Air travel markets over
the next two decades
October 2016
Brian Pearce
Chief Economist, IATA
We’ve enjoyed a long period of above-trend air travel growth
30%
Growth in worldwide RPKs
25%
20%
7 years
15%
10%
20 year
average
5%
0%
-5%
-10%
-15%
-20%
1995
2000
Source: IATA using data from IATA Statistics
2005
2010
2015
With emerging air passenger markets catching up fast
% of total O-D journeys (12m rolling sum)
70%
65%
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2006
2007
2008
2009
Source: IATA using data from PaxIS+
Within developed markets
Within emerging markets
Between developed and emerging markets
2010
2011
2012
2013
2014
2015
2016
But lackluster economic cycle now seems to be slowing
Global economic cycle indicators
International trade growth
15%
70
65
Industrial production growth
10%
60
5%
55
0%
50
Business confidence
-5%
45
-10%
40
-15%
35
-20%
30
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: IATA using Netherlands CPB and Markit data
Confidence index. 50 = no change
% change over previous year
20%
Both developed and emerging economies now weaker
Business confidence
60
Developed economies
PMI, 50 = no change
55
50
Emerging economies
45
40
35
2006
2007
2008
2009
Source: IATA Economics using Markit data
2010
2011
2012
2013
2014
2015
2016
World awash with savings and short of investment
US 10 year Treasury yield and 10 year TIPS real yield
16
14
12
10
%
8
6
10-year
Treasury
yield
4
2
10-year TIPS
real yield
0
-2
1982
1986
1990
Source: IATA using data from Haver
1994
1998
2002
2006
2010
2014
Central banks continue to print money
Central bank assets
4.5
Bank of Japan 500
450
4
400
US Federal
Reserve
US$ trillion
3.5
3
350
300
2.5
250
2
200
1.5
150
1
100
0.5
0
1975
50
0
1980
1985
Source: IATA using data from Haver
1990
1995
2000
2005
2010
2015
Yen trillion
5
Asset price valuations back to pre-GFC levels or more
US Treasury yields, house prices and equity values
800
US house prices
18
700
16
600
14
12
500
Cyclically-adjusted
equity PE ratio
400
300
10
8
6
200
4
100
2
0
1975
US 10-year Treasury yield
1980
1985
Source: IATA using data from Haver
1990
1995
2000
2005
2010
2015
0
The world has a debt problem, again
Outstanding debt of non-financial sector, % of GDP
280
190
270
180
Developed economies
170
160
250
150
240
140
230
130
Developing economies
220
120
210
110
200
100
1999
2001
Source: IATA using data from BIS
2003
2005
2007
2009
2011
2013
2015
% of GDP
% of GDP
260
Donald Trump Vows to Rip Up
Trade Deals and Confront China
The New York Times
28 June 2016
Air passenger markets expand substantially under most scenarios
Global passengers (O-D basis, billion)
10
Constant policies scenario
9
8
7
A Pick-up in Protectionism
A Relaxing of Regulations
6
5
4
3
2
201520162017201820192020202120222023202420252026202720282029203020312032203320342035
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
Centre of growth shifting East and South
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
Centre of gravity shifting East
1914
2004
2015
2035
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
Varying catch-up in living standards
% CAGR (2015-2035)
5.5%
5.0% 4.8% 4.7%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Growth in per capita incomes over the long run
3.9%
2.5%
1.5%
1.4%
1.3%
1.2%
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
0.9%
0.8%
0.8%
0.8%
0.7%
0.7%
Which drives frequency of trips
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
Emerging economies’ middle income households catching up
% of total
100%
Middle-class households
The G7
90%
Turkey
80%
70%
Mexico
60%
Brazil
China
Russia
Indonesia
50%
40%
30%
20%
India
10%
0%
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
Very different demographics
% change
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
The UN's projected change in population (2015-2035,%)
UN projections adjusted for demographic factors
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
New top international country-pair markets emerging
Millions
Mexico - United States
Spain - United Kingdom
Canada - United States
45
40
35
Korea, Republic Of - China
United Arab Emirates - India
China - Taiwan
Spain - Germany
Thailand - China
Malaysia - Indonesia
