current market outlook 1999 - as777.com · 2006-08-26 · the twin-aisle delivery cycle has become...

Boeing CommercialAirplanes Group

Marketing

June 1999

Current Market OutlookCurrent Market Outlook 1 9 9 9

World market demand and airplane supply requirements

Every year, Boeing publishes its latest assessment of the demand for worldair travel. This assessment estimates the jet airplane capacity to meet theprojected growth in travel demand, plus the replacement market for older in-service airplanes. This document may be referenced as the Boeing outlookfor the future of commercial aviation.

The sources used in the preparation of the Outlook included AEA, Airclaims,DOT Form 41, DRI-McGraw Hill, Jet Information Services, OAG, IATA,ICAO, AAPA, WEFA, and Boeing primary research. Historical data areestimates based on Boeing analyses. Data for 1998 are preliminary.

The 1999 Current Market Outlook can also be found on the Internet at:http://www.boeing.com/commercial/cmo

Traffic numbers are expressed in the universal measurement of RPKs.However, Appendix A does appear in the Internet version in both RPK andRPM formats.

The Internet version contains another added feature. For each chart in theOutlook, the data used to construct the chart can be found by clicking on theInternet link labeled “background data.”

Please continue to give us your comments by filling out the reader responsecard at the back of the document. We rely on this method to maintain an up-to-date list for next year’s Outlook.

Tim MeskillProject Director, Current Market OutlookBoeing Commercial Airplanes GroupP.O. Box 3707, MC 21-28Seattle, WA 98124-2207USA

Telephone: 206-766-2503Facsimile: 425-237-1706

ForwardForward

1999 Current Market Outlook

Table ofContentsTable ofContents

Executive Overview 8

State of the Industry 12Overview of recent trends and current market conditions in the airline industry.

Economic Basis of Traffic Growth 26Projections for economic growth and future levels of air travel.

Worldwide Airplane Deliveries 34Assessment of future deliveries of new commercial jets.

Appendices 42A. World Traffic by Regional FlowB. Airplane DeliveriesC. Results by Region

D. Results by CountryE. Market Outlook RegionsF. Glossary

1999 Current Market Outlook

1999 Current Market Outlook8

Executive Overview

In 1998, consumer confidence and airline traffic fell in Asia as a reaction to financial and economic crises. Europe continued to enjoy robust domestic and regional growth, driven by deregulated fares and new airlines. Although US airlinesremained profitable, US domestic traffic grew below trend. Traffic over the Atlanticand to Latin America continued strong,although yields and load factors softenedas the year progressed.

World airlines enjoyed a sixthconsecutive year of profitability in 1998,caused in large part by lower jet fuelprices. During the year, however, trafficgrowth, load factor, and yield trendsappeared to be signaling that airlineprofits have reached a cyclical peak.Indicators point to a peak in deliveries in 1999.

The twin-aisle delivery cycle has become disconnected from the single-aisle cycle because of the economic crisisin Asia. Twin-aisle deliveries in 1999 willbe only slightly higher than in 1998 andwill decline in 2000. Deliveries of single-aisle airplanes will also peak in 1999because of the termination of the 737Classic and MD-80 and MD-90 programs. Single-aisle deliveries will most likely slow only half as much as twin-aisle deliveries in 2000, and demand seems strong into2001. As a percentage of the world airline fleet, this delivery peak of commercial jetswith more than 100 seats is not far above underlying long-term demand.

The crisis in Asia went beyond the normal business cycle. Growth lost during thedownturn is unlikely to be recovered, and forecasts for future growth are somewhatreduced. Asian GDP 20 years from now is forecast to be lower by almost 16% than in forecasts before the crisis. Projected RPKs in 2018 for the Asian region areapproximately 17% below the previous forecast.

10-Year Outlook

Economic and traffic growth, 1999–2008

Major projections for the period 1999 to 2008 are as follows:

■ Worldwide economic growth will average 2.7% per year.

■ Passenger traffic growth will average 4.7% per year.

■ Cargo traffic growth will average 6% per year.

Worldwide demand for commercial airplanes, 1999–2008

The world fleet will be 19,100 passenger and cargo jets in 2008.

The composition of the world fleet in 2008 will be:

■ 16% regional jets. ■ 21% intermediate-size airplanes.

■ 57% single-aisle airplanes. ■ 6% 747-size or larger airplanes.

The total market potential for new commercial airplanes is 8,900 airplanes,

or an equivalent $585 billion in 1998 US dollars. Airlines will take delivery of:

■ 2,110 regional jets. ■ 1,940 intermediate-size airplanes.

■ 4,500 single-aisle airplanes. ■ 350 747-size or larger airplanes.

Executive Overview 9

GDP accounts for only two-thirds of the air travel growth. Trends of increasing trade,lower costs, and more flights explain the other third and are continuing. Overall, worldair travel should grow 4.7% per year. Europe and North America are large, establishedair travel markets. Even with lower growth rates, much of the world’s requirement for new airplanes will come from theseregions. However, the Asian regions willstill grow faster than average, despitetheir current economic difficulties. Latin America should also experience a high growth rate as it develops itstourism industry and network of airlinealliances.

The most notable change in the 1999 Outlook is the inclusion of a largenumber of deliveries for regional jets.Small regional jets are currently trans-forming the small-plane affiliates atmajor airline hubs. The regional jets arereplacing prop services, substituting forlarger jets with unprofitable loads, andopening up new thin feeder markets athubs. Most of the activity strengthensrather than substitutes for larger jetservice. Air travel and the manufacture of larger passenger airplanes continue to be growth industries.

The industry continued its evolution toward a global competitive system. Landmarkevents in 1998 included the final stage of airline deregulation in Europe and a newJapan-US bilateral agreement. Projections of the mix of airplanes in the world fleet in the future reflect airline strategies to accommodate air travel growth focused,not on larger airplanes, but on more frequencies.

20-Year Outlook

Economic and traffic growth, 1999–2018

Major projections for the 20-year period 1999 to 2018 are as follows:

■ Worldwide economic growth will average 2.8% per year.

■ Passenger traffic growth will average 4.7% per year.

■ Cargo traffic growth will average 6.4% per year.

Worldwide demand for commercial airplanes, 1999–2018

The world fleet will be 28,400 passenger and cargo jets in 2018.

The composition of the world fleet in 2018 will be:

■ 17% regional jets. ■ 23% intermediate-size airplanes.

■ 54% single-aisle airplanes. ■ 6% 747-size or larger airplanes.

The total market potential for new commercial airplanes is 20,150 airplanes,

or an equivalent $1.38 trillion in 1998 US dollars. Airlines will take delivery of:

■ 4,120 regional jets. ■ 4,410 intermediate-size airplanes.

■ 10,690 single-aisle airplanes. ■ 930 747-size or larger airplanes.


State of the Industry

The Airline Industry Profit Cycle

Many airlines recorded strong profits in 1998. World airlines enjoyed another very profitable year in 1998. Operating profits of the world’s scheduled airlines appear to havebeen slightly below $16.0 (US dollars) billion, just short of 1997’s record $16.5 billion. US Major airline operating profitsdeclined by about 1.5%, Europeanscheduled airline profits increasedmodestly, and Asian airline profits fellby more than a third. 1998 marked theindustry’s sixth consecutive year ofprofitability. All-cargo and charterairlines also continued to be profitable in 1998 and may have contributed afurther $3 billion to industry earnings.

Lower jet fuel prices underpinnedprofitability in 1998. In the past fewyears, the key to profitability was theairlines’ ability to operate at higher loadfactors while reducing costs. In 1998, cost-reduction efforts continued, but lower oil prices were the biggest influence on airline profitability. Demand for oil weakened as theAsian economies faltered. Oil producers were unwilling to cut production quickly enough to keep pace. By year end, oil prices dipped below $10 per barrel; the lowest in real termssince before the 1973 OPEC increase. Potential savings from the resulting decline in jet fuel prices have been estimated atalmost $2 billion for US airlines and $6 billion for world airlines in total. Not all of these savings were realized,however. Airlines with forward contractswere unable to take immediate advan-tage of the falling prices. Still, lower fuel prices made an enormous contribu-tion to airline profits in 1998.

1986 19981988 1990 1992 1994 1996

1998 Marked the Sixth Consecutive Year of ProfitabilityScheduled airline operating profits in current dollars, billions20

15

10

5

0

-5

Cents per gallon, jet fuel, RotterdamFalling Jet Fuel Prices Underpinned Airline Profitability in 1998

Dollars per barrel, crude oil, Brent

0

5

10

20

25

30

15

30

40

60

70

80

50

20JJF DNOSAJ

1998

MAMFJDNOSAJ

1997

MAMJ

Several signs of a cyclical top appeared. Airline profits were strong even though total worldtraffic growth slowed dramatically in 1998. After several successive years of more than 6%RPK growth, world traffic barely managed to grow at 3% last year. Traffic growth varied widelyamong markets. Growth evaporated within Asia. Traffic in the Transpacific market was barelypositive at 0.5%. Travel in the Europe-Asia market grew at only 2.6%—far below the double-digit rates experienced in the prior fouryears. The North America market grew at 2.3%, less than half of the averageexperienced between 1994 and 1997. Atthe other end of the scale, Latin America-North America grew 8.2%, and regionalLatin America expanded 11%. Intransatlantic markets, the North Atlanticexpanded 8.7%, and Latin America-Europe grew 12.0%. European regionaltraffic surged at almost 9%.

