The state of the global airline industry… growth shifting toward Asia!! [4]

Cont’d… Part 3 of 4:  Aviation: Climbing through the clouds, from The Economist paints an excellent current state of the airline and aviation industry. All systems go for continued growth in the Asia Pacific Region, home to China and India and a host of other economies that are expanding faster than anywhere in the world.

China leads the way to freedom

For the first half-century of its emergence after the second world war, civil aviation was dominated by the huge American market, where distance favoured air travel for domestic journeys. Internationally, other countries were afraid of the dominance of the two biggest American carriers, TWA and Pan American. For their part, Americans were afraid of hostile European planes flying over their homeland, perhaps to drop bombs rather than passengers. That mutual lack of trust gave rise to the Chicago Convention on air travel in 1944 and then to restrictive bilateral air-traffic deals, exemplified by the so-called Bermuda agreement covering transatlantic flights. IATA was formed to run this regulated aviation commerce, acting as a clearing house for payments between airlines and drawing up rules for everything from the size of sandwiches to the price of headphones for in-flight films.

Those days are on the way out. Mr Bisignani, the retiring boss of IATA, reckons that China will lead the way now. The Asia-Pacific region already accounts for 40% of the air-cargo market and 26% of passenger travel, making it bigger than America. By 2014 the region is forecast to have 30% of the world air-travel market, adding 210m passengers from China alone. China has built 45 new airports in the past five years and plans another 52 by 2020. India is waking up to aviation after a long sleep. It has fast-growing low-cost airlines and plans to make Delhi a regional hub.

The capital markets seem to have spotted this reshaping of world aviation. Emirates is still locked away in the ownership of the Al Maktoum family, which runs Dubai (although Dubai’s financial troubles in 2008 at one point seemed likely to force a flotation to repay debts). But three of the world’s leading airlines by market capitalisation are from East or South-East Asia: Air China, Singapore Airlinesand China Southern Airlines. With LATAM on the way, the top five will contain only one European airline, Lufthansa, and not a single American carrier, even though American airlines still fly most passengers…

Asia is also proving an unlikely champion of free trade, with little enthusiasm for clinging to outdated, traffic-limiting bilateral deals. ASEAN, the Association of South-East Asian Nations, is working on establishing a single aviation market with no traffic restrictions by 2015. “China will break Bermuda and the old IATA system,” says Mr Bisignani. Thus a new economic power that joined the World Trade Organisation only in 2001, whose trade policies are frequently criticised by members of longer standing, is likely to play a leading role in tearing down the restrictions of the most regulated of global industries.

When the dust clears from the sensational order boom (at least for Airbus) in Paris, perhaps reality will crowd in. Past experience suggests that, to paraphrase St Matthew, many are ordered but fewer are delivered. But that seems unlikely this time, given the need for more fuel-efficient planes and the fact that the orders are coming largely from the undersupplied and booming Asia-Pacific region. And there are other sources of demand.

Emirates is already muttering about more orders at the next big air show, in November on its home turf in Dubai. Whereas in Paris carriers splurged on single-aisle planes, the rise of long-haul budget carriers could boost sales of wide-bodied craft in the next few years. Tony Fernandes, boss of AirAsia, wants Airbus to put new engines and improvements on the A330, which is used by his company’s long-haul budget airline, AirAsia X. And European carriers such as Air France-KLM and Americans such as American Airlines urgently need to replace ageing wide-bodied planes with more efficient modern ones.

The shifts in global aviation may affect builders of aircraft as well as buyers. Boeing and Airbus could lose their tight grip. Embraer in Brazil and Bombardier in Canada are moving up from smaller regional jets to big ones; and Russia’s Irkut and China’s Comac are entering the international market for single-aisle airliners. Ryanair has signed a co-operation deal with the Chinese company, with a view to using it as an alternative to Boeing, its sole supplier. As aviation goes properly global, so might the aircraft industry. Wherever you look, newcomers are muscling in on what was once a Western domain.

Inspiration: Aviation: Climbing through the clouds”, The Economist

About dianhasan

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