Research Paper on Supply And Demand for Global Air Transport

Introduction

Forecasting is an integral process of business management. Good prediction allows companies to develop and work on existing marketing plans and strategic growth strategies by increasing understanding of market dynamics. The forecasts provide useful information for managing different aspects of the business (Granger, 2014). Understanding future demand through effective forecasting allows marketers to make the right decisions to achieve long term goals. It is used to determine future sales and the costs of expanding business operations. Airbus Global and Boeing forecast provide a look into the future of the air transport sector. The estimate is based on the current trend in the industry such as demographics, economic growth, oil prices, tourism, and the development of routes.

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Forecast of Air Travel

Increased Traffic

Airbus forecasts that by 2037, 85 percent of the population in emerging markets will be flying. Traffic growth for sub-Sahara Africa PRC is predicted to grow by 13.9 percent, and 7.7 percent for both sub-Sahara Asia developed and Middle East (Airbus, 2018). The traffic growth for PRC South Africa will be 11.4 percent from 2017 to 2027. PRC USA traffic will grow by 8 percent and 7.7 percent for Russia. Freight traffic for advanced Asia, Advanced Asia- Central America and Asia CIS will increase from 2017 to 2027 by 8.3, 8.0 and 8.0 percent respectively. Thee three regions represent the highest future growth, followed closely by Advanced Asia CIS (7.8%), Advanced Asia emerging market (7.7%) and advanced Asia, Europe market by 7.6 percent. South America, PRC, and South America North America will experience the least traffic growth of 0.4 percent, 0.6 percent and 1 percent from 2017 to 2027.

Anticipated Growth of Global Fleet

It is anticipated that there will be an additional 2500 new aircraft deliveries in the next 20 years while the world fleet will more than double. This growth will require 27 400 aircrafts units with a value of $5.8 trillion (Boeing 2018). Factors contributing to this change include the growth of the Chinese market and the rise of global e-commerce that is predicted to increase by 20 percent per year. This growth is estimated to reach nearly $5 trillion by 2021. To cater for this demand, Boeing forecast that the global fleet will expand by more than 70 percent to 3 260 airplanes and the freighter deliveries will be valued at $280 billion. Emerging markets will boost services and freighter fleet to 39 percent from the current 37 percent. Boeing forecasted that air cargo transport would double in 20 years and demand of 42 700 new airplanes valued $6.3 trillion and services to grow by 4.2 percent annually. A new medium will replace old planes, and larger freights to meet the demand.

Importance of Investing In Forecast

Accurate forecasting helps ensure that the business runs smoothly as desired. Airbus and Boeing use forecast information to predict future challenges and prevent against risks to ensure that operations continue seamlessly. Additionally, forecasting provides the management with informed and accurate management decisions. Effective control of business finances requires keeping track of profits and loss statements, cash flow statements and balance sheets. Forecasting in a crucial part of planning to ensure undesired outcomes are prevented and these eventualities are minimized (Granger, 2014). For the air transport industry, forecasting helps keep track of the future and how much time and resources will be required to achieve future goals.

Factors That Will Drive Air Travel Growth

The Growth of Middle Class

Both Boeing and Airbus anticipate a future increase in the supply of air transport services. Airbus predicts that the air traffic industry will experience growth at 4.4 percent annually and will require an additional 37 400 new passengers and freighter aircraft costing $ 5.8 trillion over the next 20 years. 30 percent of the people in emerging markets took a flight in 2017, and the number is expected to grow because the middle class is also increasing.

The growth of global middle-class household annual income is partly to explain for the anticipated growth of airline services. More revenue means that more will people have the ability to purchase services. The global middle-class annual revenue is expected to grow from 2017 through 2027 to 2017 with the Asia Pacific representing the highest potential for household income growth. The middle across the world the world is expected to be at 56 percent of the population. The demand for large airplanes will continue increasing in the cargo market. Airlines for passengers, according to Boeing, will move to small wide-body planes.

Emerging Markets

The economic growth in emerging markets of Asia, Africa Latin America is expected to push demand for air travel. According to Chin (2002), the need for air services depends on air traffic. It is expected the middle classes in these markets will more than double by 2022 and double from the current 33 percent to 63 percent across the world. This increase will have a positive effect on traffic as more people will be able to travel to different destinations around the globe. However, increased traffic represents a future increase in demand. This may lead to increased cost of air travel since according to theories of demand and supply, prices rise when demand increases (Baye & Squalli, 2006). Besides, urbanization and wealth concentration will increase aviation cities in these countries. These cities will become synonymous with wealth with more than 95 percent of traffic going through them.

References

Airbus (2018) Airbus Retrieved from https://www.airbus.com/newsroom/press-releases/en/2014/09/emerging-markets-and-urbanisation-driving-air-traffic-growth.html

Baye, M. R., Prince, J., & Squalli, J. (2006). Managerial economics and business strategy (Vol. 5). New York, NY: McGraw-Hill.

Boeing (2018). World air travel forecast. Retrieved from https://www.boeing.com/

Chin, A. T. (2002). Impact of frequent flyer programs on demand for air travel. Journal of Air Transportation, 7(2), 53-86.

Granger, C. W. J. (2014). Forecasting in business and economics. Academic Press.