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Embraer China Market Outlook

2012-2031
a look a look
forward forward
trends and trends and
analysis analysis
by the by the
numbers numbers
executive summary executive summary
and global trends and global trends china market overview china market overview market forecast market forecast methodology methodology
and denitions and denitions
China Market Outlook
2012-2031
Join us as we build a bright future for the
Chinese regional aviation market.
Guan Dongyuan
Senior Vice President, Embraer
President, Embraer China
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In 2011, world air transport was still feeling the efects of the global
fnancial and European debt crises. The downturn led to softer
demand which prompted Embraer to revise its forecast for new
aircraft. Over the next twenty years, air transport is expected to
grow at an average annual rate of 5%. By 2031, 6,795 new jets in
the 61 to 120-seat capacity segment will join airline feets throughout
the world.
Civil aviation in China will be a bright spot in world air transport
and see continued rapid growth with revenue passenger kilometers
(RPK) increasing 7.2% year over year. Looking forward to the period
of the twelfth fve-year plan, Chinas economy will have strong
momentum characterized by high stability and fast growth that, in
the long run, will level out. Limits with the environment, resources
and other factors will contribute to gradual slowing although the rate
for the worlds second largest air transport market will still be higher
than the world average.
As of September 2012, Embraer received 156 frm orders from 12
customers in China and has delivered 125 aircraft. To better serve
those customers, the company established Embraer China Aircraft
Technical Services (ECA) to ofer comprehensive before and after
sales service.

With their low operating costs and high versatility, Embraers
advanced 61 to 120-seat jets efectively bridge the gap between
traditional regional and mainline aircraft. They have enjoyed great
popularity with airlines around the world that deploy them to
replace ageing feets, reduce excess capacity and develop new
routes. The Asia-Pacifc region, including China, will be the fastest
growing market in the world where deliveries of jets in this capacity
segment are forecast to surpass those of Europe. The expected
future demand for 1,005 new jets in China represents 15% of global
deliveries of jets in this capacity segment.
Leaders from central to local governments agree that the
development of civil aviation can drive economic growth and that
regional aviation is a natural way to build a strong nation and improve
the living standard of its citizens. Around China, there are examples
of that development. Three years ago, the Inner Mongolia Airport
Corporation started promoting greater accessibility to remote areas
for the many regional airlines operating in that part of the country.
This is but one example of how the Airport Corporation is making
air travel more afordable to a new segment of consumers in remote
parts of China who never travelled before by airplane.
The next one or two decades will see the golden development of
Chinas air transport industry. Its strategic position will become
more prominent and regional aviation will play a more signifcant
role in boosting economic development particularly with more
regional airports coming online in central and western China. Since
the ofcial launch of the Essential Air Service program and the
gradual implementation and improvement of subsidies and policies
supporting regional aviation development, the sector is assured to
have a promising future.
Lets join hands and work together to create a bright future for
Chinas regional aviation industry.
Guan Dongyuan
Senior Vice President, Embraer
President, Embraer China
Embraer China Market Outlook
(2012-2031) Foreword
Guan Dongyuan
Senior Vice President, Embraer
President, Embraer China
4
On every continent, Embraer aircraft are linking cities,
growing commerce and connecting people.
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executive summary
and global trends
a look forward
china market outlook 2012 | 2031
Market Drivers Market Drivers Likely Impact Likely Impact
Economic growth in emerging Economic growth in emerging
markets markets
- Power more dispersed with new countries/players
- Faster pace of air traffic growth in emerging markets
- Potential for emerging economies to expand air services through
regional aviation
Economic growth driven by Economic growth driven by
middleweight cities middleweight cities
- Development of second and third-tier airports
- Potential for network diversification/integration
- Opportunities for airlines to explore low to medium-density markets
Surge of an urban Surge of an urban
middle class middle class
- Increased propensity to travel, availability of income for discretionary
expenditures
- Strong air transport demand growth in emerging markets
High fuel prices & increased High fuel prices & increased
environmental concerns environmental concerns
- Emissions and noise restrictions getting tougher
- Increased use of renewable energy sources
- Removal of old and inefficient aircraft
Increased competition and Increased competition and
search for business efficiency search for business efficiency
- Match aircraft capacity to market demand (right-sizing)
- Aircraft with new engine technology (lower fuel consumption
and emission)
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Executive Summary Executive Summary
Over the past 40 years, worldwide air
transport activity has been characterized
by strong growth rates led mainly by
advanced economies, such as the United
States and Western Europe, and to a
certain degree by the Asian market in the
last years.
Some drivers like the globalization of
business, technological development, the
revolution in communications, tourism,
deregulation in the United States,
liberalization in Europe, the advent of
the Low Cost business model, and lower
fares have been the engines of growth.
From 2012 to 2031, the center of gravity
for aviation will move eastward, most
notably to Asia and, to some extent,
southward to Latin America. The main
drivers that will impact the global air
travel industry are:
Strong pace of economic growth in
emerging markets;
Economic growth driven by middleweight
cities;
Surge of an urban middle class;
High fuel prices and increased environmental
concerns;
Increased competition and search for
business efficiency.
Air Trafc Demand Forecast Air Trafc Demand Forecast
Embraer foresees a 5.0% year-over-year
Revenue Passenger Kilometer (RPK)
growth over the next 20 years, which
will require 32,800 new aircraft deliveries
representing a total market value of US$
3.6 trillion.
In a baseline scenario, in which global GDP
is expected to grow by 3.1%, emerging
economies will remain among the fastest-
growing in the world. Apart from Asia, the
best-placed regions in economic terms are
the Middle East, Latin America and, to a
lesser extent, Africa. Midsized and small
middleweight cities will drive almost 40% of
the global economic growth. Population will
become wealthier as a large urban middle
class will outpace the number of poor
people; more income will be available for
discretionary expenditures, including travel.
In this scenario, the Middle East, China and
the Latin America will be the fastest-growing
markets, with an average annual RPK
growth rate of around 7.0%, followed by
Asia Pacic with 5.8%, the Commonwealth
of Independent States (CIS) with 5.6%,
and Africa with 5.3% over the next 20
years. Developed economies will grow less
due to their market maturity, North America
with 3.2% and Europe with 4.1% by 2031.
0
Project World Traffic 2011-2031
North America
Europe
Asia Pacific
China
Middle East
Latin America
CIS
Africa
1,000 500 2,000 1,500 3,000 2,500
2011 Additional 2012-2031
Annual Growth Rate Annual Growth Rate
2012-2031
RPK GDP
3.2% 3.2% 2.6% 2.6%
4.1% 4.1% 1.9% 1.9%
5.8% 5.8% 3.4% 3.4%
7.0% 7.0% 5.5% 5.5%
7.2% 7.2% 3.9% 3.9%
7.0% 7.0% 4.3% 4.3%
5.6% 5.6% 3.4% 3.4%
5.3% 5.3% 4.4% 4.4%
World World
5.0% 3.1%
Chart 1
Projected Trafc and Economic Growth (2012-2031) Projected Trafc and Economic Growth (2012-2031)
Billions of RPK
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Embraer forecasts that world air transport
demand will increase roughly 2.7 times
by 2031, reaching 13 trillion RPK.