Capacity growth exceeded traffic growth.Though traffic growth weakened in some regions, planned capacity increases could not besuspended completely. For the first time in several years, world capacity growth exceeded traffic growth. Airlines moved some airplanes to routes where growth appeared strongest andparked others. As the year progressed, however, load factor erosion became more widespread.In 1998, only US airlines managed toraise system load factors, pushing themup to 70.8%. European airline systemload factors plateaued at 71.8%, andAsian international load factors declinedfor the second year in succession to68.9%. Latin American airlines, whichhad increased their load factors for acouple of years, saw their annual systemload factor fall to 62.8%.

Revenue growth slowed more thantraffic.As travel demand softened, yields de-teriorated as airlines attempted to supportload factors by reducing fares. Limited to Asian routes at the beginning of the year,this tactic spread to the North Atlantic and US domestic markets during the second half of 1998. By the end of the year, yields were declining in just about every major market. A contributing factor reported by several airlines was an increase in the number of business travelers trading down in fare class. For US airlines, the key RASM (revenue per available seat-mile) metric declined significantly in the fourth quarter. Lower jet fuel prices offset the effect of this on profits, however.

Traffic Growth Varied Significantly by Region in 1998

Annual Growth, %Region 1997 1998

North America 4.6 2.3Europe 8.9 8.8Asia-Pacific 4.0 -7.6North Atlantic 8.9 8.7Transpacific 6.7 0.5Europe-Asia-Pacific 10.5 2.6North America-Latin America 5.8 8.2Europe-Latin America 8.6 12.0Latin America 8.6 11.0

World total 6.1 3.0

State of the Industry 13

1998 Profits Not Driven by Load Factor IncreasesLoad factor, %

European AirlinesAsia-Pacific Airlines

Latin American AirlinesUS Airlines

199819971996199519941993

60

64

68

72

76

56


Airline Operating Environment — A Tale of Four Regions

1998 was a year of retrenchment in Asia. In 1998, the effects of the Asian financial crisis on the real economy deepened significantly. Declining consumer confidenceexaggerated the impact of the drop in GDP. Domestic and international traffic growthevaporated within Asia, and overall traffic volumes fell by 7.6%. Some regional flowsdeclined substantially. Southeast Asia traffic fell by 20%. Airlines reacted by slashingcapacity, moving airplanes to inter-continental routes where feasible,and selling or parking excess airplanes.With most regional economies in sharprecession, fare reductions had onlylimited ability to prop up load factors.Capacity reductions did not keep pacewith traffic declines. Thus, the region’sairlines experienced the worst of allworlds, yields and load factors decliningsimultaneously.

In intercontinental markets, Asianoutbound leisure travel volumesdeclined precipitously. This trend wasonly partially offset by tourists from North America and Europe taking advantage of vacation bargains in Asia. Growth rates of 0.5% in the Transpacific and 2.6% in the Europe-Asia market were well below the 7.3% and 10.1% average growth ratesrespectively experienced during 1994-1997. Asian airlines switched capacity fromregional routes to these markets, and load factors came under increasing pressure. Asian airline load factors declined by several percentage points. European and US airlines responded by moving airplanes to the North Atlantic. Thus, major Europeanairlines preserved their Asian market load factors, and US airlines saw their Asian loadfactors decline by only 1.0%. Load factor declines would have been steeper had there not been extensive fare cutting. Yields in Asian markets declined markedly, as did theprofits of airlines with significant exposure to those routes.

Europe’s robust growth was driven by deregulated fares and new airlines. Growth in theintra-Europe market surged at an almost double-digit rate for the second year, boosting the four-year average growth rate to 7.0%. The completion of the airline deregulationprocess, the spread of low-fare airlines, and a rebounding charter market all contributed.Also, the evolution of the “single market” into a monetary union boosted trade within the European Union (EU) and bolstered business travel.

Traffic Growth Evaporated for Asia-Pacific AirlinesMajor airline international traffic growth, monthly percentage change over prior year

-10

-5

0

5

10

DNOSAJJMAMFJDNOSAJJMAMFJ

19981997


Deregulation and low-fare airlines were responsible for the emergence of real pricecompetition in many European markets. While fares in comparable markets are still above those in the United States, they have declined enough to stimulate travel demand.Since 1995, the share of regional scheduled traffic offered by low-fare carriers hasincreased from 5% to 10%. Low-fare carriers have forced European major airlines torespond to their low-fare initiatives and even to start their own low-cost subsidiaries in some cases. Competition amongEuropean major airlines to redirect theflow of connecting intercontinentalpassengers to their respective hubsfurther stimulated traffic.

Growth caused a backlash in Europe.Robust growth created some negativereaction in Europe. Environmentalgroups stepped up their offensivedirected at imposing restrictions on the air transport industry. One group’sofficial characterized the industry as“spiraling out of control” and claimed it is going to “cause huge environmentaldamage.” He argued that the EU should use taxation to rein in the industry and force it “to meet its environmental responsibilities.” While air transport is a very visible source of emissions, its overall effect on air quality is small. EU statistics show that the industryis responsible for only 3% of carbon dioxide emissions derived from fossil fuel in theregion. It is clear that the industry must do a much better job educating the public about air transport’s small contribution to air pollution and its large contribution to commerceand job creation. Limiting the growth of air transport would be one of the most value-destroying ways to improve air quality.

Attacks such as these are a fact of life in parts of Europe. Their escalation comes at just the time when the air transport industry desperately needs to convince governments toinvest in system infrastructure. The summer of 1998 saw the worst AEA (Association of European Airlines) on-time performance since the late 1980s. Demands on runways,the air traffic control (ATC) system, and terminal capacity have outpaced the steadily,if modestly, improved ability of the system to handle increased traffic. This is illustratedby scheduled block times. In Europe in 1988, 737s took 4% more time to fly the samedistance as in the United States. By 1998, US block times in the same 737 airport pairsincreased by 1%, and European block times increased by 2%. This deterioration is notcatastrophic, but the trend is clearly in the wrong direction. While Eurocontrol argues that only 20% of delays are due to ATC issues, it is clear that improvements are needed if consumer demand for air travel is to be met.

European Airline Traffic Growth Continued to Be Very StrongAEA airline international traffic growth, monthly percentage change over prior year

0

3

6

9

12


19981997


System capacity is not the only airline concern. Increases in fees for airport and ATCservices have also been troublesome. The AEA, which had been pushing for a singleEuropean ATC system, has begun to review other solutions. These include partially or totally privatizing European ATC services, putting these services out to tender,and creating three technical centers to guide planes across the entire continent.

Yields declined in intercontinental markets. European leisure travel to Asia grew as the market was flooded with bargains. Such growth was localized, however. Europeanairlines were still forced to reduce capacity by cutting frequencies in some markets andeven abandoning routes temporarily. Even so, capacity could not be reduced sufficientlyto forestall substantial yield erosion. As the Asia crisis deepened, airlines switched somecapacity from the Europe-Asia market to the Atlantic. In 1998, RPKs grew 8.7% on the North Atlantic and 12% in the Europe-Latin America market. This growth easilyoutpaced the previous four-year average growth rates of 6.3% and 9.1%, respectively. The 1998 growth was achieved at the expense of yields, particularly on the North Atlantic, where airlines slashed fares in an attempt to maintain load factors in a market awash with capacity.

Capacity growth finally overtook demand in the United States. US domestic traffic grewbelow trend for most of the year. In the first part of the year, airlines grew yield at theexpense of traffic. This became pro-gressively more difficult as the yearadvanced. Toward the end of the yearrevenue growth became negative in realterms as yields declined year-over-year.

US airlines surrendered market shareinternationally. Despite strong capacityincreases on the Atlantic and to LatinAmerica, schedules indicate that USairlines lost international market share in 1998. In part, this reflected a pre-ference to use code share partners toexpand service. As European airlinesshifted capacity from Asia to theAtlantic, their market share grew by two percentage points. Asian airlines similarly moved capacity to the Pacific and saw their market share grow by three percentage points. US airlines did gain two percentage points of market share to Latin America but at the expense of yield and load factor.

US Domestic Traffic Growth in 1998 Was Below the Five-Year TrendUS Major domestic traffic growth, monthly percentage change over prior year

-3

3

0

6

9

12


1993–1997 Average = 4%

1997 1998


International yield and load factor suffered. On the Atlantic, US airline load factors easedslightly to 79.5%, still close to their record. Yields were about 2% lower than in 1997 ineach of the last three quarters. Over the Pacific, traffic, capacity, and yield were all down.Yield in the Pacific was off 10% in the second quarter and almost 20% in the third quarter.This caused Delta, Continental, and American to approach the take-up of new bilateralrights cautiously. In Latin America, US airline load factors dropped a dramatic threepercentage points year-over-year. Yield increased in the first quarter but declined in each of the following quarters compared to 1997.

Latin America growth slowed with Brazil’s economic difficulties. Latin Americaexperienced a very strong traffic year in 1998, even as load factors moderated. Within the region, some airlines enjoyed double-digit growth. European travelerscontinued to discover Latin America as a vacation destination. More wealth in the region also led to expanded travel to Europe. Within Latin America, liberalization andprivatization continued to open up regional routes. This provided expansion opportunitiesto second-tier airlines that were eager to emerge from the shadow of flag carriers. Never-theless, in the wake of Brazil’s economic troubles and their impact on regional economies,there may well be a retrenchment ahead in intercontinental outbound demand as well as in regional markets.

