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The classic reason we analyse what’s going on today is to give some basis for understanding what’s likely to happen in the future.
That way we can plan our business, or in many cases plan what sort of solutions will be needed in future to make things work.
So we typically extrapolate on past experience, using current indicators - such as fleet orders and market trends – to assess how the next five or ten years will roll out.
But today we’re on the brink of some of the biggest changes since the Industrial Revolution. It’s founded on what I’ll call the Intellectual Revolution.
The Industrial Revolution took several decades to roll out. The Intellectual Revolution will roll out in just a couple. By 2045 the aviation world will look very different.
The Industrial Revolution transformed industries through mechanisation and mass production, relying heavily on a new form of power, the steam engine.
Mechanisation led to factories being built in urban centres, so there was massive social change, leading to rapid urbanisation and the growth of large cities.
The Industrial Revolution also drove the transition to a capitalist economy and increased trading and commerce, not to mention consumerism (and global warming!).
And so, society was revolutionalised.When we look to the future of aviation, it’s important to think on a similar scale. Change will be anything but incremental.
Part 1. Incremental change – where we extrapolate
First, the relatively predictable things.
In most cases we can all see them coming if we stop to think. They’re basically just extending a line, extrapolating on what’s happened before and how it’s likely to look in the future. Obviously it can never be precise, but it has the taste of “business as usual” as a continuum.
Clearly, despite the impending revolution, it’s still necessary to keep our feet on the ground, to go through these traditional processes. I’ll first deal with some of them briefly.
Market growth projections
Boeing is forecasting 4.7% compounding passenger growth through to 2040, at around 2xGDP growth. 44,000 new aircraft will be needed. That’s business as usual!
One determinant of growth: there’s a broadly inverse correlation between fuel prices and traffic growth (an important indicator if or when – expensive - SAFs are introduced). At present, prices are moderate.
LCC growth
LCCs are going to continue to change the game.
20 years ago, when my company did the world’s first LCC conference in Singapore, the incumbent airlines were convinced LCCs could never survive in Asia. The then-CEO of Singapore Airlines actually stood up in the audience to explain why – the full service airlines already had low costs, international markets weren’t accessible etc.
LCCs have transformed travel in the region. Today there are around 40 operating in AsiaPac, and 60% of seats in SE Asia are on LCCs. They didn’t see that one coming! Around 10 of the LCCs are widebody, longhaul operators, a feature unique to this region. Seven fly into Sydney.
LCCs in Asia-Middle East have 4,500 aircraft orders, three times the rest of the world’s LCCs combined.
Traveller profiles
The continued reduction in corporate travel reduces average yields for FSCs, only partially compensated by premium leisure travellers. It leads to reduced competition in long haul. Traveller growth within Asia will be much higher than to/from the region, also accelerated by expansion in trade links, until now very under-done.
Geopolitics
The world’s various wars - and threats of war - are already causing substantial disruption to long haul international flying. The world is in the most precarious geopolitical position since WW2 (and we don’t even hear about the 2million people in Sudan who will die of starvation this year and the 10 million displaced, following the insurrection supported by third countries).
This also impacts on travel behaviour, due to security (and health) fears. Again, long haul travel will be most affected.
Market profitability
Airline profitability has always been erratic for most airlines. Independent LCCs, lacking the support of their governments, will be the ones to fail in bad times. Flag carriers are rarely allowed to, so that there are several government owned dinosaurs plying the skies.
Tourism growth
Tourism in Asia is largely dependent on airline profitability. Say no more.
Overtourism pushback
Barcelona is the poster child for the tourism impacts on local communities, but in Asia’s emerging economies, there is greater tolerance and it’s rare that tourism growth is rejected. But something to watch. It’s greatly aggravated by the particular impact of cruise shipping.
External crises
As a rule of thumb there is a major upset to the airline industry every seven years – the constant shock syndrome.
The next Pandemic
Airlines are perfectly designed to distribute any new strains. Meanwhile the travel industry is sleepwalking into the next major health crisis. Companies need to adjust their risk profiles and diversify where possible.
Governments haven’t learned the lessons of COVID-19 when it comes to cooperating, or even recording outbreaks. The WHO is leading the charge for a global agreement – but if Australia’s states can’t even cooperate, it doesn’t augur well for meaningful global agreement.
Part 2 of this article, coming soon, looks at the coming Intellectual Revolution. Singularity – where we need to imagine what might happen.
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