Along with the commercial and networking benefits the Regional Airline Association Convention offers, the annual event gives showgoers a chance to discuss the state of the industry and its prospects for the future. Lately, it has been more “commiserate” than “discuss.” Of course, some opinions carry more weight than others, and for years Rolls-Royce has enjoyed a relatively high degree of credibility when it comes to predicting the market for regional aircraft. After a year’s hiatus, the maker of the Rolls-Royce AE3007 series of turbofans issued another optimistic outlook during the May 18 to 21 RAA show in Phoenix, both in the segment where its own RJ engine market resides and beyond.
While skeptics of such purveyors of prognostication often correctly point out that the companies involved in forecasting carry a vested interest in issuing a positive outlook for their own products, Rolls-Royce prefaced its predictions for the continued dominance of the 50-seat jet market with concessions that scope-clause changes and upward capacity growth will continue to strengthen the market for 70- and 90-seat jets–the sector dominated by General Electric.
Rolls-Royce forecasts an average annual growth rate of 5.7 percent per year for the world’s regional aircraft market, meaning that within 20 years capacity will triple. Although North America will experience a decline in market share, it will remain by far the largest in 2022, contributing 43 percent of capacity. In all markets, the company predicted that regional markets will grow faster than overall short-haul markets, particularly in Asia and China, where regional aircraft presence remains limited.
According to Rolls-Royce, regional airlines will continue to gain market share from mainline carriers over the next 10 years, but for the second half of the 20-year forecast, the regional growth rate will settle into a pattern in line with the overall rate. Calling its forecast “conservative,” the company does not believe the rest of the world will replicate the tremendous growth in RJ capacity North America has experienced over the past 10 years, but that the rest-of-world share of capacity will increase from 7.8 percent last year to 9.6 percent by 2022.
50-Seaters Dominant
Rolls-Royce pointed out that virtually all the growth in the North American regional market between 1992 and 2002 went to 50-seat-category jets, as the continent’s turboprops contributed just 25 percent of all capacity last year in the under-100-seat segment, compared with more than 50 percent just 10 years earlier. While future growth in the 50-seat jet segment will come largely from continued reduction in turboprop numbers, from one-third of the world’s capacity to 10 percent in 2022, the introduction of larger jets by Embraer and Bombardier will propel the 60- to 80-seat segment to its former share of the market and beyond, reaching some 1,700 worldwide by 2022.
Although Europe over the past 10 years has seen a transfer of “regional” capacity from mainline carriers flying Boeing 737-200s, for example, to regional jets, the turboprop fleet on the continent has not witnessed the kind of collapse North America has experienced. Still, 31 percent of all RJ routes in Europe received service by some other aircraft type two years ago, according to Rolls-Royce. The company cites a “huge” expansion of routes, particularly in the UK, Germany and Switzerland, where RJs have proved more effective than narrowbody mainline airplanes or turboprops in many “hub bypass” markets such as Birmingham, England; Dusseldorf, Germany; Brussels; Basel, Switzerland; Munich; and Turin, Italy. Meanwhile, Rolls-Royce expects EU expansion to lead to a multitude of thin markets in the Baltic states and much of Eastern Europe, resulting in “considerable” penetration by RJs, as well as turboprops.
In a trend somewhat more pronounced than that in Europe, 40 percent of all U.S. regional jet routes flown in March did not receive RJ service two years earlier. Of those, 90 received no service whatsoever in 2001. Of course, Rolls-Royce believes there remain more opportunities for new RJ routes, as well as a continuation, albeit perhaps at lower rates, of the trend toward replacing and supplementing current narrowbody and turboprop routes.
In contrast with Europe, U.S. airlines have more actively replaced mainline narrowbody airplanes and turboprops with RJs, due primarily to the larger hub-feed element of the route structures and the ability of passengers to choose between several competing airline hubs when traveling between many medium-size cities. Competitive pressures to offer high frequency of service and aversion to turboprops have led to a climate in which some cities receive RJ service from many carriers, all linking to their respective hubs. The most striking contrast, according to Rolls-Royce, centers on the level of hub feed in the U.S., compared with Europe, where such activity accounts for only half of all RJ use.
Of course, the U.S. geography and population distribution promote the use of smaller aircraft on longer routes. Meanwhile, Europe enjoys a much more extensive intercity train network, which accomplishes much of the “hub feed” typically reserved for cars and small airplanes in the U.S. As a result of the feed requirement, the U.S. air-transport network offers a higher frequency of service. Therefore, while Rolls-Royce sees some room for expansion of hub-bypass routes between medium-sized cities in the U.S., Europe’s hub-bypass market represents that region’s largest for regional jets.
Promising New Markets
As the opportunity for turboprop fleet replacement in the U.S. dwindles, jet manufacturers have shifted their attention to developing markets, such as Eastern Europe, Japan and, in particular, China. Granted, turboprop usage in Asia has actually increased over the same period, and Rolls-Royce expects a significant market for turboprops in that market even 20 years from now.
China, however, has already begun shifting from turboprops, as better road and rail transport take market share from short-haul turboprop routes and operators of longer-range services switch to RJs. Of course, Latin America also remains a major user of turboprops, many of which its airlines acquire second-hand from Europe and North America. However, Rolls-Royce expects that as markets liberalize later in the forecast period, a growing demand for new RJs should surface in markets that today remain nearly dormant.
Worldwide, a shift to larger aircraft and the continued move from turboprops to RJs will allow the regional aircraft market to register productivity gains of around 3 percent a year, according to Rolls-Royce. In measuring productivity levels, the company considers aircraft age profiles as well, meaning that 50-seat jets will become less productive as their average fleet age increases.
As outlined in the forecast, RJ deliveries will see a gradual shift toward Asia and China in the long term, although North America will continue to absorb more than 50 percent of deliveries for the foreseeable future. The U.S.’s dependence on its air-transport system, within which regional airplanes play a vital role in serving small and medium-size communities, will continue to make North America the primary market for smaller jets, while Europe provides the strongest demand for 90-seat RJs.
All told, Rolls-Royce forecasts nearly 8,000 regional aircraft deliveries between 2003 to 2022, the largest category being 50-seat jets, followed by 70-seat jets and 90-seaters. According to the forecast, larger RJ deliveries will increase over the forecast period, becoming increasingly important during the second decade. The company also sees a need for turboprops, although much of the demand will come from replacement needs post-2010.