30
25
20
United Kingdom - United States
Japan - China
Italy - United Kingdom
15
10
5
0
2015
2010
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
2035
2015
Largest increment to passenger numbers on domestic markets
Corresponding CAGR
China
5.2%
United States
2.6%
India
6.7%
Indonesia
3.5%
Vietnam
8.2%
Turkey
5.2%
Brazil
2.6%
Philippines
6.0%
Australia
3.0%
Mexico
4.2%
0
100
200
300
400
500
600
Change in domestic O-D markets (millions, 2015-2035)
Source: IATA using data from TE/IATA Air Passenger Forecasts, October 2016
700
800
Rise of Asian domestic markets
Top domestic passenger markets, ranked by passenger numbers
12
US
1
China
2
Japan
3
12
US
10
8
6
10
Indonesia 4
Brazil
5
India
6
8
6
2
Turkey
9
Canada
10
4
2
Japan
Turkey
Philippines
Mexico
2015
0
Indonesia
Australia
4
8
India
Brazil
Australia 7
Russia
China
2017
2019
2021
2023
2025
2027
2029
2015
Source: IATA using data from TE/IATA Air Passenger Forecasts, September 2016
2031
2033
2035
0
Global Report
Country Reports
Online database/webtool
Air Passenger Forecasts
October 2014
United States - Passenger Market Overview
Decomposition of growth, 2014-2034
The United States air passenger market is forecast to grow at an average annual growth rate of 3.2% per annum over the next 20
years.
3.5%
This puts the United States in the 28th percentile of fastest growing markets in our forecast during the period 2014-2034.
3.0%
0.8%
2.5%
2.0%
%
CAGR
Improvements in livings standards contribute 1.4 percentage points to annual growth.
0.2%
Favourable population and demographic factors are forecast to contribute 0.8 percentage points to annual growth.
0.8%
Other factors, mainly future technological gains, will contribute 0.8 percentage points per year.
3.2%
1.5%
Explanation of the main drivers of growth (for more details, see the Global Report)
Living standards: We proxy a country’s standard of living by its level of Gross Domestic Product per capita (ie, the total amount of
output produced in an economy each year divided by its population). The living standards channel captures the clear
relationship between the number of trips taken on average by inhabitants of a country each year and that country’s
standard of living.
1.0%
1.4%
0.5%
Population and demographics: Forecasting air passenger markets requires a further understanding of how many people there will
be to demand air travel in the future. This will depend on changes in total population sizes over time as well as changes in
demographic structures ; given that older people tend to fly less often than people in working-age groups, air
market growth in countries whose populations are projected to age considerably over the coming 20 years is likely to face
headwinds.
0.0%
Total passenger market growth
Living standards
Main drivers
Population & Demographics
Trade
Price & Liberalisation
Trade flows: A high correlation is observed between a country’s trade openness – measured by exports and imports as a proportion of
an economy’s total output – and its propensity to travel. We therefore include Oxford Economics’ forecasts of trade
intensity over time into our modelling.
Change in passenger numbers, 2014-2034
Price and liberalisation: The decline in the price of air travel – that is the cost of air travel in both monetary terms and the time saved
by more direct routes – has been a notable feature of the industry over the past 60 years or so. We expect the downward
trend in the unit cost of air travel to resume in the future, mainly reflecting new technologies and efficiencies being realized.
The introduction of new longer-range mid-size aircraft will connect many more city and country pairs too and lead to
considerable time savings for passengers. Future potential for reductions in travel times will also be driven by changes in
regulatory regimes.
600
500
31.4%
400
The United States is forecast to gain an additional 559 million passengers by 2034, compared to 2014.
Passenger flows
to and from
(Millions)
300
559
Whilst the United States is in the 28th percentile in terms of fastest growing markets over the next 20 years, it is forecast to be
ranked as the 2nd largest markest based on the total number of passengers in 2034.
