Aviation Week Network editors discuss new aircraft orders and what it means for future airline networks on the release of ATW's World Airline Report. 

Don't miss a single episode. Subscribe to Aviation Week's Window Seat Podcast in Apple Podcasts and Spotify.

---

Rush Transcript

Karen Walker:

Hello everyone and thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm ATW and Aviation Week Network Air Transport editor-in-chief Karen Walker. Welcome on board. Now, this week we are publishing the annual ATW World Airline Report, a special data issue that posts the full year numbers for the world's largest airlines. It includes passenger numbers, revenue and profit or loss figures, and the report also breaks down the fleet status for the 100 largest airlines providing the numbers that each carrier has by typing service on order or stored. Not surprisingly, the latest fleet numbers show a significant reduction in the aircraft that are stored or parked versus the pandemic years of 2020 and 2021. There's also a return to large new aircraft orders including an uptick in orders for wide bodies lately, and several of those orders were confirmed at the Paris Air Show in June.

Karen Walker:

Now, what struck me as we pulled the data together was how if you look at the current fleet sizes and then look at the new aircraft orders, you see how the global air transport system could shift over the next decade order or so, as emerging markets like India grow in size and importance. For now, of course, American Airlines retains its crown as the world's largest airline by fleet size, and it does so by a long way relative to almost any other carrier outside the US. Its fleet of almost 1,200 aircraft includes a lot of regional jets, but also hundreds of narrow bodies and more than 100 wide bodies. But on paper at least, Indian low cost carrier IndiGo could ultimately match or even overtake that size in terms of aircraft numbers, given that it has more than 200 aircraft in service and almost 1000 Airbus narrow bodies on order.

Karen Walker:

The numbers are huge and they are pegged against a massive fast-growing new market for air travel. So to talk about this changing market, I invited two of my colleagues and experts in Aviation Week Network to join this week's podcast. So a very warm welcome to Aviation Week, commercial aviation executive editor Jens Flottau and CAPA head of analysis, Rich Maslen. Thanks both for being here. Jens, can I start with you because you were at the Paris Air Show in June where a lot of those new orders were confirmed and where Indian carriers including IndiGo, were really the commercial stars of the show. What were your thoughts as you saw the CEOs signing those contracts?

Jens Flottau:

I thought about what it meant to them as managers, first of all because I know Pieter Elbers and we know Campbell Wilson there, and just looking back at Pieter's career and having been forced to leave KLM just about a year earlier or less than a year or actually he was sitting there in front of us in Paris signing what was kind of the largest order ever and being able to be at the forefront of a development in a country that is underserved by airlines, what a great turn for him. Same for Campbell Wilson will similar, I wish I should say. I guess coming from Scoot, going over to India and having this opportunity to try and turn around Air India, I managed to ask him whether he thought he was in the worst or in the best job in aviation leading Air India of obviously referring to the difficulty of turning around a formerly state-owned airline that is now private. And his answer was, it's probably the most interesting job. Yeah, and of course, the challenges are huge. The investment is huge. It'll be one of those issues and certainly one of the countries that we're going to be watching closest in the coming years.

Karen Walker:

Yeah, Rich, I think what Jens was just saying is sort of a bit of a reflection of how I feel that, but all three of us have followed that Indian market for a long while and we've seen several really promising airline startup, I'm thinking like Kingfisher, et cetera, and then it never seems to work out. Same really with Air India. As Jens sort of alluded to, there always seems to be the airline that's on the verge of something big but never quite happens. Do you feel that the Indian market really can develop successfully this time?

Richard Maslen:

I think India's got so much opportunity and it's about joining everything up in the right manner. The first step of that is these people running the airlines. Now, having people like Campbell Wilson, having people like Pieter Elbers that have a pedigree in the industry that have performed well in other markets that understand the industry very well, I think having them lead in the two largest airlines in India, that's the first big step in the right direction for it. I think with Air India, the key step has been they've needed to do this fleet renewal for such a long time. The fact that that has now happened again, that's a significant step forward. I was having a few little doubts. Obviously when the deal was first announced as an MOU, you kind of knew that perhaps Paris was the location it would be announced a for sort of formally, but you start to have a few little doubts and that's my worry when it comes to the India market, there's so much potential there, but you just always have to sort of second guess yourself and think, well, hang on a minute. Are we going in the right direction? Are we now looking at having too much capacity perhaps in the India market in the years ahead? There's a tremendous amount of aircraft there now on order. Is there going to be a market big enough for them?

