Briefly explain how Airbus and Boeing develop their 20-year forecasts. Note the

Question

Briefly explain how Airbus and Boeing develop their 20-year forecasts. Note the factors that influence projected air travel growth; some factors affect the demand curves while others influence supply. Be certain to distinguish between the two. The connection between the microeconomic theory of supply and demand as presented in Baye and Doganis should be explicit. Then explain the forecasts for growth in the chosen world region. Provide some perspective to forecast growth in the rest of the world.

Explanation / Answer

The two companies base their forecasts for 20 years by determining demand for passenger and freight aircrafts for the next 20 years. The aircrafts includes single aisle aircrafts, twin aisle aircrafts and very large aircrafts. The demand for aircrafts is projected on the basis of growth in passenger traffic vis a vis the world real GDP. Historical data is used to forecast the future movements by using forecasting tools. This tool is used to determine the demand side.

Secondly, air transport growth is forecasted in terms of developing countries like China, India, Eastern Eurpoe etc. and advanced countries like USA and Japan. This also looks at the demand aspect.

Thirdly, propensity to travel is also forecasted using the historical figures. The propensity to travel is measured in terms of trips per capita vis a vis the real GDP per capita. Then appropriate forecasting tools are used to forecast future trips per capita on a country by country basis.

The supply side factors that are considered and forecasted are average number of yearly seats offered per aircraft, growth in the network of mega aviation cities, presence of schedule constraints in mega cities and how these constraints can be resolved by increasing or decreasing supplies.

In terms of region, for the forecasted period delivery demand is diverse. Demand for 38% of new airplanes are expected to be from Asia, 19% from Europe, 21% from North America, 8% from Middle East, 8% from Latin America, 3% from Africa and 3% from CIS.

(Source: Boeing and Airbus websites)

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