Embraer China Market Outlook 2011-2030 executive summary china regional market market forecast definitions a look trends and by the forward analysis numbers China Market Outlook 2011-2030 Join us as we build a bright future for the Chinese regional aviation market. Guan Dongyuan 2 Towards a Bright Future World aviation showed signs of recovery last year after will transform the economy and connectivity of Xinjiang. the economic crisis in 2008 with China emerging as one It can serve as a blue print for regional air transport of the fastest growing and most important air transport development in other parts of China. markets. That trend is reflected in Embraer’s forecast that global aviation will grow at an annual rate of 5.2% over Airlines in China have recognized the success of Embraer’s the next twenty years, higher than last year’s prediction. commercial aircraft. As of the end of June 2011, the By 2030, some 7,000 jets in the 61 to 120-seat category company had received 135 firm orders from eight will be added to airline fleets. customers and delivered 90 aircraft of various models. That number represents half of the regional aircraft fleet Deployment versatility and low operating costs have in China. By year end, more than 100 aircraft will have allowed jets in the 61 to 120-seat segment to fill the been delivered. And to better serve our customers, gap between smaller regional jets and larger, single aisle we have increased our investments and established a mainline aircraft. Airlines around the world are using comprehensive before and after-sales service and safety the new jets to replace their ageing fleets, right size network. capacity and open new markets. Traffic in the Asia Pacific region, including China, is forecast to grow the fastest The rate of development of air transport in China will with demand for new 61 to 120-seat aircraft eventually remain high over the next one or two decades which will exceeding that of Europe. Airlines in China are expected increase the country’s influence in global aviation. Growth to purchase 975 of these jets, about 13% of global orders. in regional air transport will serve to transform local economies as a large number of new airports are built in That particular capacity segment is home to Embraer’s the central and western regions under the Essential Air E-Jets family which, in 2011, has seen strong demand Service program. Based on the policies and subsidies for new orders. Since the first aircraft entered revenue that will promote new air service, the outlook for regional service seven years ago, 60 customers from 40 countries aviation in China is very promising. have ordered more than 1,000 E-Jets and nearly 800 have been delivered. Here in China, China Southern Airlines Join us as we build a bright future for the Chinese and Hebei Airlines will become new E-Jet operators regional aviation market. increasing the number of customers flying the popular twin jets in this country to four. China Southern Airlines will deploy its new E190s in Xinjiang, an area that showcases the power of E-Jets to unlock the region’s enormous potential. This outlook contains an in-depth analysis of how regional aviation 3 4 executive summary a look forward 5 Executive Summary to their economic prosperity, robust population growth, urbanization and The air transport industry has recovered increase of income per capita which from the last economic recession. will stimulate a significant increase of Airlines are more efficient on capacity personal consumption and air travel management and better structured to demand. deal with future shocks. Middleweight Cities Driving World Looking ahead, despite recent fuel price Economic Growth increase and natural disasters, Embraer Midsized and small middleweight cities forecasts that world air transport – defined as cities with a population demand will grow by 5.2% per year from between 150,000 and five million 2011 to 2030. inhabitants – are poised to drive almost There will be a requirement for 31,435 40% of the global economic growth over new aircraft deliveries over the next 20 the next 15 years. (Chart 1) years representing a total market value Developed economies together with of US$3 trillion. emerging market megacities have been generating more than 70% of global GDP. Forces Driving Demand This characteristic directly influenced the air transport industry. Even after many The world economy has been recovering years of air travel development, the from the recession at different paces. existing network and capacity supplied are Emerging markets are driving economic very concentrated in major airport hubs. growth, fueled by the impressive growth of China and other Asian