By 2031, Asia Pacic and China will be the
largest market in the world, accounting for 34%
of world RPKs. Europe and North America will
follow at 21% of RPKs each. (Chart 1)
Uncertainty lies ahead with regard to
short-term recovery and long-term
projection since there are some risks to
an economic forecast. Embraer provides
alternative scenarios to its baseline
forecast, as the high unpredictability
of the external operating environment
represents a major risk to the forecast.
The first alternative scenario is a
downside scenario accounting for 30%
of probability, characterized by an
increasing solvency risk in the Eurozone
and a resurgence of political tensions
in the Middle East driving oil to a US$
200 per barrel peak. This will create a
demand shock slowing down the fragile
economy. Sustained high oil prices would
weigh on consumer behavior in many
countries, impacting the demand for
air transport. Advanced economies will
face a recession similar to the 2008/09
economic crisis, and emerging markets
will still lead global growth, although at a
slower pace as they will feel the effects
of a global slowdown due to reduction of
exports to advanced economies.
In this scenario, over the next 20 years,
in which GDP is expected to grow 2.3%
per year, global air transport demand is
projected to grow 4.5% annually.
Additionally, the upside scenario accounting
for 10% of probability assumes a faster- than,
expected debt reduction in the Eurozone and
a gradual improvement in consumer spending
and business investment in the United States.
Emerging markets will benet from a better
economic outlook with stronger export
demand and increasing internal consumption.
A surge in nal demand in China and other
leading emerging markets would further
contribute to strong economic development
through higher GDP growth rates.
This economic background will result
in faster RPK growth rates driven by a
more optimistic business environment. In
this scenario, in which GDP is expected
to grow 3.5% per year over the next 20
years, global air transport demand is
projected to grow 5.9% annually.
Although we forecast different scenarios,
the results presented in the sections
ahead are based on a baseline scenario.
Source: Global Insight; EIU; Embraer Source: Global Insight; EIU; Embraer
Right-sizing
Natural Growth
Direct Replacement
New Markets
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30 to 120-Seat Jet Segment 30 to 120-Seat Jet Segment
Embraer foresees world demand for
6,795 new jets in the 30 to 120-seat
capacity segment over the next 20
years, representing a total market value
of US$ 315 billion.
From 2012 to 2021, 3,005 new aircraft
will be delivered, and the remaining 3,790
units will enter the market between 2022
and 2031. The 91 to 120-seat segment
will be the largest market, with 3,765
new deliveries in the next 20 years,
representing 55% of the segment,
followed by the 61 to 90-seat segment
with 2,625 new deliveries, or 39%, and
the 30 to 60-seat segment with 405 new
units, or 6%.
Market Market
Segment Segment
(seats) (seats)
2012-21 2012-21 2022-31 2022-31 2012-31 2012-31
30-60 30-60 0 405 405
61-90 61-90 1,325 1,300 2,625
91-120 91-120 1,680 2,085 3,765
30-120 3,005 3,790 6,795
The 30 to 60-seat capacity segment has
been impacted by high fuel prices and
a weak revenue environment, mainly
in North America, where some 70% of
50-seat jets are in service.
However, this category will continue
to be essential to hub - and - spoke
sustainability, as the aircraft have the
capability to link many low to medium-
density markets to major hubs and to
develop regional aviation in emerging
countries.
Efficiency is paramount. Aircraft in the
61 to 120-seat segment, such as the E-
Jets family, position carriers for sustained
growth as the use of right-sized equipment
allows airlines to maximize operational
efficiency and profitability through better
yields and competitive positioning.
It is a very significant part of todays
aviation network and has been providing
much-needed flexibility to airlines by
right-sizing (complementing or replacing)
larger jets, replacing ageing aircraft in
the same seat category, developing new
markets, and expanding from smaller
regional jets (natural growth). (Chart 2)
Chart 2
E-Jets Network Around the World E-Jets Network Around the World
Source: OAG Source: OAG
7,375
3,225
3,570
580
4,150
2011 2031
Growth Retained Replacement
3,235
1,165
1,350
720
2,070
2011 2031
Growth Retained Replacement
3,235
1,165
1,350
720
2,070
2011 2031
Right-sizing
Natural Growth
Direct Replacement
New Markets
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Commercial Jet Delivery Forecast Commercial Jet Delivery Forecast
30 to 120-Seat Segment, by 30 to 120-Seat Segment, by
Region (2012-2031) Region (2012-2031)
World Region World Region
New New
Deliveries Deliveries
Share Share
Africa Africa 210 3%
Asia Pacific Asia Pacific 505 7%
China China 1,005 15%
Europe Europe 1,460 21%
Latin America Latin America 670 11%
Middle East Middle East 305 4%
North America North America 2,195 32%
Russia/CIS Russia/CIS 445 7%
Total 6,795
Over the next 20 years, 47% of new
deliveries (3,225 units) will be added
to support market demand growth and
53% (3,570 units) to replace ageing
equipment. The world fleet in service
of 30 to 120-seat jets will increase from
4,150 aircraft in 2011 to 7,375 by 2031.
Some 14% (580 jets) of the current fleet
will still be in operation. (Chart 3)
Turboprops Turboprops
High energy prices and environmental
concerns tend to favor turboprop demand
growth, mainly in short-haul markets and in
routes where there is no direct competition
with jets.
For medium and long-haul missions, jets
will still be preferred due to their higher
productivity, overall operational efciency
and schedule compatibility with narrow-
body jets.
By 2031, 2,515 new turboprops (with
a capacity of 30 seats or more) will be
delivered, 46% to support market growth
and another 54% to replace ageing
aircraft. Around 83% of all turboprop
demand will be in the capacity segment
of 60 seats and greater.
Market Market
Segment Segment
(seats) (seats)
2012-21 2012-21 2022-31 2022-31 2012-31 2012-31
30-60 30-60 210 230 440
60+ 60+ 875 1,200 2,075
30+ 1,085 1,430 2,515
In 2011 there were 2,070 turboprops in
service with an average age of 15 years.
By 2031, 35% of the current fleet will still
be in service, and the total turboprop fleet
will increase to 3,235 aircraft. (Chart 4)

Chart 3
World Jet Fleet Evolution World Jet Fleet Evolution
Number of Aircraft (30 to 120-Seat Segment)
Chart 4
World Turboprop Fleet Evolution World Turboprop Fleet Evolution
Number of Aircraft (30+ Seat Segment)
Source: Embraer Source: Embraer
25,985
12,590
10,900
2,495
13,395
2011 2031
Growth
Replacement
Retained
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Narrow and Wide-Body Aircraft Narrow and Wide-Body Aircraft
Over the next 20 years, airlines will
require 23,490 new jets with more than
120 seats (70% of total new aircraft
deliveries), 17,305 narrow-bodies and
6,185 wide-bodies.
