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Aviation Industry Trends Dr. Mike Tretheway


Air Passenger Traffic Global air passenger traffic has been resilient. • Air travel has its ups and downs, but it has continued to grow

• ICAO expects global traffic to reach 5 billion over the next 20 years (3.5% AAGR).

Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA). Realizing the vision together


Global Air Passenger Traffic by Region World Regions will Grow at Different Rates • Air passenger traffic is expected to continue to grow at different rates around the world by region. • Driven by economic growth, Latin America, Middle East and Asia Pacific are expected to lead global growth over the next 20 years.

Source: Boeing Current Market Outlook 2011-2030. Realizing the vision together


Air Passenger Traffic International traffic grows faster than domestic

33%

67% 24%

76%

Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA). Realizing the vision together


Tourism Source Markets Shift and Diversification of Tourism Source Markets

• Total tourism demand accounted Top 10 Origin Markets - 1990 for by the top 10 United States, Germany, Japan, United Kingdom, markets worldItaly, France, Canada, Austria, Netherlands, Sweden wide

Top 10 Origin Markets 2010 Germany, United States, China, United Kingdom, France, Canada, Japan, Italy, Russia, Australia

has declined from 70% in 1990 to less than 50% in 2010.

47%

70% Canada 3.2% Canada 4.1%

53%

30% U.S. 8.2%

U.S. 14% Other

Other

Source: World Tourism Organization (UNWTO). Realizing the vision together


Tourism Source Markets Shift and Diversification of Tourism Source Markets • In addition, there has also been a shift in the relative ranking of tourism spending by market:

Top 10 Origin Markets 2010

Top 10 Origin Markets - 1990

United States, Germany, Japan, United Kingdom, Germany, United States, China, United Kingdom, Italy, France, Canada, Austria, Netherlands, Sweden France, Canada, Japan, Italy, Russia, Australia

• Germany overtakes U.S. as largest source; • China one of the top 3 source markets;

47%

70%

• Japan relative ranking has dropped. • These trends are a reflection of the growing significance of emerging markets, and highlight the importance of a targeted strategy.

Canada 3.2% Canada 4.1%

53%

30% U.S. 8.2%

U.S. 14% Other

Other

Source: World Tourism Organization (UNWTO). Realizing the vision together


Airline Industry Financial Performance Financial performance of airline industry continues to be volatile.

Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA). Realizing the vision together


Fuel Prices Fuel prices are having big impact on airlines. • Fuel accounts for a significant proportion of total airline costs at about 25%.

$140 $120 $100 $80 $60 $40 $20 $Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12

• Airlines are learning to live with high fuel prices

$160

USD Per Barrel

• After peaking in 2008, fuel prices have dropped, but continue to fluctuate regularly.

Crude Oil Spot Prices

Source: U.S. Energy Information Administration, Airlines for America (Air Transport Association). Realizing the vision together


Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100

US$

$80 $60

•Its not down •Its not back to $145

$40 $20 $2010

2011

2012

2013

2014

2015

2016

Realizing the 8 vision together


2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 upper 2 sigma average

$60

low er 2 sigma $40 $20 $2010

2011

2012

2013

2014

2015

2016 Realizing the 9 vision together


2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 upper 2 sigma average

$60

low er 2 sigma $40

•Everyone seems to agree $20 $2010

2011

2012

2013

2014

2015

2016 Realizing the 10 vision together


2 Sigma Range of Forecasts Forecast 95% ranges Note the scale $120 $100 $80 upper 2 sigma average

$60

low er 2 sigma $40

•Everyone seems to agree $20 $2010

2011

2012

2013

2014

2015

2016 Realizing the 11 vision together


If History Repeats ‌. Oil Price with Full Historical Range Note the scale $300 $250 $200 Upper range $150

Base price forecast Lower range

$100 $50 $2010

2011

2012

2013

2014

2015

2016

Realizing the 12 vision together


If History Repeats ‌. Oil Price with Full Historical Range

Airlines have learned to manage with high fuel prices. But not with fuel price volatility!

$300 $250 $200

Upper range $150

Base price forecast Lower range

$100 $50 $2010

2011

2012

2013

2014

2015

2016

Realizing the 13 vision together


Alternative Fuels In the future, airports may have to be capable of providing & handling two type of fuels – kerosene fuel and bio-fuel. • Although aircraft efficiency has improved, only way for the airline industry to meet IATA’s stated goal of zero carbon emissions by 2050 is by adopting alternative fuels.