Richard Maslen:

Now we can see the potential, but will that actually follow the roadmap of development? And the government has to back this. I know from an airport point of view, there are infrastructure needs. There's significant upgrades needed at a lot of airports. There's talk of a number of new airports being built as well to support this growth, and I think that's going to be a key area. We've seen Mumbai and Delhi be commissioned out and very successfully. We're seeing new airports under development in both those cities, but it's going to be some of the smaller cities in India that are going to play a vital role in growing the connectivity within and then allowing to connect out of India into the regional market and into the Longhorn market too.

Karen Walker:

Yeah, I'd like to talk a little bit more about that, the infrastructure and airport plans that they do and what's going to be needed. Like I say on the infrastructure side, just to your point there, I mean I think it's interesting the United Nations projects that India will overtake China by the end of this year to become the world's most populous country with an estimated 1.4 billion people. And that's a huge part of what's driving all of this additional demand, huge demand for more air travel, particularly on that low cost side. And of course it's going to be the predominantly domestic travel. I think it would be interesting to talk a little bit between the three of us about the international reach of some of these Indian carriers ultimately. But let's just go back to that infrastructure question. What's got to happen there? And I'm thinking China, China had this big aviation vision and went at it full speed with lots of new airports and investment in the aviation infrastructure. Where would you say India sits relative to China in that?

Jens Flottau:

It's still way behind. If you look at the size of the market, it's a fraction of the Chinese market. There's also been less success in building infrastructure in the past. So what India clearly needs to do is catch up in the next couple of years. There are ambitious plans to build new regional airports to build new big airports. As Rich mentioned, Mumbai being one of them. But that all needs to happen. The one big concern I've always heard from people watching the Indian markets, seeing these orders, the suppliers that are hoping to be in business there, the one big concern I've heard is about infrastructure. If they get the infrastructure right, then much of this can happen. Maybe not all of it. Maybe it won't be a thousand aircraft at IndiGo, but if it's 600 or 700, that's good enough too, right? So infrastructure is the one thing.

Jens Flottau:

I do want to point out air politics as well. India has had one of the most restrictive approaches to our traffic service agreements in the past decade, really trying to protect Air India. Now, if they want to rebuild this country international and traffic internationally and deviate traffic back from the Gulf states to direct services to and from India, then more liberal policies need to be put in place and I'm not seeing them yet. So I think infrastructure is part one, changing the political approach is part two.

Karen Walker:

Yeah, that's interesting. Again, it's almost like... I mean it's not a complete reversal, but you're seeing a change in the right direction in India, just as China having had this big aviation vision has gone the other way. Obviously the very extended lockdown hurt them in terms of travel. There were a lot of airlines and airports that started to look and say, "Okay, well if we can't go via China or if that market isn't there, we'll look where else." And I think India has been one of the beneficiaries from that. But also now they have political side also, actually not even the air political, the more general political side is more in favor of India developing than China's. Would you agree, Rich?

Richard Maslen:

Yeah, I think so. I looked the time before COVID and talking to many airports across Europe, across North America, and they were desperate to get these Chinese services. They were fighting a new wide-body plane was arriving at any airline in China and you had a list of about 30 airports all pitching for that flight. And now we look and we think, well actually that's completely changed. It's a very different environment now. I'm not sure I quite see that for India yet. And Jens is absolutely spot on with the regulatory side is a major, major issue. And it links me to, we talk about Africa a lot and we talk about the next is the future. It's a great development opportunity there and it just doesn't happen because the will to change isn't necessarily strong enough and we've lived for so long in terms of protecting what we have.

Richard Maslen:

And that has been the case in India ensuring that Air India stayed as the flag carrier and as the strongest airline that it could be. And I just think that is always going to be an issue within the India market that will hold it back from fulfilling the potential that it could become. As we say about China now you look at the size of the economies in India, the economy in India is tiny compared with China, but the Indian government is looking to by 2047, 2050 to be at the same scale that China is today. So in 25 years’ time, we could be looking back and we will be in the same situation talking about, well every airport fighting for a link to some Indian cities that many of us may not even have heard of. Let's be able to point to them on the map.