Market Market
Segment Segment
(seats) (seats)
2012-21 2012-21 2022-31 2022-31 2012-31 2012-31
Narrow-bodies Narrow-bodies
(121-210) (121-210)
7,855 9,450 17,305
Wide-bodies Wide-bodies
(210+) (210+)
2,855 3,330 6,185
120+ 10,710 12,780 23,490
Of total new deliveries, 54% will be
added to support market growth and
46% to replace old aircraft.
In this segment, the world fleet in service
will increase from 13,395 aircraft in 2011
to 25,985 units in 2031. Some 19% of
the current fleet in service will remain in
operation. (Chart 5)
Chart 5
World Narrow and Wide-Body Fleet Evolution World Narrow and Wide-Body Fleet Evolution
Number of Aircraft (120+ Seat Segment)
Source: Embraer Source: Embraer
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World Projected New Deliveries World Projected New Deliveries
Seat Capacity Segment Seat Capacity Segment 2012-2021 2012-2021 2022-2031 2022-2031 2012-2031 2012-2031 Share Share
T
u
r
b
o
p
r
o
p30-60 210 230 440 1%
60+ 875 1,200 2,075 6%
Total Turboprops 1,085 1,430 2,515 7%
J
e
t
30-60 0 405 405 1%
61-90 1,325 1,300 2,625 8%
91-120 1,680 2,085 3,765 12%
Total 30-120 3,005 3,790 6,795 21%
NB 121-210 7,855 9,450 17,305 53%
WB 210+ 2,855 3,330 6,185 19%
Total 120+ 10,710 12,780 23,490 72%
Total Jets 13,715 16,570 30,285 93%
Total
14,800 18,000 32,800
World Fleet in Service World Fleet in Service
Seat Capacity Segment Seat Capacity Segment 2011 2011 2031 2031
T
u
r
b
o
p
r
o
p30-60 1,275 800
60+ 795 2,435
Total Turboprops 2,070 3,235
J
e
t
30-60 1,620 625
61-90 1,095 2,730
91-120 1,435 4,020
Total 30-120 4,150 7,375
NB 121-210 10,215 18,900
WB 210+ 3,180 7,085
Total 120+ 13,395 25,985
Total Jets 17,545 33,360
Total
19,615 36,595
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as cities with a population between
150,000 and five million inhabitants.
The predominant growth pattern in
smaller cities is resulting in a more equal
level of urbanization across all regions.
Urbanization is key to the expansion of
the airline industry.
Future economic growth will take
place mainly in midsized and small
middleweight cities. According to the
McKinsey Global Institute (Urban World:
Mapping the Economic Power of Cities),
such cities are poised to drive around
40% of global economic growth in the
next 15 years. Megacities per capita
GDP growth is slowing down, allowing
the middleweight cities to catch up.
As companies look for fast-growing cities
that are likely to contribute most to global
economic growth, there will be a need to
develop regional aviation and generate
new opportunities for airlines to explore
low- and medium-density markets.
Expanding global connectivity will be a
priority to put economic growth on a solid,
more sustainable foundation. Midsized
and smaller cities will require better air
services, including first-ever non-stop
flights in key origin and destination
markets and competitive options on
hub sectors. The 30 to 120-seat jets are
Global Trends Global Trends
Economic Growth in Emerging Economic Growth in Emerging
Markets Markets
The balance of global economic power
is shifting to the East and South, paving
the way towards the development of a
multi-polar world with a greater number
of influential countries. While advanced
economies have been contributing less
to global economic growth than they did
20 years ago, countries commonly called
emerging markets are becoming an
increasingly significant part of the global
economy and financial markets. The
economic might of the fastest-growing
economies has been matched by their
growing geopolitical influence. (Chart 6)
Economic Growth Driven by Economic Growth Driven by
Middleweight Cities Middleweight Cities
Global economic growth includes a
demographic component: the process
of urbanization. Half of the worlds
population now lives in cities, and it is
expected that the urban population as
a percentage of total population will
reach 60% by 2030, favoring midsized
and small middleweight cities defined
Chart 6
Share of World GDP Share of World GDP
Source: Global Insight Source: Global Insight
0%
40%
60%
20%
100%
80%
2000 2010 2020 2030
Advanced Economies Emerging Markets Others
S
h
a
r
e

o
f

W
o
r
l
d

G
D
P
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better suited for both of those missions.
The Surge of an Urban Middle Class The Surge of an Urban Middle Class
As economic activity in emerging
markets around the world has been
growing significantly and will continue to
increase over the next 20 years, the world
population is experiencing an increasing
equality through distribution of wealth as
the GDP per capita grows at a faster pace
in regions such as Asia, Eastern Europe
and Latin America. (Chart 7)
Apart from a substantial reduction in
poverty, the world is also witnessing the
creation of a large urban middle class.
By 2030, emerging market cities will
have more higher-end middle-income
households than developed cities.
According to the Organization for
Economic Co-operation and Development
(OECD), by 2022 the number of people in
the middle class will outpace the number
of poor people.
The size of the global middle class will
increase from 1.8 billion to 3.2 billion
people by 2020 and to 4.9 billion by
2030, raising its demand globally from
US$21 trillion in 2010 to US$56 trillion in
goods by 2030.
This surge in the global urban middle
class is associated with significant
wealth redistribution. Today, six out of ten
countries with the biggest middle class
consumption are in the developed world
the United States, Japan, Germany,
France, the United Kingdom and Italy. By
2030, this number will be reduced to four
out of ten, while India, China, Indonesia,
Russia, Mexico, and Brazil will rank in the
top ten.
65%
15%
19%
1%
2010
< 7,500 7,500-20,000 20,000-70,000 > 70,000
46%
23%
27%
4%
2030
Chart 7
GDP per Capita Percentage of Countries GDP per Capita Percentage of Countries
2005 U.S. Dollars
Source: Global Insight Source: Global Insight
2007 2025
Consumer
category
Income segment
$ PPP
% of World Population
Global
Consuming
Aspiring
Struggling
100,000+
70,000-100,000
<1,000
1,000-2,000
2,000-5,000
5,000-7,500
7,500-10,000
10,000-20,000
20,000-35,000
35,000-70,000
0 0
1 0
4 1
15
44
16
15
5
0
0
3
16
16
28
33
2
1
14
Based on spending power, there are
four income segments defined by
annual household income in PPP terms:
Struggling, Aspiring, Consuming and
Global. Struggling are those whose
annual income is lower than US$
7,500. Aspiring and Consuming are the
intermediate segments whose annual
incomes range from US$ 7,500 to US$
20,000 and from US$ 20,000 to 70,000,
respectively. Global are those whose
annual income is higher than US$ 70,000.
While 64% of todays population belongs
to the Struggling segment, it is expected
that this portion will be reduced to 20%,
bringing the majority of future households to
the Aspiring segment, which will represent
60% of world population. The Consuming
segment as a percentage of world population
will increase from 4% to 19%. (Chart 8)
As a growing portion of the population
becomes wealthier, more income is
available for discretionary expenditures,
including travel.
High Fuel Prices and Increasing High Fuel Prices and Increasing
Environmental Pressure Environmental Pressure
Increasing demand for oil from emerging
countries is one of the main drivers of
oil price escalation. Although the effects
of energy prices are incorporated in
the 20-year economic and air transport
projections, the price of oil is the
major downside risk for aviation due
to the influence of external events and
speculation on the commodity market.
