“The world is getting smaller” and “the global economy is getting bigger”. These are practically the most used conceptions over the last years.
Among the post-global crisis economic dynamism, which is widely driven by the developing countries, the uncertainties and tensions, which are mainly originated by the developed countries, the global economic system is undergoing a fundamental alternation. The industrial leaders are changing, tech giants are meeting with new competition, technologic advantages are dissipating…
Even the approaches regarding the global trade are moving out of the charted territories. While G20 countries, which are the largest 20 economies in the world, have implemented 40 trade-restrictory regulations, which are summing up to some $480 billion, the Eastern countries are focusing on developing new economical relations, and for the first time the gross Pacific trade has surpassed the total trade made over the Atlantic. It means that as the gravitational center of is shifting. And this shift of course will affect the future of businesses and industries.
In the fog of trade wars it is hard to read economic indicators or make accurate estimations regarding which are the promising sectors. Any kind of unprecedented or unexpected adverse development can result in changing the overview of an industry drastically. This situation is challenging investors and researchers as well, since the risks and number of incalculable variables are increasing.
In this global context there is a sector, which is addressing to both the stated conceptions; the global aviation sector. There more aircrafts on the air than ever before in the history of the world. Each year a number of passengers – including the repetitive flyers-, which is approximately more than double the population of China, is using air transportation and the numbers are estimated to be higher over the years to come.
Thanks to its large economic volume, the global aviation sector is practically a member of G20. According to IATA (International Air Transport Association) as of the end of 2018, the total revenue generated by the commercial airlines, which was $754 billion in 2017, will be around $835 billion. Including the subsidiary services, cargo services in particular, the number is well exceeding $1.5 trillion. The number of passengers used air transportation increased with a stunning additional 280 million and exceeded 4.1 billion in 2017 and initial data is expecting a similar increase for 2018 too.
Another interesting aspect of the aviation sector is its resilience against external shocks. The sectors steady growth was barely affected by the major shocks, which shook the global economy heavily. During the periods of global turmoil, which includes shocks like 1990 Gulf Crisis, 1997 Asian Crisis, 2008 Global Financial Crisis, the sector has grown by 200% in terms of RPK (revenue passenger kilometers), the key indicator for the sector. Furthermore, IATA states that today an average person is flying once in 22 months where they were flying once in 43 months in 2000, and there are 20.000 thousand city pairs, which are connected by scheduled flights.
What is more interesting than the past and current numbers is the estimations. According to a report issued by Airbus, the number of passengers is expected to be more than doubled in the next 20 years. In the same manner, the RPK of global aviation will keep its “2x per 15 years” trend in the same
period. The fleet size of the global aviation sector is expected to increase by 130%, which
accounts for an approximate worth of a stunning $5.8 trillion.
This robust growth comes with the requirement of capable aviation hubs, which can carry the weight of robustly growing sector. The increasing number of passengers, aircrafts and flights will require bigger airport capacities and improved infrastructural attributes. Parallel to this fact, the report estimates that the number of aviation megacities will increase to 91 by 2037 from 65 in 2018. Among the aviation mega-cities, one has already started to reinforce its quality as an aviation hub and invest in the future.
THE AVIATION MEGA-CITY AND THE AVIATION MEGA-PROJECT
İstanbul is a historical natural hub for almost all of the transportation types. It is the only city that connects two continents in the world and holds one of the most important –and also famous- straits. In accordance with the geographical attributes, İstanbul was the gateway for the historical trade routes, the Silk Road in particular.
Thanks to its unmatched geographical, there are more than 60 capital cities, 120 countries and 130 destinations in the 3-hour flight range of İstanbul. This range accounts for some 1.6 billion population and $30 trillion dollar consolidated GDP. This particular features are some of the main factors behind success of the Turkish aviation, which outperformed the 5.6% growth average of global aviation with a growth rate of 10%. And the flight network of the city grew by 591% in the same period. And today the national flag carrier of Turkey, Turkish Airlines, is the airlines flying to the highest number of destinations around the world.
