The economic outlook in Asia-Pacific remains robust over the long term, anchored by the steady rise in domestic demand and will contribute to the region’s projected annual GDP growth of 3.4 per cent over the next 20 years, Embraer has said in its outlook for 2014-33. Changing demographic patterns led by a rapid urbanisation will further increase household incomes, discretionary spending and the propensity to travel. A positive economic outlook and intra-regional liberalisation will drive the Asia-Pacific air transport demand to increase 5.4 per cent annually by 2033.

As the region becomes more liberalised and trunk routes mature, airlines will be further encouraged to look to secondary markets as the next frontier of expansion. Those city pairs will require 70- to 130-seat aircraft to sustain carrier growth. Asia-Pacific intra-regional flying is comprised mostly of low and middensity markets. Some 72 per cent of city pairs have volumes of up to 300 passengers daily. In contrast, around 90 per cent of single-aisle jets are configured with more than 130 seats.

It said that additionally, there is an order backlog of more than 2,000 narrow-body aircraft for scheduled airlines, 92 per cent of all single-aisle jets on order. There is a mismatch between aircraft capacity and market demand, a sizeable number of 130- to 180-seat jet flights depart with fewer than 120 passengers. The imbalance between market density and aircraft size limits an airline’s ability to add frequency and improve service quality in the existing markets. Some 60 per cent of intraregional markets have no non-stop flights and only half of all city pairs have same-day return travel schedules.

LCC Saturated

The low-cost carrier (LCC) model in Asia-Pacific is showing some signs of saturation, a slower pace of year-over-year expansion and a higher rate of service cancellations in less dense markets. In some cases, demand stimulation has not been sufficient to sustain high capacity narrow-body operations. In 2004, LCCs opened 13 markets for each market they cancelled. In 2013, that ratio decreased to only two markets opened for every one cancelled. Some 80 per cent of all markets cancelled by LCCs in 2013 had traffic volumes of up to 300 passengers daily each way. In order to maintain their growth rates, LCCs could consider aircraft with 90 to 130-seat capacity. Those jets could effectively allow the carriers to access a wider range of markets, not only the highest-density.

Ageing Fleet

The region’s existing fleet is ageing. According to Ascend, around 120 jets with up to 130 seats (38 per cent of the total) are now older than ten years and will need to be replaced over the next 20 years. Australia, Indonesia and Japan have a sizeable fleet of Fokker 100, Boeing 717 and B737-500 that will be retired during the forecast period.

In addition, around 45 per cent of intra-regional turboprop capacity, measured by available seat-kilometres, is deployed on routes longer than 250 nm. Those city pairs are often better suited to jet operations that increase overall network productivity and have greater passenger appeal.

70- to 130-Seat Jets

By 2033, 520 new aircraft will be delivered. The 70- to 130-seat jet fleet will increase from 170 units in 2013 to 550 by 2033. About 69 per cent of these units will support growth and 31 per cent will replace older-generation aircraft including 50-seat jets.

Turboprops - 70 or More Seats

Some 680 new turboprops will be delivered. The in-service turboprop fleet is projected to increase from 290 to 750 aircraft by 2033. About 56 per cent will support market growth and 44 per cent will replace old aircraft including 30- to 50-seat turboprops.

Narrow-bodies—130- to 210-Seat Jets

In this segment, 3,720 new aircraft will be delivered, 41 per cent to replace old aircraft and 59 per cent to sustain growth. The narrow-body commercial jet fleet will grow from 1,750 to 3,950 aircraft by 2033.

Projections by Bombardier

Bombardier has projected that Asia-Pacific excluding Greater China and India, will see delivery demand for 1,400 aircraft over the next 20 years in the 20- to 149-seat segment. In total, 52 per cent of deliveries or 730 units will be 20- to 99-seat aircraft and 48 per cent or 670 units will be 100- to 149-seat aircraft.

Network carriers have introduced large regional jets to right-size capacity across their networks, countering the expansion of LCCs, while hybrid LCCs around the world are turning to large turboprops to continue their growth trajectories by penetrating new markets.

China Remains Strong

Embraer said that the long-term outlook for China remains strong as continued gains in productivity and investment will sustain a 5.5 per cent annual economic growth over the next 20 years. China will become the largest economy in terms of purchasing power parity, according to the World Bank. Economic growth, urbanisation and a noticeable rise in the country’s middle class, are the pillars that will make China one of the fastest growing markets in the world. Air transport demand will grow 6.8 per cent over the next 20 years.

A growing economy and stronger demand for air transport will generate a need to improve air services. Although China’s East Coast markets account for 70 per cent of passenger movements in the region, their share is becoming smaller according to the Civil Aviation Administration of China (CAAC). China’s domestic expansion will see more focus on Western cities where infrastructure is readily available and economic output is growing. China’s “Go West” strategy, designed to develop the economies of the West, remains the top priority for the government.

Regional aviation will not be limited to regional airports. The development and expansion of large gateway hubs will also spur regional aviation growth as these hubs will require feeder routes to be linked to them. Government policies, through allocation of slots, control of terminals and lower fees, will spur LCC expansion from its current limited penetration. In addition, 25 of 30 provinces have start-up airlines in development that will likely benefit from government policies.

There are also government initiatives to reduce taxes on regional aircraft since most of the nation’s routes are low and mid-density. Some 80 per cent of markets have up to 300 passengers daily, yet around 55 per cent of all markets do not offer options for same day return travel. China’s civil aircraft fleet is almost exclusively comprised of narrow-bodies which are not optimal for serving low and mid-density markets. Although the geography is vast and there is a growing need for greater air transport connectivity, the country’s regional fleet accounts for only seven per cent of all single-aisle jets in service. In the mature markets of the US and Europe, up to 130-seat jets make up 38 per cent and 22 per cent of the single-aisle jet fleets, respectively.

India—Time for ‘Right-Sizing’

A.T. Kearney, a global management consulting firm, expects regional aircraft to grow from 55 in 2011 to as many as 261 by 2025, a CAGR of 12 to 13 per cent. The growth mirrors the trends in seen in other markets, especially the European Union, where the share of regional available seat kilometres has grown to about 14 per cent.

A.T. Kearney states five reasons that would drive demand for regional aircraft in India are: Increased demand for travel between regional hubs and Tier-2 and 3 cities, limited aircraft handling capabilities at smaller airports, connectivity on ‘long thin’ routes presently served by hop-over flights, emergence of new short-haul aircraft (Embraer E-Jets E2; Bombardier CRJ series; Sukhoi Superjet 100; MRJ 21; ATR 72) and favourable regulations. Hopefully this will be a reality soon as the new government is liberalising the aviation sector further. The regional aviation sector is like a ‘low hanging fruit’, ready to be picked, to use the words of John Slattery, Chief Commercial Officer of Embraer Commercial Aviation.