The year 2019 is the centenary year for KLM Royal Dutch Airlines, the airline with the longest commercial existence. Organized air transport is a mere one hundred years old, but it has seen tremendous change in that time from puddle-jumping in small planes to large building-sized planes ferrying billions of passengers over millions of miles each year.

The last few months have brought some turbulence to air travel. Boeing’s “new and improved" short-range aircraft, the 737 MAX, has been grounded around the world after the second fatal crash in recent months. In India, Jet Airways, one of the major carriers, has suspended services, creating chaos during a busy summer flying season. If just a few events can cause a flutter in air travel, what does the future hold?

First, some background. The global airline industry today is made up of about 25,000 planes flying 4.5 billion passengers each year. The number of passengers has grown at 6.5% a year over the last decade. Both passengers and aircraft are expected to double in the next 20 years. Future growth will come primarily in the Asia-Pacific region, with carriers estimated to increase fleet size to 18,000 or more planes in the next two decades. According to International Air Transport Association (IATA) estimates, China will overtake the US in two decades as the largest aviation market (defined as passengers to, from and within the country). India will rise from seventh to third position. These estimates have been made assuming a “constant global policies" scenario. If globalization is substantially reversed, then the growth rates will likely soften.

The biggest airlines in the world today are Lufthansa, American, Delta, United, Emirates, Air France-KLM, China Southern and Air China. IndiGo, with about 43% domestic market share, is India’s largest airline. Jet Airways’ 15% market share is likely to be distributed among the different Indian airlines in the short term. In the medium term, the market share table will depend on what happens with the Jet Airways’ landing slots and the future of Air India. Jet’s landing slots in Mumbai and Delhi have been allocated to IndiGo, SpiceJet, Vistara and AirAsia on a “temporary" basis. India’s flux comes at a time when passenger traffic increased nearly 20% in 2018.

Large passenger aircraft are made by Boeing (US) and Airbus (Europe). Smaller aircraft are made by Embraer (Brazil) and Bombardier (Canada). With the 737 MAX’s rocky start, Boeing is likely to go ahead with the development of a new mid-sized airplane (NMA) nicknamed the Boeing 797. It will soon release a 777X wide-body line that will eventually replace the legendary 747s. Airbus will counter with the A350 and redesigned A330.

The future of commercial aviation is inexorably linked with the evolving business models of airlines and the future of aircraft. Demand for air travel is likely to remain strong for domestic as well as international travel. There is no real option to get from one distant place to another. Airlines and airports are also major contributors to a flow of people and ideas, economic growth and jobs. Commercial aviation will, therefore, remain an imperative.

Given the high capital costs, significant operating expenses and the price of aviation fuel, airline business models are always operating on the cusp between profit and loss. For the two decades ended 2013, airlines collectively destroyed value for their shareholders. Since then, some airlines have had an impressive return on invested capital (Lufthansa, Ryanair and Southwest). In India, IndiGo has shown sustainable return on invested capital (RoIC) of about 25% over the last three years. As societal pressures on reducing the environmental footprint and enhancing safety continues, the cost of developing and building planes is likely to remain high. This state appears likely to continue—an inherently poor business model combined with robust and active demand. Airlines will need to focus on capital productivity and operating margins by sweating their assets and improving load factors, as well as by being efficient and charging for everything from luggage to food to seats.

As for the future of aircraft, it is best imagined segment by segment. In the ultra-light, unmanned air systems (UAS) class, popularly known as drones, we are likely to see a meaningful shift. Airbus estimates that in the skies above Paris, we will see 20,000 drones an hour by the year 2035. In commercial aviation, we may see the emergence of electric aircraft for 10-20 people in the next 10-20 years. An electric trainer aircraft from Slovenia-based Pipistrel received Federal Aviation Administration (FAA) certification last year; solar variants of trainer aircraft will soon follow. India will be a great beneficiary of short-haul solar or electric “hoppers". Though it seems inconceivable now, India will need to plan its infrastructure, particularly in smaller towns, for this.

For larger, commercial aircraft the path for now is likely to be a “hybrid" one, with a significant increase in electrical components and battery power, but with propulsion coming from conventional engines. Well within the next hundred years, long-hauls could become solar powered, hypersonic, sub-orbital flights. Imagine that.

PS: “Man must rise above the Earth—to the top of the atmosphere and beyond—for only thus will he fully understand the world in which he lives," said Socrates.

Narayan Ramachandran is chairman, InKlude Labs. Read Narayan’s Mint columns at www.livemint.com/avisiblehand

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