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Randy Tinseth

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Commercial Market Outlook: The Winds Lifting Up The Commercial Aviation Industry

RANDY'S JOURNAL: A BOEING BLOG

Our team is back from an exciting week at the Farnborough Airshow. You probably saw the big headlines. We were thrilled to announce orders and commitments for 673 airplanes valued at $98.4 billion, along with $2.1 billion for services. The vast majority of those were new orders and commitments as customers continue to see the need for new airplanes, particularly the Boeing 737 MAX, 787 Dreamliner and 777 passenger and freighter jets.

We also got to show off our new 737 MAX 7 airplane, which along with a new 787 destined for Biman Bangladesh Airlines, wowed the crowd with several impressive flight displays. It never gets old seeing those jets pull off near-vertical takeoffs. Pretty cool.  

I was also honored to once again represent our Boeing team in presenting our annual market forecast and discussing the future of air cargo. Journalists from around the world packed the room as I discussed the latest trends and long-term outlook in commercial aviation. I spent quite a bit of time on the tail winds that are lifting up our industry.

A new name

Boeing has published the “CMO” since 1961. This year, we changed the name from Current Market Outlook to Commercial Market Outlook to reflect a more holistic view of our industry, coupling the demand for new aircraft with the substantial requirement for services.

Overall, our analysts project the need for 42,730 new commercial airplanes – valued at $6.3 trillion – over the next 20 years. At the same time, the global airplane fleet will sustain a demand for S8.8 trillion worth of services, leading to a total market opportunity of $15.1 trillion. You can see the full report here.

Balanced growth

What’s behind the massive $15.1 trillion number? More people are flying and even more people want to join them. For the first time in years, we are seeing economies growing in every region of the world. This synchronized expansion is providing more stimulus for global air travel.

Last year, the world’s airlines set a record when they carried 4.1 billion passengers. This year, they will set a new record by carrying a projected 4.3 billion travelers. And more people are sure to join the flying ranks. Consider just one fact, the world’s middle class is expanding by 160 million people a year according to one estimate.

The balance comes from the fact that demand growth is not limited to specific regions. In emerging markets such as China and India, we have seen traffic grow at an annualized rate of more than 10 percent over the past five years. (Interesting fact: Domestic air traffic in India has grown about 20 percent in each of the past four years). While this trend has been discussed a great deal, what may be surprising is the strength in more mature markets. In advanced economies such as Europe and the United States, we have a seen passenger traffic growing at just shy of 5 percent over the past five years. That is a very healthy growth rate for such large, existing markets.

Our market analysis team put together a more extensive brief on the current business environment, with insights on industrial production, airline profitability and other topics. See the full report here.

This balanced growth is a key component of increasing demand. In fact, we project that 24,140 of the new airplanes or 55 percent of the total will go towards supporting traffic growth.

Robust replacement

Aside from traffic and fleet growth, there is also the important element of replacing older airplanes. According to fleet data, there are more than 900 airplanes today that are over 25 years old, the approximate industry average for aircraft retirement. By the mid 2020’s, more than 500 airplanes a year will reach 25 years of age, which is twice the current rate. This phenomenon will fuel a wave of retirements, significantly growing this very dependable demand component.

The numbers explain why we project that 18,590 or 44 percent of the new airplanes will be needed to cover replacement alone.

Productivity and innovation

Beyond the demographics trends for people and for jets, we should also credit the airlines for the growth and health of our industry. Carriers are continuously improving their productivity and innovating new business models.

On the productivity front, we have seen airlines find ways to fly their airplanes more often and with more passengers. Over the past decade, airplane utilization is up 13 percent while load factors are up more than five percent. The latter is quite impressive as airlines set a record load factor of 81 percent last year. Years ago, people thought load factors in the mid-70s were the best that the industry could do.

Operators are also optimizing and expanding their route network to satisfy the flying public’s desire to get to where they want to go as quickly as possible. In the past year alone, airlines established 2,000 new direct routes. That is a staggering number considering there are now 21,000 city pairs overall.

Demand picture

To support the growth in global air traffic and satisfy the replacement wave, here’s the breakdown in demand over the next two decades.

Single-aisle jets will lead the way in orders with an expected demand for 31,360 new jets valued at $3.5 trillion by 2037. Many of these planes will be delivered to ultra-low cost carriers in emerging and established markets.

The widebody market is also expected to be very robust, particularly since cargo has recovered in recent years. By 2037, we are forecasting a need for 8,070 widebody passenger airplanes and 980 widebody freighters with a combined value of $2.8 trillion. By the way, we also project that 1,670 existing airplanes will be converted from passenger jets to freighters.

Servicing the fleet

To keep the global fleet flying efficiently and reliably, operators will have a massive requirement for replacement parts, maintenance, engineering and operations.

When I go to an airshow like Farnborough or a trade show such as IATA, I always marvel at how the commercial airplane business fuels an enormous eco-system of service providers. It is why we combined the forecast for airplanes and services this year to show the true picture of the commercial market. Over the next 20 years, we forecast an $8.8 trillion market for commercial aviation services.

Major categories in the services forecast include the $2.3 trillion market for Maintenance & Engineering, which covers tasks required to maintain or restore the airworthiness of an aircraft and its systems, components, and structures. Another major category is the $1.1 trillion market for Flight Operations, which covers services associated with the flight deck, cabin services, key elements of crew training and management, and airplane operations while in flight.

In addition to a growing airplane, one of the main reasons why we see a growing services market is that airlines are experimenting with new business models and technologies. They are digging into big data to improve their operations. All of these trends will drive greater demand for integrated solutions over the life of an airplane.

The bottom line is that we work in a strong and healthy industry where demographics and long-term trends serve as significant tailwinds. At Boeing, we are fortunate to be very well positioned to serve all of the needs of our customers with our best-in-class airplanes and the most comprehensive set of services solution in the market.

In the months ahead, I will be traveling to different regions to discuss the commercial market in more detail. Hopefully, we will visit your market very soon.

2 comment on “Commercial Market Outlook: The Winds Lifting Up The Commercial Aviation Industry

  • James Baloun
    July 26, 2018 | 8:10 pm

    Congratulations Boeing on a great show at Farnborough!
    Looking at the pace of change over the past 30 years and the hints at what is coming in next 30 years I feel like I need to fasten my seatbelts. New and emerging aerospace technology is promising to take us to places we cannot yet imagine. The engineers graduating today can’t wait to face the challenges and expand our boundaries. They will break the barriers in aerodynamics, materials and information. Every year aerospace is less a novelty and more a necessity. The best is yet to come.

  • Andrew Boydston
    July 28, 2018 | 2:32 pm

    A “symbiotic” relationship between an airplane and a service for its success makes a complete product for its customer. The mission of this relationship is to make the product the most effective for its customers than its competitor could manage. The report above taps into the results of that relationship as an indicator of its success. Well played Boeing.

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