The statements contained herein are based on good faith assumptions and provided for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance. Actual results may vary depending on certain events or conditions. This document should not be used or relied upon for any purpose other than that intended by Boeing. Boeing is a trademark of The Boeing Company.
Randy Tinseth Vice President, Marketing Boeing Commercial Airplanes
July 2012
Current Market Outlook
Presenter
Presentation Notes
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In order to develop the forecast, we must answer two fundamental questions: 1) How fast and where will traffic grow; and 2) how will airlines develop their route networks to accommodate this growth. In addition, there are a number of other factors considered and evaluated during the forecasting process… For example, Fuel price: fuel price can impact economic growth, aircraft retirement decisions by airlines, and the economic viability of some types of aircraft. High Speed Rail (HSR) has become a competitor to air transportation in several markets such as China…how does that influence the forecast? China HSR: 13,000 km by end of 2012 – more than the rest of the world combined Impacts about 70 city pairs – up to 1,200km <2% of traffic…and HSR connectivity stimulates economic growth…helping air traffic grow. Capability: We assume that new aircraft will become more capable, able to generate more RPK’s than older aircraft – more seats, higher utilization, longer missions and increased load factors. In fact, aircraft at the end of the forecast period will generate about 40% more RPK’s than aircraft today….13,000 aircraft Liberalization of the air travel will continue…intensifying competition stimulating traffic growth Infrastructure will continue to be an issue impacting the industry. To support of this forecast, we preformed our most extensive analysis of worldwide airport infrastructure…likely, the most extensive study done by any manufacturer. In this study, we looked at nearly 200 airports worldwide and their ability to handle traffic over the forecast period. Our analysis included completion of planned airport improvements. Aside from the NYC area, the North American market will have few constraints over the forecast period. Europe is a bit of a surprise. We see a number of airports (14) approaching or at the planned capacity by 2030….with the most pressing issues today in the UK. Europe also needs a complete overhaul of their ATC system. The Chinese government has planned to add 97 new airports by the year 2020. Even with this investment, as one of the world’s fastest growing markets, infrastructure will be a challenge. On top of airport congestion, China has approximately 80% of it’s airspace closed to commercial traffic for national defense purposes, dramatically constraining airspace capacity. Other areas of constraint include MEX, Brazil, Japan and India. LCC’s, 6th freedom Gulf carriers and Chinese airlines will expand faster than their competition. Let’s now focus on the two fundamental questions I discussed earlier....First, Traffic growth IATA is on record saying that every $1/bbl increase in oil prices = $1B additional cost to the airline industry. The reason we see different numbers for costs (versus consumption of jet fuel which around 1.7B barrels for the commercial usage based on 2007 IATA stats) is hedging and exchange rates impacts.
Drivers of air travel About 60% to 80% travel demand is driven by economic growth, growth in trade and growth in personal income. In addition, about 20 to 40% of travel demand is stimulated by more and more value being created for passengers….through increased connectivity, increased efficiency and lower prices. Growth in air travel, measured in revenue passenger-kilometers (RPK), has historically outpaced economic growth, represented by GDP, by approximately 1.5 to 2.0 percent. This leads us to conclude that about 60 to 80 percent of air travel growth can be attributed to economic growth, which in turn is driven, in part, by international trade. This is consistent with the observation that countries whose economies are tied to trade tend to have higher rates of air travel. Air travel revenues consistently total about 1 percent of GDP in countries around the world, regardless of the size of the national economy. Globally, air travel has historically trended toward this consistent share of GDP, such that countries that are below or above this level will generally move toward it over the long term. The remaining 20 to 40 percent of air travel growth results from the stimulation provided by the value travelers place on the speed and convenience that only air travel can offer. For example, travelers value choice of arrival and departure times, routings, nonstop flights, choice of carriers, service class, and fares. Liberalization is the primary driver enabling value creation in the global air transport network. Liberalization typically gives rise to a “bump” in traffic demand. Studies suggest that as the relative openness of a country’s bilateral air service rises from the 20th percentile to the 70th, the resulting increase in traffic can boost air travel demand by an additional 30 percent. Often, economic growth, induced directly and indirectly by improved air services, creates a virtuous circle that leads to further air transport growth, which in turn leads to added economic growth, and so on. The percentage of air transport growth that comes from economic development compared to the percentage that comes from the value of air travel services is an indicator of the maturity of an air travel market. Although individual regions may exhibit signs of slowing due to maturing markets, other regions continue to grow vigorously. Current global percentages do not indicate that the market is nearing maturity in aggregate.
