Asia-Pacific market outlooks highlight Airbus-Boeing divide

Singapore Air Show » 2006
November 30, 2006, 11:19 AM

On one thing Boeing and Airbus agree: the Asia/Pacific region will generate enough demand for their products to keep them busy building lots of airplanes over the next two decades. Both companies say they expect to see the vast area spanning from northeast Asia to New Zealand and across to India account for nearly as many aircraft deliveries as North America or Europe, and both expect China to lead the way. But, as one might expect, their views reflect subtle but clear differences in their respective marketing philosophies.

Boeing’s 2005 Current Market Outlook forecast a market for about 7,200 new airplanes worth $770 billion over the next 20 years in the Asia/Pacific region, making it the largest outside North America. According to the report, Asia/Pacific’s fleet will nearly triple, to about 8,600 airplanes by the end of the forecast period. Single-aisle airplanes, such as the Boeing 737 and Airbus A320, will account for 3,690 new deliveries; intermediate twin-aisles such as the Boeing 787 and 777 and Airbus A330/A340 will account for some 2,430; regional jets will total 540 and 747-and-larger-size airplanes will account for 510 units, according to Boeing.

Airbus’ latest forecast, which examines the 2004-2023 time period, projects a more modest Asia/Pacific unit demand of 5,515 new airplanes, and for good reason: the company believes that larger airplanes will account for a bigger portion of total deliveries than does Boeing. In fact, according to Airbus, by the end of its forecast period Asia/Pacific airlines will operate 33 percent of the world’s passenger seats, compared with 29 percent for Europe and 26 percent for North America, even though it expects Europe and North America both to take delivery of more airplanes.

Of course, Airbus’ case for the 555-seat A380 has centered largely on the Asia/Pacific market, and particularly China, where it says that nearly 90 percent of airline passengers coming from the U.S. land in just three population centers–Beijing, Shanghai and Guangzhou. Very few of the 50 cities that comprise the remaining 10 percent can support nonstop service to North America or Europe, claims the company.

Both Airbus and Boeing expect China to generate more demand for new airplanes than any country other than the U.S. Airbus points out, however, that as in all emerging economies, a wide disparity in wealth exists between rural and urban population centers. In China, the top five regions account for 40 percent of total GDP, compared with 22 percent in France. By 2020, according to Airbus, 50 percent of the Chinese population will live in urban centers, a trend it claims will drive more network consolidation.

Airbus doesn’t argue that passenger desire for nonstop flights will not lead to some route fragmentation, but only that the pace and extent of the phenomenon will vary according to ticket price, convenience of schedule, demographics, location of trade centers, real origin-and-destination demand, aircraft, airline and hub economics, liberalization, airline alliances, congestion and the environment.

The company calculates that by 2023, together all those factors will allow the number of very large aircraft (airplanes the size of the 747 or larger) to hold steady at 6 percent worldwide. Bolstered by the presence of the double-decker A380, however, the very large category will account for 15 percent of the world’s seating capacity and the largest share of seats delivered in the Asia/Pacific region, according to Airbus. All told, it claims, by 2023 the world’s airlines will be flying 1,262 very large passenger aircraft and 996 large freighter aircraft.

Boeing, conversely, projects that just 697 large passenger airliners and 1,208 large freighters will remain in operation by 2024. Of course, its projections include a very different outlook for Asia, where, it says, the share of very large airplanes in that region will fall from 6 percent to 4 percent, and the proportion of midsize twin-aisle airplanes will jump from 18 percent to 22 percent. Meanwhile, says Boeing, the Asia/Pacific region will see single-aisle seat-miles more than triple over the forecast period, giving 737 and A320-category airplanes at least half the market.

Deregulation, particularly in China and India, along with the development of discount-fare airlines, will drive the disproportionate demand for single-aisle and regional jets in Asia/Pacific, asserts Boeing. Airbus doesn’t disagree on that score, nor do the companies’ estimates differ much for the 200- to 400-seat twin-aisle market as a whole. However, Airbus purposefully separates that category into small and large sectors. Small twin-aisles, or airplanes in the size category of the Boeing 787 and Airbus A350, would attract a demand for only 698 airplanes in the Asia/Pacific region through 2023 if the European airframer’s estimates prove accurate. Intermediate twin-aisles, such as the 777 and A330-300/ A340, would attract 1,393.

If one assumes Airbus can glean half of the 200- to 300-seat category, its projection suggests a demand for 787s in the Asia/Pacific region of about 350 airplanes. But some two and a half years before the 787’s scheduled certification, Asia/Pacific customers for the 787 had already placed firm orders for nearly 200. Even if the order rate slows considerably over the next 20 years, the 787 appears well on its way to shattering Airbus’ assumptions. By the same token, Kingfisher Airlines’ firm order for five A380s has already nearly filled Boeing’s 20-year allowance for eight airplanes in the very large category throughout Southwest Asia.

Boeing, meanwhile, has projected an Asia/Pacific market of 2,430 twin-aisle airplanes (not including 747s or A380s). Although it doesn’t divide the smaller-than-747 twin-aisle market into distinct categories, it clearly has bet that market fragmentation will call for a faster growth in the 200- to 300-seat category than in the 300- to 400-seat sector. If the 200- to 300-seat amounts to even half of what Boeing defines as the intermediate twin-aisle market, the 787 and A350 would vie for shares of a market for at least 1,200 airplanes.

Notwithstanding their difference of opinion over fleet composition, Boeing and Airbus do not harbor any illusions over the importance of winning market share in Asia and the Pacific Rim. Now among the three largest markets for commercial airplanes, the region might well hold the key to the success of more than one fledgling program. Asian airlines have certainly helped launch the 787 to a successful start. The A380 too can trace much of its early sales success to this region. Maybe, after putting aside all the hyperbole, both companies’ arguments will hold water. But the extent to which one proves more accurate than the other could well tip the balance of power in the commercial airplane building business for years to come.

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