Karen Walker:

Right. And it is interesting that you've got this set of leaders now at these Indian airlines that come from backgrounds where they really understand, I mean Pieter at KLM's Schiphol Airport, really understanding what it means to be part of that whole global system. And they understand it at a deep level. And also, I mean Air India, they're linked now with Singapore Airlines. They're going to be getting that input. So I suspect that will be a strong message coming to the government and the local authorities in India as to what needs to happen. So I guess if we looked out there a little bit in the future, it struck me also looking at those fleet sizes. Again, you look at America and of course Delta and United, their fleets are not that much smaller than Americans. And then the fourth biggest is Southwest, so it's the US carriers that've got all of the really huge fleets.

Karen Walker:

A lot of that is because they've got huge domestic markets, but of course they also are big. Most of them are big in the global setup. But every time I go to, if I am at Dulles Airport in Washington flying to Qatar or Abu Dhabi or Dubai, there are lots and lots of Indian passengers on those flights back and forth because that was a huge success point for those Gulf carriers in that the US carriers weren't serving those markets for the most part though they weren't serving them directly and that became a hub for them. Could India ever challenge that Gulf Hub template? Jens, what do you think?

Jens Flottau:

Yeah, I think from the airline's perspective that's clearly the plan. India wants its traffic back. IndiGo wants to build it, again it comes back a little bit to aero politics. They need the traffic rights to do that. And if the government supports them, I think they're in a great position to claim some of their traffic back. They have this huge home market which the Gulf carriers don't have, and they can build on that. As far as IndiGo is concerned, don't forget part of the large aircraft order that you referenced, they have ordered a lot of A321XLRs. We don't know how many exactly, but we know of 70. It may be ultimately many more. And if they get that many XLRs, they can easily serve all of Europe with them. They can serve all of Asia more or less, maybe not New Zealand. And that's going to be a huge threat. It's also going to be a new model because the Gulf carriers are all white bodies. So IndiGo can go into places that are not attractive for the Gulf carriers. So yes, absolutely India can do that. They just need to agree on the right approaches, get the traffic rights sorted out, and then off they go.

Karen Walker:

So what then is the implication for the other majors, particularly in Asia and Europe, Rich, do you... Particularly on Asia for example, the cafes and ANA's and Korean Airs of the world?

Richard Maslen:

I think when we look back, the airlines like Cathay Pacific, Singapore Airlines, Korean Air, they were the airlines that you flew. They were the airlines that connected Asia. They've adapted already. They've had to adapt. Emirates, Qatar Airways, Etihad had when it was a bigger airline than it is today especially, they had to adapt to those airlines coming in and they are probably better positioned to be able to manage things. I think it's hard to look at the Asia market still because it's been so much slower recovering than other parts of the world post-COVID. So I don't think we can sort of really judge how that market's performing for another say, three to six months until we really start to see the traffic levels and the performance. But I think they won't feel threatened by the market here and they will see the opportunity of the increased trade coming through India that they can take advantage of as well.

Richard Maslen:

So I don't think it's a big issue. And then just moving slightly the other way to the west, you've got Istanbul as well. Now obviously we all flew through Istanbul when we went to the IGIA recently, and I think all of us were like, wow, this airport is just huge. It's enormous. The growth potential there is set up for decades and decades ahead. Then we've got Saudi Arabia as well developing and changing. There's so much going to be changing within the market in terms of serving long haul and serving short haul within the Middle East region. I think every airline has to be on its toes at the moment to be ready for any change.

Karen Walker:

Yeah. Again, going back to Paris, you were there and of course Tony Douglas was there, the new CEO of this new startup of airline Riyadh Air. Where do you think all that fits in the Saudi story?

Jens Flottau:

So in a way, it's Gulf Carriers 2.0 because they are trying to do a little bit of the same, the super connector model, but also they will have a huge requirement for foreign workers and travel of foreign workers if all the infrastructure projects they're looking at inside the country are to become a reality. Neon that's the new city. Tourism, so there's going to be a lot of O&D traffic that they will have to organize to make that all become a reality. So I think it's going to be a mix of both, but it seems we're in a new phase here now. It seems to be all around Riyadh Air and Turkish Airlines. Turkish thinking about ordering 600 aircraft in a way, I think Turkish could be even the bigger threat both to the Gulf carriers and the European carriers than Riyadh Air will be. They already, they have this huge airport. And in terms of geography, again, they can fly everything, not everything, but a lot of their network with narrow bodies, which gives them a huge competitive advantage over Gulf carriers and over European carriers. And then they can top it up, so to say, with white bodies and basically fly anywhere. But the common thing between them and the Gulf carriers is they're taking away traffic from someone. It's just that now it seems that Riyadh Air and Turkish are also taking traffic away from the Gulf carriers.

