Asia-Pacific

Evolves

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AT A GLANCE

  • Despite GDP growth deceleration, China continues improving infrastructure and traffic conditions;
  • Asian Regional Aviation Policies keep driving the interest of new startups to access the marketplace;
  • Chinese investments in the West persist and continue to intensify;
  • India focuses on infrastructure in order to respond to the highest air transport growth rates in the world;
  • Opportunities for the future lie in greater demand for optimization.

CHINA KEEPS STRENGTHENING ITS INFRASTRUCTURE

Although the economy has shown deceleration, with the expected GDP for 2019 being ~1/3 less than ten years ago, infrastructure development remains a top priority for China’s government, as it has consistently been a key focus in the economic development initiatives encapsulated in regular Five Year Plans.

According to CAAC (The Civil Aviation Administration of China), in October 2018 China had 230+ civil airports and expects to almost double this number by 2035. This effort is justified in order to meet the growth on air transportation, which has achieved a CAGR of 13.4% in the past 10 years and is expected to stabilize to 6% over the next 20 years.

Keeping the pace, China is expected to overtake the United States as the world’s largest civil aviation market service by mid-2025.

CHINA SET TO BECOME THE MOST
RELEVANT MARKET WORLDWIDE

Source: Sabre, Embraer Analysis

REGIONAL AVIATION POLICIES: A WORK IN PROGRESS

In China, the “Rule 96” policy requires startup airlines to operate at least 25 regional jets before going to a larger segment. This naturally encourages them to focus on regional markets. After three years since its establishment, the rule is gaining traction, as a few startups are beginning to acquire regional jets. Through this policy, China aims to connect small and mid-sized cities with up to 99-seat aircraft.

CHINESE MOVEMENT TO THE WEST

Although approximately 85% of the Chinese population is located in the east, the west still represents a meaningful portion (~190M people), and development plans for this region are in progress. In order to provide all the necessary infrastructure, the Chinese government has pumped $550 billion into transportation. 52 major projects have already been completed with the remaining 100 set to be finished by 2023, these projects include 12 new airports, as well as roads and railways, water diversion facilities and hydroelectric power stations.

By 2023, China’s western regions will have an additional 8,751 kilometers of highways, 3,219 kilometers of new high-speed rail tracks and 187 gigawatts of additional energy generation capacity. As 88% of Chinese land is located in plateaus and mountains, the regional aviation is the best way to reach these areas, where high-speed rail cannot.

INDIA INTENSIFIES EFFORTS TO RESPOND TO THE HIGHEST AIR TRANSPORT GROWTH RATES IN THE WORLD

The Indian air transport sector has shown very strong growth in recent years. The CAGR of the previous decade indicates reaching ~10%, and the forecast for the next 20 years indicates another 8.4% of yearly growth for India’s aviation market.

 

According to the Indian Ministry of Civil Aviation, the country is getting prepared to serve around 1 billion passengers by 2038. Aiming to support this growth, India plans to construct 100 airports, totalling almost US$ 60 billion of investment in the coming years.

FLEET PROFILE AND FUTURE ALTERNATIVES OF OPTIMIZATION

Both Chinese and Indian markets represent good opportunities for a new balance of fleet between the different segments.

Considering the Chinese and Indian state-of-play, the main priority for both countries is to accommodate their huge traffic growth, and for this reason, many resources have to be applied in areas like infrastructure and systems. However, after addressing this very important priority of expanding air services, comes the need for the whole system optmization.

CHINA & INDIA –
UNBALANCED FLEET

In order to do so, two main areas must be considered – the airline industry’s profitability and service efficiency:

  • As the airlines have been opting for larger aircraft, and the average yield keeps falling, a right-sized fleet would allow more adaptable and profitable operations;
  • A robust hub & spoke system would represent a game changer for both China and India in terms of improving the connectivity and efficiency of their traffic development.
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