Airline Traffic Growth Forecast

The Asia/Pacific region will be the star in traffic growth over the next 20 years, largely because the region will outperform the others in terms of economic growth. By 2010, the Asia/ Pacific economy will roughly equal that of the United States. Traffic of the North and mid Pacific should show growth of 11. 6% peryear to 2010. Intra FarEast traffic growth should average 10% per year, while traffic between Europe and the Far East should grow at 8% per year.

As passenger traffic in the Asia/Pacific region continues to grow above the world average, other regions will lose their market share. North and mid Pacific traffic is expected to rise by 2010 to a level that is equal to 93% of US domestic traffic, compared to 23% in 1990. North and mid Pacific traffic will rank second behind US domestic traffic. North Atlantic traffic, which currently ranks third in size, will fall to fifth place behind US domestic, North and mid Pacific, intra FarEast, and Europe-Far East. However, it is important to remember that North Atlantic traffic is forecast to grow at an average annual rate of 4. 5% over the next two decades. Passenger traffic in the mid Atlantic and South Atlantic regions is projected to grow somewhat faster than in the North Atlantic as Latin American economies recover from the problems of the 1980s. Within Europe, passenger traffic is expected to grow at an annual pace of 6% to 2000, benefiting from the imminent lowering of barriers within the European Community (EC). As Eastern European countries complete their restructuring, their economies will provide the basis for much of the region’s expected traffic growth in 2000-2010.

Even though world domestic traffic is projected to grow at a 4. 9% rate over the next 20 years, it will continue to account for an ever-smaller share of total traffic. US domestic traffic growth will average 4. 2% per year to 2010 as real yields decline 0. 4% per year. Although the US will experience only moderate economy and traffic growth, US domestic traffic will still be the world’s largest single market in 2010.

Elsewhere, Far East domestic traffic (excluding Japan) is forecast to grow most rapidly- 10. 4% annually- over the next two decades. By 2010, non Japanese Far East domestic traffic will be the third largest domestic market after the United States and in what was the USSR. South American domestic traffic will also post a solid increase of 9% as the economies in the region rebound from the 19 80s. Japanese domestic traffic is predicted to grow at a 6. 5% rate. France and the United Kingdom will see annual gains in domestic traffic of 6. 2% and 5%, respectively. Domestic traffic in the former USSR, currently ranked second in size, is forecast to grow at 3% annually over the next 20 years. While this growth rate is less than half ofthe world rate, the USSR domestic market will still rank as the second largest market in 2010, though at time of writing there were still many uncertainties relating to the future financial stability of the CIS.

Potential Risks to Forecasts

In the short term, there are many potential risks that can affect traffic forecasts. These traffic forecasts may not be realised if airport and airspace authorities do not find ways to resolve the continuing issue of congestion. Although the world has not experienced any acts of terrorism related to the Persian Gulf crisis, traffic could be significantly depressed should there by any act of terrorism in the near future. The supply side of traffic also could be affected by the shrinking of aircraft financing credit due to difficulties in Japan’s financial market. In the long term, uncertainties remain about economic developments in Eastern European countries and what was the USSR. These economies may restructure faster than anticipated and thus stimulate more rapid traffic growth. Undoubtedly, there are other factors that can dampen the passenger traffic growth. Notwithstanding these uncertainties, it appears that the demand for air travel will be sufficiently strong to fulfil the projected rates of passenger traffic growth.

Cargo Traffic

Cargo traffic during the next two decades is forecast to grow at an annual rate of 8. 5%. International cargo traffic is projected to grow at a 9% rate compared with a 6. 2% rate in domestic cargo traffic. Future growth will be driven by several factors; a decrease in trade barriers as a result of new bilateral agreements; the further development ofsmall package express delivery systems; the extension of “just in time” manufacturing systems; and the greater ability of manufacturers to diversify production across borders. Directional imbalances may temper some of this projected growth.

The rapid growth in aircargo can be primarily attributed to an expansion in international services. Over the period 1970 to 1990, domestic air cargo grew at a 5. 5% rate, while international cargo grew at an 11% rate. These different growth rates are direct results of international trade growth and the lack of inexpensive surface transport. Although many developing countries have considerable growth potential in domestic air cargo transport, the trend toward an international economy will continue the expected internationalisation of air cargo. Douglas predicts that 80% of all air cargo will be international by the year 2000.

Between 1990 and 2000, total scheduled air freight traffic is expected to grow at an average annual rate of 8. 8 per cent. The intra Far East and Pacific region should post the most rapid growth rate-13% per year. This high growth rate, doubling the volume of traffic in less than six years, will come from the expansion of the Asian economies. The economic advantages of air versus surface transport, particularly in areas with poor rail and truck transport, annual flooding, rugged terrain, or large areas of water, will further encourage this traffic expansion. From 2000 to 2010, this region’s growth will slow but is expected to remain strong at10. 2%. After two decades of sustained, rapid growth, this region will become the second largest in the world, lagging behind only the North and mid Pacific The North and mid Pacific-the thirdfastest growing region is projectedto grow1 2. 3% annually over the next 10 years and 11% thereafter to 2010. The recent capacity constraints on eastbound traffic and airport congestion at a few key points should abate with the introduction of newlarger capacity aircraft and the addition of new routes. Also, since the depreciated dollar has lowered the costs of goods manufactured in the United States relative to those in Japan, the flow of air cargo in the westboµnd direction will be stimulated. Because eastbound traffic has been constrained by a lack of airport and aircraft capacity on existing routes, the relatively more expensive Japanese yen will not greatly affect the actual amount of eastbound air cargo; however, the amount of unsatisfied demand will be lessened and real yields will fall. By 2010, the North and mid Pacific region will have become the largest region in the world, compared with its third place rank in 1991.

Healthy growthin the Europe-Far East region will continue.

A growth rate of 8. 7% can be anticipated this decade and 9% from 2000 to 2010. Again, this expansion will be the result of increased economic activity in Asian countries, especially the newly. industrialised nations. Traffic will also be stimulated by lower yields brought about by more efficient aircraft as well as new, shorter routes between the Far East and Europe over Russia and other former Soviet Republics. By 2010, this region is projected to be the fourth largest.

Currently, the two largest air freight regions, the US domestic and North Atlantic markets, are forecast to increase at 6. 7% and 7. 3% annual percentage rates from 1990 to 2000, respectively. The slight increase from last year’s forecast of 5% in the North Atlantic region for the 1990s stems from the reunification of Europe and the effects it will have on imports and exports. With a more integrated Europe, there will be a larger market for imports and possibly a more organised system of exporting. Between 2000 and 2010, growth should slowto 5. 6% for US domestic and 6% for North Atlantic. Growth rates below world average reflect the large size of these markets, falling yields, deregulation, and slower economic growth in the US and Europe relative to Asia.

While these forecasts describe the aggregate trends in air cargo demand, there is great variation on specific routes and within regions. This variation depends mainly on the level of local economic activity, airport carrying capacity, development of the local transportation infrastructure, and ability of the local destination to act as a point of transhipment. In the short run, the ability of cargo carriers -both passenger-cargo or all cargo airlines – to respond rapidly to changes in demand with increased or decreased capacity is quite limited.

Over the long run, the level of economic activity, the relative prices ofgoods in the areas served, and the yield on cargo loads represent the most important determinants of revenue cargo carried. The forecasts presented here reflect these long term factors.