- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Market Risks
- 5 Top Market Opportunities
- 6 Market Drivers
- 7 Industry Challenges
- 8 Technology Trends
- 9 Pricing Trends
- 10 Regulatory Trends
- 11 Other Key Market Trends
- 12 Market Size and Forecast
- 13 Key Market Players
- 14 Strategic Conclusion
- 15 References
- 16 Further Reading
- 17 Appendix
Definition / Scope
Aviation industry usually comprises of
- Commercial aviation
- Others (Includes MRO and Aerospace Manufacturing, Aftermarket Services, and Training)
This report is focussed on commercial aviation and manufacturing and MRO
Aviation Industry is the business of transporting paying passengers freight by air along airplanes. In the U.S., The U.S. Post Office established an airmail service in 1919 and played an important role in developing air travel by setting up a nationwide system of airports.
Air cargo comprises a large number of daily flights in the United States and operated by private parcel companies such as FedEx and United parcel services. These organizations operate some of the largest fleets in the world.
The U.S. Market accounted for 77.8% of North American revenue in 2016. The airline industry today helps drive $1.5 Trillion in the U.S. economic activity and more than 10 million U.S. jobs., where 2.3 million passengers and more than 55,000 tons of cargo transported every day. In 2016, the U.S. traded $ 1 trillion of merchandise by air with other countries.
The commercial aviation industry wasn’t considered to be a good investment option until recently. However, the U.S. airline industry is experiencing the safest period in aviation history. The growth of air travel has remained steady despite unfavorable macroeconomic conditions. The U.S. is a stable market and flat in terms of growth since the major carriers tend to own their fleets.
The airlines are managing capacity well and despite occasional fare wars, profitability seems to continue to rise.
In 2016, there were more than 416,000 general aviation aircraft in the worldwide fleet, ranging from small training aircraft to intercontinental business jets about 210,000 of these or half the market share is occupied by the U.S..
The U.S. is the largest market for aircraft manufacturing industry in terms of order received.
|Base Year||2017||Researched through internet|
- Digital vulnerability and rapid technological advancement: Lately, the aviation industry became increasingly dependent on technology. Technology has been helping to revolutionize airports and air transport system. With the positive outcome, it comes with the constant threat like cyber-crime.
- Geopolitical instability: Aviation industry gets directly affected when it comes to political instability. The recent example is the Trump administration's ban on travelers from certain Muslim majority nations and its ban on laptops in the cabins of flights from selected airports in the Middle East and North Africa.
- Terrorism: Even though the number of terrorist attacks targeted at airlines has gone down, past terrorist incidents reminds that they remain a constant threat.
- Congestion: The increase in the number flyers along with the airlines' increasing frequency of flights, means more planes and more passengers. Which results in congestion in the sky and in the airport.
- Pilot shortage: Airlines are expanding their fleets but the number of people who can fly them is not increasing as much as needed, because it takes a tremendous amount of money and time to train a pilot.
- Oil price: Airlines spend on fuel over anything else. Fuel prices have both a positive and negative effect on the market. Due to the low fuel cost, airlines are making profits but investors cannot rely on it because crude oil prices are rebounding.
- Image source: Flightradar24
Top Market Opportunities
- Deregulation of the airline industry: In 1978 the US federal law deregulated the airline industry, removing federal governments control over such areas as fares, routes and market entry of new airlines. The deregulation leads to a great increase in the number of flights, a decrease in fares, and an increase in the number of passengers and miles flown.
- Rising passenger demand: Passenger numbers are estimated to increase in coming years. Aviation sector became safer than before due to which more people in the US tend to prefer flying.
- Increasing cargo volume: Cargo transport, amid global trade war, is increasing as well, as an upturn in the economic cycle boosts business and consumer confidence.
- New technology aircraft: Technology has affected the aviation industry so much that the industry is facing a huge challenge to get accustomed to these new products. The number of variants being introduced by the manufacturers has made the situation more complicated
- Rising fuel prices: U.S. airline spends more on fuel than anything else, guzzling more than 40 million gallons a day . and oil prices have begun to rise again in recent years and may continue to rise as bankruptcies and mergers limit competition among airlines.
- Customer expectations: Customers are the center of any business. Recently customer expectation has also increased. With the smartphones in their hands and internet connections, a feedback from the customer can break or make airlines reputation.
- Bankruptcy: Bankruptcy is another challenge aviation industry is facing. Although airline can operate even after filing for bankruptcy the whole operation of the airline needs the approval of the bankruptcy board and even, prices, flight times and destinations will be governed by someone other than the airlines.
- The rise of commercial drones: Drones have many potential uses beyond recreation: aerial photography, crop monitoring, delivery service etc. With the rise of commercial drones, safety concerns have also risen. There are risks including documented near misses with manned aircraft.
- The dearth of aviation workforce: The aviation workforce is another challenge the industry is facing. Pilots face low starting wages in comparison to high priced initial training, air traffic controllers and maintenance workers, issues with inadequate skills training and recruitment process seem to contribute to the problem.
The Federal Aviation Administration (FAA) plans to revamp the air control system with a program known as NextGen, a wide-ranging transformation of entire national air transportation system that meets future demands and avoid gridlock in the sky and at the airports. NextGen aims to improve safety, cut costs, increasing airports’ capacity, and sharing more accurate data among air traffic controllers and pilots.