Latin American airlines face stiff competition from US airlines. While the North America-Latin America market has been growing rapidly, Latin American airlines have not sharedproportionately in the prosperity. A major feature of the market last year was the inter-necine warfare among US airlines in order to capitalize on “open skies,” often at theexpense of Latin American carriers. Central America, most of the Caribbean, and Peru are now open. Chile and Argentina are still negotiating with the United States.

Changes in the Airline Competitive Environment

Airline competition continued to intensify. The industry continued its evolution toward a global competitive system. Landmark events in 1998 included the final stage of airlinederegulation in Europe and a new Japan-US bilateral agreement. The former opened EU countries to cabotage, largely a symbolic gesture given market opportunities andcommercial realities. The latter balanced Japanese and US incumbency rights andprovided opportunities for additional competitors. The new bilateral is a significantmilestone in the liberalization of the Transpacific market. It is a change that has long been identified as a necessary condition for the fragmentation of this market. Initially,however, US airlines have moved cautiously, and additional service may build slowly until the Japanese economy improves.

Alliances expanded market presence in Asia. In 1995, a top executive of one of Asia’s leading airlines argued that his region’s airlines were extremely desirablealliance partners. However, in his view, Asian airlines could see no virtue in their alliancesuitors. Three years later, with recessions creating substantial pressures on its airlines,Asia finally succumbed to the embrace of the emerging global airline alliances.

A significant event in 1998 was the European Union’s review of transatlantic airlinealliances. EU competition authorities imposed substantial conditions on the proposedalliance between British Airways (BA) and American Airlines (AA). The mostcontentious condition required thealliance airlines to hand over Heathrowslots, free of charge, to competitors.Other conditions stipulated that BA and AA reduce frequencies to ensurecompetition in key city-pair markets.These conditions were deemed soonerous by the alliance partners that they chose to scale back their plans. The proposed alliance featured depth of cooperation across the entire revenueside of the business. It might have had long-term implications for the structure of the airline industry. In the face of the EU’s attempt to regulate their alliance,BA and AA settled for a more commonplace marketing alliance. Control of slots at Heathrow outweighed the competitive advantage of provisions for revenue-sharing and antitrust immunity.

Emerging global airline alliances have made substantial strides toward combining the marketing efforts of their members and have begun the building of global brands.There is little evidence, however, that alliances have changed the structure of thecompetitive environment. The majority of airport pairs had the same number of airlinecompetitors in 1998 as in 1988. As many have more competitors as have fewer. Theshrinking of the industry’s regulatory structure means that more choice for consumers will be an increasingly available competitive weapon. Indeed, by raising competition to the level of global route networks, alliances will be able to support higher levels of service on both high-density and thin routes. Further, since cross-border ownership and control is still restricted, true consolidation has not yet occurred.


Delta, Swissair, Sabena, Austrian

Northwest, KLM, Alitalia, Continental

United, Lufthansa, Thai, SAS, Air Canada,Varig, SAA, Singapore,

ANA, ANZ,Ansett-Australia

American, Canadian,British Airways, Qantas,Cathay Pacific, JAL, US Airways, Iberia

Global Alliances Are Emerging

Percentage of 1998 world total ASKs

Not aligned49%

19%

9%

5%

18%


Low-fare airlines expanded in Europe. One of the objectives of the liberalization of airtransport in the EU, as in the United States, was to encourage more price competition. A major thrust of air transport policy has been to eliminate controls on airline pricing,thus allowing existing low-fare airlines to expand and new competitors to emerge. Farecompetition has spread as the group of carriers with a lower cost base than most AEA airlines has grown. New entrants differentiate themselves by their distribution systems,the airports from which they operate, and heavy use of outsourcing, all of which helps keep costs low. Fares are generally substantially lower than those on the major airlines with which they compete. By year-end 1998, these airlines operated a fleet of almost 200airplanes and offered over 1,000 departures per day from 110 airports. They operate in 245 airport-pair markets and now generate 10% of regional Europe’s scheduled ASKs.

Low-fare carriers utilize secondary airports in Europe. Competition necessitates providing consumers with more choice. In air transportation, the choice that consumersconsistently demand is additional flights. At several of Europe’s largest airports, new airlineshave found few attractive slots available. Thus, low-fare airlines use secondary airports nearmajor cities in order to offer new flights at the most preferred times of day. These airportsinclude Stansted and Luton (London), Ciampino (Rome), Bergamo (Milan), Tessera(Venice), Pontoise and Beauvais (Paris), and Charleroi (Brussels). Though departure levelsare still relatively low, the development of secondary airports ensures that low-fare carrierswill have room to grow if their marketing and distribution strategies are successful.

The Airplane Market Cycle

Airline profits may have reached a cyclical peak. Until 1998, world traffic growth had been running above the long-term trend rate for several years. Indeed, in several markets,above-trend growth continued in 1998. Overall, traffic growth, load factor, and yield trends in 1998 appear to be signaling that airline profits have peaked, however. Load factors had some room to ease, since airlines operated at extremely high levels during the previous few years. Yield erosion is of greater concern, suggesting that demand weakness is greater than the pressure on load factors alone indicates.

If the airline cycle is reaching its peak, what does this bode for the airplane market cycle? Indicators suggest that the airplane market is at least a year from its delivery peak. The used airplane market is still relatively tight with only modest additions to the supply of Stage 3 airplanes. Between year-end 1997 and year-end 1998, the parked fleet increasedby less than 100 units. A quarter of this increase was airplanes on the ground for maintenanceor modification, and another quarter was airplanes that most likely will not return to airlineservice. About 40 airplanes added to the parked fleet represent viable Stage 3 capacity. At year-end 1998, estimates are that just over 100 such airplanes were available. Thiscontrasts with the almost 500 viable airplanes in the parked fleet in 1991 and 1992.


The number of parked airplanes increased slightly. The increase in parked airplanesmay not tell the whole story. Surveys conducted by Boeing indicate that the supply of used widebody airplanes could increase significantly over the next several years.Most of the airplanes likely to be madeavailable are older models. Many ofthese would be parked to await eventualremoval from the world airline fleet.Some have potential for conversion tofreighters. On the other hand, there is little evidence that older Stage 2airplanes have been removed fromservice in the expected numbers, thoughthe volume increased significantly in1998. As the Stage 3 cut-off date ap-proaches, there should be significantincrease in the number of parked Stage 2 airplanes.

Orders for new airplanes were surprisingly robust in 1998. After several years of strong though not excessive orders, many observers expected that fears of slowingeconomic growth and potential excess capacity would lead to fewer orders in 1998 than were booked in 1997. Gross orders for commercial jet airplanes including regional jets, however, were 1,624 in 1998 compared to 1,341 in 1997, an increase of 21%. Business was boosted significantly by orders for regional jets which climbed 52% to 477 units.

Total net orders were 1,547 compared to 1,211, an increase of 28%. Orderstrength was concentrated in the single-aisle and regional jet segments. Netorders for single-aisle jets increased by 27% to 842 units. Only a few of these orders were for Stage 2 replace-ment requirements; most of those ordershad already been placed. Instead, theorders indicate airline confidence thatthis industry cycle will play outdifferently than the last one.

The Parked Fleet Began to IncreaseNumber of airplanes

Available capacityWill not return to active serviceOngoing parked fleet

0

300

600

900

1,200

1998199619941992199019881986

Order Strength Is in Single-Aisle and Regional JetsNumber of airplanes Percentage of world airline fleet

Twin-aisleSingle-aisleRegional jets

Percentage

500 5

1,000 10

1,500 15

2,000 20

2,500 25

-500 -5

0 0

1998199619941992199019881986


Overall, airplane production rates continued to increase in 1998. Boeing twin-aisleproduction increased from 16 per month at the beginning of the year to 17 per monthby the fourth quarter. Airbus twin-aisle rates increased from five per month to six permonth over the same time period. Boeing single-aisle rates increased by 17% to 34 per month, while Airbus ramped up rates from 13 per month to 18 per month,a 38% increase. Manufacturers of small regional jets implemented even more dramatic rate increases.

Airplane deliveries increased significantly. Commercial jet airplane deliveriesincreased to 949 in 1998 from 678 in 1997, a 40% increase. This reflects the continuedbuildup of production rates to satisfy orders placed in 1995 and 1996. Regional jetdeliveries increased from 121 to 157, a 30% increase.

Airplane deliveries will further increase in 1999. In 1999, deliveries of commercial jets will be 12% higher than in 1998. Deliveries of single-aisle airplanes will increaseby 13% to 615, while those of twin-aisle airplanes will increase just 2% to about 250.In addition, deliveries of regional jets will increase almost 30%. Overall, the industry isclose to a cyclical peak in deliveries, although the twin-aisle delivery cycle has becomedisconnected from the single-aisle cycle.As a percentage of the world airlinefleet, this delivery peak of commercialjets is not far above underlying long-term demand for growth and replace-ment. Deliveries above this long-termtrend primarily represent demand forsmall regional jets in excess of turbo-prop replacement.

