(source: Thailand Investment Review, June 2018)
Analysis and predictions from various institutions suggest that the global aviation market is shifting east. What this means in simple terms is that demand for air travel is increasing in Asia, particularly in the east, south, and southeast of the continent. This eastward shift undoubtedly presents a significant number of new opportunities, especially in the aerospace manufacturing and MRO industries. Indeed, as an increasing number of aircraft are brought into service, the demand for aviation-related services follows a similar upward trajectory.
The question of ‘why Thailand?’ is one that can be easily answered. At the most obvious level, external factors such as the growth of the tourism industry increased air travel, and a rising number of aircraft operating in the region all warrant a similar increase in high-quality aircraft services, for both parts manufacturing and service offerings. For Thailand more specifically, the conditions of the internal market and institutional factors, including labor costs, logistics capability, and policy support, among others, are all conducive to investment, effectively making Thailand the region’s most strategic location in which to set up operation.
Tourism leading growth
Among the growth drivers of air traffic is the tourism industry. While the most accurate worldwide statistic for 2017 is not yet available for comparison, it is worth noting that in 2016 Thailand was the single largest tourist destination in ASEAN, having welcomed 32.5 million visitors. In comparison, Malaysia and Singapore received 26.7 and 12.9 million arrivals to put them in second and third place, respectively. In the whole year of 2017, 35.38 million foreigners visited Thailand, up by a staggering 8.6 percent from the 32.59 million visitors received by Thailand in 2016.
Air traffic on the rise - especially near home
In global terms, 2017 was a year of many expectation-exceeding figures for air traffic. Examples include the exceptional growth of revenue passenger kilometers (RPKs) and the marked increase in the load factor. The 7.6 percent increase in RPKs compared to 2016 is even more impressive when the ten-year average growth of only 5.5 percent is taken into account. Also in 2017, the load factor recorded a calendar-year high of 81.4 percent. Against such a positive backdrop, the international market expanded by 7.9 percent, which is slightly higher than domestic market’s 7 percent.
Looking ahead, the positive trends in the air travel market are set to continue in 2018. The International Air Transport Association (IATA) predicts that the growth from 2017 to 2018 will remain above-average, albeit slightly lower than it experienced in 2017 due to rising fuel costs. Over the long run, however, the IATA’s report published in early 2018 predicts that the number of global air travelers will almost double within 20 years.
Regionally, Asia-Pacific was the largest market for air travel, accounting for a third of the entire global air travel market in the final, vacation-packed month of 2017. It was also the fastest growing market for the whole year. The RPK for airlines in the region grew by 9.4 percent year-on-year, while Latin American and European airlines came in second and third place, at 9.3 and 8.2 percent, respectively. The IATA also expects China to overtake the US as the world’s largest aviation market by 2022, with India predicted to become the third-largest market by 2025. Indonesia, too, will see itself rising to third place by 2030. Looking at the farther horizon, Thailand is predicted to join the world’s ten largest aviation markets within 20 years. As is clearly illustrated by these figures, the winds of opportunity are blowing firmly towards the east.
More planes and more need for maintenance
The rule is simple: more passengers mean more planes will be needed to carry them, and these aircrafts will require maintenance. Taking the number of outstanding airplane purchase orders into consideration, it is clear that the Southeast Asian market has not only the potential for growt, but rather a certainty to grow. Analyzing data from two of the world’s largest manufacturers of commercial aircraft – Airbus and Boeing – it becomes patently evident that aviation markets in Southeast Asia, along with those in its surrounding region, are set to continue on their trajectory of sustained growth. Taking Southeast Asia alone, carriers in the region have accumulated over 1,573 unfilled orders as of May 2018. Of these, the narrow-body segment – the Airbus A320 and the Boeing 737 family – clearly dominates the production line, with total orders of 1,322 currently outstanding. This demand pattern is largely attributable to the rise of regional low-cost carriers. AirAsia, the airline that pioneered affordable air travel in ASEAN, and its long-haul companion, AirAsia X, are waiting for the delivery of 464 narrow and wide-body planes, while LionAir, an Indonesian-based budget carrier, has 196 additional aircraft ordered over the next few years. Looking at nearby regions, China and India, the world’s first- and second-most populous countries, currently have outstanding orders for a combined total of 1,488 aircraft, the majority of which are narrow-body aircraft.
With the growth in tourism, increased air traffic, and the rising number of aircraft operating in the region, these market factors are all indicative of the huge potential for aviation-related businesses. In addition to the demand for servicing the increased air traffic, provided that the predictions on outstanding aircraft orders are accurate, there will be enormous demand for the production of narrow-body aircraft, not just the ones based in Thailand or Southeast Asia, but those in surrounding markets as well.
Leveraging local expertise to drive growth
Focusing on the supply side, aviation manufacturing and MRO businesses may be relatively new to Thailand, but the country has historically proven itself to be remarkably adept at cultivating local suppliers capable of utilizing advanced manufacturing processes, including those in the automotive and electronics industries. By building on their existing expertise, these industries have the potential to further expand their production into new, high-value products, such as aircraft parts and components. With several universities in Thailand currently offering specialist aerospace engineering courses, there is a steady supply of the skilled workers required to support the sector’s growth.
At the national level, business friendly investment policy and accommodative incentives, along with ongoing government initiatives – particularly the EEC Aerotropolis (EEC-A) and the upgrade of the U-Tapao International Airport – attest to the Thai government’s affirmed commitment to ensuring that the aerospace and MRO industries thrive in Thailand.