In addition, stricter environmental
regulations, such as the EU Emissions
Trading Scheme, and new government
rules tend to reduce noise and emissions,
impacting the aviation sector.
Oil prices will remain high compared to
historical standards. As the major component
of a typical airlines cost structure, jet fuel
prices put pressure on operating costs.
Fuel efciency is the long-term alternative to
reduce the impact of oil price volatility. As every
industry looks for untapped opportunities
to improve efciency, the aviation sector
has been continuously striving to improve
metrics, especially lower fuel consumption,
and meet environmental requirements.
One solution to reduce jet fuel dependency
and greenhouse gas emissions is a more
intense use of alternative fuels, in particular
carbon-neutral biofuels that must be
economically feasible and industrially
scalable. This will require an integrated
approach among fuel suppliers, airframe,
aircraft systems, and engine manufacturers.
Chart 8
Percentage of World Population by Disposable Income Percentage of World Population by Disposable Income
PPP U.S. Dollars
Source: 2011 McKinsey Global Institute Cityscope Source: 2011 McKinsey Global Institute Cityscope
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Increased Competition and Search Increased Competition and Search
for Business Efciency for Business Efciency
Apart from increased cost, the airline
industry will continue to face a weak
revenue environment. The search for
efciency is essential in order to temper
cost increases as well as revenue
reductions. To accomplish the next level
of business efciency, the industry will
need to evolve in three major areas: airline
operations, aircraft and infrastructure.
Competitive positioning, such as cost
leadership and differentiation, is an
important factor when it comes to
airline strategy. The low-fare, high-cost
environment will force airlines to rethink
thei r stuck-i n-the-mi ddl e busi ness
strategy in order to provide low-cost
services or unique operations widely
valued by customers.
Airlines will continue to search for
efficiency by offering the best cost-
benefit ratio, through longer-term, higher-
value relationships with air travelers.
Another aspect, future aircraft engine
technology, will balance fuel efciency,
emissions mitigation, and noise reduction.
Engine design, geared or advanced
turbofan, will enable higher bypass
ratios and high-temperature systems for
improved thermal efficiency, reduced
emissions, and reduced fuel consumption.
Moreover, the establishment of the
advanced air traffic management (ATM)
systems in the United States and Europe,
guided by NextGen and SESAR programs,
respectively, will enable improvements
and consolidation of air traffic control
in these regions, increase capacity and
reduce system cost.
For airports, congestion in major hubs
will lead to the emergence of second-
and third-tier airports. In order to
maintain competitiveness, hub airports
will need more integration with ground
transportation. Small- and medium-sized
airports will benefit from traffic increases,
but they will need to improve their own
connectivity in order to bring efficiency to
the air transport system.
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Embraer E-Jets are bringing affordable air travel
to people who have never own before.
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china market outlook 2012 | 2031
china market overview
trends and analysis
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Chart 9
Comparison of Regional Network in China Comparison of Regional Network in China
Source: OAG Source: OAG
China Regional Market China Regional Market
Trends and Analysis Trends and Analysis
In the thirty years since China opened
its economy to the global market, the
countrys total airline revenue passenger
kilometers (RPKs) have grown over
17% annually, far higher than that of
other transportation modes. China has
become civil aviations second largest
air transport region with an increasingly
prominent strategic contribution to the
national economy and the traveling
public. In 2011, it was clear that air
transport in China had recovered quickly
from the global financial crisis. In that
year, airlines and airports posted profits
of RMB 27.8 billion and RMB 4.3 billion
respectively. Although slightly lower
returns than those of the previous year,
they were, nonetheless, still bright spots
against their counterparts in the rest of
the world.
With fast growth of the domestic
passenger air travel, regional aviation
has also made great progress in China
with its own characteristics and trends.
Current Conditions and Current Conditions and
Characteristics Characteristics
Stable Increase for Regional Air Stable Increase for Regional Air
Transport with Low Volume Transport with Low Volume
Stable Increase for Regional Air Transport
with Low Volume
With dozens of years development,
particularly over the last decade, regional
aviation has become an indispensable
part of Chinas entire air transport system.
The number of routes served by jets with
fewer than 100 seats grew from 248 in
2003 to 387 in 2011, a 60% increase.
(Chart 9). Regional jets now operate on
more routes with greater frequency.
The rate of regional airport development
is similar. According to 2011 statistics
for passenger throughput at civil airports
nationwide from the Civil Aviation
Administration of China (CAAC), regional
airports in third-tier cities had higher YOY
growth than those of second or first-tier
airports (Chart 10), a very promising trend
for regional aviation.
The CAAC also cites 1,377 scheduled
domestic routes operated by all airlines
in 2011. The majority of those were
categorized as medium and low-density
2003 2011
19
trends and trends and
analysis analysis
china market overview
Big Airports
Second-tier Airports
Regional Airports
Rank of Pax volume in 2011
1 11 21 31 41 51 61 71 81 91 101 111 121 131 141 151 161 171 181
100
90
80
70
60
50
40
30
20
10
0
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1

Chart 10
Regional Airports have higher growth Regional Airports have higher growth
routes. Measured by each way passenger
volume (PDEW), 1,050 routes (nearly
76%) carried an average of fewer than
300 travelers, (Chart 11), suggesting a huge
untapped market for regional aviation.
Expansion of Regional Fleet with Expansion of Regional Fleet with
an Imbalanced Profile an Imbalanced Profile
In mid-2012, there were 1,820 in-service
aircraft in Chinas civil fleet including 140
regional aircraft with 120 or fewer seats,
just under 8% of the total. Aircraft with
up to 120 seats accounted for only 3.2%
of all seat capacity in civil aviation and
carried 2.9% of the total passenger
volume. The regional fleet was comprised
of 41 ERJ145s, 20 CRJ200/700s, 64
E190s and 11 Modern Ark 60s.
Ten airlines currently operate regional
aircraft. With the exception of Tianjin
Airlines, the fleets of the regional airlines
are too small to derive true economies of
scale which explains their relatively high
operating costs.
Analyzing the profile of the civil fleet over
the past decade, it is not difficult to see
that airlines have always preferred trunk
routes to regional routes and purchased
aircraft accordingly. The disproportionate
number of aircraft of large jets to regional
aircraft has not been addressed over the
past few years and changes to the trend
have been marginal.
The imbalance in the development of
trunk and regional routes has been a
long-standing problem. Analysis shows
that 69% of flights carried fewer than
120 passengers (Chart 12), which could
have been operated by more efficient
regional aircraft with fewer seats. The
lack of regional aircraft forces trunk
airlines to serve medium and low volume
routes with large aircraft. More than 75%
of routes with fewer than 300 PDEWs
were flown by aircraft with 120 or more
seats. Bigger aircraft inevitably lead to
over-capacity on some routes which
adversely affect operating efficiency and
prompts airlines to reduce frequency. In
the current domestic market, only 10% of
airlines offer two or more flights per day,
which offers few options for the traveling
public.
