Air Passenger ForecastsGlobal Report

A joint venture between

Apr

il 20

15

UPDATED

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Contents

Welcome 03

Introduction 04

Overview of forecasts (long-term, 2014-2034) 05

Selected forecast stories 07

The role of living standards 08

The role of population and demographics 15

Box 1 – The Dragon versus the Tiger: the future of air passenger markets in China and India 22

The price of air travel 23

Box 2: Oil prices and our modeling 24

Other relevant factors 27

Scenarios 29

Annex A – Forecasting within our framework: a stylized example 31

www.iata.org/pax-forecast

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Welcome

It is my pleasure to introduce this second installment of IATA and Tourism Economics’ joint Passenger Forecasting service. The strength of IATA Economics’ analysis of airlines and global air travel markets brought together with the leading economics and tourism forecasting of Tourism Economics, part of Oxford Economics, is an unbeatable combination. Having the best possible understanding of future growth trends in air travel markets undoubtedly will be of value to your business.

A crucial part of understanding where you are going is to know where you have come from. 2014 marked the 100th anniversary of commercial flight. From just one route and one passenger on the 1st January 1914, the industry served over 65 billion passengers in its first 100 years. In a stark illustration of how a once daring activity for the few is now an opportunity for the many, the next 65 billion passengers are expected to take to the skies before 2030 – well within our forecast horizon.

Our Passenger Forecasting service is the most comprehensive assessment to have been undertaken to date of how air travel markets will evolve during the early years of the second century of commercial flight. Our approach encompasses annual forecasts of air passenger flows for almost 4,000 country pairs over the next 20 years. We have also enhanced our service this time around on a number of fronts, including the addition of revenue passenger kilometers forecasts in the forecast databank.

We are well aware of the uncomfortable but realistic fact that any set of forecasts looking so far out into the future are likely to be wrong. But informed decision-making still requires us to peer into the future. So we have focused on prising open the forecasting ‘black box’ and have emphasized the drivers and underpinnings of our forecasts, to help you better understand what might shape the future of your business and, through several scenarios, the different paths that the future might take. As before, the overarching emphasis of this Global Report is on giving you the knowledge that you need to make informed decisions for the future.

Another key focus has been on making our extensive forecast database accessible, and not to simply deluge you with numbers. Our online web-tool offers an easy-to-use and fully customizable way to explore our forecasts with advanced charting and mapping facilities. All told, it could not be easier to incorporate our insights into your analysis and decision-making processes.

I hope that this Global Report and Forecasting Service continues to be your guide to meeting the market challenges to come.

Brian PearceChief Economist, IATA

Geneva, April 2015

If you have any questions or comments on any aspect of the new Passenger Forecasting service, please contact:

David Oxley David Goodger Senior Economist, IATA Director, Tourism Economics oxleyd@iata.org dgoodger@tourismeconomics.com

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Introduction

Details of our coverage

Our forecast service contains annual forecasts of air passenger flows for al-most 4,000 country pairs over the next 20 years on an origin-destination basis1. Our main focus is on the largest coun-try-pair relationships – those where at least 1,000 passengers a month current-ly travel between them (on a bi-direc-tional basis). These are the present-day powerhouses.

Crucially, our forecasts also include al-most 800 country pair relationships that, while below our threshold of 1,000 pas-sengers a month at present, we assess are likely to exceed it over the coming 20 years. The following word cloud depicts the countries that make up these country pairs, where the size of the lettering for each country indicates its relative prom-inence in our list of upcoming markets; the ‘markets of tomorrow’. As this report will explain, it is no surprise that the most prominent countries in the word cloud are from the emerging world.

1The passenger numbers in our service are taken from IATA’s Passenger Intelligence Service (better known as PaxIS: www.pax-is.com). The data cover scheduled flights only and measure the annual flow of air passengers between two countries on a bi-directional basis (eg, the country pair ‘United States - United Kingdom’ includes passenger flows from the US to the UK as well as from the UK to the US). The country pairs are also reported on an origin-destination basis. For example, if a passenger flies from an origin in the UK to a destination in the US via a connection in another country, the trip will be recorded as a passenger traveling from the UK to the US.

Chart 1 – The ‘markets of tomorrow’

Our forecasting framework

Our approach boils down the myriad fac-tors that will combine to shape air trav-el markets in the long run into just three main drivers; doing so offers a simple but powerful framework to think about long-term trends in the industry.

