India And Saudi Arabia’s Record-Breaking Aircraft Deals Signal A New Travel Boom
Less than two years after the 9/11 terrorist attacks, airline executives gathered in Paris in June 2003 for the biennial gathering of the world’s leading aviation players. The industry desperately needed a jolt of confidence.
Enter Emirates Airline, the rising Dubai-based global carrier, with a record-breaking order for aircraft from Airbus and Boeing. In a $12.5 billion deal with Airbus, Emirates agreed to buy 41 new planes, including 21 of the double-decker behemoth A380 aircraft. Emirates also agreed to lease more than two dozen Boeing 777’s at the same air show.
“The huge Emirates order galvanized the post-9/11 international traffic and jetliner market recovery,” says Richard Aboulafia, managing director of AeroDynamic Advisory and a veteran aviation specialist. “The industry really needed that boost.”
Entering 2023, the industry needed a similar boost. Still smarting from the dramatic fall in profits and passenger numbers due to the Covid-19 pandemic, global airlines are limping back toward profitability in 2023, according to the International Air Transport Association. While air passenger numbers reached 82% of pre-pandemic levels by the end of 2022 and sentiment had been improving, the industry still needed more.
Enter India and Saudi Arabia.
In February, Air India placed the largest aircraft order in history – a potentially $80 billion bumper deal for 470 aircraft almost split evenly between Boeing and Airbus, mostly for narrow-body planes. Shortly after the mega Air India announcement, Boeing reported that two Saudi Arabian airlines would purchase 78 Boeing 787 airplanes, with the option to purchase up to 121 aircraft, in a deal that the White House estimates at $37 billion.
The U.S. Commerce Department touted the Saudi deal with Boeing as “one of the largest commercial agreements in the history of the U.S.-Saudi partnership,” one that will support more than 140,000 jobs.
That’s quite a boon for Boeing, still recovering from the grounding of the 737 Max and supply chain woes that contributed to a $650 million operating loss in the 4th quarter of 2022.
The India and Saudi Arabia deals also signal good news for the commercial aviation industry as a whole. “International traffic was hit hardest and longest by the pandemic, so these Saudi and Indian orders are a sign of confidence that the recovery is in full swing,” Aboulafia says.
The deals also reflect a new reality in the world of commercial aviation: future growth will be driven by emerging markets. Oliver Wyman, the global consultancy, forecasts India to grow its fleet by 8% over this time period, the fastest in the world. Eastern Europe comes in second place with 6.3% in expected growth, followed by China and the Middle East at 5.2% and 5.1%, respectively.
As for traffic growth, once again, emerging markets top the list, according to Oliver Wyman’s Global Fleet and MRO Market Forecast 2023-2033. Latin America tops the forecast for fastest traffic growth over the next decade at 6.8%, followed by the Middle East (6.4%), Africa (5.9%), and Asia-Pacific (5.5%).
The fastest growing air corridors are also in emerging markets, according to an examination of the Boeing Commercial Market Outlook through 2041. The top three all include routes between and within South Asia and Southeast Asia, followed by China-Middle East, intra-Africa, and Middle East-South Asia routes.
To be sure, on an absolute basis, Asia-Pacific, North America and Europe will remain the largest passenger markets globally with the largest fleets, but China is on track to surpass the United States as the largest air travel market in the world by 2030.
India, the third largest aviation market, still lags far behind China, but represents a faster growth story given its youthful demographics, growing middle class, and rising economy. India has pledged to spend $12 billion to upgrade and expand its airports and is targeting a more than doubling of passenger capacity from 192 million to 420 million passengers over the next four years – a highly ambitious vision.
Saudi Arabia, too, has no shortage of ambition. The Kingdom has announced a $100 billion aviation plan that aims to carry more than 330 million passengers annually and Minister of Transport Saleh Al-Jasser declared that that Saudi Arabia aims to be “the Middle East’s leading aviation hub.”
Saudi Arabia still has a long way to go to catch up to the two current Middle East leading aviation hubs, the United Arab Emirates and Qatar. But Saudi officials hope that the newly announced airline, Riyadh Air, will help bridge the gap.
Linus Benjamin Bauer, founder & managing director of the Dubai-based boutique consultancy Bauer Aviation Advisory, says Saudi Arabia has already “made significant progress” in its aviation sector even before these mega announcements. He also points to the Kingdom’s growing economy, young population, and strategic location creating “strong prospects for emerging as one of the major global aviation hubs in the coming years.”
Bauer also thinks that the other top regional carriers can handle the new competition from Saudi Arabia. “Emirates, Etihad, Qatar Airways, and Turkish Airlines have established themselves as major players in the global aviation industry in recent years, with large fleets and extensive route networks. These carriers are likely to continue growing over the next decade, driven by their geographic location, efficient hub-and-spoke systems, and investments in new aircraft and technology.”
While the rise of Riyadh Air and a revamped Saudia could pose new competition for other Middle East carriers, all eyes are also on Air India. After all, airlines like Emirates and Qatar and Etihad have emerged as major carriers for Indian international travelers. The Indian traveler headed to Paris or New York often flows through Dubai or Doha or Abu Dhabi.
In fact, according to my calculations based on Indian Civil Aviation statistics, Gulf-based carriers account for more than one out of every four international passengers that land in India. Emirates Airline alone accounts for about 10% of all international passengers that land in India. These same carriers also account for roughly 27% of all international passengers that depart India.
So, the question is: Will Air India take a bite out of the Middle East carrier’s lucrative India international routes? “While the future Air India including the large aircraft orders may create some additional competition for Gulf carriers, they are unlikely to significantly shrink the lucrative Indian market of the Gulf carriers,” Bauer says.
If air travel forecasts are correct, the global air travel revolution the world had been experiencing before the pandemic could be well on its way back to normalcy. An Airbus forecast sees some 7.8 billion passengers flying annually by 2040.
Countries and airline hubs with enviable aerogeography at the center of rising middle-class travel flows will benefit from the next emerging markets travel boom. India, Air India, Saudi Arabia, and Riyadh Air have laid down markers as the latest entrants, but the existing players – from the Middle East carriers; to Turkish Airlines; to the expanding fleet of low-cost carriers; to India’s largest carrier, Indigo – will not sit back idly.
Intense competition will ensue, all seeking the growing prize of the emerging markets traveler while riding – and driving – the next travel boom.
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