Fall in demand means US will cede market share to rivals

The United States airlines' fleet will shrink by more than 10 per cent this year as carriers ground less fuel-efficient aircraft during a period of reduced demand, resulting in ceding significant amount of market share to their international rivals.

Though the mainline air carrier passenger jet fleet is likely to increase from 3,743 aircraft in 2008 to 5,223 aircraft in 2025 at an average annual increase of two per cent, the fleet is projected to shrink by 10.1 per cent or 378 aircraft in 2009.

US carrier yields are also projected to fall in international and domestic markets over the near and long term, said to the latest 2009-2025 forecasts from the Federal Aviation Administration.

The forecasts US mainline carrier international passenger enplanements to decrease 2.4 per cent in 2009, but recover with 2.4 per cent growth in 2010 and 4.4 per cent average annual growth thereafter, reaching 142.2 million in 2025.

US carrier traffic is set to tumble 6.3 per cent on Asia Pacific routes this year and contract 0.3 per cent in 2010, before becoming the fastest growing region at 4.9 per cent between 2010 and 2025. Latin American traffic by US carriers is expected to fall 1.2 per cent this year, before rising 1.8 per cent next year and expanding at an annual pace of 4.7 per cent between 2010-2025.

US carrier traffic on the Atlantic market is expected to fall by two per cent this year before a healthy recovery of 4.5 per cent in 2010 and an annual expansion of 3.8 per cent thereafter to 2025.

Domestic enplanements are forecast to decrease 8.8 per cent in 2009 and rise 1.9 per cent in 2010 before expanding at an average annual pace of 2.4 per cent between 2010-2025, reaching 690.2 million in 2025. System-wide enplanements are set to fall by eight per cent this year, before rising 1.9 per cent in 2010 and expanding by 2.7 per cent between 2010 and 2015. Total system enplanements are expected to reach one billion in 2021 – five years later that the FAA's prediction of 2016 made just 12 months ago.

Reviewing the FAA's predictions of total passengers to/from the US (US and foreign flag carriers), the overall declines are more muted, indicating foreign carriers will maintain higher capacity levels than their US counterparts, and gain market share as a result.

Total Asia Pacific traffic is expected to contract by 0.2 per cent this year (US carriers: -6.3 per cent) and rise by 5.7 per cent next year (US: -0.3 per cent), expanding by 5.5 per cent on average between 2010-2025 (US: +4.9 per cent).

European carriers are also expected to take market share away from their US rivals as the total market declines 1.1 per cent this year (US: -2.0 per cent), although US carriers will fight back next year growing Atlantic traffic by 4.5 per cent against the total Atlantic market increase of 3.5 per cent.

Over the long run (2010-2025), however, US carriers will grow their Atlantic passengers by 3.8 per cent against a market increase of 4.4 per cent p/a on average, signalling dominance ahead for the Europeans.

Adding to the loss of market share, US carriers can look forward to a steady decline in yields over the short and long term – reversing the gains made in recent years. The FAA forecasts international mainline real yield (adjusted for inflation) to decline from 13.37 US cents in 2008 to 13.25 cents in 2009. Thereafter, international real yield declines at a rate of 1.0 per cent annually, falling to 11.34 cents by 2025.

Domestic mainline passenger real yield is forecast to decrease from 13.09 cents in 2008 to 12.91 cents in 2009 – down 1.4 per cent.

Thereafter, domestic mainline carrier real yield declines at an average rate of 1.2 per cent dropping to 10.61 cents in 2025.

Regional carrier enplanements are forecast to decrease 4.5 per cent to 153.5 million in 2009, and grow 3.6 per cent between 2010-2025 thereafter, reaching 267.6 million in 2025. The regional carrier passenger aircraft fleet increases from 2,582 aircraft in 2008 to 3,033 aircraft in 2025, an average annual increase of one per cent. The fleet is projected to shrink by 9.8 per cent, or 253 aircraft, in 2009. Regional jets increase from 1,655 aircraft in 2008 to 2,249 aircraft in 2025, an annual increase of 1.8 per cent.

All of the increase is attributed to jet aircraft in the 70-90-seat category.

Meanwhile, the world's airlines are responding to the economic downturn by increasing their operational flexibility. The economic crisis has heightened demand volatility and made the process of forecasting demand an extremely challenging task, according to aviation consultant firm Ascend.


$70bn needed to finance orders

About $70 billion (Dh256.9bn) worth of new aircraft need to be financed worldwide in 2009, according to the Association of European Airlines (AEA) statistics.

The European banks are by far the largest source of credit for airlines – accounting for around 50 per cent of all the sector – but will contribute an estimated 30 per cent less in 2009 than last year, said the airline group.


Asian and Middle East airlines fly younger fleet 

Airlines in the Middle East and Asia-Pacific operate younger fleet than their European and – especially – American counterparts.

And they also account for the great bulk of new aircraft orders.

As a consequence, the practice of reducing flying is having to be accompanied by actual grounding, of sometimes relatively new aircraft. And, as we proceed deeper into the dark tunnel of the "Great Recession", delays and cancellations of orders become more real.

Asia has suffered the steepest downturn in traffic in recent months and its airlines have been particularly hit by premium traffic declines.

It is no secret that many airlines in this region are parking parts of their fleets and the centre has estimated that up to 10 per cent of current fleets may be grounded, unless conditions improve.

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