It is clear that the market for twin-aisleairplanes has peaked earlier than that forsingle-aisle airplanes. Orders for twin-aisle airplanes declined in 1998. TheAsian economic crisis has slashed near-term demand for additional twin-aisleairplanes. In the current cycle, twin-aisle deliveries will peak in 1999. Deliveries in1999 will be only slightly higher than in 1998, and a slowdown will occur in 2000.

Twin-Aisle Deliveries Will Peak in 1999Number of airplanes Percentage of world airline fleet

Twin-aislePercentage

2000e1998199619941992199019881986

50

100

150

200

250

300

0

2

4

6

8

10

12

0

Continued strong economic growth and a stable European economy have supported the single-aisle market. As discussed in previous market outlooks, US airline Stage 2replacement requirements have also been a major factor. Deliveries of single-aisleairplanes will also peak in 1999 becauseof the termination of the 737 Classic and MD-80 and MD-90 programs.Single-aisle deliveries will most likelyslow only half as much as twin-aisledeliveries in 2000, and demand seemsstrong into 2001. Regional jet deliverieswill increase substantially during thenext two years and demand seems strong even beyond this time horizon.

Boeing will begin to adjust productionrates in 1999. 747 production will be cutto two per month by the fourth quarter.777 production will be reduced from seven to five airplanes per month by the end of the year. Single-aisle airplane production will decrease because the termination of both the 737 Classic and MD-80 and MD-90 programs will not be offset by the 717 build-up. As the cycle unfolds, production rates will be continuously assessed in light of market demand.

Boeing Will Adjust Production Rates Quarterly in 1999Average airplanes produced per month

717 initial deliveries = 12 in 1999


Model 1st 2nd 3rd 4th

737 26 27 27 27

747 5 3.5 3.5 2

757 5 5 5 5

767 4 4 4 4

777 7 7 7 5

MD-80/-90 3 3 3 3

MD-11 1 1 1 1

Total 51 50.5 50.5 47

Percentage of world airline fleetSingle-Aisle and Regional Jet Deliveries Will Peak in 1999–2000Number of airplanes

Single-aisleRegional jets

Percentage

200

400

600

800

1,000

0

2

0

4

6

8

10

2000e1998199619941992199019881986


A clear indicator of the future path of the airplane delivery cycle is canceled orders. A sharp increase in cancellations would suggest a severe downturn. However, ordercancellations actually decreased in 1998compared to the previous several years.

The industry is well positioned tomanage this cyclical turn. The industryis well positioned to manage the nextturn in the cycle. In spite of recentincreases, oil and jet fuel prices remainlow by historical standards. Airlinesclaim that global alliances will helpthem reposition capacity to maintainpresence in weak markets through codeshare agreements as well as managecosts and increase revenue. Airlinecapacity increases in this cycle have indeed been moderate. As long as there is no global recession, the airlines are in good shape financially and are well preparedoperationally to weather less profitable times. While airline profits may be lower in the next year or two, airlines should still remain very profitable.

On the manufacturer side, the twin-aisle cycle has become disconnected from the single-aisle cycle. Deliveries of twin-aisle airplanes will slow more rapidly thandeliveries of single-aisle airplanes. As the cycle turns, however, manufacturers willadjust production rates to match capacity to demand.

Cancellations Have Not IncreasedNumber of airplanes

0

1,000

500

1,500

2,000

-500

Orders later deliveredOrders later cancelled

CancellationsDeliveries

1998199619941992199019881986


Forecasts of air travel growth start with forecasts of economic growth. Gross DomesticProducts (GDP) for the countries and regions drive the forecast for the 20-year trafficoutlook. The year 1998 was a difficult year for such GDP forecasts. Even while the 1998 Current Market Outlook was being printed, it became clear that further revision of the Asian GDPs was going to be required. By September 1998, new forecasts could be made. By October, Russian difficulties, Brazilian fears, and US hedge-fund leveraging came close to putting the smooth functioning of worldwide banking andforeign exchange in peril. The threat had diminished by January 1999, by which time not even a major upset in Brazil posed broader difficulties. GDP forecasts that formed the basis for the 1999 Current Market Outlook were current in February 1999.

Normally, breaking economic news does not affect 10-year and 20-year GDP values. Forecasts represent a long-run average of business cycle ups and downs and are not readjusted to reflect temporary cyclical events. Indeed, models sometimes predict a higher ultimate GDP after a downturn and recovery than without the cycle.

The crises in Asia during 1998 went beyond a normal business cycle. First, they disruptedbusinesses badly enough to damage organization, production, and investment. Second,they revealed existing problems of bank, corporate, and regulatory functioning that wouldhave motivated lower 20-year forecasts had they been appreciated earlier. Third, they are leading to reforms in banks, corporations, and regulation that may justify furtherreassessments of growth potential. The crises in Asia were not merely business cycles.The crises revealed structural problemsand motivated repairs of those problems.

Fast-growing countries in Asia may beless able to rely on exports to fuel theireconomic growth. In economies asdisparate as China, Thailand, and Japan,internal consumption will carry more ofthe burden. This change should modestlyreduce the long-run growth for theregion and result in the loss of 0.3% in the estimate of the world’s overallGDP growth rate.

Economic Basis of Traffic Growth

A Crisis Alters a Country’s Long-Term GrowthGDP (index 1998 = 1.0)

1970 2015 202020102005200019951990198519801975

2.5

2.0

1.5

1.0

0.5

0.0

HistoryPre-crisis trendCrisis and new trend

Economic Basis of Traffic Growth 27

For the first time in a decade, growth rates tell different stories in the 5-year, 10-year,and 20-year outlooks. The forecasts use 1997 as the base year, so they can be comparedto forecasts made in the fall of 1997, before the Asia crises developed. The 1997forecasts contained no 1998-99 recessions. The current forecasts encompass crises in Asia contained to Asian countries and cyclic recessions in South America and the Middle East caused by reduced commodity prices.

Economic problems have reduced growth forecasts. Before the crises of 1998,Asia was expected to grow at 4.1% a year for five years. Now the estimates are for only 0.7% a year. This represents almost a 16% lower forecast for GDP in 2002.Although the forecast is for growth to return for the remaining 15 years ofthe 20-year forecast, the new projectedaggregate GDP for Asia at the end of the period remains 16% lower thanforecasted in 1997.

The key to this story is Japan, which hasover half the region’s GDP. The Japaneseeconomy slipped into recession in 1998,and predictions are for a slow recoveryat best. The pattern is for the slowdownin the first five years to be followed by a partial catch-up in growth during the next five years. However, the longer-run growth potential for Japan has beenrevised down. The new forecast for Japan’s GDP after 20 years is 13% below the forecast made in 1997.

South Korea, the other big economy in Northeast Asia, is recovering quickly from its sharp recession. However, the growth Korea lost in 1998 may not be recovered.Current forecasts for GDP after 20 years are 93% of values estimated before thecurrency crisis.

Japan’s recession will curtail an important source of investment funds for SoutheastAsia, as well as depress a primary market for Southeast Asian exports. Thus, theeconomic wounds of Thailand, Indonesia, Malaysia, and the Philippines will be slowerto heal. Expectations for the aggregate GDP growth rate for the Southeast Asia regionare 1.7% for the next five years, down from the 1997 forecast of 6%. The repair ofnewly-revealed structural defects should improve growth somewhat in the mediumterm. However, economists have reassessed the ability of Southeast Asian economies to sustain very high growth rates over the long term. The result of recession, recovery,and revised growth is a forecast for GDP after 20 years that is almost 25% lower thanthe 1997 forecast. The current fluid structure of governmental and business entitiesmake this value quite uncertain.

Asia 5-Year GDP Growth Is Below Trend

Southeast Asia

Northeast Asia

China

5 years10 years20 years

0 2 4

GDP annual growth rates from 1997 base, %

6 8


The 20-year outlook for China is lower for two reasons. First, there is a smallslowdown foreseen in the next couple of years. Second, the recent experience in otherparts of Asia changed estimates of how often and how big disruptions in growth canbe. There are difficulties of adapting banking, regulatory, and governmental structuresto match large changes in wealth and in markets. These difficulties have beenunderestimated in Russia, in Eastern Europe, and in Southeastern Asia. Appreciationof this point now tempers estimates of long-run prospects for China. The new forecastfor China has a 20-year GDP 20% lower than the 1997 forecast.

Other regions suffer only transitory slowdowns. When crises hit in Asia, several otherregions were immediately examined for consequences. Neighboring Southwest Asiadrew the first extra attention from economists. Nevertheless, not even nuclear testschanged the estimates for GDP growth for India and Pakistan and their neighbors.

The Middle East is feeling the severeshort-term consequences of reduceddemand for oil by Asian countries.Diminished demand meant oil priceswent as low in real terms as at any timesince World War II. The result is GDPgrowth for the Middle East of just under2% a year for the next five years, downfrom 4.4%. The long-term outlook callsfor oil prices to be stable in real terms in line with trends of the last 20 years.That stability reflects the experiencethroughout most of the 20th century, during which, depending on details of inflation and prices, real oil prices have been stable over the long term. Ten- and 20-year GDP forecasts for the Middle East assume that prices will continue to oscillate around this average.

In a simple world, all GDPs in Oceania should have slowed because of reducedSoutheast Asian trade. However, almost as a reminder to forecasters of how manyseparate factors combine to make economic growth, Australia’s GDP was up,not down. Australia’s gain compensated for New Zealand’s slowdown and heldregional growth rates at their long-run average.

