is forecasted to be 16.4% over the next ten years. China-The growth rate forecasts for China are regularly being revised upwards. China is the fastest growing outbound tourism market. In effect, this implies that China will need 2666 passenger aircrafts by 2025 while freight traffic is expected to grow at 8.2% per annum.2005 ushered a new phase in the Chinese aviation industry, with the number of outbound tourists exceeding 30 million for the first time.10 The main reasons for this phenomenon are-burgeoning middle class, rising disposable incomes and an accelerated pace of liberalization. The domestic traffic growth is poised to grow at 14.7% for the next five years. 2008 Olympic Games in Beijing and 2010 Football World Cup in South Africa: These events can take the tourism industry of the host nations to another level.Historically,the host countries stand to benefit as there are infrastructure additions, job and revenue generations, and the country can be showcased to the world to boost inbound tourism.Japan,Seoul and Sydney witnessed this trend.Therefore,given the quality and extensive global coverage that the 2008 Olympic games and the 2010 Football World Cup will receive, they are expected to generate long term tourism benefits to the host nations.11 The rising Asian demand for Lost Cost Carriers (LCC’s) Asian LCC’s have clocked a 4% growth in two years, from 5% in 2004 to 9% in 2006, within their rapidly liberalizing regional markets. There is immense potential in the intra Asian international market, much more than that for domestic new route developments.Furthermore, the ASEAN (Association of South East Asian Nations)is planning to open skies in 2008.In a fully liberalized market, air travel demand in Asia can generate 1600 LCC routes by 2015.12 Estimates suggest that Asian LCC’s will grow at 11% per year in the next decade. Global Airline Growth The forecast suggests that airlines based in Middle East and Asia will grow more rapidly and consistently than those based in other regions, averaging 6.4% and 6.2% per annum respectively. Airlines in Latin America, Commonwealth Independent States (CIS) and Africa are also expected to grow at a rate that will be higher than the global average. European and American airline companies already occupy strategic positions in terms of traffic and aircraft fleet, however they will register a growth rate of 3.9% and 4.6% per year over the review period (ie; next twenty years).13 Single Aisle Aircrafts in the Asia Pacific Region The analysis indicates that the demand for single aisle aircrafts will strengthen with most additions being made in the Asia Pacific fleet. At the same time, a very large aircraft A380 will be needed to operate between the regional hub cities.14 Asian Growth Story Unfolds: The Asia Pacific regions remains very dynamic recording an average growth rate of 6% since 2000 and sustaining the external shocks reasonably well. This consistent growth rate is well four points above that achieved by the OECD countries (Organization for Economic Co-operation and Development).India’s promising industrial sector will mean larger volume of exports of high value consumer and technology goods. This will translate into demand for air cargo business. However the most significant development of this region will be it’ 3.5 billion consumers, which will lead to a paradigm shift, making Asia the “world’s consumer” from the “world’s producer”. 15 Mature economies in this region will benefit from having India and China in their “own backyard”. Structural changes like a expanding middle class, an emerging household credit culture, growing consumerism will be the cause as well the effect of the Asian growth story. Projections for freight and air cargo Passenger Aircraft demand: Over the next decade the combined demand of world’s airlines will require 10,449 new passenger aircrafts to accommodate the increased traffic. These aircrafts will have a capacity of 100 seats. The 20 year market demand for 21,860 aircrafts will be worth $2.4 trillion. At this rate, new passenger aircraft deliveries will average 1093 units per year.16 Concentration of demand market wise: North America and Europe: Air travel growth in mature markets like North America and Europe will slow in the following decade of the review period. However demand for aircrafts driven by higher number of replacements during that period will be strong. In America, 80% of the demand is forecasted to be for the single aisle planes with more than 100 seats. The share of US and Europe in the global demand will be 28% and 25% respectively. Middle East and Asia: Most of the orders for twin aisle very large aircrafts will come from Middle East and Asia. Asia Pacific: Maximum number of deliveries will go to the Asia Pacific region. Airbus expects to deliver 6742 new aircrafts to this region-which constitutes 31% of the global demand in the next 20 years. 