Most factors that will influence air trav-el markets in the long run, from shifting dynamics in energy markets to structural economic reforms, will affect air markets through one of the three following chan-nels.

LIVING STANDARDS

POPULATION AND DEMOGRAPHICS

PRICE OF AIR TRAVEL

+

+

The next section provides an overview of our main forecast numbers and stories. Additional details can be found in the ac-companying global PDF report.

This rest of this report considers each of the three main drivers in detail, highlight-ing the fundamental factors that underpin our forecasts. Two boxes are included; one explaining the expected impact of the large drop in oil prices since the October 2014 update, and another comparing the long-term outlooks for the Chinese and Indian air passenger markets. The final section considers two alternative scenar-ios to our baseline forecast.

What’s new with this update?• A special focus on oil prices

• Special feature on the long-run futures of the Chinese and Indian air passenger markets

• Enhanced global databank , which now contains:

- RPKs (for global and regional aggregates)

- Short-haul, medium-haul, long-haul, ultra-long-haul split (for country, regional, and global aggregates)

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Overview of forecasts (2014-2034)

4.0%annual average growth in global air passenger journeys over the next 20 years

2.2x the number of air passenger journeys in 2034 compared with today

Markets with the biggest changes in passenger numbers

Market2

Additional x thousand pax

per year by 2034

Annual % growth

China 781,226 5.3%

United States 544,925 3.2%

India 256,418 6.4%

Indonesia 144,248 5.0%

Brazil 135,929 4.4%

United Kingdom 115,586 2.4%

Turkey 112,877 4.8%

United Arab Emirates 101,482 5.8%

Philippines 98,938 6.2%

Vietnam 96,525 7.3%

The fastest growing markets

Market2 Annual % growth

Additional x thousand pax

per year by 2034

Central African Republic 571 8.4%

Malawi 1,702 8.3%

Rwanda 2,572 8.2%

Tanzania 10,055 7.8%

Uganda 4,283 7.8%

Zambia 4,195 7.8%

Benin 2,514 7.8%

Ethiopia 10,151 7.6%

Pakistan 45,471 7.5%

Papua New Guinea 6,345 7.4%

Growth and change in passenger journeys by region3 (% and million, 2014-2034)

Asia Pacific 1,753m 4.9%

Europe

577m2.6%

North America

651m3.3%

Latin America

328m4.4%

Middle East

250m5.1%Africa

190m4.9%

2Individual market totals are calculated from our underlying bi-directional country-pair forecasts. The individual markets therefore represent the total number of passenger jour-neys to, from and within a given market.3As with the individual market totals, the regional numbers represent the total number of passenger journeys to, from and within a given region. Note that for conceptual reasons, and to avoid double counting, regional totals do not equal the sum of their respective individual markets.

Key points• We forecast the number of global

air passenger journeys to increase at an average rate of 4.0% each year over the next 20 years. This is slightly slower than our previous forecast of 4.1%, largely reflecting a downward revision to the forecast pace of Chinese economic growth in the long term.

• Overall, though, the future outlook for global air passenger markets remains strong. Global passen-ger journeys are still comfortably set to more than double over the next 20 years, and in spite of the downgrade to China’s economic forecasts, its total air passenger market remains on track to surpass the US as the world’s largest in the early 2030s.

• The sharp drop in oil prices since the previous forecast update feeds through into lower airfares and helps to stimulate aggregate de-mand for air travel in the short term. The number of global air passenger journeys is expected to increase at an average rate of 5.3% each year over the next 5 years. (See Box 2 on page 26 for further details of how oil prices are incorporated into our modeling framework.)

