Nickolas Sarlis M.B.A,
B.A(Hon) Political Science
Current Market Outlook
Purpose of the forecast
The current market outlook is our long term forecast of the air traffic volumes & demand. The forecast helps shape our product strategy & guide long term business planning. We start fresh every year, factoring the effects of current business conditions & developments into our analysis of the long term drivers of air travel. Effects of market forces.
The Aviation industry continually adapts t market forces. Key among these are fuel prices, economic growth & development, environmental regulations, infrastructure, market liberalization, airplane capabilities, other modes of transport, business models, & emerging markets. This has spurred manufacturers to produce more efficient airplanes & encouraged airlines to optimize other cost & revenue centers to maintain profitability in the face of high fuel prices.
Our long term forecast incorporates the effects of market forces on the development of the aviation industry. Economic growth, as measured by gross domestic product (GDP), is a primary contributor to the aviation industry growth. GDP is forecast to rise 3.2% over the next 20 years, which will drive passenger traffic to grow 5.0% annually & cargo traffic (which also depends on global trade) to grow 4.7% annually.
Shape of the market
The new generation of efficient widebody airplanes is helping airlines open new markets that would not have been economically viable in the past. In the Middle East alone demand for new airplanes according to GDP will be at 2,950 new airplanes valued at 640 billion, between 2014 and 2033.
IHS Economics forecast an extended period of strong performance. There is a growing chance that pent up business and household demand and idle production capacity in many parts of the world will fuel above trend growth over the next several years, resulting in an upside growth surprise. Structural reforms will be key to sustaining these prospects. Airline passenger traffic sustained a growth rate slightly above 5% during 2012 & 2013, despite consecutive years of weak global GDP growth. The global airline industry grew at or above the long-term growth rate on sound fundamentals. Productivity continues to increase with historically high airplane utilization & passenger load factor. In 2013, load factor was 79%, showing, that airlines are matching demand without over supplying capacity. Unit revenue) passenger revenue per available seat km) was stable at the global level in 2013, indicating that airlines did not cut fares to fill seats. Unit cost was down slightly. Better unit revenue, combined with reduced unit cost indicates a more profitable industry. Let us focus now on more local trends. Emerging markets, led by China & the Middle East, continue to grow faster than the global average, with double digit traffic growth.
Global airline industry net profits were an estimated $10.6 billion in 2013, up from $6.1 billion in 2012. Net profit for 2014 is forecast to improve further to $18 billion as economic growth accelerates & fuel prices remain stable.
Brent oil prices have generally traded in the range of $110 plus or minus $5 per barrel since mid 2012. The broad trend has been relatively stable, with only very short volatility in response to specific events such as Middle East unrest or economic news from Europe or the United States. Inflation adjusted price forecasts are largely stable into the middle of the decade, reflecting increased projected supply. Although forecasts anticipate upward price pressure from supply and demand dynamics in the longer term, the trajectory has moderated from forecasts made just a few years ago. Only recently has the price of Brent plummeted to mid 1990's level prices. Price of a barrel of Brent oil is trading at slightly over 77USD. The change in pricing is probably due to the economic...
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