countries. However, future economic growth will Developed countries are growing at a take place in middleweight and small much slower rate. cities. This trend will generate a need for the development of more secondary In the long term, the key trend is the airports and opportunities for airlines shift in global power from West to East to explore low and medium-density and in some extent to South. Countries, markets with right-sized aircraft. such as BRICS, are full of optimism due Chart 1 World GDP Growth Contributors % of Total GDP Growth Per Capita GDP, Indexed 100 = Average Magacities Cities with more than 11 232 10 million inhabitants Large Middleweights 13 230 Cities 5 million - 10 million Midsize Middleweights 18 234 Cities 2 million - 5 million 37% Small Middleweights 236 Cities 150,000 - 2 million 19 Other cities and Rural areas 38 56 Global GDP Growth 62 38 100% = US$54,9 trillion !" 6 Another characteristic is that the to develop products with new technologies economic role of cities varies widely that will reduce fuel consumption, use among regions. In addition, economic more alternative fuels, increase efficiency development based on clusters of these and generate fewer emissions. cities will favor more regional integration. Air Traffic Demand Forecast More Air Services Liberalization Embraer forecasts that world air Historically, the air transport industry transport demand will increase more benefits from deregulation and open than 2.7 times until 2030, reaching 13 skies agreements, creating more trillion revenue passenger kilometers opportunities for airlines and more travel (RPK), with an average annual growth of options for passengers. 5.2% supported by 3.2% annual GDP The trend towards more liberalized air growth. (Chart 2) services will continue around the world Emerging markets will lead growth in (e.g. Asia and East Europe). air transport demand. Over the next 20 years, China will be the fastest-growing Environmental Pressure Driving New market, with an average annual RPK Technologies growth rate of 7.5%, followed by Latin Environmental concerns affect all industries America with 7.2%, the Middle East with and government policies related to 6.9% and Asia Pacific with 6.1%. emissions and noise are getting tougher. Developed economies will grow less due Although aircraft CO2 emissions account to their market maturity, North America for only 2% of total global greenhouse with 3.5% and Europe with 4.4%. executive summary emissions, a very strict legislative By 2030, Asia Pacific and China will a look proposal is about to take effect in 2012, in be the largest market in the world forward Europe–ETS (Emissions Trading Scheme) accounting for 36% of world RPKs. will generate additional costs to airlines. Europe and North America will be the In order to overcome these penalties, the following largest markets accounting for aviation industry is stepping up its efforts 21% of RPKs each. Chart 2 Projected Traffic and Economic Growth (2011-2030) RPK (Billion) by Region Annual Growth Rate Project World Traffic 2010-2030 2011-2030 2010 Additional 2011-2030 RPK GDP North America 3.5% 2.6% Europe 4.4% 2.0% Asia Pacific 6.1% 3.2% China 7.5% 6.1% Middle East 6.9% 4.0% Latin America 7.2% 4.3% CIS 5.9% 3.3% Africa 5.4% 4.4% World 0 500 1,000 1,500 2,000 2,500 3,000 5.2% 3.2% # $ 7 30 to 120-Seat Jet Segment Market Segment 2011 2021 2011 (Seats) 2020 2030 2030 Embraer foresees a world demand for 30-60 15 415 430 7,225 new jets in the 30 to 120-seat 61-90 1,265 1,405 2,670 capacity segment over the next 20 91-120 1,845 2,280 4,125 years, representing a total market value 30-120 3,125 4,100 7,225 of US$320 billion. The 30 to 120-seat segment plays an From 2011 to 2020 there will be 3,125 new important role in aviation providing aircraft to be delivered and the remaining flexibility to airlines to deal with the 4,100 units will enter the market between volatility of the market, complementing 2021 and 2030. The 91 to 120-seat larger aircraft operation with proper segment will be the largest market, with capacity as well as allowing them to open 57% of new deliveries (4,125), followed new low to medium-density markets. by the 61 to 90-seat segment with 37% (2,670) and 50-seaters with 6% (430). The 50-seater market has been impacted by high fuel prices and low yield environment. However they still are essential to feed hubs in the USA and to develop regional aviation in other regions such as CIS, Africa and Latin America. The 61 to 120-seat segment has been providing much needed flexibility and efficiency improvements to airlines by right-sizing larger jets, replacing ageing aircraft, developing new markets and expanding from smaller regional jets.