Asia's first time flyers the big winners as Paris Air Show PR juggernaut winds down
The major beneficiaries of this week’s frenetic (public relations) activity just outside Paris live half a world away. They are Asia’s emerging travellers – the millions that have never stepped inside an aircraft, but for whom air travel is becoming attainable. That opportunity took a major step forward as Asian carriers – many of whom the world had never heard of a decade or even five years ago – stepped up in front of the world’s media to order narrowbodies for the mass markets they see blossoming at home.
Over the past two weeks, the Philippines’ Cebu Pacific, Indonesia’s Garuda/Citilink, AirAsia, based in Malaysia, Thailand, Indonesia, and soon the Philippines and Vietnam, as well as India’s Indigo and GoAir made substantial announcements and confirmations for Airbus’ new A320neo/A321neo.
The aircraft, with new efficient engines, is expected to slash their already world-leading unit costs by 5% when they enter service in late 2015, given the expected 15% greater fuel efficiency. The savings will be passed onto emerging consumers in the form of lower fares in an increasingly competitive and liberalised aviation marketplace in Asia.
IATA indicates that by 2014 there will be 3.3 billion air travellers worldwide, up by 800 million from 2.5 billion in 2009.
The industry body is forecasting 146 million new passengers in Asia (excluding China, which now accounts for one-third of Asian aviation) by 2014, or roughly 30 million new passengers every year between 2009-2014. It is possible this could accelerate to 35-40 million new flyers p/a in Asia (excluding China) under the influence of lower fares, aviation liberalisation and ongoing economic growth in the latter part of the decade.
The Asia Pacific region, excluding China, should cross the 650 million passenger barrier by 2014, rising to a market of around 900 million by the end of the decade.
It is a region in need of vast numbers of aircraft. Indeed the fleet of some 500 A320neos ordered in (or in the lead-up to) Paris (assuming some of the lessors’ neos find their way into the Asian fleet) would produce around 164 million seats p/a (that is 180 seats per aircraft flying 365 days p/a, with five sectors per day).
Click here for CAPA's full Paris Air Show coverage
Froth and bubble?
The Asian growth story aside, there was much commentary this week about the industry resuming an upswing. But rising fuel prices, the recent spate of natural disasters and the economic problems in Europe are resulting in lower rather than higher profits this year, even in Asia (the latest air freight figures from the Association of Asia Pacific Aviation point to an economic slowdown).
See related report: Asian air cargo demand wilts reflecting “some moderation” in economic growth - AAPA
Paris is a publicity machine that many established carriers, eg US, Chinese and European flag carriers, tend to avoid.
Most of the noise at Paris centred around Airbus’ new neo, which garnered the lion’s share of orders. But the frenzy is not being driven by an upswing in the airline industry but rather by pressure to secure prized early production slots. It will take Airbus almost three years to ramp up neo production. That means there were a precious few slots in 4Q2015 (when neo deliveries start), 2016, 2017 and 1H2018. These slots are now sold out (though Airbus is no doubt holding a few back still for some of its best customers who are still evaluating).
Airlines, in particular existing A320 operators (who can easily transition to the neo without most of the costs typically associated with changing aircraft types), were aware of the slot issues and felt they needed to make a move in the first six months of the programme in order to ensure they have the aircraft they need in the second half of this decade. If they waited, they would have lost an opportunity for narrowbody growth and replacements which give them a 15% improvement in fuel burn, which is a big number these days in an era of high fuel prices and emission trading schemes.
Likewise, the major lessors realised they needed to act quickly to secure early neo slots, which they can now offer with a premium to airlines that have missed out. Much of this posturing and positioning has been occurring for months. So Asia’s emerging airlines with a growth story to tell and brands to build, along with the opportunistic leasing companies, came out in force in Paris.
But the fact that Asian carriers have been quicker to order neos could potentially widen the growth gap between Asia and the other regions – and between LCCs and legacy carriers, which have barely participated in the neo story to date. This raises questions about where the legacy carriers will be in the narrowbody game later this decade. The answer is they almost certainly face a further loss of market share on short-haul routes, which will reinforce the need for alliances and mergers.
