Demographic Trends: Fundamental Air Traffic Demand Driver Sep/Oct 2024

Since the beginning of the 20th Century, the World’s human population has been growing at the highest annual average rate in its history.

This is understandable. From the onset of the industrial revolution in the late 18th Century there has been increasing urbanisation, education, and advances in health care with resulting reductions in infant mortality and increases in life expectancy. As each country has industrialised, it has reaped a “demographic dividend”: more children survive infancy, the size of the working population has grown, generating the ability to increase total earnings (or GDP per head) for the benefit of a country’s society as a whole.

We’ve been digging in to the figures from the UN Population Division’s databases and forecasts (World Population Prospects 2024) and show some of the findings in the graphs on the following pages. They should be useful as indicators of the most fundamental driver of air traffic demand — demographics.

We have chosen to show data for three individual countries (Japan, China and India) as well as two of the UN’s agglomerated sets — Europe and Northern America to represent the “western” post-industrialised countries; and Sub-Saharan Africa to represent developing nations.

According to UN, the annual rate of global population growth peaked in 1964 — at 2.25%. At this rate of growth the total population would double in 30 years. And indeed the world’s population has grown from an estimated 1.6bn in 1900 to 8.2bn in 2024. But the rate of growth has declined to only 0.9% (that is still 70m more people this year than last). If this were to continue it would take 80 years for another doubling in the corpus of humanity.

But the UN expects the rate of growth to continue to decline over the rest of the century. Under its median forecast the world’s population could peak in 2085 at 10.3bn before starting to decline.

In hand with the population growth has been a reduction in the total fertility rate (TFR) — defined as the the average number of children a woman would have if she were to live to the end of her childbearing years and give birth in accordance with the prevailing age-specific fertility rates. The global TFR peaked at 5.3 in 1963 and is currently 2.2.

Declining fertility can be beneficial for economic growth. As fertility declines, the proportion of children in the population falls and the proportion of the population of working age increases, resulting in a lower dependency ratio (defined as the number of children and older people per 100 persons of working age). Provided jobs are available for the increasing population of working age, a country can reap the benefits of increased production and lower the costs associated with the decreasing proportion of dependants — a “demographic bonus”.

But when fertility goes below a replacement rate of 2.1, the population ages, the numbers of people of working age declines, the dependency ratio increases and, in the absence of net immigration, the total population falls.

And this has happened to many of the advanced economies. According to the UN data, 68% of the world’s population live in countries where the TFR is below replacement rate.

Japan’s TFR fell below replacement rate in 1957 and is currently 1.2. Its population peaked in 2009 at 128.1m and is currently estimated to be 123.8m. The UN Population Report forecasts that by 2050 it could fall by 15% to 105m, the working age population falling by 25%, and a dependency ratio of 95%.

China’s one-child policy, introduced in 1980, had its desired effect. The country’s TFR which had averaged 6 children per woman in the 1960s and 70s, fell below 2.1 in 1991 and in 2024 is estimated to be 1.01. China’s population peaked at 1.43bn in 2021 and now seems set to fall.

The PRC, now worried about the prospect of a declining population introduced a two-child policy in 2016, upgraded it to a three-child policy in 2021.

The UN forecasts suggests that these policy changes may have little impact on behaviour: it expects China’s population to fall 55% from the peak to 633m by the end of the century. The working age population could fall by 70% over the period — admittedly that would still be nearly 300m people — and by 2100 the country could find itself with a dependency ratio of 116%.

India’s population in contrast is still growing — it overtook China as the most populous nation on Earth in 2022. But its TFR has also dropped below the replacement rate (in 2020) and is currently estimated at 2.0 children per woman. The UN’s median forecasts suggest that the country’s population will not peak until it reaches 1.7bn in the 2060s.

Europe and North America, despite fertility rates of around 1.5 children per woman, might see the total population peak in the mid 2030s, but remain relatively stable thereafter. This is predicated on assumptions of net immigration (of around 2m people a year) continuing. But immigration is a contentious political issue that Japan, China and India do not face. Even so the combined regions’ dependency ratio is forecast to rise from 55% in 2024 to 58% in 2030 and 70% by 2050.

Some countries' populations are growing. We’ve taken the UN’s grouping of Sub-Saharan Africa as an exemplar that shows a fertility rate falling but still above replacement rate at 4.2 children per woman in 2024. Under the UN’s median forecasts, the TFR may fall below the replacement rate in the 2080s, but the population of 3.4bn by 2100 would still be increasing.

For these the dependency ratio should fall over this period as the working population grows, giving them to opportunity to achieve a population “dividend”.

By the end of the century, the UN’s median forecasts suggest that Nigeria’s population will have doubled to 480m, those of the Democratic Republic of the Congo, Tanzania and Angola quadrupled to 430m, 260m and 150m respectively, Ethiopia up by 180% to 370m and Sudan by 170% to 140m. All will by then rank among the world’s 15 largest countries by population.

Impacts

These demographic changes are likely to have a major impact on the geopolitical order, put negative pressure on GDP growth, and prospects for air travel.

Countries with aging populations may face slower consumer demand: the elderly tend to spend less on discretionary items with knock on effects on retail industries, entertainment and travel. As the dependency ratio rises, greater pressure is placed on government resources and social safety nets: spending on pensions, healthcare and social services will escalate. This in turn will probably lead to higher taxation and Government borrowing with a consequent further negative effect on GDP.

Shrinking working-age populations add pressure on labour intensive industries. There is already a burgeoning shortage of airline pilots (and air traffic controllers) — noticeably in the USA — adding significant pressure on wages (which leads to increases in airfares and possible downward pressure on demand). But the working age population is also the backbone of airline demand: various studies show the highest propensity to fly among those aged between 20 and 50. As this cohort shrinks, it is difficult to believe that their propensity to fly will increase enough to offset the decline in population. In addition, the newer generations at the bottom of this age range, and those newly entering it, will be more environmentally conscious.

Furthermore, the business travel segment, which has traditionally been a significant source of revenue for airlines, may well decline further as older workers retire and are not replaced by younger generations at the same rate. This trend could accelerate because of changes in corporate culture, where especially post-pandemic, companies have already begun shifting toward virtual meetings and remote work — let alone the pressures of ESG compliance — further reducing the need for air travel.