ROUTE TRAFFIC FORECASTING

DATA, TOOLS AND TECHNIQUES

Introduction and Background

MODULE 1

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MODULE 1 MODULE 1 COURSE OBJECTIVES

• Understanding how economic factors impact demand for air travel.

• Understanding of how changes in airline business models, strategy and regulation can impact

air travel demand.

• Understanding data: types of data, sources, pros and cons of each, and manipulating data to

build forecasts.

• Understanding the different types of forecasts and forecasting techniques and when to use

each.

• Ultimate goal is to use forecasts to better identify and quantify route opportunities, build

stronger business cases, and produce reliable long-term traffic projections.

SETTING THE SCENE

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MODULE 1 MODULE 1

0 2000 4000 6000 8000 10000 12000 14000 16000 18000

Australia / NZ

Canada

Africa

Other Europe

India

Russia and CIS

Brazil

Middle East

Latin America excl. Brazil

Other Asia

Japan

China

United States

European Union

2014 GDP, Billions real (2010) U.S. Dollars

SETTING THE SCENE - ECONOMY

The world economy

is expected to grow

at or above historical

average rates over

the next several

years.

1.9

2.6

6.4

0.9

4.2

3.7

4.1

2.8

2.6

7.8

2.6

4.8

2.4

2.8

2015-2025 CAGR (%)

Source: IHS Economics

World Growth

2015 2.7

2016 3.1

2017 3.3

2015-2025 3.3

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MODULE 1 MODULE 1 SETTING THE SCENE - ECONOMY

Emerging

markets will

continue to

lead the way.

Source: IHS Economics

ACTUAL FORECAST

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MODULE 1 MODULE 1 SETTING THE SCENE - ECONOMY

Source: IHS Economics January 2015

Emerging markets are

driving the economic

growth

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MODULE 1 MODULE 1 SETTING THE SCENE – AIR TRAVEL DEMAND

Air Traffic Growth

consistently

outperforms GDP

growth

Source: ICAO, IHS Economics

Growth Ratio

1970s 3.1%

1980s 1.9%

1990s 1.8%

2000s 1.4%

2010s 2.1%

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MODULE 1 MODULE 1 SETTING THE SCENE – AIR TRAVEL DEMAND

Air traffic is resilient

• Measured in passengers world

air traffic grew 73% over the

period 2004-2014.

• In the six years following the

financial crisis of 2008, average

annual growth was 6.6%.

Source: World Bank

Oil

Crisis

Oil

CrisisGulf

Crisis

Asian

Crisis

9/11 SARS Financial

Crisis

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MODULE 1 MODULE 1 SETTING THE SCENE – AIR TRAVEL DEMAND

• Air traffic will double over

the next 15 years.

ICAO Total Traffic Airbus GMF

2015

Air Traffic will

double in the next

15 years

2014-2024

+5.2%---------------

2024-2034

+4.0%---------------

2014-2034

+4.6%

Source: ICAO, Airbus

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MODULE 1 MODULE 1 SETTING THE SCENE – AIR TRAVEL DEMAND

Domestic PRC will

be the largest

market in 2033

Source: Airbus GMF

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MODULE 1 MODULE 1 SETTING THE SCENE – AIR CARGO DEMAND

Air cargo traffic

has also been

historically

strong.

Source: Boeing Current Market Outlook

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MODULE 1 MODULE 1 SETTING THE SCENE – LIBERALISATION

• Liberalisation and globalisation have driven world

traffic growth.

• The China-ASEAN Air Transport Agreement resulted in

doubling the number of city-pairs served.

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MODULE 1 MODULE 1 SETTING THE SCENE – AIRLINE STRATEGIES & BUSINESS MODELS

• The LCC model has grown tremendously over the

past two decades.

• LCCs reduce costs, which enables them to offer

lower fares, which stimulates traffic

Source: 2014 Diio / InnovataToday LCCs driving an increase in point to point flying

Source: CAPA

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MODULE 1 MODULE 1 SETTING THE SCENE - AIRLINE STRATEGIES & BUSINESS MODELS

• At the other end of the spectrum, hub

carriers continue to use alliances to

strengthen their networks and gain

economies of scale.

• Alliances extend network reach and allow

carriers to offer one-stop connections in

markets around the globe.

Source: OAG

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MODULE 1 MODULE 1 SETTING THE SCENE - AIRLINE STRATEGIES & BUSINESS MODELS

• Some carriers use their geographical

location advantage to funnel traffic through

their hub

• In addition to the Gulf carriers, Copa has

successfully implemented this model to

funnel traffic between North America and

South America through their hub in

Panama.

80% of the world’s population lives within an 8 hour flight from the

Middle East hubs.

Source: IATA

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MODULE 1 MODULE 1 SETTING THE SCENE - AIRLINE STRATEGIES & BUSINESS MODELS

Airline load factors and aircraft

utilisation are at historically high

levels. There are a number of reasons

for this, for example:

• Capacity discipline: The rise in fuel

prices over the past years have made

airlines more variable-cost driven, which

has led to greater discipline in capacity

deployment.

• LCCs: Low-cost carriers have resulted

in lower fares, pushing up break-even

load factors.

Airline productivity is rising

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MODULE 1 MODULE 1 SETTING THE SCENE – AIRLINE PROFITABILITY

• An improved economic

outlook combined with lower

oil prices is driving

improvements in profitability.

• North American airlines are

leading the way.

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MODULE 1 MODULE 1 SETTING THE SCENE - AMERICAS

• Thanks to a strong US dollar, lower airfares, and better access to budget-friendly

accommodations, travel for the North American market should be strong in 2016. A study by

TripAdvisor estimates that 69% of US travellers are planning an international trip in 2016, up

32% from 2015.

• In 2015, Hopper (a mobile airline app) reported a 14.3% drop in airfare due to increased

competition, cheaper fuel, and airlines moving into unbundled ticketing with lower base fares

and optional ancillaries.

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MODULE 1 MODULE 1 SETTING THE SCENE - SUMMARY

• Economic growth rates for the next several years are expected to be at or above historical

averages.

• Air traffic growth has historically outperformed GDP growth and this trend is expected to

continue.

• The LCC’s share of the global aviation market will continue to expand, making travel more

affordable and thus stimulating demand.

• Asian markets will lead the way in traffic growth over the next 20 years.