Accessibility to remote areas to Accessibility to remote areas to
be improved be improved
Despite the enormous potential for
regional aviation and its considerable
progress in recent years, a more
comprehensive regional network is still in
Source: CAAC Source: CAAC
20
development. The majority of flights are
still point-to-point and non-hub which is
a consequence of the current domestic
airline fleet profile. It is encouraging to
see that Xinjiang and Inner Mongolia
have developed Urumqi and Hohhot into
regional aviation hubs with a hub-and-
spoke route network connecting several
regional airports.
Poor accessibility has been another
problem. According to CAAC statistics,
66% of the 185 civil airports with
scheduled commercial flights reach
fewer than 10 destinations (Chart 13). Poor
accessibility is a result of few frequencies
and even on some newly-opened routes
there is insufficient capacity to match
passenger volume.
Improving accessibility will require
airlines to open more new routes with
aircraft with lower risk and operating
costs, higher economic benefits and
rational seat capacity. They will need to
increase frequency in existing markets,
too. Those initiatives will require more
regional aircraft.
Chinas Regional Chinas Regional
Aviation Market: Future Aviation Market: Future
Development Development
Maintain High Economic Growth and Maintain High Economic Growth and
Accelerate Infrastructure Construction Accelerate Infrastructure Construction
Economic development is closely related
to air transport. The long term growth
forecast for Chinas economy will be
a strong driver of regional aviation
development.
Both central and local governments
agree that in order to be strong, invest in
civil aviation. Local governments have
noticeably increased their investments in
air transport over the years which have
led to the construction of new regional
airports. That public infrastructure,
particularly in the central and western
cities, will become a focus of future
airport development.
To encourage even more development,
the Chinese government will emphasize
construction and operation of regional
airports in the central and western regions
in the twelfth five-year plan period.
Over the next five years, RMB 425 billion
will be used to build the civil aviation
infrastructure, including the construction
600
500600
400500
300400
200300
100200
100
181
44
49
53
94
207
749
0 100 200 300 400 500 600 700 800
Chart 11
Number of Domestic Routes by Passenger Volume Number of Domestic Routes by Passenger Volume
Daily Passengers Each Way
Source: Civil Aviation Administration of China (CAAC)
Number of Routes
21
trends and trends and
analysis analysis
china market overview
of 56 new airports, relocation of 16 airports
and reconstruction and expansion of 91
airports. The majority of those planned
new facilities will be regional airports.
By the end of the twelfth five-year plan
period, the number of airports in service
will have increased to about 230 which
will bring access to air travel to within
100 kilometers of 89% of the Chinese
population.
Construction and operation of such
a large number of new airports will
undoubtedly bring greater visibility to
regional aviation.
More New Policies to Encourage More New Policies to Encourage
Development of Regional Aviation Development of Regional Aviation
Civil aviation plays a significant role in the
development of the economy, in politics,
society, military affairs, diplomacy and
culture which has raised its profile
among governments at all levels. The
Several Opinions of the State Council
on Promoting the Development of Civil
Aviation issued in 2011 clearly defines
civil aviation as a strategic industry and
regards its development as a national
strategy. The declaration has helped to
stimulate further development.
Regi onal avi ati on devel opment i s
now also recognized by all levels of
government. Recentl y, the CAAC
i ssued the I nteri m Measures for
Administration of Subsidies to Middle
and Smal l Ai rports, the I nteri m
Measures f or Admi ni st rat i on of
Subsi di es to Regi onal Avi ati on and
the Interim Measures for Loans with
Discounted Interest to Construction
of Civil Aviation Infrastructures as well
as other documents, together with the
Nati onal Devel opment and Reform
Committee (NDRC) and the Ministry of
Finance. These entities have stepped
up support for regional aviation and
vigorously promoted its development.
Since the eleventh five-year plan
was introduced, the central budget has
allocated a total of RMB 90.04 billion to
support development of civil aviation, an
amount more than double the figure in the
tenth five-year plan period. RMB64.11
billion of the allocation is to support
construction of civil aviation airports and
air traffic control and RMB 24.26 billion
is used to subsidize middle and small
airports, regional aviation, and interest on
loans for construction of infrastructure.
The Chinese government will also improve
existing regional aviation subsidization
Chart 12
China Domestic Market Prole China Domestic Market Prole
15%
10%
75%
No Nonstop Service
< 2 ights
>
2 ights
Percentage of Daily Flights
15%
22%
32%
16%
15%
5 - 45 46-90 91-120 121-135 135+
Percentage of Markets
Pax per Departure
69%
of departures with up to
120 passengers on-board
Source: Embraer; OAG; Airport-IS Source: Embraer; OAG; Airport-IS
22
policies to encourage airlines to operate
on regional routes.
These revisions include an exemption on
import duties and the value-added tax
for spare parts of regional aircraft, and
the exemption of airport construction
fees allocated to regional flights.
Implementation of these new policies will
effectively reduce the cost of travel for
passengers, stimulate consumer demand
for regional flights, enhance sector
profitability and encourage airlines to
increase capacity on routes connecting
mid and small-size cities.
In order for people living in remote
areas to benefit from air transport, the
Chinese government will need to better
understand the experience of the more
mature airline industry of developed
countries so that it can improve its
local policies and guarantee basic
services. The government will also need
to provide more support to those small
and medium-sized regional airports with
low passenger volumes and encourage
airlines in the form of funding and
policies to increase capacity on regional
sectors.
All these measures will raise regional
aviation in China to a higher level.
Urbanization Driving Growth of Urbanization Driving Growth of
the Regional Aviation Market the Regional Aviation Market
In the 20th century, urbanization had
become the most common social
evolution phenomenon in the world.
Since 1950, the worlds population
increased from 2.5 billion to 6 billion.
Sixty percent of the population is in
urban regions, particularly in developing
countries. If the 20th century was
defined by urbanization for developed
countries, then developing countries
will be recognized for their urbanization
in the 21st century. Chinas own drive
to urbanization accelerated in 1980 and
continues today. (Chart 14) The Chinese
Academy of Social Sciences (CASS)
highlighted in its 2012 Urban Blue Book:
China City Development Report No.5
that Chinas urban population reached
691 million in 2011 with an urbanization
rate of 51.27% and a population
urbanization rate of more than 50%. The
trend indicated that China began to shift
from a predominantly rural society to an
urban one.
Acceleration of urbanization not only
brings huge changes in cities but also
connection<10
connection11-40
connection41-70
connection71-100
connection>101
Chart 13
Connectivity in China Connectivity in China
SourceOAG SourceOAG
23
trends and trends and
analysis analysis
china market overview
promotes closer social, economic and
cultural contact and exchanges with
others. In such a process, rural people
flood to cities and become consumers of
transportation. With the emergence of
a greater number of midsize and small
cities, Chinas regional cities will be at the
forefront of rapid development.