200
Domestic passengers will represent 68.6% of total growth over this period, accounting for 384 million addittional passengers.
68.6%
Foreign passengers will contribute less to overall growth, representing 31.4% of total growth, equal to 175 million addittional
passengers.
100
0
Total passenger absolute growth
(millions)
Domestic
Absolute growth by foreign and
domestic
Foreign
Air Passenger Forecasts
October 2014
United States - Top Country Pairs
Top US country pairs ranked by passenger numbers, 2014-2034
2014
Rank
(2014)
Country
1 US Domestic
2 Canada
2019
2024
2034
5 year
10 year
20 year
2014-2019
2014-2024
2014-2034
1
US Domestic
Canada
2
Mexico
Mexico
3
Canada
UK
4
UK
438,252
554,280
636,662
822,051
4.8%
3.8%
3.2%
Japan
5
Germany
23,733
27,166
30,809
39,084
2.7%
2.6%
2.5%
Germany
6
India
China
7
China
France
8
Dominican Republic
Dominican Republic
9
Brazil
Passenger numbers ('000s)
CAGR %
3 Mexico
21,011
24,531
28,762
41,011
3.1%
3.2%
3.4%
4 UK
13,946
18,283
20,628
26,145
5.6%
4.0%
3.2%
9,557
10,214
10,550
11,485
1.3%
1.0%
0.9%
5 Japan
US Domestic
6 Germany
8,369
9,726
10,997
13,975
3.1%
2.8%
2.6%
7 China
6,334
7,004
8,423
12,358
2.0%
2.9%
3.4%
Brazil
10
Japan
8 France
6,026
7,166
8,284
11,005
3.5%
3.2%
3.1%
India
11
France
9 Dominican Republic
5,836
6,698
8,171
12,288
2.8%
3.4%
3.8%
Korea
12
Korea
5,659
6,071
7,542
11,739
1.4%
2.9%
3.7%
Italy
13
Colombia
Colombia
14
Italy
Jamaica
15
Jamaica
Australia
16
Spain
17
18
10 Brazil
11 India
4,516
6,035
8,070
13,565
6.0%
6.0%
5.7%
12 Korea
4,512
5,729
6,982
9,289
4.9%
4.5%
3.7%
13 Italy
4,344
4,865
5,537
7,103
2.3%
2.5%
2.5%
14 Colombia
3,195
3,769
4,785
7,539
3.4%
4.1%
4.4%
15 Jamaica
3,053
3,838
4,662
6,782
4.7%
4.3%
4.1%
16 Australia
2,813
3,125
3,423
4,106
2.1%
2.0%
1.9%
Bahamas
17 Spain
2,580
3,243
3,912
5,197
4.7%
4.2%
3.6%
Ireland
19
Switzerland
20
18 Bahamas
2,536
3,265
3,930
5,513
5.2%
4.5%
4.0%
19 Ireland
2,298
2,678
3,315
4,350
3.1%
3.7%
3.2%
20 Switzerland
2,233
2,572
2,930
3,796
2.9%
2.8%
2.7%
Bahamas
Spain
Costa Rica
Netherlands
Ireland
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
The United States domestic market is ranked 1st in 2014, and is forecast to remain as the largest market in 2034; taking 70.6% of the total market in 2034, down from 76.5% in 2014.
Whilst the United States domestic market is the largest market in 2014; the 2nd largest market is Canada, accounting for 3% of total passengers which is forecast to rise marginally to
3.4% by 2034.
The biggest three markets in 2014 are the US Domestic, Canada and Mexico, while in 2034 they are forecast to become the US Domestic, Mexico and Canada respectively.
The largest riser in the 20 year period is forecast to be India rising 5 places to be ranked 6th largest market in 2034.
Whilst the biggest faller in the period 2014-2034 is forecast to be Australia falling 6 places to be ranked 22nd largest market in 2034.
www.iata.org/pax-forecast