As you can see, air travel has grown about 5% per year over the last 30 years. It has grown despite a number of economic cycles, it has grown despite special challenges are industry has faced. Air travel is resilient; it has truly become an integral part of the social and economic fabric of our of the world. And, it will continue to grow. How many recessions have we seen since the beginning of the jet age? The short answer is: 9. The longer answer is, assuming the following: - first flight of the 707 defines the beginning of the jet age (July 1954) - we're counting U.S. recessions (according to the Nat'l Bureau of Economic Research aka NBER)
20-year forecast: strong long-term growth Passenger traffic will almost triple over the next 20 years (4.88 T RPK’s to 13.28 T RPK’s)…Air travel growth has been met by increased frequencies and nonstops: Growth has been accommodated by more flights to more places not by dramatically larger aircraft and what passengers want – more frequent nonstop service… this Trend will continue…..that’s why we brought 787 to the market. Passenger air traffic rose 8 percent in 2010, after declining about 2 percent in 2009. The persistent resilience of air travel is expected to sustain 6 percent growth in 2011 and keep the growth rate at or above the historical trend through the middle of the decade. Although volatile fuel costs, political upheaval in the Middle East and North Africa, and unresolved government debt in many industrialized economies create risk of a renewed downturn, commercial aviation has weathered such shocks to the system in the past. Recovery has followed each event as the industry reliably returned to its long-term growth rate of approximately 5 percent per year. We see that same resilience come into play as airlines have skillfully managed capacity to maintain profitability in face of the variety of challenges that have beset the industry as the world economy emerges from the global recession. In summary, our major projections for the 20-year period, 2010 to 2030, are: Worldwide economic growth will average 3.3 percent per year Fleet growth will average 3.6 percent per year Airline passenger growth will average 4.2 percent per year Passenger traffic growth will average 5.1 percent per year Cargo traffic growth will average 5.6 percent per year
Air travel growth has been met by increased frequencies and nonstops
Frequency Growth Nonstop Markets
Average Airplane Size
Air Travel Growth
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Presenter
Presentation Notes
Air travel growth has been met by increased frequencies and nonstops As air travel grows, airlines have a choice. Airlines can accommodate that growth with increases in airplane capacity/size with no changes to their networks. Or they can add more frequencies and nonstop markets. Passengers prefer more nonstops and frequency choices. When airlines add more frequencies and nonstop services they “fragment” their existing network. Industry data demonstrates the growth in air travel has been met by an increase in new nonstop markets (city/airport pairs) and by frequency growth—not by an increase in airplane capacity/size. In fact, average airplane size (average airplane size = total available seat kilometers divided by total aircraft kilometers) has remained constant with a slight decline since the mid-1990s. Understandably, air travel dipped in 2001 and 2002, but now air travel growth has returned to the long-term growth trend. And, we see a continued emphasis on increased nonstop flights with greater frequency choices to meet traveler demands.
