Wednesday, October 19, 2011

Global Airline Industry: Growth or Decline?

Recently, it was announced that economic growth in China has been slowing down as the government has taken measures to control inflation. During the third quarter, the economy grew at 9.1%, down from previous quarter's 9.5%. This has caused concern as China is the main exporter of goods to the West and area of development for many Western companies. This is particularly true for the airline industry, as rising development has led to more demand of aircraft in the region. This week, it was revealed that China Eastern airline has canceled its order of 24 Boeing 787 Dreamliner planes, citing the withdraw "due to Boeing Company's delay in delivery," rather than any economic slowdown indications. What is the forecast of airline industries given these two recent events?

After the announcement by China Eastern, Boeing remained optimistic. A Reuters article quoted Marketing VP Randy Tinseth in his statement that "as we look forward, we expect to see the Dreamliner order base increase, we expect to see more orders, we expect to see more cancellations, especially as we go through mitigation with our customers." While the development may put more pressure on Boeing to hasten its production rate to its target of 10 units per month by 2013, the outlooks seem promising in other markets. Australia's Qantas Airways, Korean Air Lines, and other Chinese airlines such as China Southern, have all remained committed to introduce the Boeing Dreamliner.

Long-term forecasts may be even more promising. According to Tinseth, "air travel in Northeast Asia is expected to grow moderately at 4.3 percent annually over the next 20 years." Indeed across the emerging markets, the demand for aircraft will remain strong for the next decades to come. Even with China's slowdown, the growth is still hovering at around 9%, compared to that of United States of Europe, which hovers between 1 to 2%. According to Parker Hannifin Chairman and Chief Executive Donald Washkewicz, China's downward trend has "been a short-lived thing and activity picks up again." The optimism is voiced through Boeing, which forecasts 33,500 new aircraft by 2030.

Despite given the recent reports of China's slowdown with its economy and the cancellation of 24 Boeing Dreamliner units by China Eastern, it looks as though that the global airline industry will see growth in the immediate future.

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