Middle East

Southwest Asia

Oceania


0 2 4


6 8

Lower Oil Prices Reduce Middle East Growth


Asia was not the only region to suffer in 1998. Brazil is near half of South America’sGDP, so the 1998-99 recession in Brazil has a big effect on regional growth. However,Brazil skirted the disabling irregularities experienced in Southeast Asia. Businessescontinued to function during Brazil’s devaluation. South America should recover its lost growth in later years. Meanwhile, the region’s movement toward soundeconomic structures continues. The netof adjusting for the current downturnand the higher later growth is an almostunchanged outlook for the full 20 years.

Russia has distanced itself from worldcommercial activities by defaulting ondebts. The year 1998 has been a year ofdisillusionment for economists. Asia hasshown how difficult it is to sustain anupward trend. Russia has shown that is itharder than hoped to start such a trend.Idealists had thought that a free marketwould spring into existence at the removal of central government control. A longer and broader historical perspective would have taught that economies are most frequently static and that growth is not ensured. Russia has several businessproblems. There are multiple levels of taxation and corruption. The currency is onlyintermittently useful in signaling prices and values. State enterprises still avoid marketdiscipline and require support. Circumstances appear to have overwhelmed Russia’sadvantages of an educated workforce and significant industrial infrastructure. GDPgrowth forecasts for the CIS region for the next 10 years have been revised to 2.3%,down from 4.6%. Hope for a more constructive regime has not been abandoned,however, and growth forecasts for the subsequent 10 years climb to a higher level.

Brazil and Russia Experience GDP Slowdowns

Africa

South America

Central America

CIS region


0 2 4


6 8


Europe and North America growth is not interrupted. The best economic news in 1998 was that both the United States and Europe overcame the braking effect of theAsia slowdowns and maintained healthy growth rates. The 5-year forecasts today for both regions are higher than theywere just before the Asian crises hit. The 20-year forecasts remain unchangedbecause a reconsideration of demo-graphic trends in the region has shavedprojections for growth during the seconddecade. Should the emerging suspicionof some economists that productivitygrowth need not decline with wealthbecome tenable, the 20-year forecastscould revise upwards again.

Overall, forecasts are based on a world GDP growth of 2.2% for 5 years, 2.7% for 10 years, and 2.8% for the full 20-year period. The 2.2% value is nearly a fullpercentage point below the forecast before difficulties in Asia, Russia, and SouthAmerica. The 10- and 20-year averages are off 0.3 percentage points. Troubles in 1998 caused both direct economic shortfalls and reassessment of the smoothsustainability of growth in general.

Short-term crises have limited longer-term effects. Happily for air travel,GDP accounts for only two-thirds of the air travel growth. Trends of increasing trade,lower costs, and more flights explain the other third and are continuing. Dramaticreductions in travel revenues during recessions are a response to reduced consumerconfidence. Consumer confidencereturns to average over the longer run,and air travel growth will continue itspattern of growing faster than GDP.

Air travel in 1998 varied from trend.Appendix A reports air travel growthforecasts for the world divided into 51 regional flows. Growth rates inAppendix A use estimated 1998 trafficas a base. Traffic growth rates with a1998 base can seem misleading becauseof the deep drops in traffic in the base-year Asia flows.

GDP Is Steady in Mature Regions

Europe

North America

0 2 4


6 8


ChinaSouth America

Southwest AsiaCentral America

Northeast AsiaEurope

Southeast AsiaAfrica

CIS regionMiddle East

North AmericaOceania

1998–1999 Slowdown Reduces Long-Term AveragesAnnual RPK growth rates by domicile World 11-year rate 4.6%

0 2 4

Percentage

6 8

11 year (1997 base)10 year (1998 base)


For example, a 9% drop in traffic in 1998 results in an 11-year (base year 1997) growthrate for Southeast Asia of 4.9%. By contrast, the growth forecast for the 10-year period(base year 1998) starts after the 1998 downturn and therefore averages 6.4%. NortheastAsia showed a 5% drop in traffic in 1998: the 11-year growth rate is 5%, but the 10-year rate is 6%. In other regions of the world, 1998 growth was stronger than the trend,and the 11-year growth rate is greater than the 10-year rate. For example, Europeantraffic grew by 8% in 1998. Therefore Europe shows a 4.9% 11-year growth rate and a4.7% 10-year rate. In South America, growth was almost 13% in 1998. The 11-yeargrowth rate is 6.9%, but the 10-year rateis only 6.3%.

Regional air travel will grow at differentrates. Large bases of established travelin Europe and North America mean thateven with lower growth rates, much ofthe world’s need for new airplanes willcome from these regions. The Asianregions will still grow faster thanaverage, despite their current economicdifficulties. Latin America should alsoexperience a high growth rate as itdevelops its tourism industry andnetwork of airline alliances.

New travel requires new routes and new airplanes. Overall, world air travel shouldgrow 4.7% per year measured over either the 10-year or 20-year periods. If patternsfrom the last 10 or 15 years prevail, the mix of these airplanes will remain close to the current mix for most major flows. Growth in overall market size will be almostbalanced by added routes and increased frequencies. There continues to be no sharpchange in industry structure or operating conditions that would explain a strong break from well-established historical trends.

0 10 20

Percentage

30 40

North AmericaEurope

Northeast AsiaSoutheast Asia

ChinaSouth America

OceaniaCentral America

Middle EastCIS region

AfricaSouthwest Asia

Share of 10-year growth1998 RPK share

Large RPK Bases Still Dominate Growth RPKsShare of 1998 world RPKs and growth RPKs,1998 base by domicile


Worldwide Airplane Deliveries

The 10-Year Forecast

The world fleet will reach 19,100 airplanes in 2008. The world jet fleet is predicted togrow from an operating fleet of 12,600 airplanes at the end of 1998 to 19,100 airplanesin 2008. Projections of annual air travel growth of 4.7% and air cargo growth of morethan 6% underpin this forecast. Single-aisle and regional jets should maintaintheir current 73% share of the world fleetbecause of the large number of regionaljets projected for delivery. Intermediate-size airplanes are projected to increasetheir share of the world fleet from 19% in1998 to 21% in 2008. As the airlines addmore intermediate-size airplanes, theproportion of large airplanes is expectedto decline from 8% to 6%.

8,900 new airplanes will be required over the next decade. 8,900 new commercialjets—8,675 passenger airplanes and 225 new freighters—are forecast to enter serviceworldwide over the next 10 years. The removal of airplanes over the next 10 years willbe front-end loaded. The United States requires that all airplanes comply with the Stage3 noise standard by December 31, 1999. All airplanes operating in Europe must meettougher noise standards by April 2002. Of the more than 2,300 airplanes projected to be removed between 1999 and 2008, two out of three are expected to be removedduring the next five years.

Airplanes are replaced in stages.Airplanes often remain in servicesignificantly longer than their firstoperator flies them. New airplanes enterthe fleet while older airplanes passthrough a series of replacement stages.There is significant variation amongairlines as to the timing of replacement.The forecast is based upon informationfrom airlines whenever possible.

Additions and Removals Change the World FleetNumber of airplanes

1998 20082003 2004–2008

1999–2003

Number of airplanes6,000

4,000

2,000

0

-2,000

20,000

15,000

10,000

5,000

0

New airplanes1998 retained fleet

AddedRemoved

The World Fleet Will Increase by 6,500 Airplanes

2008

57%63%

16%10%

21%19%

6%

8%

19,100airplanes

1998

12,600airplanes

Regional jetsSingle-aisleIntermediate twin-aisle747 and larger

Worldwide Airplane Deliveries 35

The table below summarizes guidelines used to remove airplanes from the active commercial fleet when airline information is not available.

The market for airplanes is $585 billion.The market for new commercial jetairplanes over the next 10 years is $585billion (1998 US dollars). Half of thedeliveries, or ten out of every twentydeliveries, will be single-aisle airplanes.Five out of twenty will be regional jets,four will be intermediate twin-aisleairplanes, and just one will be equal to or larger than the 747.

The largest demand is for small airplanes. The current world fleet of 9,230 single-aisleairplanes plus regional jets is expected to grow to 14,030 airplanes by the year 2008.Airlines are expected to continue topurchase large numbers of these smallerairplanes so they can offer morefrequencies in domestic service and on short-range international routes.

Regional jets will meet the needs of an evolving market. The 1999 CurrentMarket Outlook includes a significantlylarger forecast for regional jets than in the past. The 1998 fleet of 1,230 regionaljets is projected to increase to 3,020 jets in 2008. In the United States, small regionaljets with less than 70 seats are currently transforming commuter affiliates from smallmarket feeders into full strategic partners. US regional airlines are operating smallregional jets on new nonstop flights. They are serving to extend the geographic reach of Major airline hubs, augment larger jet operations in off-peak hours, replace Majorairline larger jets on thin routes, and substitute for prop flights.

Such applications of regional jets are leading to continued market fragmentation in the US domestic markets. They are also allowing airlines to provide additionalfrequencies for business travelers at off-peak times of day. Consequently, these newservices are carrying a high proportion of business travelers, which enhance yields and profitability. Until the “scope clauses” of US Major airlines’ pilot contracts aremodified, demand for regional jets will be skewed towards small regional jets with 70 or fewer seats.