Airlines will need 34,000 new airplanes valued at $4.5 trillion Airplane deliveries: 34,000 2012 - 2031
Market value: $4.5T 2012 - 2031
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Presentation Notes
Airlines will need 33,500 new airplanes valued at $4.0 trillion Largest market…single-aisle (90 to 240 seats) both in terms of units, 23,370, and investment (up 10.4 % from last year) $1.95T Twins-aisle (200 to 400)… 7,330 units and $1.8T(up 3.2% from last year) Large aircraft (400 plus)…820 units/$270B up 14% from last year RJ…30 to 90 seats – small in both units and investment…a crowded market (China, Canada, Brazil, Japan and Russia) (+3.1%) 23% of forecast is in backlog of OEM’s The short- to medium-haul market has been the fastest growing segment of the commercial aviation industry over the past decade, creating a strong demand for single-aisle airplanes. In 2010, 830 new single-aisle airplanes were delivered—the second-largest quantity in a single year. The expansion of low cost carriers, growth in intra-China flights, and a substantial need for replacement aircraft will keep the demand for single-aisle airplanes strong into the future. Among the 33,500 airplanes to be delivered over the next 20 years, 23,370 will be single-aisle airplanes (this is 70 percent of the total number of aircraft, and 48 percent by value.) In addition to growth in this sector of the industry, the demand for new single-aisle airplanes is due to a need to replace older aircraft, such as 737 Classics, early A320s, and MD-80s/90s. It is expected that there will be a wave of single-aisle retirements starting around 2016 as a number of airplanes become 25 years old—a typical retirement age for jet aircraft. The imminent introduction of the Boeing 787 Dreamliner, and later of the Airbus A350, is driving the resurgent demand for twin-aisle airplanes, as these new airplanes offer significant efficiency improvements over the aircraft they are replacing. Over the next 20 years, 7,330 new twin-aisle deliveries are expected. This represents 22 percent of total deliveries, or 43 percent of total market value. About 40 percent of the demand for twin-aisles will come from the Asia Pacific region. Increasing liberalization and the region’s vast geography will promote the opening of new air routes between a growing number of origins and destinations. Approximately 43 percent of large airplane deliveries over the next 20 years are expected to go to Asia, with China and Southeast Asia accounting for most of the delivery demand. The Middle East, with its already substantial backlog of aircraft in this category, accounts for another 22 percent of the large airplane market. The 820 new large airplanes (such as the 747-8 Intercontinental and the A380) forecast to be delivered worldwide represent only 2 percent of total airplane deliveries. Yet with a value of US$270 billion, large airplanes account for 7 percent of the total market value. Nearly half of those airplanes are already on order. A substantial portion of large airplane demand is for freighters, due to their efficiency in serving this market. Regional jets: below 90 seats Single-aisle: 90-240 seats, dual-class Twin-aisle: 180-400 seats, tri-class Large: over 400 seats, tri-class
Older, less efficient airplanes will be replaced with more efficient, newer generation airplanes
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Presenter
Presentation Notes
Older, less efficient airplanes will be replaced with more efficient, newer generation airplanes 60% of the demand is for growth in the market…largest growth markets are China, India, SE Asia, Latin America and the Middle East. 40% of the demand is to replace older aircraft …largest replacement markets, US, Europe, and Russia. The world’s fleet will more than double in the next twenty years. Boeing forecasts that the fleet will grow from about 19,400 planes in 2010 to more than 39,500 by 2030. The need to replace older, less efficient airplanes will account for 40 percent of the projected market for new airplanes. The 2011 forecast anticipates 13,360 airplanes will be replaced over the next 20 years. This reflects rising fuel prices and the increasing economic burden of using older, less capable, and less efficient airplanes. At this replacement rate, 85 percent of the fleet operating in 2030 will have been delivered after 2011.
Large, developed markets will grow at low rates while emerging and developing economies will grow at much faster rates. The latter will be led by China and South Asia, changing the landscape of aviation. Over the next 20 years, the world economy is predicted to grow at slightly more than 3 percent per annum. Today’s large and mature economies (North America, Europe and Northeast Asia) will grow in the 1.3 to 2.7 percent range, while we anticipate much stronger growth from emerging markets. Specifically, China, which has experienced double-digit growth in recent years, is forecast to grow at 7.0 percent per annum, while South Asia is forecast to grow at 7.1 percent.
Growth of the emerging and developing markets has and will continue to change the landscape of our industry. Explain how to read the chart. The intra-Asia travel market is now the world’s largest….overtaking travel within North America. In addition, for the first time, the China domestic market is forecast to overtake the North American market by the end of the forecast period. This chart is our 20-year forecast of airline revenue passenger-kilometer (RPK) growth by market. The rate of growth varies by market and there are three effects that determine what that growth is. The first and most significant effect is economic growth as measured by gross domestic product (GDP). World trade also increases air travel demand by contributing to a nation's wealth and by encouraging travel to develop international business operations. The third effect is the value created as airline competition increases in response to liberalization. Competition causes airlines to reduce prices and increase service offerings which further stimulates air travel growth. Over time, this last effect causes the share of GDP that a country devotes to air travel to increase.
