Contributing author: Aram Karagueuzian, Senior Manager, Traffic and Economic Statistics, ACI World
As air travel continues to extend its reach to the world’s populations through affordable choices, the demographic composition of the world is changing. Whereas many advanced economies continue to experience an ageing population, major emerging markets have observed an expansion in their working age populations, which has contributed to a burgeoning middle class. Changes in age structures across and within countries and in population size are determined by three fundamental factors—mortality, fertility, and migration. Demographers and economists often refer to the concept of “demographic dividend” as part of the development paradigm. That is, the first phase of economic expansion in this transition occurs when a country’s youth dependency falls and the share of the working-age population rises, which in turn boosts per capita income growth. Based on analysis from the United Nations World Population Prospects 2019, which presents global population estimates and projections, the working age population has reached a peak globally. Chart 1 shows the peak in the global working-age population over time alongside a declining population growth rate across the globe. According to the Organisation for Economic Co-operation and Development (OECD), the working age population is defined as those aged 15 to 64.
Chart 1: Share of working age population and population growth rate (1950-2100)
Chart 2 shows the year each region reached a peak in working age populations. Except for Africa, where the peak is only expected to be realized by 2075, all other regions have recently reached a peak in the working age population or will soon reach a peak. Latin America-Caribbean is expected to peak in 2020. Many African countries are still in their pre-demographic dividend stage. According to UN estimates, the population of Sub-Saharan Africa is projected to double by 2050. Other regions are expected to have more subdued growth.
Chart 2: Share of working age population by region (1950-2100)
Further segmentation of Asia does reveal major differences in the age structure composition across countries in the region. Whereas Japan has reached its peak almost three decades ago, China has more recently reached its peak in 2010. India, on the other hand, is expected to reach its peak in 2040. Chart 3 shows the working age population for those country markets that have the largest markets in terms domestic passenger throughput. As large segments of countries’ populations, especially in emerging markets, achieve higher standards of living and enhanced purchasing power, considerable growth in many industries including aviation continue to be realized. That is, the propensity to travel by air tends to increase with sizable and flourishing working age populations so as to capitalize on the demographic dividend in aviation through accelerated economic growth. Ageing populations tend to have a relatively lower propensity for air travel in terms of originating passenger traffic.
Chart 3: Share of working age population for selected countries (1950-2100)
Coupled with other economic indicators, simulations of working age populations and related projections provide a good barometer of potential market size and the resultant propensity for air travel. Trends in the rates of unemployment among working age populations are also important indicators. After the Great Recession, most of the world’s major economies have observed a decrease in the rate of unemployment as could be seen in Chart 4. Lower rates of unemployment, among other factors, tend to boost consumer and business confidence with respect to air travel.
Chart 4: Unemployment rate for selected countries and markets (2010-2018)
The link between changes in population and income levels with air transport demand are evident. At its core, like any other good or service, air transport demand is largely a function of income and prices. Rises in per capita income stimulate demand. Except for the economic downturn in 2009, global per capita income over the last two decades, measured in terms of global purchasing power parity, continues to be on an upward trajectory. Moreover, the progress made during decades of air transport liberalization is part and parcel of these developments. This is obtained by ratifying bilateral agreements that remove restrictions on air transport among countries. Through formalized market access and the removal of entry barriers, aviation has benefited immensely from increased competition which has helped put downward pressure on prices in the air transport value chain. The most immediate impact of air transport liberalization is on the end user; the conventional wisdom suggests that liberalization leads to innovation and choice, which results in greater traffic growth. The link implies that traffic growth leads to economic growth by bringing consumers (passengers) from one market to another. Thus, the combined purchasing power of consumers and businesses has a multiplier affect across the value chain and leads to job creation. This, in turn, has a feedback loop to generate wealth and economic benefits. Nevertheless, challenges to air transport liberalization persist in many parts of the world where rigid bilateral air transport agreements and regulations take center stage and hinder the prospect of economic development. The wider economic benefit is realized through increased connectivity between cities and the flow of people, which has enabled the proliferation of markets for goods, services, capital and technology. According to the International Air Transport Association (IATA), the number of unique city-pair connections by air has doubled from what it was twenty years prior, reaching more than 21,000 in 2018. Conversely, the cost of transport has been in decline over time.
Two countries consistently rank as the largest aviation markets in the world: the United States and China. Their combined passenger traffic represents 34.7% of the global total. Together they added more than 203 million passengers in 2018 compared with the previous year. These two huge country markets are followed by India, Japan and the United Kingdom, which have 3.9%, 3.7% and 3.4% shares of global passenger traffic respectively. Of the top 20 markets, the United Kingdom has the largest number of international passengers, while the United States has the largest domestic market. The combined passenger traffic of the five largest country markets amounts to 45.6% of global traffic. If the next two largest markets—Spain and Germany, which have 3.0% and 2.8% traffic shares respectively—are also included, the figure rises above 51%.
Chart 5 illustrates the world’s top 20 national markets in terms of passenger traffic. Together they handled 76.5% of all global passenger traffic in 2018. Chart 6 shows the shares of international and domestic passenger traffic. The United Arab Emirates, which is home to Dubai (DXB), is a major market for international transfer passengers.
Chart 5: Concentration of passenger traffic by country as a percentage of global total – top 20 (2018)
Chart 6: Distributional mix of passenger traffic – top 20 (2018)
Chart 7 shows the story is similar for air cargo. The United States is the world’s largest national market (27.2%), again followed by China (13.6%). In 2018 the two countries combined handled over 40.8% of the world’s total air cargo market—45%—if Hong Kong is included. The top 20 countries handled 81.8% of total world cargo. It is also important to note that 39.6% of the total volume is handled by Asian country markets, a testament to their contributions to global trade. Chart 8 shows distributional shares of air cargo traffic. From this perspective, the United States has the second lowest share of international volume relative to its domestic component.
Chart 7: Concentration of air cargo traffic by country as a percentage of global total – top 20 (2018)
Chart 8: Distributional mix of air cargo traffic – top 20 (2018)