Guidelines for Replacement in Commercial Airline Fleets

1. Information from airlines

2. Airplanes designed Before 1980 After 1980

Single-aisle 25 years 28 years

Twin-aisle 28 years 31 years

3. Freighters: 35 years or older

4. Extended service lives (hushkits): 5 to 10 years

Delivery dollars$585 billion

Single-Aisle Airplanes Dominate Future Deliveries1999–2008



24%

11%

50%43%

37%

22%

9%4%


Few scope clauses in Europe are as restrictive as those in the United States, nor are they EU-wide. This creates the potential to make regional jets an even more powerfulstrategic force. Connect hubs are generally much less developed than in the UnitedStates. Population distribution, slot limitations, and the relatively embryonic state of the single market impose limits on the ability of airlines to build US-style hubs. The regional jet’s role in Europe is more linked to hub bypass and point-to-pointservice strategies. European airlines with relatively favorable scope clauses are likely to seize the opportunity to employ regional jets to gain advantage over competitorswith more restrictive scope clauses.

Demand for mid-size airplanes is growing the fastest. Intermediate-size airplanes will be the fastest-growing segment of the commercial airplane market for two reasons. First, some mid-size types are now capable of serving long-range inter-continental markets that once were restricted to long-range 747s. Second, airlines can take advantage of lower operating economics for the intermediate-size airplanes to replace older 747s.

Over the next 10 years, the share of intermediate-size passenger airplanes is projectedto increase from 19% to 21% of the world fleet. A total of 1,940 deliveries in this sizecategory are forecast over the 10-year period.

The requirement for 747 size airplanes remains strong. The large-airplane categoryincludes the 747 and any future airplane larger than the current 747-400. Currently,this fleet numbers 1,020 all-passenger, combi, and freighter 747s. Over the next 10 years, airlines are projected to take delivery of 350 airplanes in this category.

The requirement for larger than 747-400 size airplanes is small. Air travel growth in a few high-density markets continues to point to a future requirement for a smallnumber of airplanes larger than the 747-400. The timing of this requirement isdependent on traffic growth rates in these key markets, the pace of market liberaliza-tion, and the extent of airport capacity constraints. Airlines are projected to requireapproximately 80 airplanes of this size category toward the end of the first 10 years of the forecast. The requirement for a larger airplane is expected to become moresignificant during the second decade of the forecast period.

Strong regional differences exist in demand. Airplane demand and size requirementsvary from region to region. North America, with its large number of experiencedtravelers and its need to replace an aging fleet, will require the most airplanes over the next 10 years. Deliveries to North American airlines are expected to total 3,300airplanes over the decade. European airlines are projected to take delivery of 2,795airplanes. Asia-Pacific’s airlines will require delivery of 1,665 airplanes from now until 2008, and the airlines of the rest of the world will receive 1,140 airplanes.


Airplane deliveries to North American airlines are expected to be worth $174 billionover the next 10 years. Compared with other regions, a larger proportion of NorthAmerican deliveries will be regional jets. Regional jets and single-aisle airplanestogether account for over 80% of the3,300 deliveries. The value of the 2,795airplane deliveries to European airlineswill total more than $184 billion. Over75% will be single-aisle airplanes andregional jets, weighted three to one infavor of the former. Airplane investmentby Asia-Pacific airlines is expected toreach $151 billion. Asia-Pacific carriersare projected to take delivery of morethan four times the number of largeairplanes as the airlines of NorthAmerica. Airlines of the rest of the worldare expected to invest $76 billion in newairplanes between 1999 and 2008.

The 20-Year Forecast

The market for airplanes is $1.38 trillion over 20 years. World air travel is projected to grow annually at 4.7% and air cargo at approximately 6.4% during the long-runforecast period. The world fleet is expected to double, with total fleet size growing to 28,400 by 2018. Two-thirds of the fleet operating today is projected to still be in operation 20 years from now. In the two decades, 20,150 commercial jets—19,500 passenger airplanes and 650 new freighters—are forecast to enter service to accommodate traffic growth and replace capacity lost as airplanes are removed from commercial airline service. Thevalue of this requirement is $1.38 trillion through 2018.

One-third of today’s capacity will need to be replaced. The tally of airplanesadded and removed is a straightforwardexercise. Defining the number ofairplanes attributable to growth andthose to replacement is not. The reasonis that airplanes are not replaced jet-for-jet, but rather seat-for-seat.

Europe

Regional Deliveries1999–2008Number of airplanes Delivery dollars, billions

* Includes Southwest Asia 747 and largerIntermediate twin-aisleSingle-aisleRegional jet

NorthAmerica

Restof

World

4,000

3,000

2,000

1,000

0

200

150

100

50

0Asia-Pacific*

EuropeNorthAmerica

Restof

World

Asia-Pacific*

30,000

20,000

10,000

0 1998 fleet

Retained

12,580

Airlines Will Require 20,150 AirplanesNumber of airplanes

2018 fleet

8,250retained

20,150added

28,400


The 4,305 airplanes removed from the system will be replaced by some airplanes ofequal size, but also by both smaller and larger airplanes. For example, an airline might“replace” its 727-200s (156 seats) with 757-200s (201 seats). Only a portion of each757-200 actually serves as replacement; the rest contributes to growth. Based upon an estimate of the amount of capacity removed from the world fleet, one-fourth of the $1.38 trillion market for newcommercial jets can be thought of as replacement for older in-serviceairplanes and the remaining three-quarters for accommodation of bothpassenger and cargo traffic growth.

Almost three-fourths of future deliverieswill be small airplanes. The mix offuture airplane deliveries over the next20 years is considerably different whenmeasured by the number of airplanes rather than by airplane investment. In terms of investment dollars, the combined investment in single-aisle plus regional jets is more than that of intermediate-size airplanes. Investment in large airplanes is expectedto reach 13% of the total investment in new airplanes from 1999 to 2018. In terms of airplane deliveries, 20% of the airplanes required over the next 20 years will beregional jets and 53% will be single-aisle airplanes. Twenty-two percent of the market will be intermediate-size airplanes. Just 5% of all future deliveries are projected to be large airplanes.

The market for very large airplanes is small. Summing the projected requirements for 747-and-larger airplanes in all major travel markets reveals a total need for 930airplanes over the next 20 years. Within this size category, more than half the require-ment—or approximately 565 jets—is for airplanes having from 400 to 500 seats.

The market for airplanes larger than today’s 747-400 becomes significant only during the second decade of this forecast. By the end of the forecast period most inter-continental routes will have at least daily service, and traffic volumes will support an airplane larger than the current 747. If airport capacity constraints are more severe,airlines may employ more of these airplanes. The projected requirement for airplanesof 500 seats or greater, however, is estimated at only 365 jets over the study period.

Delivery dollars$1.38 trillion

Single-Aisle Airplanes Dominate Future Deliveries1999–2018



20%

13%

53%41%

38%

22%

8%5%


The world fleet will more than double by 2018. The world fleet is projected to reach 28,400 airplanes by the end of the 20-year forecast period. By 2018, regional jets are projected to represent 17% of the world fleet versus 10% today. Single-aisleairplanes are projected to represent 54% versus 63% of today’s world fleet.The percentage of intermediate-sizeairplanes is projected to increase from19% to 23% in 2018. The proportion oflarge airplanes is expected to graduallydecline from 8% to 6% over the entireforecast period.

The Freighter Forecast

Used airplanes will meet most freighterrequirements. This year’s outlookcontinues to show a small requirement for new freighters. Large numbers of low-priced, used airplanes will be available. Continued increases in the use of lower-holdcargo capacity on passenger airplanes will create further downward pressure on cargoyields. This will cause airlines to convert many older airplanes to freighters rather thanbuy new freighters. The dedicated freighter fleet is projected to grow by 190 additionallarge-capacity freighters by 2008. For medium-capacity widebody freighters, the fleetis projected to increase by 155 airplanes.The medium-capacity standard-bodyfreighter fleet will decrease by 65airplanes, and the small freighter fleet isprojected to increase by 140 airplanes.Over the 20-year period, the projectedrequirement is for 650 new freighterairplanes by 2018. The value of newfreighters totals $75 billion.

