Shanghai, 27 April 2015: The world airline industry is entering a period of rapid change and China's carriers may well be the ones to replace US airlines as the international air travel market leaders, according to a new report by aviation intelligence specialist OAG.
US airlines can no longer rely solely on the alliance model to sustain their international growth as other carriers are turning to new forms of cross-border cooperation advises the report, which is titled ‘The Fight for Global Markets – Is Three the Magic Number?’. It further predicts that the industry will undergo large-scale consolidation, and considers how the ‘Rule of Three’ – the tendency for industries to become dominated by three large players – could play out in a future, consolidated global aviation market.
“The global aviation outlook is transforming and evolving before our eyes,” said Mark Clarkson, OAG’s Business Development Director JAPAC. “The evolution is affecting everything – from historical business structures and government regulations to the growth and profitability of the key players in the market.
“There are currently more airlines than can realistically exist in a truly global market where barriers are eased. Our analysis shows that in time, it’s reasonable to expect a major consolidation of airline carriers globally.”
The Rule of Three – will it apply globally?
In fact the airline industry has already been undergoing consolidation within nations and within regions for some time. This is reflected in the large capacity shares of the top three players in each region, as shown in the chart below.
In Latin American, for example, the airlines LATAM, Avianca and Gol now operate 38% of all seat capacity, while in Africa it is South African Airways, Egyptair and Ethiopian that together operate 20% of their region's capacity. The greatest degree of consolidation seems to appear in North America, where American, United and Delta account for 54% of passenger seat capacity.
China carriers: vigorous domestic demand enabling international growth
According to OAG’s Schedules Analyser, passenger seat capacity of China's carriers – dominated by China Southern, China Eastern and Air China – has increased dramatically from approximately 100 million seats in 1996 to some 600 million in 2014. This has largely been a result of strong domestic demand, which accounts for about 90% of China carrier capacity.
With their domestic business in solid shape, China's carriers have the resources to expand internationally and have been doing so rapidly. During a typical week in April 2015, for example, Chinese carriers operated 140% more seats on flights to the US than they did in 2010. In contrast, US carriers increased capacity for these routes by only 80% in the period. While presently the US carriers are still the capacity leaders for China-US routes, China's carriers will likely close the gap by 2022 if the two sides maintain their current rates of growth.
Prospects for future international growth by China's carriers look very auspicious in light of the expected growth in the nation's domestic market. The country is predicted to overtake the US as the world's largest aviation market by 2033, generating demand for an additional 36,000 new aircraft by that time. The emergence of Comac, China's first commercial passenger jet manufacturer, will also benefit the Chinese carriers.
OAG’s report also singles out Indonesia and Turkey as markets where three globally dominant airlines are likely to emerge in ten years’ time. These two nations share with China the advantages of a large domestic market, growing economy and advantageous geographic position.
John Grant, OAG’s EVP Data and Market Intelligence, will be speaking on Day 2 of CAPA’s Americas Aviation Summit in Las Vegas, in the session: The Strategy behind Airline Network Planning where he will present the report and OAG’s considerations for future international strategies.
OAG’s ‘The Fight for Global Markets – Is Three the Magic Number?’ can be downloaded here.
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Notes to editors:
OAG is an air travel intelligence company that provides accurate, timely and actionable information and applications to the world’s airlines, airports, government agencies and travel-related service operators. OAG has the world’s largest network of air travel data including its definitive schedules database of more than 900 airlines and over 4,000 airports. OAG’s FlightView brand has the most extensive flight status database in the market which delivers 25 million flight status updates delivered daily and processes 1.4m requests. For more information, visit: www.oag.com and follow us on Twitter @OAG Aviation.