As I just mentioned the landscape of aviation is changing. To illustrate the changes….20 years ago 72% of all traffic was carrier by airlines domiciled in North America and Europe….today that number has dropped to 55%...and it will be just 41% by 2030. 2030 Asia excl. China = 18.8% China = 16.4% 2010 Asia excl. China = 15% China = 10% 1990 Asia excl. China = 12% China = 4%
Market for new airplanes set to become considerably more geographically balanced
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Market value by region 2012–2031
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Region $B Asia Pacific 1,700 North America 820 Europe 970 Middle East 470 Latin America 260 C.I.S. 130 Africa 120
World Total $4,470B
Region Airplanes Asia Pacific 12,030 North America 7,290 Europe 7,760 Middle East 2,370 Latin America 2,510 C.I.S. 1,140 Africa 900
World Total 34,000
Presenter
Presentation Notes
Asia Pacific largest market, followed by Europe and North America. Latin America and the Middle East continue to grow their market share. Differences in the air transport markets of the various regions and the continuous evolution of airline business models cause airplane demand to vary from one region to another. As new airlines emerge, more mature airlines seek ways to preserve and increase their share of the passenger market. Market growth strategies include increasing frequency of service, expanding the number of city pairs served, offering new products, and introducing products to serve the business passenger—all while staying true to the airline’s brand image. The business models of mature airlines are also evolving through mergers and acquisitions; joint ventures with alliance partners; innovative long-haul products, such as Air New Zealand’s Skycouch™; introduction of premium economy class products; and reassessment of short-haul services. Each region’s airplane demand reflects its unique market characteristics. For example, demand in North America and Europe concentrates on single-aisle jetliners, driven primarily by the need to replace aging airplanes. In Asia Pacific and the Middle East, on the other hand, the passenger market favors business models that rely heavily on twin-aisle airplanes, so twin-aisle jetliners account for a larger share of total airplane demand in those regions than in other regions. At a global level, the number of airplanes in the world fleet grows an average 3.6 percent each year. At the same time, passenger traffic, measured in revenue passenger-kilometers, grows 5.1 percent per year. Cargo traffic, measured in revenue tonne-kilometers, grows 5.6 percent a year. The increasing geographical diversity of the aviation industry underlies this expansion and significantly increases the industry’s resilience to regional fluctuations. Notably, some regions were less affected than others by the recent economic crisis and a few regions even continued to grow through the global downturn.
World air cargo traffic has grown 5.5% per year since 1980
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World air cargo traffic has decelerated since the 2004/2005 timeframe, principally due to 1. An underperforming world economy, especially so since advent of the global economic downturn in late 2008. From 2007 to 2011, world GDP grew at an average annual rate of 1.5% per year. 2. Rising fuel prices, particularly so since late 2004. For the period 2004 to 2011, jet fuel prices rose by roughly 3x in nominal terms. These two points above by themselves do not explain why cargo growth has slowed and passenger traffic has continued growing for the past 7 or 8 years. In short, it comes down to the fact that, unlike passenger transport, users of air freight transportation services DO have alternatives, particularly in international transport. This point can further elaborated in modal diversion, particularly from international air to containership. 3. Rapid expansion in world containership capacity, offering shippers lower-priced (albeit slower & less reliable) freight transport services has lead to reduced air cargo traffic growth. Between 2001 and 2011, world containership capacity grew - on average - 11% per year, while during the same timeframe world large widebody freighter airplane fleet capacity (747Fs, 777Fs and MD-11Fs) averaged only 5% growth per year.