Changing life styles associated with that
development also impacts methods of
consumption. With more disposable
income, people are more willing to travel
and their spending on transport can
increase in multiples. Statistically, the
proportion of travel expense per capita
as a percentage of disposable income
increased from 7.9% in 2000 to 14.73%
in 2010 ( Chart 14)
I ncreasi ngl y Fi erce Market I ncreasi ngl y Fi erce Market
Competi ti on Urgi ng Ai rl i nes Competi ti on Urgi ng Ai rl i nes
to Keep Improving Operating to Keep Improving Operating
Efficiency Efficiency
Rapid development of Chinese aviation
has led to increasingly fierce competition
among airlines in the more developed
eastern regions of the country where
air transport markets are becoming
saturated. Carriers are shifting their
attention to remote areas and seeing the
development of regional aviation as a
new source of profit. There are few flights
between many second and third-tier
cities and there is even a lack of nonstop
flights between some cities. In the future,
Chinese airlines will need to serve these
markets with more economical aircraft
that have lower risk and fewer seats so
that they may maximize both social and
economic returns.
High-speed rail means more competition
and challenges for air transport but
it also signals new opportunities for
regional aviation. Firstly, high-speed
rail mainly serves the densely populated
and economically developed regions
so its impact on trunk air routes is far
greater than that on regional routes.
As a result, regional aviation will still
be the dominant mode to connect the
vast western regions to the world.
Secondl y, because the di stances
between high-speed rail stations are
long, regional airlines can provide
convenient services between many
second- and third-tier cities. This is
also applicable in the developed areas
in the east of the country. Finally, on
some city pairs that are also served by
high-speed rail, airlines will certainly
face the problem of over-capacity as
their passengers migrate to rail. In
order to stay competitive and profitable,
carriers will need aircraft with fewer
Chart 14
Proportion of Travel Expense per Capita as a Percentage of Disposable Income Proportion of Travel Expense per Capita as a Percentage of Disposable Income
20
10
0
30
40
50
60
1949 1974 1984 1994 2004 2000 2005 2010
7.90%
12.55%
14.73%
P
r
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p
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u
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a
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i
o
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%
)
24
seats. Regional jets with their more
appropriate seat capacity can become
powerful competitive tools.
The age of low fuel prices is long gone.
Both aircraft manufacturers and airlines
are relentless in their efforts to improve
fuel efficiency. The impact of fuel prices
on the operating cost of an advanced
100-seat jet is far lower than that on the
operating cost of an existing widely-used
150-seat aircraft (Chart 15). Jets with fewer
seats are an ideal choice for airlines to
open new markets with lower risk, offer
more frequent flights, and with more
optimized fleets.
As fuel prices keep rising, airlines in
China are facing increasing pressure
to adopt practices that protect the
environment. Chinese airlines have
been repl aci ng a l arge number of
agei ng ai rcraft such as the MD82,
BAe146 and B737-300 wi th new,
more envi ronmental l y-fri endl y, fuel -
effi ci ent types and i mprovi ng the
efficiency of flight operations to save
energy and reduce emissions. In the
future, airlines will pay more attention
to ri ght-si zi ng thei r fl eets to better
match capacity to market demand in
order to increase seat occupancy and
reduce over capacity. Regional jets
will be instrumental in delivering true
advantages in markets with low and
medium passenger volumes.
A Break with Tradition A Break with Tradition
Creating New Ways for Creating New Ways for
Regional Aviation Regional Aviation
Inner Mongolia is an important heavy
industrial, commercial, tourism, agricultural
and animal-rearing province in North China.
Its transport system is underdeveloped in
a region that spans 2,400 kilometers from
east to west and 1,700 kilometers from
north to south. There are a large number
of airports separated by long distances
that, by themselves, give regional airlines
an advantage. There are 14 civil airports
in the Inner Mongolia Autonomous Region,
all of which are regional airports with the
exception of Hohhot Airport(Chart 16).
For years, several factors prevented the
development of regional aviation in Inner
Mongolia. First, airlines did not have the
right capacity aircraft for regional routes.
Second, airlines were not willing to start
regional flights because of high operating
costs. Third, airlines were reluctant to
Chart 15
Impact of fuel prices on operating costs Impact of fuel prices on operating costs
h
a
n
g
e

o
f

o
p
e
r
a
t
i
n
g

c
o
s
t

p
e
r

f
l
i
g
h
t

s
e
g
m
e
n
t

(
R
M
B
)
Fuel price change (RMB)
150-seat jet 150-seat jet
Advanced 100-seat jet Advanced 100-seat jet
3,500
3,000
2,500
2,000
1,500
1,000
500
0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
Source: Embraer
25
by the by the
numbers numbers
market forecast
deploy their existing aircraft on regional
city pairs that had a wide range of
passenger volumes that made it difficult
to develop markets and generate profits.
Contrary to the reluctance of airlines
to introduce more regional flights, local
governments were eager to respond to
the urgent demand for new service since
new frequencies would attract local
economic investment. To address the
stalemate, the Inner Mongolia Airport
Corporation broke with tradition and
actively explored new ways to develop
regional aviation. In February 2006, it
established a virtual airline to operate
several regional routes that not were not
served by airlines.
A virtual airline is different from a true
airline in that it is not required to be
registered or to buy aircraft that operate
under a corporate structure. An entity
of this kind can lease aircraft from other
airlines, pay rentals through daily usage
rates, and fly on any regional route within
Inner Mongolia over a long period of time.
A virtual airline is intended to cultivate
the market as a market pioneer. Once
is becomes profitable, the route is
transferred to an airline. This process
reduces the risk for airlines operating in
regional environments and encourages
carriers to participate in the development
of more regional services. Since this
initiative was introduced, many airlines
have partnered with the Inner Mongolia
Airport Cooperation.
The concept of a virtual airline has
stimulated the regional airline industry
in Inner Mongolia by making air travel
more accessible to consumers. After
two years of operating a virtual airline,
government subsidies to the Civil Aviation
Administration of Inner Mongolia reached
RMB 850 million.
In that time, the government realized
the tremendous importance of regional
avi ati on and was recogni zed for
contributing to the social welfare that air
transport provides.
Governments of various other cities
in Inner Mongolia noticed the positive
impact of regional aviation and offered
their own financial incentives. Many
domestic airlines began increasing
capacity on regional routes within Inner
Mongolia. Today, there are 15 domestic
airlines serving routes in the region. The
establishment of the virtual airline not
only addressed Inner Mongolias poor
26
air service, it also brought significant
economi c returns to i ts ai rl i nes
Moreover, it has satisfied consumer
demand for more flights and promoted
more economic activity.
A virtual airline has one main advantage
carriers do not need to find new business
in the market. They need only to focus
on flying their aircraft, maximizing
daily utilization and performing routine
maintenance. Before the virtual airline
concept was i ntroduced, ai rl i nes
opened routes and then abandoned
them. Today, regional routes have
regular flight schedules with aircraft
of sufficient capacity to meet market
demand. Operational risk to airlines has
been reduced and airports have seen
improvements in cash flow. Where there
was once monopoly service, there are
now several carriers competing on the
same route.
In 2011, airports in Inner Mongolia
enplaned 9.109 million passengers (a
YOY increase of 21.3 %,) had cargo
throughput of 46,000 tons (a YOY
growth of 34.3%) and recorded 100,000
landings and takeoffs (a YOY increase
of 22.8 %.) Today, some 164 air routes
connect over 60 destinations. The virtual
airline concept has made a remarkable
difference in the region.