The program will replace the FAA’s current land-based radar system with more sophisticated GPS satellite-based system. The new system will allow air traffic controllers to track the locations of planes in flights more precisely.
In terms of technological efficiency, between 1978 and 2016, U.S. airlines improved fuel efficiency by over 120%, which has resulted in more than 4 billion metric tons of carbon dioxide savings.
There is broad consensus that oil prices will return to the $80 to $100 per barrel by 2030. According to (International Air Transport Association) IATA, Airlines in 2017 are expected to earn $7.69 per passenger served. This is down from the $9.13 earned in 2016 and the $10.08 earned in 2015. The average net profit margin for the industry is at 4.2%, down from 4.9% in 2016.
As of aircraft manufacturers, deliveries of general aviation aircraft are still way below their 2007 peak levels, both worldwide and in the U.S., because the price per aircraft has doubled.
The Federal Aviation Administration (FAA) of the United States is a national authority with powers to regulate all aspects of civil aviation. These include the construction and operation of airports, air traffic management, the certification of personnel and aircraft.
Some of the FAA’s roles are as follows;
- Regulating U.S. commercial space transportation.
- Regulating Air navigation facilities geometric and flight inspection standards.
- Encouraging and developing civil aeronautics, including new aviation technology.
- Issuing, suspending or removing pilots’ certifications.
- Regulating civil aviation to promote transportation safety in the United States, especially through local offices called flight standard district offices.
- Developing and operating a system of air traffic control and navigation for both civil and military aircraft.
Air transportation security in the United States is regulated by The Transportation Security Administration (TSA), an agency of the U.S. Department of Homeland Security.
Other Key Market Trends
- Enabling frictionless travel with biometrics : Airlines are experiencing the adoption of biometrics such as facial recognition technology and fingerprint to reduce the burden of going through tradition way of security checks, like having to check boarding passes, passport and identity constantly.
- Humanizing the experience through Artificial Intelligence: Artificial Intelligence is increasingly used in aviation sector lately. Chatbots are resolving passenger queries, AI machine learners are being used to estimate the average lifespan of the parts of the planes, are some of its examples.
- Robotic revolution and automation: Airports are using robots to deliver boarding information, give directions to passengers, flagging security risks and transporting luggage etc.
- Traveling in virtual reality: Augmented Reality (AR) and Virtual Reality (VR) are being used as an in-flight entertainment and as a wayfinding tool. These tools make it easier for the passenger to navigate within the terminal and locate check-in desks, departure gates, and baggage carousels.
- Internet of things: Internet of things (IoT) are being used to track baggage in real time thereby improving reliability and transparency.
Market Size and Forecast
The General Aviation Market in North America is expected to register a CAGR of 0.71%, and reach USD 13.55 billion by 2023.
General aviation covers a broad range of activities, both commercial and non-commercial, including sports aircraft, flying clubs, flight training, agricultural aviation, and light aircraft manufacturing
The FAA forecasts that U.S. passenger flights will grow at an average annual rate of 2.7% through 2030, but air freight tonnage is expected to grow at 5.1% per year, more than doubling by 2030.
In the U.S., a 1% change in per capita income is estimated to increase or decrease demand for air travel by 1.6 to 2 percent. North America accounts for one-third of all commercial jets in service in the world today. It is estimated that North America will require 8640 new airplanes over next 20 years, and 65% of these will be needed to replace airplanes in the existing fleet.
Key Market Players
Key players in commercial airline
- American Airlines: American Airlines is a world’s largest airlines in terms of fleet size, revenue, scheduled passengers carried and the number of destinations served.
- Southwest Airlines: Southwest Airlines is a world’s largest airlines in terms of low-cost carrier.
- Delta Airlines: Delta Airlines is the sixth-oldest operating airline by foundation date, and the oldest airline to still be operating in the United States. Delta is the world’s second largest Airline in terms of revenue.
- United Airlines: United Airlines is the world’s third largest airlines in terms of revenue, after American airline and Delta.
- Alaska Airlines: Alaska Airlines is the fifth largest airline in the United States.
- Jet Blue Airways: Jet Blue Airways is the sixth largest airline in the United States.
Key Players in cargo airline
- FedEx: FedEx is an American multinational courier delivery service company with more than 400 active aircraft. It is the world’s largest airline in terms of freight volume flown and the world’s ninth largest in terms of fleet size.
- UPS Airlines: UPS Airlines is the world’s third largest cargo airline in terms of freight volume flown.
Key Players in Aircraft Manufacturing
- Airbus: Airbus is a European aerospace industry based in the Netherlands with manufacturing facilities in more than 5 countries, including United States. The company produce the world’s largest passenger airline, the A380 amongst others.
- Textron Aviation: Textron Aviation is the general aviation industry based in Kansas, United States. It has a various line of aircraft, including Cessna single engine piston and turboprop aircraft and jets.
- Boeing: Boeing is the multinational aerospace industry based in Chicago, United States. It is the one of the largest aircraft manufacturers in the world. Boeing is the largest exporter in the United stated by dollar value.
The U.S. aviation industry became safer in terms of both investment and operation in recent years. Rising passenger demand positively affects both airlines and aircraft industry. Rising fuel prices, terrorism, new competition and pressure to upgrade technologies are some of the things to consider. But if the market became stable and is ready for some changes, the U.S. aviation industry is the profitable market.
Deregulation- The removal of regulations or restrictions, especially in a particular industry. The airline industry was deregulated in 1978 by Airline Deregulation Act.