Total demand of about 3,000 freighters….970 new…1,990 conversions. Over the next twenty years, the world’s freighter fleet will double. Looking at the large freighter segment…2/3 new 1/3 converted because in this category, operators favor the reliability, range and low cash costs of the new aircraft. In the medium segment, 1/3 new and 2/3 converted. These airplanes tend to operate regionally and at much lower utilizations….favoring the lower capital cost of conversion. The small market is all about low capital cost thus, no new small freighters Air cargo traffic (based on revenue tonne-kilometers) is expected to grow at an average annual rate of 5.6 percent over the next 20 years. Growing world trade, increasing demand for transport of perishable and time-sensitive commodities, and the need to replace aging airplanes will create a requirement for 2,960 freighter deliveries over the next 20 years. About 1,990 of these will be conversions from passenger service, and 970 airplanes with a value of US$250 billion will be delivered new. The air cargo fleet will grow at an annual rate of 3.5 percent, nearly doubling from 1,760 airplanes in 2010 to 3,500 in 2030.The freighter fleet will grow by more than two-thirds with a shift toward larger freighters in spite of reduced traffic demand. The largest segment of this market by number of airplanes is standard-body freighters, with a total requirement for 1,240 airplanes. Airplanes converted from passenger to cargo have low capital costs that make them attractive for standard-body freight operations. Of the 720 medium widebody freighters to be delivered during the forecast period, 280 will be new, purpose-built freighters. This freighter segment is largely driven by express carriers with time-sensitive cargo. The larger capacity of medium widebody versus standard-body freighters provides operating cost advantages in this market. Though large freighters hold a greater economic advantage in range and tonne-kilometers, the lower trip costs of medium widebody freighters offer greater flexibility in the scheduling and frequency of shipments. In the large freighter segment, more than half of the demand will be for new airplanes. The purchase price of converted large freighters is very attractive, and conversions will continue to play an important supporting role. However, the performance and reliability advantages of new, purpose-built freighters are significant for intercontinental cargo operations, where larger, heavier payloads and range are crucial. Of the 1,000 large freighter deliveries, 690 will be new airplanes.
Future freighter deliveries will be led by demand for large widebodies
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Presenter
Presentation Notes
Over the next twenty years, we see demand for 970 new freighter aircraft valued at $250 billion USD. The majority of the demand will be for large, long-range freighters such as the 747-8F and 777F. The remaining demand is for medium-sized freighters such as the 767F. Demand for “new” or factory-built (or “production”) freighters will be led by large freighters, or those freighters capable of carrying 80 or more tonnes of payload. Given that most traffic growth is projected to occur on long-haul traffic lanes tied to Asia, carriers will increasingly demand those aircraft which have the lowest unit costs and longest range, two criteria generally fulfilled by large widebody freighters. Furthermore, carriers on long-haul routes demand higher work rates and range capability, hence production freighters will be preferred over conversions in the large widebody category. Medium widebody and standard-body freighter demand will be met predominantly via conversions of older passenger airplanes. Hence only 280 medium widebody and zero standard-body freighters will be built and delivered as freighters from the aircraft manufacturers. As the future freighter fleet shifts toward larger freighters and new, more efficient airplanes, air cargo transport will be kept affordable. Air cargo traffic will grow an average of 5.6 percent per year, driven by rising world GDP and the reliance of global industry on fast delivery, and international production and delivery systems. The forecast categorizes the current and projected fleet by fuselage width (standard-body or widebody) and payload capability, avoiding assumptions about the markets that the airplanes serve. The three payload categories are standard (less than 45 tonnes), medium (40 to 80 tonnes), and large (more than 80 tonnes).
Boeing designs and manufactures the world's best family of airplanes. And our customers expect those airplanes to provide their business with a competitive advantage. The same is true for the support and services we provide. That means both making airplanes operate as efficiently as possible and helping our customers with their operations on the ground and across the enterprise. To make this possible, we continue to add to our services portfolio. The Boeing Edge is about ensuring the highest levels of safety and security for our customers' fleets. And it's about improving the efficiency of airplane operations and business processes. This translates into improved operational performance, increased availability and reliability of customers' fleets, and an enhanced experience for their passengers. The Boeing Edge means increased revenue, lower operating costs and stronger, sustained asset value for our customers. We work to meet our customers' needs every day by providing the largest support and services portfolio in the industry. The Boeing Edge organizes our portfolio around the way our customers operate. You'll recognize the four capabilities in our Boeing Edge portfolio as: Material Services - Delivering the one part that's needed, precisely when it's needed Fleet Services - Optimizing fleet performance and maintenance operations to OEM standards Flight Services - Powering flight operations to make every flight a success Information Services - Putting Boeing technologies and knowledge to work across the enterprise Integrated Services - The exciting new Boeing Edge solutions that combine services from across these four areas into customized offerings
Today’s market bigger, deeper, broader, more diverse and resilient than 1977 Strong demand for new, efficient aircraft; emerging economies leading growth
Boeing’s market-driving products and services provide more value to our customers in all markets
