Despite expecting world passenger traffic to have a compound growth rate of just 2.6% a year over the next decade, Brazilian planemaker Embraer senses an opportunity. They expect a worldwide demand for 5,500 new aircraft with up to 150-seats over the next decade, representing a total market value of US$350 billion.
Embraer has just released its 2020 Commercial Market Outlook. The report looks at passenger demand for air travel and new aircraft deliveries over the next 10 years, emphasizing Embraer’s product segment – aircraft up to 150 seats.
“Our forecast reflects some of the trends we’re already seeing – the early retirement of older and less efficient aircraft, a preference for more profitable smaller airplanes to match weaker demand, and the growing importance of domestic and regional airline networks in the restoration of air service,” says Arjan Meijer, President and CEO of Embraer Commercial Aviation.
Embraer gives four reasons why their aircraft are perfect for the times
Embraer acknowledges 2020 is reshaping commercial aviation. But they think it might be reshaping it in a way that could benefit Embraer. They cite four reasons why.
Firstly, airlines are using the travel downturn to “rightsize” their fleets.
“The airline capacity plans of the past will no longer fit,” says Mr Meijer in the report. Embraer thinks there will be a shift to smaller capacity, more versatile aircraft to better match weaker demand.
“Overall lower demand, traffic patterns favoring short-haul versus long-haul, and an increasing need for connectivity and efficiency will drive worldwide demand for 4,420 jets with up to 150 seats. Of these, 30% will support market growth, and the remaining 70% will replace aging aircraft,” says the report. Embraer also thinks turboprop operators will drive demand for a further 1,080 turboprop aircraft over the next decade.
Secondly, Embraer believes we will see an increasing trend towards regionalization. Companies seeking to protect their supply chains from external shocks will bring businesses closer. That will generate new traffic flows. But that also points to more short-haul flying and less long-haul.
Travelers predicted to bypass long-haul in favor of short-haul flying
Thirdly, and this is an interesting one; Embraer thinks travelers will remain skittish about long-haul flying for some time, preferring short-haul regional flying. That may or may not be the case. Passenger numbers bounced back well after the 9/11 and SARS shocks. But Embraer does point to an interesting trend that might be here to stay. Working from home and the decentralization of offices from large urban centers will require more diverse air networks. That’s a trend United’s Scott Kirby has already identified.
Finally, Embraer flags the trend towards more fuel-efficient, greener aircraft types.
“The advent of new state-of-the-art aircraft with excellent cost economics will be the cycle’s hallmarks,” says Arjan Meijer.
Embraer notes 76% of global CEOs say that their organization’s growth will depend on their ability to navigate the shift to a low-carbon, clean technology economy. For airlines, Embraer says this will lead to an intense drive to acquire aircraft with higher fuel efficiencies.
Naturally, Embraer thinks they are well-positioned to meet the needs of airlines over the next decade. The in-house report and its findings dovetail nicely with the type of aircraft Embraer produces. But the report does highlight some key trends across the broader aviation industry – rightsizing, more efficient planes, and decreased demand. On these criteria alone, Embraer is potentially in the box seat to harness these opportunities over the coming years.