16% of the orders will be spread across the rest of the world. Among these,6% demand will be concentrated in Latin America. Aircraft model wise demand analysis: Single Aisle Aircrafts: Single aisle fleet will grow to more than 20.000 aircrafts and account for 70% of the total production volume. Asia will be the largest single aisle market in the world, primarily because of the phenomenal growth of low cost carriers in the region. However seven out of ten single aisle airports will be concentrated in the US. The demand for this model will be dispersed across the US and Europe as well. Mexico is expected to be the most promising single aisle market of Latin America, largely because of the stimulation of traffic from the Mexican start up airlines. Three fourth of the single aisle planes demand will be met by new deliveries and one fourth by recycled aircrafts.17 A380: Very large aircrafts (VLA) like the A380 will be required to operate on routes between the regional hub cities.1,263 units of VLA will be needed, with demand being centered mostly around Europe and Asia Pacific. Half of the top 20 large aircraft airports will be located in Asia Pacific.18 Twin Aisle Aircraft: Twin Aisle will account for 40% of the total production volume. Despite the disruptions and external shocks over the last five years which have adversely affected the travel industry, long haul international travel continues to grow at 5.8% per year. Global forecasts for long haul traffic are optimistic, especially for developed economies. Therefore deliveries of twin aisle planes will reach 250 units per year in the next decade.19 Europe will remain an important long haul market. As much as 70% of the demand for twin aisles will be concentrated with 50 airlines. Freight and Air Cargo Market The US market: Globally air cargo is witnessing a strong growth, it clocked a 65 traffic expansion in 2005.Currently, the US domestic market is the largest in this segment with an 11.9% share of the world’s total FTK’s(Freight tonne kilometers) in 2006.Also, it is one of the most mature markets in the world. Airbus foresees an average annual growth of 3.3% over the review period for this market.20 Fastest Growing Freight markets: India and China People’s Republic of China will feature in the top three out of five freight markets in the near future. In China, the freight market has seen a growth of 9.6% per annum over the last decade. America and Europe will remain China’s crucial trading partners, therefore traffic flows to these regions is likely to increase at 11.6% and 10.4% respectively by 2015.Robust demand could translate into an expansion of the fleet size from a current 22 aircrafts in service today to 117 aircrafts in 2025.21 Airbus envisages that a full fledged freight market will develop in these economies the way it is currently in Europe and North Amercia.Existing operators like FedEx and DHL will significantly increase the scale of their operations. A conservative estimate suggests that on an average the express traffic will increase at 12.5% on a yearly basis. India: The Indian express market is expanding on similar lines. The fleet size is poised to enlarge form 5 aircrafts in 2005 to 126 aircrafts in 2015 with a large proportion of small freighters.22 To accommodate the global demand the fleet size will exceed 4000 units. Region Number of aircraft units North America 1673 Europe and CIS 527 Asia Pacific 1106 Middle East 24 Latin America 164 Africa 84 The 254% increment in freight traffic will be met by a 150% increment in the fleet size (from a 53.4 tonnes to 62.4 tonnes increase in the average payload).The surging demand will be met by new deliveries as well recycled and combi airplanes.2,777 units will be newly manufactured whereas 803 units will be converted from passenger aircrafts or combis.23 REFERENCES Airbus Case Study-Global Market Forecast. (GMF) The Future of flying.2006-2025 1Page-18; GMF 2Page-22; GMF 3Page-24;GMF 4Page-25;GMF 5Page-27;GMF 6Page-28; GMF 7Page-29;GMF 8Page-6;GMF 9Page-8;GMF 10Page-9;GMF 11Page-11;GMF 12Page-18;GMF 13 Page-18;GMF 14Page-21;GMF 15Page-21;GMF 16Page-30;GMF 17Page-34;GMF 18Page-35;GMF 19Page-37;GMF 22Page-40;GMF 20Page-39;GMF 21Page-40;GMF 23Page-41;GMF Read More