Background Information
Paris Air Show Orders By Region
Global
| Firm orders | Type | # | $bn |
|---|---|---|---|
| Air Lease Corp | A330 | 11 | 2.4 |
| Air Lease Corp | A321 | 1 | 0.1 |
| GECAS | A320neo | 60 | 5.5 |
| Air Lease Corpo | B737-800 | 6 | 0.6 |
| Air Lease Corp | E190 | 5 | 0.2 |
| GECAS | E190 | 2 | 0.09 |
| GECAS | ATR 72-600 | 15 | 0.34 |
| Nordic Aviation Capital | ATR 72-600 | 10 | 0.22 |
| MoU/ Commitments | |||
| ALAFCO | A320neo | 30 | 2.7 |
| Air Lease Corp | A320neo | 36 | 3.3 |
| ALAFCO | A350-900 | 6 | 1.6 |
| CIT Leasing | A320neo | 50 | 4.6 |
| Air Lease | B737-800 | 14 | 1.1 |
| Air Lease | B777-300ER | 5 | 1.4 |
| Air Lease | B787-9 | 4 | 0.9 |
| GECAS | 777-300ER | 8 | 2.3 |
| GECAS | B747-8F | 2 | 0.6 |
Asia Pacific
| Firm orders | Type | # | $bn |
|---|---|---|---|
| AirAsia | A320neo | 200 | 18.2 |
| GoAir | A320neo | 72 | 6.6 |
| IndiGo | A320 | 30 | 2.5 |
| IndiGo | A320neo | 150 | 13.7 |
| Skymark | A380 | 2 | 0.8 |
| TransAsia | A321neo | 6 | 0.6 |
| Korean Air | CS300 | 10 | 0.7 |
| MoU/ Commitments | |||
| Garuda Indonesia | A320 | 15 | 1.3 |
| Garuda Indonesia | A320neo | 10 | 0.9 |
| Sriwijaya Air | E190 | 20 | 0.86 |
| PT Sky Aviation | Superjet 100 | 12 | 0.38 |
| Customers identified | |||
| Malaysia Airlines | 737-800 | 10 | 0.81 |
| Mongolian | B767-300ER | 1 | 0.1 |
| Mongolian | B737-800 | 2 | 0.16 |
Latin America
| Firm orders | Type | # | $bn |
|---|---|---|---|
| LAN | A320neo | 20 | 1.8 |
| TAME | ATR 42-500 | 3 | 0.05 |
| Azul | ATR 72-600 | 10 | 0.22 |
| MoU / Commitments | |||
| Avianca | A320 | 18 | 1.5 |
| Avianca | A320neo | 33 | 3 |
North America
| MoU / Commitments | # | $bn | |
|---|---|---|---|
| JetBlue | A320neo | 40 | 3.6 |
| Republic Airways | A320neo | 40 | 3.6 |
| Republic Airways | A319neo | 40 | 3.4 |
Europe
| Firm orders | Type | # | $bn |
|---|---|---|---|
| Blue Panorama Airlines | Superjet 100 | 12 | 0.37 |
| Air Astana | E190 | 2 | 0.09 |
| UTair Aviation | 737-900ER | 7 | 0.6 |
| UTair Aviation | 737-800 | 33 | 2.6 |
| Norwegian | B787 | 3 | 0.6 |
| Norwegian | B737-800 | 15 | 1.2 |
| SAS | A320neo | 30 | 2.7 |
| Customers identified | # | bn | |
| Aeroflot | 777-300ER | 8 | 2.3 |
Middle East
| Firm orders | # | $bn | |
|---|---|---|---|
| Saudi Arabian Airlines | A330 | 4 | 0.9 |
| Customers identified | |||
| Qatar Airways | 777-300ER | 6 | 1.7 |
Africa
| MoU / Commitments | # | $bn | |
|---|---|---|---|
| Kenya Airways | E190 | 10 | 0.44 |
Unidentified
| Firm orders | # | $bn | |
|---|---|---|---|
| Unidentified customer | CS100 | 10 | 0.62 |
| Unidentified | B747-8 | 2 | 0.64 |
| Unidentified customer | A380 | 10 | 3.8 |
| MoU / Commitments | |||
| Unidentified | B747-8 | 15 | 4.7 |