The projected growth of China and India is expected to transform nearly every global industry. However, analysis published in a report by The Boston Consulting Group on the likely impact of that growth on long-haul-airline passenger travel—from both supply and demand perspectives—found otherwise.

“In fact, the outlook for absolute growth in demand shows that France, Germany, the United Kingdom, and Japan all join the United States in having greater growth prospects than China or India,” explained Ross Love, leader of BCG’s Travel and Tourism practice and coauthor of the report.

“Our research found that the link between GDP growth and underlying demand for air travel is more complex than forecasters assume,” he continued. “It is only when GDP per capita reaches about U.S.$15,000 per year that the full impact of economic growth starts to affect demand for long-haul air travel. It is hard to see China and India reaching this level before 2030 and 2040, respectively, even with their extraordinary GDP growth rates.”

The implications of these findings are significant for international airline managers.

“For Western airlines, the Holy Grail of long-haul demand may lie closer to home than China or India,” suggested James Goth, a manager in the Sydney office and another coauthor. “There is scope for even greater airline-demand growth in these developed countries when we take into account the potential to ‘steal’ spending from other discretionary categories. Already affluent populations will find themselves with more disposable income and (especially for those in retirement) increasing amounts of leisure time. The trick for airline managers will be working out how to tap into and realize this potential.”

The report says that lower prices—the mainstay of the short-haul, low-cost-carrier revolution—will be only one lever for stimulating extra long-haul demand and recommends that airline managers spend more time gaining a deeper understanding of their customers.

Love said that that means going beyond simply analyzing the flying patterns and in-flight product preferences of their current customer categories and delving into the desires, needs, and fears of each key potential segment.

“Airline managers will have to know what factors drive their customers’ decisions across various discretionary purchasing categories, how customers make tradeoffs, how they are (or can be) influenced, and how these elements vary among customer segments.

“In short,” Love added, “airlines will have to think and act more like successful consumer companies—the Apples and Starbuckses of this world—if they hope to seize the untapped potential of developed markets.”

“Is the Impact of China and India on Future Long-Haul Travel Exaggerated?”—the second report in a five-part series titled “Meeting the New Challenges of the Airline Industry”—is produced by The Boston Consulting Group’s Travel and Tourism practice.

The first report, “Understanding the Demand for Air Travel,” argues against groupthink in capacity decisions and presents a framework for distinguishing the true drivers of demand.

The third report, on the rise of the Middle Eastern carriers, focuses on Emirates Airline and will discuss its growth and future sources of advantage. The fourth report in the series will describe the potential decline of the megahub in airline traffic flows, and the fifth and final report in the series will address the scope for low-cost carriers in long-haul flying. They will appear later this year.
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