Karen Walker:

Yes. That's an interesting thing. You've got, again, some are going to be about chasing the new market, the new travel demand, and some is going to be about taking market away. Can I just ask? Jens, how do you think this will play out for Airbus and Boeing, all of these dynamics?

Jens Flottau:

So we've had the discussion internally about is the widebody market coming back, in a way it is obviously because of these big orders by Riyadh and by India. But again, some of it is also they're taking very traffic from other airlines, therefore they're taking aircraft that others won't take because they don't have the traffic for it anymore. So I'm not sure that bottom line there's going to be this huge surge in demand for widebodies, at least to the extent that Airbus and Boeing hope. So I'm not sure that the emergence of these airlines will mean we'll get back to the production rates that we've seen pre-COVID. And as far as narrowbodies are concerned, I mean if we look back, most of the growth in the market has been on the narrow bodies side. And if we look at the most recent orders, it's narrowbodies again. IndiGo, of course, Turkish will be largely narrow bodies. Riyadh Air has started with widebodies but has said they will also order narrow bodies. So I expect that to continue and with new aircraft like the XLR coming up, new segments of the market might be opening up for that type of aircraft. So yeah, expect that to continue.

Karen Walker:

Absolutely. And then at the other end of the scale, of course there was all this cynicism about wide bodies in general, but particularly the extra large aircraft. Obviously people were just really grounding them very quickly. And the A380 pretty much got grounded everywhere, but now we're seeing A380s come back in service. Rich, were the skeptics too quick to dismiss that need for large or very large aircraft?

Richard Maslen:

I think the market for an aircraft the size of A380 was always going to be very limited. It was always going to be very niche route that it could be used on. I think someone said to me that A380 was either 20 years too late or 20 years too early, but it's fitted in at the right time for certain airlines. So obviously the Tim Clark's been a massive supporter of the aircraft when you have so many of them in your fleet and it works pretty well for the Emirates model. But I think a few of the other airlines were very quick to say the aircraft is too large, the market's not there for them. We have optimists, we have pessimists, we have realists. I think during COVID we were very pessimistic about the recovery of the market, and I think a lot of people have been quite surprised just how quickly aviation has come back and that has supported the return of A380s into operation.

Richard Maslen:

Qatar Airways said we're never going to fly our A380s, they're back flying again. Etihad, I know if we look at a major route such as London, Abu Dhabi, they're going to have four flights a day, all with A380s from this winter. It is quite remarkable. So I think we have to be very careful at trying to look too far ahead because this industry just changes so much. It is a very limited market. I know there's talk of startups now, perhaps looking at A380s as well, fur for some route, and I'm sure that's something that we will be looking about and talking about in future podcasts. But I just think there is still a role for the A380. It was never big and it will never be a big, big market for it, but that there'll be flying fur for a little while yet.

Karen Walker:

Yep. I think that's certainly what we're seeing. Jens, we'll be at the Dubai Air Show in November. Just one final question. Do you expect to see more big aircraft orders there?

Jens Flottau:

Yeah, I think so. I think Emirates will try to finalize its negotiations with Airbus and Boeing about more widebodies. They've said that they would be prepared to buy more 777Xs and that it would also be prepared to look at more A350s. After all, they're looking really long-term into the 2030s when they will have to replace 777ERs and also the older part of the A380 fleet. So yes, that could come through. Riyadh Air could follow up with orders. They've said they will likely order more aircraft this year, so I expect quite a busy show.

Karen Walker:

Excellent. Well, yeah, on top of Paris then that's back to Rich's point, you don't really want to be predicting out too far in this industry. Things change fast. So Jens, Rich, thank you both so much for joining Window Seat this week. And of course, thank you to our listeners. You can find the ATW World Airline report issue at atw-digital.com. And if you are a subscriber to our Daily Digest newsletters, you'll see some snapshots of that data coming over to you. So meanwhile, make sure you don't miss each week by subscribing to the Window Seat podcast on Apple Podcasts or wherever you listen. This is Karen Walker signing off from Window Seat.