Asia-Pacific

Evolves

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At a Glance

  • In the coming decades, Asia-Pacific’s middle class is expected to grow by hundreds of millions, unlocking a vast number of opportunities in the region and moving the air traffic center of gravity from west to east.
  • China intensifies its efforts to implement structural improvements aiming to increase the quality of its air transportation system.
  • India struggles with infrastructure issues to respond to one of the highest air transport growth rates in the world.
  • Regional aviation policies and hub by-pass presents alternatives to avoid large and congested hubs.
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Center of Gravity Shifting East

The Organization for Economic Cooperation and Development (OECD) projects that the Asian middle class will reach 3.3 billion people by 2030, which has huge implications on the region’s air traffic.

IATA declares that routes to, from and within Asia-Pacific will see an extra 2 billion annual passengers by 2037, for an overall market size of ~3.5 billion, with an annual average growth rate of 4.6%.

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Essentially, two important issues need to be addressed to enable this expectation to materialize in a sustainable way, namely: the lack of infrastructure and quality of service.

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HOW THE CENTER OF GRAVITY
HAS SHIFTED OVER TIME

Source: IATA – December 2017
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China Moves Strategically

Over the last few decades, China has been building a strong infrastructure to respond and support its economic and air traffic growth. According to the Civil Aviation Administration of China (CAAC), 23 new civil airports are under construction, building up to a total of more than 250 by 2020.

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Source: CAAC – March 2018
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More recently, China has been dedicating efforts to implement several actions by solving quality issues in the air traffic system, as such problems would hinder further growth. The plan covers major weaknesses in systems, ground service, engineering and human resources.

Through its Regional Aviation Policy, China is improving its connectivity level as start-up airlines are exploring opportunities to reach small and mid-sized cities with up to 99-seat aircraft.

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Indian Boosting

According to IHS Markit, India will continue its strong pace of economic growth, remaining solid at 7% over the next 10 years. Year-on-year, this growth is bringing millions of people into the middle class and to higher levels of consumption. In line with what happened in China in 2003, India is expected to cross the line of US$ 2,200 in GDP per capita by 2018 (IHS Markit), this milestone will strengthen the already overwhelming current traffic demand.

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However, the top six airports in India handle 60% of total movements in the country, which indicates a highly concentrated traffic. Airports like Hyderabad, Bangalore, Mumbai and Delhi are already beyond their peak capacity. This is creating pressure for more investment, as the infrastructure is not following the air traffic growth.

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INDIAN AIR TRANSPORT
CONCENTRATION

Source: Sabre, Embraer – December 2017
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Options for a More Connected and Profitable Indian Industry

As an important initiative to improve the level of connectivity in the country, the Regional Connectivity Scheme envisaged by India’s DGCA is favoring connecting under-served (and even unserved) airports, located in second and third-tier cities in most cases.

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Also, considering the possibility of a new approach to expand the transportation service and its profitability, India could take advantage of a more flexible fleet, using it as a strategic tool to open new routes and connect secondary markets by bypassing congestion in big hubs. Adding non-stop flights and frequency would enable the country to build a more connected and profitable air industry, flying right-sized aircraft that offer lower risk and reap higher yields.

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