LONDON – Call it an understatement, or call it an overstatement, but we do seem to be in unprecedented times right now. The airlines are under pressure as we’re facing a weakening worldwide economy, surging oil prices, and slowing traffic growth.
It’s an extremely dynamic period for the commercial aviation industry. And it’s also, shall we say, an interesting and challenging time to be releasing our latest 20-year forecast.
I’ve just presented to journalists here in London the 2008 Current Market Outlook (CMO). And the bottom line is that the worldwide market for commercial airplanes is shifting to new, more efficient jetliners, as airlines replace older and less efficient airplanes.
In fact we’re seeing a much greater share of demand for replacement airplanes in the forecast: 43% in this year’s outlook compared to 36% in last year’s CMO. In a tough, competitive environment, airlines are looking for ways to cut costs. With high fuel prices, it certainly makes more and more sense for airlines to replace their old aircraft with new, fuel efficient airplanes, and we have reflected that trend in our analysis.
Another key point is that we’re seeing a better balance in airplane demand geographically, which leads to a more stable long-term market.
Overall, during the next 20 years we see a market for a total of 29,400 new commercial airplanes (passenger and freighter), with a total value of $3.2 trillion. You can look at my presentation here. (5.7MB pdf).
Single-aisle airplanes will make up the bulk of airplane deliveries at 19,160 units valued at almost $1.4T, up from last year, particularly due to strong domestic growth in emerging Asian nations. Our forecast for regional jets has fallen to about 2,500 units. Airlines will continue to augment their fleets with mid-size twin-aisle airplanes, and the remaining segment, 747-size and larger (including freighters), accounts for just a small percentage of units delivered. Single-aisle and twin-aisle categories represent about 89% of the total dollar value of the market.
As I told reporters here in London, this year’s outlook is rooted in near-term market realities, but also recognizes that this is a long-term forecast. We’ve faced many other market challenges over the years. They all have their own dynamics and their own impact on global air travel - 9/11, SARS, the Asian financial crisis, two Gulf Wars, and other shocks to the system we’ve experienced in recent history.
In each case lots of people wondered whether we’d ever recover as an industry. But what we’ve learned from more than 40 years of doing these forecasts (yes, since 1964) is that our industry has a way of moving forward. After such situations stabilize, and worldwide GDP growth continues, air traffic gets back on its long term trend.
So, the title above is no typo. One of the big questions this year is sure to be “whether” our forecasting this year will hold to that history.
When you look at these annual forecasts, we’ve found that in terms of forecasting traffic, both Boeing and Airbus tend to do a pretty good job. Traffic has grown over the past 10 or 20 years at somewhere between 4.8% and 5% a year.
The real tough thing is to figure out how airlines will accommodate that growth. I would say that when you look at Boeing’s forecasts, maybe we didn’t hit a bull’s-eye, but we did score very high.
How’d we do? As you can see, our 2000 market outlook accurately projected the demand distribution by airplane type. The quantity of aircraft ordered is also in line with our projection. But we did slightly under-forecast the number of single-aisles needed and also under-forecasted the popularity of twin-aisles, while over-estimating the large airplane (747, A380) demand.
Now, as you may know, we do the market forecast for three reasons: to help shape our strategy, to support our long-range business plan, and to provide the fundamental data that we use in our fleet planning exercises and work with customers.
So the more accurate our forecast, the more confidence we have that we’re building the right products, that we have a robust plan, and that we’re providing the best possible advice to our customers.
It really comes down to that.
Which leads to: How has our competitor done in terms of forecasting? You’d best ask them yourself. But putting aside the great differences in our views of the market, it’s clear you could characterize their forecast as missing the target. For instance, the Airbus forecast for A380 sales in 2000 was for more than 1,300 airplanes. In the last 8 years they’ve sold about 200.
Keep this all in mind as the focus shifts next week to the Farnborough Air Show.
We’ve come to Farnborough (and Paris) in good times and bad times. When times are good, we often get asked, “Aren’t you guys going to sell more airplanes than this?” And when times are tough, we hear, “How could you guys possibly believe that you’re going to sell this many airplanes?”
But as I mentioned, it all tends to even out.