Marking the beginning of the national aviation sector, actually the first airport built in Turkey is older than the republic itself by 11 years. Established as a military airport in 1912, with the name Yeşilköy Airport, the project has been opened to international commercial flights in 1953, and reached to its final form and gained its world-renowned name, İstanbul Atatürk Airport, after the renovations made in 1985. And along with its flight code “IST”, İstanbul Atatürk Airport is passing the torch to its successor, the new İstanbul Airport. İstanbul Airport is on of the largest projects in Turkey's history, whereas claiming the biggest infrastructure investment title. In 2013 after a competitive tender process the Cengiz, Mapa, Limak, Koling, Kalyon Consortium undertook the operation and construction of project with a record €22.152 billion bid –€26.142 billion including VAT- and founded İGA, the company that's running the airport. Besides from being one of the biggest biddings in the history of Turkey, with an amount of circa €10.25 billion the project becomes the largest infrastructure investment made in the country. İstanbul Airport is consisting of 3 stages summing up to 150 million annual passenger capacity when completed, and an optional upgrade, which will further expand the capacity to 200 million per year if needed. When compared to its competitors, İstanbul Airport has a significant lead as the top 3 ranks in the world's largest airports by capacity belong to Hartsfield-Jackson Atlanta Airport with 94.4 million, Beijing Capital Airport with 83.7 million and London Heathrow Airport with 73.3 million passenger capacities. The project is built on 76.5 million square meters. Over this gigantic area, there are 165 passenger bridges, 4 terminal buildings, 8 control towers, 6 runways, 16 taxi ways, which are enabling a capacity of 500 aircrafts. Furthermore there is also a parking lot that may contain 70 thousand vehicles. Thanks to these attributes, İstanbul Airport is expected to offer 350 destinations and serve 150 airline companies. The daily landing-take off number is expected be around 3500.
In this sense it is obvious that İstanbul Airport will remarkably increase the performance of the Turkish aviation sector. The project's attributes are strongly correlated with the requirements regarding the future of the global aviation, and it can be said it is the outcome of a proactive approach, which aims at being ready before the challenging quantitative and qualitative requirements emerge and able to meet them in a way that will create competitive advantages in the scope of global aviation. The trends, estimations and insights show that the number of airline passengers will double over the next twenty years and in the extent of this increase the weight of flights between the Eastern and the Western hemispheres will be very high, which will be also highly beneficial for an aviation hub like İstanbul. Considering these facts and more, such a project will provide a significant economic boost not only for the aviation but also for the overall economy.
MAKING THE ECONOMY FLY
As mentioned above, the new İstanbul Airport is the biggest infrastructure investment in the history of the republic. Its attributes in terms of construction, IT, engineering, strategic planning and many other aspects are components of a multilayered investment consisting of and cooperating with high-value added production and services. Hence, it can be said that the project already created a significant economy even before it started to operate.
To draw an overview, when the project is completed, it is expected to create around 194-225 thousand jobs, which is almost equal to the labor capacity of a city of 750.000 population. The additional household income created will be between 3.8 – 4.4 billion US dollars, which will account for some 4.2% to 4.9% contribution to the national income. On the other hand IA is capable of hosting more than 30 wide-body freight planes simultaneously. The airport initially will have the cargo capacity of 2.5 million tonnes, which is doubling Istanbul Atatürk Airport, where subsequent to the conclusion of the last stage the capacity will increase to some 5.5 million tonnes. Thanks to its capacity, the airport already signed 6 contracts with various logistics firms summing up to €250 million.
Digging deeper into the subject, the report issued by EDAM (The Centre for Economics and Foreign Policy Studies), one of the leading think-tanks in Turkey, explains the possible economic impacts of the project on the Turkish economy. Drawing different scenarios based on probable global developments, the report analyzes the economic impact in the scope of the direct effects, indirect effects, trigger effects and accelerator effects.
The direct effects mean the airport and primary level related operations, which include air transportation revenues, airport employees and similar factors. The indirect effects refer to the subsidiary sectors and work branches like logistics, technical services and such. The trigger effects explain the boost on consumption caused by the income of employees, whereas the accelerator effects include the stimulation, facilitation or increase of efficiency of other macroeconomic axes like investments, tourism and foreign trade.
Between the possible scenarios, the one that EDAM defines as the safest approach, accepts the global air traffic will increase with an annual of average 4.4% until 2025 based on the data provided by Eurocontrol (The European Organisation for the Safety of Air Navigation, although the Turkish aviation sector exceeded the global aviation in terms of growth performance. This scenario assumes that the airport will host 115 million passengers and 690 thousand aircrafts will land/take off from the facility, which means 1884 planes each day, through out the year of 2025.
