The European Aviation Sector: Outlook, Challenges and Funding Opportunities
Since the global recession of 2008/9 global air traffic has increased against a backdrop of global GDP growth. EU forecasts predict that this trend will continue over the next twenty years with the greatest increases to be seen in the emerging markets of Asia, the Middle East, Latin America and Africa. The projected Annual Revenue Passenger Kilometres (RPKs) growth rate in the European market is 3.7% against a projected global growth rate of between 4.5% and 4.8% and North American increase expected between 2.9% and 3.1%.
The latest EU figures show that 973million people travelled by air in the European Union in 2016. This was an increase of 5.9% over 2015. There were some large increases in certain EU countries between 2015 and 2016 with both Bulgaria and Romania seeing an increase in passenger numbers of over 20%. Indeed Spain, Croatia, Cyprus, Lithuania, Luxembourg, Hungary, Malta, Poland, Portugal and Slovakia all experienced double-digit growth rates. Ireland also found itself in double-digit growth territory with a 10.3% total increase from 2015 to 2016. The European market growth rate from 2013-14 was 5.5% and from 2014-15 was 5.2%.
Technological advances have helped to spur growth in a more robust aviation industry over the last couple of years. A major initiative has been the increase in point-to-point flying with the use of advanced aircraft such as the Airbus A350 and the Boeing B787. This shift toward ‘upgauging’ figures to increase as larger planes carry more passengers more efficiently. These twin-engine aircraft are also more environmentally friendly and the market has reacted to their introduction; a review of the split between direct and connecting passenger growth numbers over the last five years shows an increase of 6% pa versus 4% pa for the former over the latter.
“Advanced biofuels achieve direct emissions reductions and are the most attractive means to reduce the carbon footprint of the aviation industry going forward. “
Despite the increase in RPKs and the greater demand for air travel, airlines have generally managed to increase profitability, even to record rates in 2015, whilst decreasing air fares for passengers. The reason is that average fuel prices were 44% lower in 2016 than in 2014. However, the International Air Transport Association’s (IATA) Jet Fuel Price Monitor shows a general increase in fuel prices since the beginning of 2016 and a somewhat steady increase over the last nine months. Although the prices are still far removed from the high mark of four years ago, the vulnerability of the sector to the volatility of fuel pricing is a constant cause of concern regardless of positive projections. In fact, an analysis by McKinsey of IATA data found that ‘the 2015 global industry operating profit of $59 billion (8.3 percent margin) would have swung to a loss of $6 billion (–0.9 percent margin) if fuel prices had remained at 2014 levels’.
However, the social and economic benefits of air travel come at an environmental cost. The European Environmental Agency (EEA) 2017 Transport and Environment Reporting Mechanism (TERM) report shows that the aviation industry is responsible for 13.3% of total greenhouse gas emissions (GHG) within the EU. Globally GHG emissions from international aviation are 25% higher than in 1990 and have increased on average 2% from 2013 to 2016. This is still somewhat reduced from its peak in 2007/2008 but EEA projections forecast that EU GHG emissions from the transport sector as a whole will be 13% and 15% above 1990 levels by 2030 and 2050 respectively. These projections do not come close to reaching the 60% reduction target set by the European Commission in their 2011 Transport White Paper for 2050. As the aviation sector has shown the largest GHG emissions percentage increase since 1990 of any other sector in the EU and figures to continue to grow due to increased demand, it plays a pivotal role in these projections.
The desire for more economic and more environmentally-friendly aviation fuel sources is a key focus of the EU which is borne out in the Horizon 2020 calls for research and innovation. Three of the forthcoming calls deal with the need to tackle climate change and/or the necessity to improve and increase the quality and availability of biofuels for airlines. The three calls in question are:
- Boosting pre-commercial production of advanced aviation biofuels – Deadline 11/12/18
- Aviation operations impact on climate change (InCo flagship) – Deadline 24/04/19
- Development of next generation biofuel and alternative renewable fuel technologies for aviation and shipping – Deadline 27/08/19
It is expected that the aviation transport industry will be responsible for 10% of global greenhouse gas emissions by 2050. Advanced biofuels achieve direct emissions reductions and are the most attractive means to reduce the carbon footprint of the aviation industry going forward. In recent years the industry has been able to have its cake and eat it as RPK’s increased whilst pricing didn’t. The sustainability of the factors that underpin this balance is volatile and the EU is willing to fund any project that can answer these concerns.
The simple laws of supply and demand may also work against the aviation industry as there is a predicted global shortfall of specialist personnel. The global shortage of air carrier pilots has been mooted across the industry for a long time with some outlets predicting a future shortfall in the hundreds of thousands. Twinned with that is the expected significant shortfall in maintenance, repair and overhaul (MRO) personnel. A 2017 survey by consultancy firm, Oliver Wyman, of the MRO industry found executives worried about the expansion of fleets globally over the next decade, at a time when there are a record number of MRO personnel eligible for retirement and vastly insufficient mechanics entering the marketplace to replace them. 78% of respondents to the survey confirmed that they were already finding it difficult to hire mechanics and in the US alone there is expected to be a shortfall of almost 10,000 maintenance technicians by 2027.
One Irish company has put this concern at the core of their business. The Shannon-based Atlantic Aviation Institute has recently set up an academy which it intends will train 2000 engineers over the next decade to go some way toward meeting the expected shortfall. Trainees will be involved in a 24-month programme along with a year’s worth of practical experience working on aircraft. In an interview with the Irish Times, AAI’s director, Caoimhe O’Donnell, cited the projected global shortage of over 600,000 maintenance technicians as the catalyst for setting up the academy.
This measure of foresight and engagement is what the EU is trying to promote across the board. In line with that thinking is the forthcoming call to promote greater research and innovation through organising events and pooling resources. The Support for dissemination events in the field of Transport Research – Deadline 24/04/19 call is aimed at bringing industry stakeholders together more regularly to harness and encourage ideas such as the AAI academy.
We know that there will be significant increases in demand for air travel in the EU over the next 20 years. We know that most of the industry’s financial successes of recent years have been tied inextricably to low fuel prices. We know that the long-term environmental impact of the aviation sector cannot continue. We know that the future shortage of pilots and MRO technicians is of paramount concern to the industry. The EU is also actively aware of these concerns and through Horizon 2020 and other funding apparatuses it is seeking to address them by giving leading entities in the public and private sector ample scope to implement industry-changing reform.