Boeing 2011 Annual Report Download - page 35

Segment Results of Operations and Financial Condition
Commercial Airplanes
Business Environment and Trends
Airline Industry Environment Political turmoil in the Middle East, the March 2011 natural disasters in
Japan, the European sovereign debt crisis, deficit reduction challenges in the United States and high
fuel prices continue to impact the global economy and airline traffic and costs. In the face of these
challenges, passenger traffic has generally been more resilient than air cargo traffic. Air cargo traffic
began contracting in May, and 2011 full year estimates indicate no growth over 2010. In contrast, 2011
passenger traffic year-over-year growth is expected to average around 6%, above the long-term
average of 5%. However, there continues to be significant performance variation between regions and
airline business models, with emerging markets and low cost carriers leading in the passenger
markets. Despite relatively resilient passenger traffic, net profits for the global airline industry were
impacted in 2011 by high oil prices, which were approximately 40% higher, on average, than 2010
prices. Net profits for the global airline industry are expected to be modest this year, totaling $7 billion
in 2011, reduced from $16 billion in 2010.
Airlines continue to focus on boosting revenue through alliances and partnerships and ancillary fees
and services, while also cutting costs and renewing fleets to leverage more fuel efficient airplanes in a
high-fuel-price environment. These airline strategies helped the airlines weather the global uncertainty
in 2011. Current baseline forecasts for the economy and traffic suggest the outlook is for continued net
profitability for the global airline industry in 2012, although expectations are that 2012 profits will be
substantially lower than current estimates for 2011. Demand for commercial aircraft is also influenced
by the availability of aircraft financing including export financing and other financing sources. Going into
2012 the European sovereign debt crisis remains a significant risk to the global economy and the
airline industry.
The long-term outlook for the industry remains positive due to the fundamental drivers of air travel
growth: economic growth and the increasing propensity to travel due to increased trade, globalization,
and improved airline services driven by liberalization of air traffic rights between countries. Our 20-year
forecast is for a long-term average growth rate of 5% - 6% per year for passenger and cargo traffic,
based on a projected average annual worldwide real economic growth rate of 3%. Based on long-term
global economic growth projections, and factoring in increased utilization of the worldwide airplane fleet
and requirements to replace older airplanes, we project a $4.0 trillion market for 33,500 new airplanes
over the next 20 years.
The industry remains vulnerable to near-term exogenous developments including fuel price spikes,
credit market shocks, terrorism, natural disasters, conflicts, and increased global environmental
regulations.
Industry Competitiveness The commercial jet airplane market and the airline industry remain
extremely competitive. Market liberalization in Europe and Asia has enabled low-cost airlines to
continue gaining market share. These airlines have increased the downward pressure on airfares. This
results in continued cost pressures for all airlines and price pressure on our products. Major
productivity gains are essential to ensure a favorable market position at acceptable profit margins.
Continued access to global markets remains vital to our ability to fully realize our sales potential and
long-term investment returns. Approximately 15% of Commercial Airplanes’ contractual backlog, in
dollar terms, is with U.S. airlines.
We face aggressive international competitors who are intent on increasing their market share. They
offer competitive products and have access to most of the same customers and suppliers. Airbus has
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