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Overview of forecasts (continued)

The fastest growing country pairs*

CountryAnnual

% growth

Additional x thousand pax per

year by 2034

1 Indonesia - East Timor 14.7% 1,020

2 India - Hong Kong 10.8% 4,865

3 Within Pakistan 10.1% 17,551

4 Thailand - Philippines 9.9% 3,306

5 India - Egypt 9.6% 756

6 Within Honduras 9.6% 1,185

7 United Arab Emirates - Ethiopia 9.6% 1,278

8 Cambodia - Laos 9.4% 671

9 Kenya - Tanzania 9.3% 1,735

10 Hong Kong - Philippines 9.3% 8,423

International country pairs only

CountryAdditional x

thousand pax per year by 2034

Annual % growth

1 China - Chinese Taipei 23,676 5.6%

2 US - Mexico 23,633 3.9%

3 India - United Arab Emirates 22,842 7.0%

4 China - Hong Kong 20,765 5.6%

5 China - Korea 20,550 4.7%

6 US - Canada 17,537 2.8%

7 Malaysia - Indonesia 17,034 6.7%

8 UK - Spain 14,156 2.1%

9 Indonesia - Singapore 13,572 5.8%

10 Hong Kong - Chinese Taipei 13,553 5.7%

All country pairs

CountryAdditional x

thousand pax per year by 2034

Annual % growth

1 Within China 615,148 5.3%

2 Within US 361,688 3.0%

3 Within India 123,193 5.8%

4 Within Brazil 118,048 4.7%

5 Within Indonesia 87,690 4.7%

6 Within Turkey 67,558 6.1%

7 Within Vietnam 59,536 8.2%

8 Within Australia 49,394 3.4%

9 Within Mexico 48,008 5.3%

10 Within Philippines 46,623 5.7%

* Filtered to only display countries with at least an additional 500 thousand passengers per year by 2034.

The 10 largest air passenger markets over time (ranked by passenger numbers)

Country pairs with the biggest changes in passenger numbers

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ChinaThe Chinese domestic air market is expected to add more passen-ger journeys in the next five years than in the US, India, Brazil, and Japan combined (+170 million by 2019). It is forecast to overtake the US as the world’s largest domestic market in 2021.

IndiaThe total Indian air passenger market is forecast to climb from 9th largest in the world in 2014 to 6th largest over the next five years, and to continue on into the top-three in the 2030s.

VietnamThe Vietnamese domestic market is expected to surge up the ranks from 33rd larg-est in 2014 to 9th largest in 2034. This represents an additional 60 million domes-tic passenger journeys each year.

India-UAEThe India-UAE market is expect-ed to add more than four million passengers a year by 2019, lift-ing it into the ranks of the top-10 largest international air markets. The India-Saudi Arabia market also surges into the top-20 by the end of the forecast horizon.

South-east AsiaThe Malaysia-Indonesia market is expected to surge past the 10 mil-lion-mark by 2019, and will join the ranks of the top-10 largest routes in the 2030s. The China-Singapore and Indonesia-Singapore markets are also expected to move into the top-20 throughout the 2020s.

Brazil Challenging economic conditions are likely to weigh on growth in 2015, but Brazil’s domestic air passenger market is nonetheless expected to surpass Japan in the top-three in 2022. Its total air pas-senger market is forecast to surpass the 200 million-mark in 2030.

Colombia Colombia’s domes-tic market is forecast to overtake the French and British markets in the next five years, climbing from 20th largest to 16th largest by 2019.

United StatesComparatively bright economic pros-pects, favorable population trends and the eventual pass-through of lower oil prices into fares are expected to support robust growth in the US domestic air passenger market – the world’s largest – over the coming five years.

TurkeyStrong favorable demograph-ic trends will help Turkey to cement its position in the top-10 largest domestic markets throughout our forecast horizon. Other European domestic mar-kets, including Italy, France and the UK, are all expected to drop down the ranks, with the latter two dropping out of the top-20 altogether.

Intra-Europe marketsChallenging demographics and modest expected gains in future living standards translate into moderate growth rates in many intra-European passenger markets. The Germany-Spain market is forecast to drop from 4th largest in the world to 8th largest in the 2030s, while the UK-Germany market falls from 9th to 20th. That said, with 28 million passengers a year in 2014, the UK-Spain market is expect-ed to retain its position at the world’s largest international market into the 2030s.

Middle-East The total United Arab Emirates’ air market is forecast to enter the ranks of the top-20 in the world in 2022, and to climb to 17th largest by 2034. Domestic journeys within Saudi Arabia are expected to total around 30 million by 2034, lifting it into the ranks of the top-20 largest in the world.

South Africa Domestic journeys in South Africa are expected to increase by just over 10 million between now and 2034, leaving it on the cusp of the world’s top-20 largest domestic markets.

Selected forecast stories

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