Traffic and whether

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).

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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.

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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.

Comments (7)

Chris C (South Africa):

The highly-efficient and phenomenal Boeing 747-8I is indeed the ideal, and true, 747-400 replacement airplane. With the 747-8I, airlines are presented with a very capable and compelling airplane that effectively plugs the 400seat to 500seat market efficiently, and in doing so, has effectively pushed the A380 into an even more limited market segment.

Naturally, should an airline require a true 500plus seat airplane with a comfortable tri-class seating arrangement, no doubt the A380 is the answer, but the biggest question is; how many airlines require that capacity? A vast majority of the A380 customers are set to operate the A380 at a much lower seating configuration than 525 seats indicating that could the 747-8I have been on offer in early 2000, a much larger share of orders would have gone in favour of the 747 as the -8I is far more fuel efficient, optimised and more capable in the 400-500seat market than the A380.

Naturally, the A380’s trump card is that it has the flexibility to expand its capacity should demand require it, but that raises another question; will demand be that great for a 550-seat airplane, or would the demand prefer flying two 777-300ERs, or a 747-8I/787 combination? I firmly predict that latter. The risks associated with a single A380 are high, and in today’s market place, they’re growing even higher. Of course in some circumstances, an airline will find that operating both the A380 and the 747-8I together marks a very competitive edge for them, as they’re able to have greater flexibility. Lufthansa has even commented that it’s not a case of operating one or the other, but rather both, as it offers them flexibility to up-gauge and down-gauge to best suit route/season requirements.

So yes, the 747-8I and A380 are compliments, but if the A380 ventures into 400seat to 500seat territory, it best be wary nowadays...the new 747-8 is still the Queen of the Skies, period!

All the very best for Farnborough!

Paulo M (Johannesburg, RSA):

I always wonder about the forecasts coming out from Boeing and Airbus - or any forecast for that matter. In this latest blog, you have shown quite effectively that the people at Boeing's sales department have perfected an exact science.

This is very important, because each and every aircraft launch at Boeing must be made on fundamental market needs in order to firstly satisfy the market (in terms of need, environmental responsibility, etc.), and secondly, reward investors and keep Boeing in the BLACK.

So every aircraft launched was done so for a real market need. And looking at Boeing's sales figures is all you need to do. For example, the various 777 derivatives - the -200LR, -300ER and Freighter all have very respectable sales. Then there's also the 787. And the 737 Next-Generation Family.

But what about the 747-8 - specifically the Intercontinental? Well, look at what Boeing has been saying all along about the 747-400 20-year replacement cycles. The first wave is expected around 2010. The next around 2015. Already many airlines are trading out of the 747-400. The pressure will start to build on many of these airlines to find similarly sized replacements. Until the A380 enters service with a greater number of airlines, many will continue to take a wait-and-see approach.

Norman (Long Beach, California, United States):

Although forecasts are mostly accurate, they are
not perfect, but if anything, the big markets in
China and the Middle East is good for Boeing and Airbus, But I think this year Boeing may have the numbers advantage for the first time in a few years,
one other numbers call is the need to replace old
fleets, and that's everyone at some time or another.

If my recent trip to Las Vegas and coincidingly Baker and Barstow says anything, with all the crowds that where there, after reports that tourism to LV was slumping bad, is that the market may not be as bad as one might think, Southwest may need to replace the 737-300 in the future, and Continental might want additional 737-900ER as the 757's are put on the still moneymaking European routs.

While airliners in the 1,000,000+ lb category like the Airbus A380 are not in high demand and is best conceded to the sole Airbus type, planes smaller like the 747-8I have the potential to do strong as a 747-400 replacement as well as a 747 sized replacement that may have the best potential over the 747-8I, I think Boeing is the most qualified with it's past experience as I am routing for a
800,000 to 960,000 lb twinjet 747 replacement combining the success and quality of the 747 and the 777.

Planes in the class of the 787 and the A350 are the biggest success story in civil aviation history, 900 plus 787's and 400 plus A350's all before they fly
for the first time, thanks to new markets, deregulation, replacements, environment, and expansions. I expect the 777-300ER to continue on it's success maybe outselling the "200" models.

The single isle market is the meat and potatoes
of the industry all over the world. Narrow bodies are the mainstay of discount airlines and the majority of flag carrying airlines, thousands of A320 and family, and 6,000+ 737's have soled.
The middle of the next decade will be exiting as Boeing and Airbus will replace the A320 and the 737 with new aircraft. It might be possible in the early part of the next decade that the Bombardier CSeries may be a dark horse and be a competitive player in a formerly two type market.

I think regional jets will be a major contender in the next decade but not as it was in the past, and they will probably be no fifty seater and under jets in production, 70 to 130 seat planes will be the standard, planes like the E-170-195, CRJ 700-1000, and the Superjet 100 will be the standard. Planes like the ATR 72 and the Q400 have proved that turboprops are still competitive and have rebuked the idea in the end of the 1990's that turboprops would no loner serve as airliners.

The future is full of optimism and I look forward
to the Farnborough Airshow in the coming week.

Thomas Wilson (Everett, Washington):

Is BCA factoring into it's planning and forcasting a reduction in the carbon footprint of the industry? Is one of our goals to increase the number a airplanes without increasing (better yet decreasing) the total carbon footprint by pulling out of service less fuel efficent planes.

Climate Change and the carbon overload in the atmosphere is clearly the number 1 challenge facing the world, and Boeing as a corporate world leader must have a strategy for dealing with what to all intelligent people is a planetary crisis.

As an employee, manager, and stockholder in this great company, I want to know that we are being good stewards of the planet and I'm not convinced we are. What do you think. Convince me.

TC (Mt. Vernon, WA):

With cheap energy there seemed to be a demand for all models with long range from RJ's, the more popular ER versions of the 767 and 777, to the long range 787 and A350. Compare the range of the current Boeing and Airbus narrow bodies to the older 737, 727, or 720.

The question for the future, will airlines buy range specific planes? Considering that airlines are not stocking pillows and drinks to save weight, looking at structural weight associated with unused range can't be to far off.

Will there be a demand for light shorter range narrow bodies and light medium range twin aisles?
The A330-300 looks to be positioned well for the future unless the 787 can beat it on the medium range routes which remains to be seen.

A Wong (Oakland, CA):

I want to see 747-8i success.

To effectively compete with A380 using 747-8i, can Boeing lower the ceiling of the economy section after the hump to make room for a true double decker along the entire fuselage? May be people/airlines will be willing to trade comfort for energy efficiency.

Dan Fabricatore:

I would like to know if someone would push for information on two items regarding the A380. First, I know that Airbus raised the break even point from 270 to 420 and then announced again that it will be even higher. This was some time ago. Given that they get loans from the government, shouldn't they be more upfront on how the project is doing economically?

Second, I have not seen Singapore Airlines state any facts regarding how efficient the A380 really is. Surely by now they must have some rough numbers.

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