In developing the virtual airline concept,
50-seat ERJ145s were favored by the Inner
Mongolia Airport Corporation. Their low
operating costs and smaller seat capacity
gradually became the predominant type
in the virtual airline. Over the years,
Tianjin Airlines and China Eastern Airlines
operated ERJ145s in Inner Mongolia with
economic success. From the perspective
of the Inner Mongolia Airport Corporation,
there can be no B777 aircraft in the
Inner Mongolia air transport market
which, however, cannot work without
ERJ145. Recently, the ERJ145s have
been gradually withdrawn from some of
the long-established, mature routes and
redeployed on new ones.The mature
routes are now flown with 100-seat
E190s that offer more capacity and better
economics. The Inner Mongolia Airport
Corporations innovative and successful
development of regional aviation clearly
shows that aircraft with fewer than 100
seats have great potential in China.
The imbalance in trunk route and
regional aviation has been one of the
factors restricting development of civil
aviation. The tough challenge has been
successfully addressed by the CAAC
Chart 16
Airports in Inner-Mongolia Airports in Inner-Mongolia
27
by the by the
numbers numbers
market forecast
of Inner Mongolia through incentives to
local governments, leading departments
of the industry, airlines and airports. In
2011, the RPKs on regional routes already
exceeded those on trunk routes in Inner
Mongolia, proof that the model can work
elsewhere in the country.
The Inner Mongolia Airport Corporation
has expanded its development plan for
regional flights through the introduction
of regional express airlines that follow
the principles of using small aircraft
wi th hi gh frequency and sel l i ng
tickets at low prices to generate high
passenger loads. Regional expresses
offer consumers transport between
regional and neighboring hub airports,
strengthening the network scope of
those regional airports. Preferential
ticket pricing policies are enabling more
people to benefit from air service. Aircraft
passenger load factors are climbing
which, in turn, is keeping operations
viable.
In 2010, the Inner Mongolia Airport
Corporation launched the Hohhot-
Xilinhot Regional Express. The objective
was to establish frequent flights rather
than immediate profitability. Even in
the peak season when seats were in
limited supply, fares were kept low to
ensure more passengers would travel.
Seven daily flights offered tremendous
convenience and assured that Xilinhot
was always accessible. Its location in a
relatively remote area is now connected
with several regional points including the
hub airport in Hohhot where passengers
can transfer to any destination in China
and then to the world.
The opening of regional expresses
has brought new benefits to a large
number of passengers. The flights have
introduced affordable air travel to an
entirely new segment of consumers,
improved accessibility of cities served
by regional airlines and strengthened
regional airports. Today, regional airlines
in the Inner Mongolia Airport Corporation
are raising the profile of essential air
services. Although the road ahead
has many challenges, the outlook for
regional aviation in Inner Mongolia looks
bright as more people become aware of
the benefits of air travel and the market
grows. Success of the Inner Mongolia
Airport Corporation undoubtedly provides
valuable experience for the development
of regional aviation in other areas of
China.
28
Right-sized aircraft are opening new markets and
building the emerging economies of the world.
29
market forecast
by the numbers
china market outlook 2012 | 2031
30
Regional Aircraft Market Regional Aircraft Market
Forecast - China Forecast - China
Chinas impressive growth over the
past few decades has established it
as largest economy in the world, only
second to the USA. Although there are
a number of challenges in developing
regional aviation in China, Embraer
remains optimistic with its forecast. In
the future, the gradual implementation
of the Essential Air Service program
and the operation of more new airports
together with the improvement of the
countrys regional route network will
require Chinese airlines to introduce
more regional aircraft. More flights
in those markets will, in turn, promote
natural development of the sector.
Chinas economy is forecast to continue
with a high rate of annual GDP growth rate
no lower than 5.5% over the next twenty
years. By 2031, Chinas airlines will have
4,705 aircraft which will represent 12.9%
of the world eet.
30 to 120-Seat Jet Segment 30 to 120-Seat Jet Segment
Embraer forecasts a need for 1,005 new
aircraft by Chinese airlines in the next
two decades: 88% to support market
growth and 12% to replace old aircraft
in the current fleet (Chart 17). The 30 to
120-seat jet fleet will increase from the
current 125 units to 1,005 by 2031 with
its share of the total feet increased to
21%.
Turboprops Turboprops
From 2012 to 2031, 170 new turboprops
will be delivered to Chinese airlines: 6%
to replace ageing and old aircraft and
94% to support market growth. The
turboprop eet in service is projected to
increase from 20 to 180.
120+ Seat Jet Segment 120+ Seat Jet Segment
Embraer foresees a requirement of 3,375
new aircraft with more than 120 seats
and of various types: 46% to replace
ageing and old aircraft and 54% to
support market growth. The 120+ seat
jet fleet will grow from the current 1,685
to 3,520. Eight percent of the current
fleet will still be in service by 2031
Source: Embraer
Chart 17
China Regional Aircraft Fleet Evolution China Regional Aircraft Fleet Evolution
Number of Aircraft (30-120 Seat Segment)
1,005
880
125 125
Growth
Replacement
2011 2031
31
by the by the
numbers numbers
market forecast
Projected New Deliveries - China Projected New Deliveries - China
Seats Seats 2012 2021 2022 2031 2012 2031
T
u
r
b
o
p
r
o
p
30~60 60 60 120
60+ 25 25 50
Total Turboprops 85 85 170
J
e
t
30~60 0 0 0
61~90 260 195 455
91~120 190 360 550
Total 30-120 450 555 1,005
NB 121-210 975 1,695 2,670
WB 210+ 310 395 705
Total 120+ 1,285 2,090 3,375
Total Jets 1,735 2,465 4,380
Total 1,820 2,730 4,550
Projected China Fleet in Service Projected China Fleet in Service
Seat 2011 2031
T
u
r
b
o
p
r
o
p
30~60 20 130
60+ 0 50
Total Turboprops 20 180
J
e
t
30~60 65 0
61~90 5 455
91~120 55 550
Total 30-120 125 1,005
NB 121-210 1,395 2,670
WB 210+ 290 850
Total 120+ 1,685 3,520
Total Jets 1,810 4,525
Total 1,830 4,705
32
30 to 120-Seat Jet Segment 30 to 120-Seat Jet Segment
Projected New Deliveries Projected New Deliveries
