The Chinese aviation industry is growing at an incredible pace.
And Boeing has taken notice.
According to the latest projections from the aeroplane maker, Chinese airlines will play a big role in the company’s financial success.
Although China may be going through a rough patch, Boeing believes its long-term projection of China’s economy will hold up.
“Our forecast accounts for fluctuation in the market over the 20 year forecast period,” A Boeing spokesperson told Business insider in an email. “We’re confident that China’s economy and aviation sector will continue to see strong growth over the long term.”
In total, Boeing believes China could generate roughly $US950 billion in sales by 2034 at an average price of $US150 million per plane.
That’s big business.
Boeing’s bullish take on the prospects of Chinese aviation are based on the company’s belief that the country’s airlines will not only dominate its domestic market, but also grow to be major players throughout Asia, Europe, and North America.
Incredibly, “Boeing’s forecasts actually tend to underestimate demand,” Tinseth said on his podcast this week. “We actually deliver more planes than we anticipate and that just tells you the resiliency and strength of the market.”
Analysis from the Center for Aviation (CAPA) seems to back up Boeing’s optimistic stance.
According to CAPA, Chinese airlines ferried more than 100 million passengers in the first quarter of 2015.
That’s an increase of 13% over 2014.
CAPA data shows that domestic business accounts for more than 90% of China’s airline business. As a result, the bulk of demand coming from China will be in the form of 150- to 220-seat single aisle airliners such as Boeing’s 737Max and Airbus’ A320neo.
This lines up with Boeing’s forecast. The company anticipates China will order as many as 4,600 single aisle jets in the next 20 years to meet growing demand and to replace ageing planes headed for retirement. The company believes this part of the market could generate as much as $US490 billion in sales in that period.
Although international traffic onboard Chinese airlines accounts for only 7% of its business, the segment grew a whopping 57% compared to the same period in 2014.
Chinese airlines carried 2.6 million more passengers in the first quarter of 2014 than it did in the first quarter of 2014. According to CAPA, this growth equates to an additional 64 fully loaded Airbus A380 superjumbos every day for a whole quarter.
Even though long haul international flights are still a small part of China’s airline business, they are a big deal for aeroplanes makers. Long haul flights requires larger, more expensive wide-body jets like the 777 or Airbus’ superjumbo. These planes can cost twice to four times as much as the smaller single aisle jets for China’s domestic market and offer companies like Boeing greater profit margins per plane.
According to Boeing, China’s airlines will need more than 1,500 of these wide-bodies over the next two decades at a value of $US450 billion.
Furthermore, Boeing sees several technological and political developments in the coming years that will also play a large role in the opening up the China’s airline business.
“Liberalization of visa policies along with new technologies, capabilities, and efficiencies will increase traffic,” Boeing wrote in its market outlook. “It is expected that by 2021, passenger travel between China and the United States will triple.”
Even if Boeing can’t sell $US1 trillion of planes in China, expect both Boeing and China’s airlines to grow at an incredible pace.
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