Embraer forecasts a market demand of 1,540 new aircraft in the 70 to 130-seat jet segment (valued at US$80 billion at list price) in Europe and the CIS over the next 20 years. Currently, there are 29 airlines operating Embraer jets in both regions.
According to International Air Transport Association (IATA), European carriers' total traffic increased by 3.5%, while load factor climbed to 81.9% in the first eight months of 2016. Air transport demand growth continues to face a number of headwinds, including terrorist attacks and political instability in parts of the region. However, the capacity/demand balance has been sustained by keen price competition. Yields have been decreasing 2% p.a. for the past five years. Despite the region's wealth, high propensity for air travel and high load factors, Europe's perennial woes are attributed to the weak revenue environment, resulting from a savagely competitive aviation market.
Airlines are already questioning the sustainability of the current scenario as they need to operate in an environment that demands ever more effectiveness and agility.
Traditional Full Service Carriers restructured in order to improve efficiency, reduce costs and secure profitability. The focus on long-haul business passengers is now close to absolute. This, in turn, reinforces the importance of jets in the 70- to 130-seat segment to feed international flights. Hub efficiency is critically important and 70- to 130-seat jet aircraft play a key role feeding those hubs. The segment provides global and intra-region connectivity with ideal capacity to support regular frequencies at Europe's key hubs.
"Smaller jets fly around 40% of the total traffic to or from Paris CDG, Amsterdam, Frankfurt and Munich. Connecting traffic, which now represents 65% of total passengers flying an E-Jet aircraft, will largely remain the core business of the major international carriers in Europe," said Arjan Meijer, Vice President, Europe & Middle East, Embraer Commercial Aviation.
Beyond the core mission of hub feeding, right-sized aircraft also play a critical role in high-yield business markets. The E-Jets are a crucial strength for airlines' presence in key airports such as London City where they perform nearly half of all departures to cities like Edinburgh, Glasgow, Dublin, Frankfurt and Zurich. The E190-E2 offers the best balance between aircraft capacity and frequency to serve high-time cost business passengers.
In parallel, LCCs seem to have reached the economic limits of their leadership strategy and are progressively turning to better service offerings. There is a growing willingness among LCCs to invest in passenger-focused solutions. Differentiation of services to combine higher loads and greater profitability is an option that will require right-sized aircraft in the 90- to 130-seat segment to access low and mid-density markets with unprecedented unit cost in the segment, such as the E195-E2.
In the CIS region, the key opportunity is linked to the level of deregulation. The intra-CIS flow is still concentrated around the main national capitals and major financial and industrial centers.
"The vast geography of the CIS and limited surface road networks encourage the expansion of airline travel as an attractive transportation option. Consequently, intra-regional aviation, the fastest growing mode of transport, is crucial to improving links between CIS cities," said Meijer.
The absence of domestic air services in CIS cities and poor connectivity between key countries indicates the need to develop an intra-regional market that makes air travel accessible to more people, beyond the national capitals and large cities, providing more global connections. If a deregulated regional market model is followed, this will create strong ties within the region, an efficient airline service to new low- and mid-density markets and higher frequencies to existing ones.
The ageing profile of the current CIS fleet in service suggests a need to renew. Some models need urgent replacement, particularly those aircraft with smaller seating capacity. The average age of jets with up to 130 seats is now over 16 years.
With the recent removal of customs duties for 50- to 110-seat capacity aircraft and growth opportunities in low and mid-density markets, the replacement of up to 130-seat jets now has two strong incentives. The duty-free regime will remain until the end of 2023, and aircraft imported under these conditions can be operated both inside and outside the Eurasian Economic Union.