1998

3,000

2018

2,500

2,000

1,500

1,000

500

0

Over 70% of the Future Fleet Will Be Modified AircraftFreighter aircraft, units

Current/retained fleet

Used

New

2018

28,400airplanes

54%

6%17%

23%

2008

19,100airplanes

57%

6%16%

21%

The World Fleet Will More Than Double Over the Next 20 Years

1998

12,600airplanes


63%

8% 10%

19%


Appendices

World Traffic by Regional Flow, RPKs in billions Appendix A

1985 1990 1995 1996 1997

Africa—Africa 13.540 14.689 14.775 15.335 16.578Africa—China 0.181 0.311 1.274 1.834 1.900Africa—Europe 43.037 47.732 57.178 66.897 75.259Africa—Middle East 5.156 7.394 6.479 6.973 7.490Africa—North America 1.220 1.298 2.640 3.052 4.039Africa—Oceania 0.354 0.686 1.192 1.633 1.883Africa—South America 0.985 1.000 1.373 1.765 1.464Africa—Southeast Asia 0.280 0.909 3.226 3.623 3.406Africa—Southwest Asia 0.751 0.818 1.025 1.585 1.458

Central America—Central America 12.820 14.306 18.267 17.858 18.409Central America—Europe 17.868 27.647 44.193 47.507 51.720Central America—North America 43.339 63.714 71.097 72.625 73.181Central America—South America 3.287 3.499 4.271 4.595 5.269

China—China 8.436 18.254 57.509 62.101 62.909China—Europe 9.577 16.927 26.611 29.352 32.407China—Middle East 1.989 2.035 1.432 1.370 1.734China—North America 7.807 13.434 21.630 24.143 27.591China—Northeast Asia 6.754 10.916 15.998 17.343 18.037China—Oceania 3.002 5.810 9.234 10.674 11.102China—Southeast Asia 8.081 14.489 23.032 27.200 28.532China—Southwest Asia 0.776 1.145 1.309 1.799 1.696

CIS Region—CIS Region 175.814 224.240 63.395 50.764 44.489CIS Region—International 15.863 24.098 33.918 39.483 42.595

Europe—Europe 170.048 258.346 317.065 335.454 365.309Europe—Middle East 43.436 41.512 44.920 47.897 51.861Europe—North America 158.599 230.688 278.895 296.434 322.822Europe—Northeast Asia 17.025 29.347 46.550 54.561 58.381Europe—South America 12.250 22.309 32.930 37.211 40.262Europe—Southeast Asia 26.600 46.386 65.884 72.032 81.483Europe—Southwest Asia 11.859 17.470 20.666 23.353 22.697

Middle East—Middle East 17.685 19.462 20.713 21.789 22.373Middle East—North America 5.012 6.560 10.309 11.258 11.097Middle East—Northeast Asia 0.069 0.071 0.328 0.814 0.877Middle East—Southeast Asia 15.136 10.980 20.584 20.442 20.832Middle East—Southwest Asia 14.505 16.583 23.194 23.762 24.261

North America—North America 470.633 589.055 680.285 729.521 762.714North America—Northeast Asia 46.880 95.162 121.512 129.111 137.116North America—Oceania 11.008 18.972 25.203 25.916 26.067North America—South America 14.460 19.615 35.885 38.339 44.265North America—Southeast Asia 8.013 15.324 25.886 25.981 28.059

Northeast Asia—Northeast Asia 32.273 50.016 67.404 71.708 74.505Northeast Asia—Oceania 6.055 12.879 31.823 35.322 36.383Northeast Asia—Southeast Asia 15.998 32.512 44.335 47.832 50.703Northeast Asia—Southwest Asia 0.464 0.560 0.616 0.623 1.031

Oceania—Oceania 18.614 26.241 42.671 44.547 45.808Oceania—South America 0.115 0.688 0.641 0.757 0.756Oceania—Southeast Asia 12.233 24.286 33.065 36.769 38.936

South America—South America 29.477 33.841 39.670 42.248 46.600

Southeast Asia—Southeast Asia 17.665 29.881 53.811 58.223 61.136Southeast Asia—Southwest Asia 5.658 5.804 8.104 8.873 9.540

Southwest Asia—Southwest Asia 10.471 11.602 15.205 16.117 16.130

World total 1573.158 2181.501 2589.209 2766.410 2935.150

Appendices 43

World Traffic by Regional Flow, RPKs in billions1999-2008 1999-2018

1998 2003 2008 2013 2018 %/year %/year

Africa—Africa 17.340 18.086 25.291 33.837 44.865 3.8 4.9Africa—China 1.599 2.320 2.989 3.679 4.525 6.5 5.3Africa—Europe 79.248 99.655 129.023 163.786 204.411 5.0 4.9Africa—Middle East 8.187 8.719 11.445 14.409 18.036 3.4 4.0Africa—North America 4.734 6.501 9.247 12.594 17.159 6.9 6.7Africa—Oceania 1.815 2.491 3.121 3.698 4.304 5.6 4.4Africa—South America 1.274 1.791 2.613 3.586 4.822 7.4 6.9Africa—Southeast Asia 3.437 4.013 5.503 6.869 8.478 4.8 4.6Africa—Southwest Asia 1.577 2.164 3.252 4.731 6.832 7.5 7.6

Central America—Central America 19.440 28.423 42.054 57.459 76.650 8.0 7.1Central America—Europe 56.737 69.325 88.204 113.775 146.778 4.5 4.9Central America—North America 77.497 93.841 116.314 141.061 169.165 4.1 4.0Central America—South America 6.608 7.692 10.919 14.930 20.196 5.1 5.7

China—China 63.852 99.250 168.409 255.761 379.356 10.2 9.3China—Europe 34.157 42.117 59.822 80.064 105.897 5.8 5.8China—Middle East 1.807 2.005 2.744 3.625 4.845 4.3 5.1China—North America 29.163 32.347 43.835 55.747 70.508 4.2 4.5China—Northeast Asia 16.738 19.881 29.269 40.816 55.599 5.7 6.2China—Oceania 11.435 13.427 17.304 20.975 25.255 4.2 4.0China—Southeast Asia 26.764 33.170 44.678 57.483 73.047 5.3 5.1China—Southwest Asia 1.749 2.045 2.987 4.116 5.627 5.5 6.0

CIS Region—CIS Region 37.816 48.228 73.198 103.161 137.597 6.8 6.7CIS Region—International 44.511 47.440 67.561 89.859 118.531 4.3 5.0

Europe—Europe 397.457 488.778 618.353 762.545 923.324 4.5 4.3Europe—Middle East 54.869 64.514 81.062 98.752 118.924 4.0 3.9Europe—North America 350.907 414.740 511.389 612.819 723.736 3.8 3.7Europe—Northeast Asia 59.665 74.279 114.106 161.853 220.374 6.7 6.8Europe—South America 46.260 52.878 78.454 110.463 151.372 5.4 6.1Europe—Southeast Asia 82.868 108.405 150.118 193.210 243.289 6.1 5.5Europe—Southwest Asia 24.354 32.901 47.125 63.677 84.564 6.8 6.4

Middle East—Middle East 23.871 26.930 35.157 45.319 58.366 3.9 4.6Middle East—North America 12.339 12.197 16.123 20.718 26.383 2.7 3.9Middle East—Northeast Asia 0.307 2.047 3.124 4.463 6.193 26.1 16.2Middle East—Southeast Asia 20.061 24.103 30.094 36.181 43.166 4.1 3.9Middle East—Southwest Asia 25.934 30.822 39.556 49.665 62.228 4.3 4.5

North America—North America 780.257 887.896 1051.471 1214.718 1395.580 3.0 2.9North America—Northeast Asia 135.745 164.836 240.241 328.472 435.808 5.9 6.0North America—Oceania 27.813 32.587 39.081 44.985 51.358 3.5 3.1North America—South America 49.622 61.106 86.702 114.251 148.140 5.7 5.6North America—Southeast Asia 27.218 38.300 54.384 72.614 93.641 7.2 6.4

Northeast Asia—Northeast Asia 73.238 80.325 121.773 169.031 225.400 5.2 5.8Northeast Asia—Oceania 25.322 41.454 58.100 76.068 96.294 8.7 6.9Northeast Asia—Southeast Asia 45.734 56.521 82.161 112.882 149.717 6.0 6.1Northeast Asia—Southwest Asia 1.160 1.455 2.296 3.367 4.797 7.1 7.4

Oceania—Oceania 46.511 53.035 60.960 68.632 76.097 2.7 2.5Oceania—South America 1.020 0.939 1.335 1.777 2.321 2.7 4.2Oceania—Southeast Asia 36.989 44.910 57.146 67.972 79.275 4.4 3.9

South America—South America 51.959 65.653 101.940 144.358 199.107 7.0 6.9

Southeast Asia—Southeast Asia 48.909 74.022 104.839 137.161 173.623 7.9 6.5Southeast Asia—Southwest Asia 9.588 12.538 17.395 23.551 31.607 6.1 6.1

Southwest Asia—Southwest Asia 15.775 23.324 35.817 53.240 78.268 8.5 8.3

World total 3023.240 3656.422 4800.084 6078.763 7605.437 4.7 4.7


Airplanes Added and Removed Appendix B1999 2004 2009 2014

Seat category* to 2003 to 2008 to 2013 to 2018 Total

Single-aisle50-106 (regional jets) 1,113 989 930 1,076 4,108107-120 210 471 394 251 1,326121-170 1,570 1,101 1,528 2,093 6,292171-240 412 661 806 1,003 2,882

Twin-aisleSmall 386 477 471 585 1,919Intermediate 443 538 589 674 2,244Large 101 203 221 208 733

Total passengers 4,235 4,440 4,939 5,890 19,504

FreighterSmall 2 64 63 37 166Medium standard 7 14 4 5 30Medium wide 51 26 39 55 171Large 36 27 80 136 279

Total freighters 96 131 186 233 646

Total added 4,331 4,571 5,125 6,123 20,150

Total removed 1,556 803 834 1,112 4,305

Number of Airplanes at Year End

Seat category* 1998 2003 2008 2013 2018

Single-aisle50-106 (regional jets) 1,187 2,101 2,971 3,867 4,838107-120 1,908 1,537 1,677 1,830 2,008121-170 4,189 5,399 6,292 7,291 8,556171-240 839 1,243 1,904 2,634 3,417

Twin-aisleSmall 1,185 1,502 1,915 2,221 2,620Intermediate 892 1,070 1,507 2,100 2,768Large 833 815 890 1,032 1,179

Total passengers 11,033 13,667 17,156 20,975 25,386

FreighterSmall 651 664 793 936 1,098Medium standard 456 429 392 357 337Medium wide 167 237 322 528 792Large 271 356 458 615 809

Total freighters 1,545 1,686 1,965 2,436 3,036

Total fleet 12,578 15,353 19,121 23,411 28,422

* Categories based on 36-/32- in mixed-class configuration (includes freighter and combi airplanes in appropriate passenger category).