The report estimates that the overall operations carried out in the extent of the new İstanbul Airport will account for 38 billion TRY as of 2025. This amount will be equal to 2.76% of the GNP. The number of jobs created as the result of the cluster of economic activities will reach to some 107 thousand by the end of period between the airport's date of becoming operational and the target year of 2025. The employment opportunities created by the airport will inject 5.3 billion to the household income.
The scenarios' indirect effects are expected to gift 32 thousand employment to the Turkish economy. The value-added generation of the activities in the indirect effects segment will be 8.2 billion TRY, which will correspond to 0.55% of the national income and also create an additional 1 billion TRY house-hold income.
As the result of the trigger economic effects, the airport will contribute in the national economy with value-added generation of 19.4 billion TRY. The report finds that this economic boost will create jobs for 73 thousand people, which is going to create an additional house-hold income of 1 billion TRY.
THE POSITIVE SIDE EFFECTS
Moving ahead of the figures, the Project will create a synergy that will nourish various other ecosystems. The integration into global network in any field is playing a key role in the world of today. Having such a facility that will make İstanbul even more connected to the world will undeniable increase the integration of the activities, sectors and economic figures.
Tourism is the usual suspect. The aviation facilitates tourism in terms of operation as well as being an element to affect preferences of the potential tourists.
Increasing the accessibility of the city, offering better and cheaper transportation options to tourists and helping certain tourism types to be more competitive – particularly business tourism- the airport will form an axis of advantages for the Turkish tourism.
Foreign direct investment is occupying one of the top spots in the agenda of any developing country in the world. Considering the correlation, which is subjected to numerous studies, the new İstanbul Airport will be a factor for attracting FDI. Underscoring that the cities with the higher numbers of direct long distance flight destinations are hosting more international companies, thus receiving more FDI.
Furthermore, a higher level of connectivity contributes in the efficiency of a national economy by enabling the reach to new foreign markets and facilitating the logistics in terms of economic activities in existing markets. It also diversifies and enriches the supply chains of the companies, where the labor productivity also benefits from the increased connectivity. Bringing countries and economies together, hence the different ecosystems, the airline connections is also showing a positive impact on innovation capacity of the countries by making it easier to attract scientists, professionals, R&D personnel etc., who can make difference making contributions to a country's innovation ecosystem. In addition such connectivity is also accelerating the development of existing innovation centers and technology clusters and improving the infrastructure for new ones to be established.
Another infrastructure that enjoys the better connectivity is the industrial infrastructure. A facility of such qualities will have a significant effect on region's industrial infrastructure, in which the companies that are utilizing air transportation will become more competitive. Furthermore, the financial sector, the sector that is using air transportation significantly higher than the real sector, will be among the benefiters as the share of aviation costs in the expenses are 5 times bigger than of the manufacturing companies'. Several studies also show that improved aviation abilities and capacities are even contributing to the development higher education.
It is practically impossible to touch upon each and every field that will be affected by the new İstanbul Airport. However, the heart of the Turkish economy, exports will certainly enjoy a having such a facility in their arsenal.
AN EASY ALLIANCE: EXPORTS AND AVIATION
The air transportation is unsurprisingly a factor that is strongly interconnected with the exports. The sector has an impact on both the production and the market aspects of the exports. In terms of production aviation is directly affecting the capabilities with enlarged and diversified logistics chains, labor efficiency, attracting investments, an improved innovation environment and other crucial factors, where enabling exporters to reach out to foreign markets for carrying out commercial and promotional activities in an easier and more cost effective way.
There are various studies implying that air transportation provides a measurable input to the international trade. Although the shipment via airway freight has a 0.5% share in terms volume in the global trade, on the basis of value the goods transported with airways are accounting for 35%.
The report solidifies this correlation with two examples. Subsequent to the connection of Amsterdam with 15 new countries through new routes, in a period of 5 years the Neatherlands' exports to those countries increase by 26%, thanks to the improved connectivity. This increase is exceeding the growth in exports of the Netherlands to the countries from the rest of the Western Europe.
In the same manner, a study subjecting the foreign trade performance of the UK found out that some 10% increase in the flight frequencies resulted in a 7% increase in exports to a nonOECD country with the establishment of additional airline transportation connections.
Conclusively, the new İstanbul Airport will have a remarkable set of effects on the Turkish economy, and those effects are of strategic importance. It is obvious that there lots of factors that will make a country's economy fly, and a new airport is not a decisive factor by itself. However, it is also obvious that it is the right step to take in order to follow the trends in the global economy and aviation. In that sense, when the time comes for the Turkish economy to fly, it will take off from the new İstanbul Airport.