Region Region 2012-21 2012-21 2022-31 2022-31 2012-31 2012-31 %%
Africa Africa 95 115 210 3%
Asia Pacific Asia Pacific 210 295 505 7%
China China 450 555 1,005 15%
Europe Europe 675 785 1,460 22%
Latin America Latin America 365 305 670 10%
Middle East Middle East 130 175 305 4%
North America North America 860 1,335 2,195 32%
Russia/CIS Russia/CIS 220 225 445 7%
World 3,005 3,790 6,795
Market Forecast Market Forecast
Africa
210
3%
Europe
1,460
22%
Russia/CIS
445
7%
China
1,005
15%
Middle
East
305
4%
Asia
Pacific
505
7%
North
America
2,195
32%
Latin
America
670
10%
33
by the by the
numbers numbers
market forecast
30 to 60-Seat Jet Segment 30 to 60-Seat Jet Segment
Projected New Deliveries Projected New Deliveries
Region Region 2012-21 2012-21 2022-31 2022-31 2012-31 2012-31 %%
Africa Africa 0 5 5 1%
Asia Pacific Asia Pacific 0 0 0 0%
China China 0 0 0 0%
Europe Europe 0 20 20 5%
Latin America Latin America 0 10 10 3%
Middle East Middle East 0 0 0 0%
North America North America 0 350 350 86%
Russia/CIS Russia/CIS 0 20 20 5%
World 0 405 405
Africa
5
1%
Europe
20
5%
Russia/CIS
20
5%
China
0
0%
Middle
East
0
0%
Asia
Pacific
0
0 %
North
America
350
86%
Latin
America
10
3%
34
61 to 90-Seat Jet Segment 61 to 90-Seat Jet Segment
Projected New Deliveries Projected New Deliveries
Region Region 2012-21 2012-21 2022-31 2022-31 2012-31 2012-31 %%
Africa Africa 30 35 65 2%
Asia Pacific Asia Pacific 85 150 235 9%
China China 260 195 455 17%
Europe Europe 225 245 470 18%
Latin America Latin America 45 60 105 4%
Middle East Middle East 60 65 125 5%
North America North America 560 485 1,045 40%
Russia/CIS Russia/CIS 60 65 125 5%
World 1,325 1,300 2,625
Africa
65
2%
Europe
470
18%
Russia/CIS
125
5%
China
455
17%
Middle
East
125
5%
Asia
Pacific
235
9%
North
America
1,045
40%
Latin
America
105
4%
35
by the by the
numbers numbers
market forecast
91 to 120-Seat Jet Segment 91 to 120-Seat Jet Segment
Projected New Deliveries Projected New Deliveries
Region Region 2012-21 2012-21 2022-31 2022-31 2012-31 2012-31 %%
Africa Africa 65 75 140 4%
Asia Pacific Asia Pacific 125 145 270 7%
China China 190 360 550 15%
Europe Europe 450 520 970 26%
Latin America Latin America 320 235 555 14%
Middle East Middle East 70 110 180 5%
North America North America 300 500 800 21%
Russia/CIS Russia/CIS 160 140 300 8%
World 1,680 2,085 3,765
Africa
140
4%
Europe
970
26%
Russia/CIS
300
8%
China
550
15%
Middle
East
180
5%
Asia
Pacific
270
7%
North
America
800
21%
Latin
America
555
14%
36
Embraer. Offering aircraft capacity that meets demand.
Now. And for the future.
37 37
methodology and denitions
china market outlook 2012 | 2031
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Methodology Methodology
Since the 1st edition of the Embraer
Market Outlook in 2004, we have focused
on continuous improvement of the
process to refine our modeling in order
to identify and forecast future trends.
The Embraer Market Outlook process
consists of two main steps: (1) the traffic
demand forecast for the future evolution
of RPKs by regions and sub-regions,
based on econometrics for the next 20
years and (2) the aircraft demand forecast
estimating the number of new aircraft
deliveries from 30-seater turboprops to
wide-bodies over the same period.
The traffic forecast aims to estimate
future demand expressed in terms of
RPK. It results from the projections of
some variables that impact positively or
negatively the demand for air travel, such
as GDP and other economic indicators,
fuel price, competition with other modes
of transport, and population dynamics.
In addition, we consider other proxy
variables for qualitative events that shift
the outcome, such as the occurrence of
terrorist attacks, wars, diseases, airline
bankruptcy and so on.
The regional traffic forecasts are then
used to help develop the demand forecast
to satisfy the future traffic growth.
This step includes analysis of load
factor and historical ASK allocation by
seat category. Examining each regional
network allows us to forecast how the
future capacity will be distributed by
different seat segments.
Future capacity by segment and aircraft
productivity assumptions are then
considered to quantify how many aircraft
in different seat segments will sustain
the future ASK. As a result, the model
outputs the number of required aircraft
for each seat segment in each region year
by year for the next 20 years.
Once the number of required aircraft
is defined, the model identifies the
projected new deliveries considering
the retirement profile, backlog and pre-
owned aircraft flow.
methodology
and denitions
39
Market Forecast Market Forecast
Schematic Flow Schematic Flow
Remaining Fleet
Backlog
Pre-owned
Traffic
Forecast (RPK)
Capacity
Forecast (ASK)
Number of Aircraft
Required
Projected
New Deliveries
Productivity
Assumptions
Load Factor
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Denitions Denitions
Aircraft Segmentation Aircraft Segmentation
Embraer defines its forecast according to these categories:
30 to 60-Seat Jets 30 to 60-Seat Jets
ERJ-135, -140, -145
CRJ100, 200, 440
328Jet
YAK-40
91 to 120-Seat Jets 91 to 120-Seat Jets
EMBRAER 190, 195
A318
B737-600
CRJ1000
Superjet 100
B717, 727-100, 737-100, -200, -500
Fokker F100
BAe 146-300, AVRO-RJ100
DC9-30, -40, MD87
YAK-42, BAC-111
CS100
61 to 90-Seat Jets 61 to 90-Seat Jets
EMBRAER 170, 175
CRJ701, 705, 900
Antonov An-148
TU-134
BAe 146-100, -200,
AVRO-RJ70, -RJ85
Fokker F28, F70
DC9-10, -20
ARJ-21
Mitsubishi MRJ90
30 to 60-Seat Turboprops 30 to 60-Seat Turboprops
ATR-42
Q300
Antonov An-140
MA60
EMB-120
Dornier DO328
Q200
Saab 340, 2000
Fokker 50, F-27
Jetstream 41
60+ Seat Turboprops 60+ Seat Turboprops
ATR-72
Q400
Ilyushin Il-114
BAe ATP
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methodology
and denitions
120+ Seat Narrow-Body Jets 120+ Seat Narrow-Body Jets
A319, A320, A321
B737-700, -800, -900
B707, 757, 727-200, 737-300, -400
DC9-50
MD-80, -81, -82, -83, -88, -90
Tupolev TU-154, -204
Ilyushin IL-62
CS300
210+ Seat Wide-Body Jets 210+ Seat Wide-Body Jets
A330, A340, A380
B777, B747
A300, A310,
B767
DC10
MD11
Ilyushin IL-86, -96
A350
B787
Contact Information Contact Information
For additional information of market discussions, please contact:
Marketing Department
Embraer China
Suite 1806, Tower 2, China Central Place Office Building,
NO. 79 Jianguo Road,
Chaoyang District, Beijing, 100025,P.R.C
Tel:(+86 10)6598 9988
Fax:(+86 10)6598 9986
Embraer China Market Outlook is also available online at:
www.embraer.com.cn/outlook
www.embraer.com.cn
www.embraercommercialjets.com.cn
www.embraer.com.cn
www.embraercommercialjets.com.cn