Air travel demand expected to double by 2035 - report

The demand for air travel is expected to double over the next 20 years, according to Tailwinds 2015, PwC's annual state of the global airline industry report.

The report states that to be able to accommodate this growth, the global airline industry needs to adapt to three key challenges: infrastructure, fuel prices and talent.

"Prospects for the global airline industry are promising as megatrends, including shifts in global economic power and demographics and the accelerating urbanisation in emerging economies, are increasing the demand for air travel," says PwC transportation and logistics practice leader Jonathan Kletzel.

According to the report, there has been a surge in aircraft orders over the past four years.

Asia-Pacific, Middle East, Latin America and parts of Africa, have a growing middle class and an appetite and income for travel. Aircraft demand in Europe and North America is driven by new-found profitability and availability of relatively inexpensive financing to upgrade aging fleets.

Increased demand for air travel requires infrastructure to support operations, including airports and air traffic control. According to PwC, more than two-thirds of airlines are concerned about inadequate infrastructure as a barrier to growth.

PwC sees infrastructure limitations to be most acutely felt in rapidly developing markets, especially China, India and Latin America — regions that are projected to see the biggest jumps in the number of air passengers. If left unaddressed, PwC's report says congestion will not only affect airline and aviation-related revenue, but also restrain regional economic growth.

The largest impact on airline profitability in the first quarter came from the steep reduction in fuel prices at year-end. Oil prices have increased again, but PwC says they are still fairly low. According to a special report by PwC, ‘Fuel Price Volatility: How are airlines responding to the challenge’, lower prices mean that globally airlines will spend $70bn (R874bn) less on fuel this year than in 2014.

However, the true impact of reduced fuel prices on the industry will not be measured until existing fuel-hedging contracts expire, while airlines that are completely unhedged are seeing the most immediate financial benefits.

"The most agile operators will find that planning for volatile fuel price environments can create opportunities in the coming quarters as well as the long term," said Kletzel.

"Many airlines did not lower airfares in the face of recent reduced fuel prices, and thus were able to manage higher margins," continued Kletzel. "While fuel prices are contributing to profitability in the industry, it is unlikely that airlines will see relief from a labour cost perspective due to expected growth in the demand for pilots and maintenance technicians."

Source: eTNW