Appendices 45

World Airline Fleet Distribution1998 year-end 2018 year-end

Seat category* Models units percent units percent

Single-aisle F28 1,231 9.8 4,910 17.350-106 (regional jets) F70

(out of production) F100Bac1-11DC-9-10

(current and 717-200future production) BAe 146/RJ70/RJ85/RJ100

Canadair RJ/BRJXEmbraer 135/145 and 170/190Fairchild 528/728/928

107-120 737-100/-200/-500/-600 2,258 18.0 2,184 7.7DC-9MD-87CaravelleConcordeA318

121-170 737-300/-400/-700/-800 4,446 35.3 9,406 33.1727-200720A319A320Trident-3MercureMD-81/-82/-83/-88MD-90DC-8-10/-20

171-240 737-900 1,295 10.3 3,754 13.2757707-300B/CA321DC-8-30/-40/-50/-60/-70

Intermediate twin-aisle 767 1,292 10.3 3,309 11.6230-310 A300(181-249) A310

A330-200

311-399 777-200/-300 1,035 8.2 3,185 11.2(250-368) A330-300

A340L-1011DC-10MD-11

Large 747 1,021 8.1 1,674 5.9747 and larger 747X>400 A3XX

Total 12,578 100.0 28,422 100.0

* Categories based on 36-/32- in mixed-class configuration (includes freighter and combi airplanes in appropriate passenger category;the intermediate twin-aisle category also shows typical three-class configurations).


Delivery Distribution, history 1952–19981998 dollars

Seat category* Models (billions) Percent Units Percent

Single-aisle F28 38.5 4.2 1,571 9.450-106 (regional jets) F70

(out of production) F100Bac1-11DC-9-10

(current production) BAe 146/RJ70/RJ85/RJ100Canadair RJEmbraer 145

107-120 727-100 93.3 10.3 3,573 21.4737-100/-200/-500/-600DC-9MD-87CaravelleConcorde

121-170 737-300/-400/-700/-800 217.2 23.9 5,466 32.7727-200707-120/-220720A319/A320Trident-3MercureMD-81/-82/-83/-88/-90DC-8-10/-20

171-240 757 118.2 13.0 2,151 12.9707-300B/CA321DC-8-30/-40/-50/-60

Intermediate twin-aisle 767 131.4 14.5 1,476 8.8230-310 A300(181-249) A310

A330-200

311-399 777-200/-300 144.7 15.9 1,286 7.7(250-368) A330-300

A340L-1011DC-10MD-11

Large 747 165.6 18.2 1,189 7.1747 and larger>400

Total 908.8 100.0 16,712 100.0


Appendices 47

Delivery Distribution, future 1999–20181998 dollars

Seat category* Models (billions) Percent Units Percent

Single-aisle BAe 146/RJ70/RJ85/RJ100 104.8 7.6 4,116 20.450-106 (regional jets) 717-200

Canadair RJ/BRJXEmbraer 135/145 and 170/190Fairchild 528/728/928

107-120 737-500/-600 49.2 3.6 1,326 6.6A318

121-170 737-300/-400/-700/-800 295.6 21.4 6,450 32.0MD-81/-82/-83/-88A319A320

171-240 737-900 184.4 13.4 2,912 14.5757A321

Intermediate twin-aisle 767 225.3 16.3 2,090 10.4230-310 A300(181-249) A310

A330-200

311-399 777-200/-300 348.0 25.2 2,323 11.5(250-368) A330-300

A340MD-11

Large 747-400 173.5 12.6 933 4.6747 and larger 747X>400 A3XX

Total 1,380.9 100.0 20,150 100.0



Results by Region of the World Appendix CAfrica Asia-Pacific & Southwest Asia Europe

1999-2008 1999-2018 1999-2008 1999-2018 1999-2008 1999-2018

Traffic Growthto/from: %/year %/year %/year %/year %/year %/yearAfrica 3.8 4.9 5.8 5.4 5.0 4.9Asia-Pacific 5.8 5.4 6.6 6.4 6.3 6.1Europe 5.0 4.9 6.3 6.1 4.5 4.3Middle East 3.4 4.0 4.6 4.5 4.0 3.9Latin America 7.4 6.9 2.7 4.2 4.9 5.5North America 6.9 6.7 5.6 5.6 3.8 3.7

Airplane DeliveriesNumber of airplanesSingle-aisle and regional jets 133 315 887 2,393 2,134 4,563 Intermed twin-aisle 61 122 587 1,564 572 1,244 747 and larger 9 20 190 551 88 208

Total 203 457 1,664 4,508 2,794 6,015

Delivery dollars, billions (1998)Single-aisle and regional jets 5.7 13.6 38.2 104.6 94.2 207.9Intermed twin-aisle 8.3 16.7 78.8 208.6 74.3 159.6747 and larger 1.6 3.5 34.3 103.7 15.9 38.3

Total 15.6 33.8 151.3 416.9 184.4 405.8

Middle East Latin America North America1999-2008 1999-2018 1999-2008 1999-2018 1999-2008 1999-2018

Traffic Growthto/from: %/year %/year %/year %/year %/year %/yearAfrica 3.4 4.0 7.4 6.9 6.9 6.7Asia-Pacific 4.6 4.5 2.7 4.2 5.6 5.6Europe 4.0 3.9 4.9 5.5 3.8 3.7Middle East 3.9 4.6 2.7 3.9Latin America 7.1 6.9 4.8 4.7North America 2.7 3.9 4.8 4.7 3.0 2.9

Airplane DeliveriesNumber of airplanesSingle-aisle and regional jets 154 298 563 1,166 2,743 6,069Intermed twin-aisle 115 236 88 216 516 1,031747 and larger 16 21 1 4 45 129

Total 285 555 652 1,386 3,304 7,229

Delivery dollars, billions (1998)Single-aisle and regional jets 7.1 14.4 24.1 51.3 103.1 242.2Intermed twin-aisle 14.9 30.9 11.1 28.4 63.4 129.2747 and larger 2.7 3.6 0.2 0.7 7.8 23.6

Total 24.7 48.9 35.3 80.4 174.4 394.9

Appendices 49

Results by Country, 1999–2018 Appendix DInvestment*

Category 1998 dollars, billions Airplane deliveries*

United States 363 6,750

China 120 1,600

Japan 92 750

United Kingdom 84 1,080

Germany 69 940

France 49 600

Canada, Singapore, South Korea, Spain 30 – 35 200 – 600

Australia, Brazil, Italy, Netherlands 25 – 30 310 – 410

India, Mexico, Sweden, Taiwan 15 – 25 190 – 370

Argentina, Pakistan, Saudi Arabia, Switzerland, Thailand, UAE 10 – 15 90 – 180

Austria, Belgium, Chile, Egypt, Finland, Greece, Indonesia, Iran, Ireland, Israel, Malaysia, New Zealand, Philippines, South Africa, Turkey 5 – 10 50 – 150

Algeria, Bangladesh, Bolivia, Brunei, Bulgaria, Colombia, Cyprus, Czech Republic, Denmark, Ecuador, El Salvador, Hungary, Iceland, Jamaica, Kenya, Kuwait, Lebanon, Luxembourg, Mauritius, Morocco, Nigeria, Norway, Peru, Poland, Portugal, Romania, Sri Lanka, Trinidad, Tunisia, Venezuela, Vietnam 1 – 5 10 – 120

*Totals shown are per country in each category.


Market Outlook Regions Appendix E

North America

Central America

South America

Europe

Africa

Middle East

CIS Region

Southwest Asia

China

Northeast Asia

Southeast Asia

Oceania

Market Outlook regions have been formed to best illustrate major world traffic flows.They do not always exactly match political or geographic regions.

Asia-Pacific

Appendices 51

ASK Available seat-kilometers—the number of seats an airline provides multiplied by the number of kilometers they are flown; a measure of airline capacity

ATC Air traffic control

ATK Available ton-kilometers—the number of tons capable of being carried multiplied by the number of kilometers they are flown

CIS Commonwealth of Independent States—states of the former Soviet Union

EU European Union

GDP Gross domestic product—the total output of goods and services produced within a country; the broadest measure of economic output with the exception of GNP (gross national product), which includes a country’s nationals who work in other countries

Load factor Revenue passenger-kilometers divided by available seat-kilometers

OPEC Organization of the Petroleum Exporting Countries

RPK Revenue passenger-kilometers—the number of passengers multiplied by the number of kilometers they fly

RTK Revenue ton-kilometers—the number of tons carried multiplied by the number of kilometers they are flown

Scope clause Provisions in US Major airlines’ pilot contracts that impose limits on the operation of jet airplanes used by regional "partner" airlines. Limits on seat count (generally 70 seats or less), weight, cruise speed, or ratio of regional jets to standard jets are the most common provisions.

Stage 2 and A measure of noise; newer Stage 3 airplanes are quieter and are allowed Stage 3 airplanes to operate into more airports

Yield Revenues divided by revenue passenger-kilometers; it represents an aggregate of all the airfare and airline charges and is measured on a per-kilometer basis

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