• Over the next 20 years, it is expected that bio-fuels will be introduced into commercial aircraft. • Bio-fuel will be used in parallel with kerosene fuel for a considerable period of years. • Implications for airports include source, infrastructure, handling

Realizing the vision together


Alternative Fuels In the future, airports may have to be capable of providing & handling two type of fuels – kerosene fuel and bio-fuel. • Furthermore, demand for oil is expected to continue to outpace growth of supply as emerging markets continue to grow, and reliance on oil & coal as an energy source increases after the nuclear disaster in Japan. • Price of fuel expected to continue to increase in the long-term and may reach $150-$200/barrel in 10 years.

• Over the next 20 years, it is expected that bio-fuels will be introduced into commercial aircraft. • Bio-fuel will be used in parallel with kerosene fuel for a considerable period of years. • Implications for airports include source, infrastructure, handling

• Potential for carbon tax will also encourage adoption of alternative fuels. • Some airlines, such as United/Continental, BA, and Qantas have already tested alternative fuels. Realizing the vision together


Aircraft Deliveries: 1995-2020 Scheduled aircraft deliveries will increase global air capacity • Record deliveries of aircraft of all sizes will drive strong capacity growth. • This may result in capacity gluts in some markets, especially Europe to Asia. • Some of these aircraft could be redeployed to North American markets.

Source: Airbus, Boeing, The Airline Monitor (January/February 2012). Realizing the vision together


Ultra Low Cost Carriers • Growth in recent years driven by Ultra Low Cost Carriers (ULCCs) such as Allegiant Ryanair, Wizzair, etc.

Ultra low cost carriers are changing airport business model.

• ULCCs differ from LCCs : • Rely on traffic stimulation more than market steal; • Generate high proportions of ancillary revenues; and • Do not offer ‘frills’, even if they enhance revenues, if the frill adds to costs.

Realizing the vision together


Ultra Low Cost Carriers • ULCCs have power to shift passenger travel and airport usage patterns to much greater degree than traditional LCCs.

Ultra low cost carriers are changing airport business model.

Realizing the vision together


Ultra Low Cost Carriers • The ULCC business model is based strictly around low fares,

Ultra low cost carriers are changing airport business model.

which requires low costs. This means that airports can only attract ULCCs by offering sustained low fees (not simply introductory incentives). Airports must therefore adapt their own business models to maximise generation of nonaeronautical revenues from ULCC passengers.

Realizing the vision together


Ultra Low Cost Carriers • Canada has no ULCC Ultra low cost carriers are changing airport business model. presently. However, Allegiant Air attracts many Canadian travellers by offering steeply discounted fares at U.S. border airports. The current tax and border fee regime in Canada means that even with airport fees at zero, ULCCs cannot offer prices low enough to stimulate sufficient traffic.

Realizing the vision together


Google/Social Media/Visa Int’l: Re-packaging airline Product? • Internet companies have potential to repackage airline products:

Internet creates new interline products

• Kayak “hacker fares” create interline connections not available from carriers; • Google has invested in airline reservation business; • Could develop platform to enter business directly;

• Could offer value added packages for trip fulfillment: • Would you pay $125 for guarantee that you will get to your destination today? • Concierge services with call centre partner.

ITA Realizing the vision together


Google/Social Media/Visa Int’l: Re-packaging airline Product? • Skeptical? Did the following industries anticipate impact of internet companies? • Music • Video rental • Newspapers • Book publishing • Cable TV • Income tax • Investment • Coming: retail • Financial payments

Internet creates new interline products

Realizing the vision together


Fleet Growth

Key US LCCs & ULCCs continue to grow.  Aircraft units on order/option represent  88% growth on current fleet.  While some will be used for fleet replacement, these  carriers will have the capacity to expand. Allegiant’s apparent lack of future fleet growth is misleading, as used aircraft need  not be ordered with the lead time (or publicity) of new aircraft.  G4 has increased  its fleet by 107% in the last 5 years, and will continue to grow.   Allegiant is also  increasing total existing fleet capacity by 11% through seat reconfiguration.

5 Aircraft on Order/Option 5 in Current Fleet Realizing the vision together


Westjet Westjet planning to establish new regional airline with smaller aircraft. • WS announced plans to move ahead with a regional airline operating aircraft in the 70-seat range (e.g., Q400s, ATR72s) • Two objectives: 1. Drive domestic growth by adding markets not large enough to support 737 service. 2. Build connecting networks at key airports (YYC, YYZ) Having regional feed is a prerequisite if WS intends to add widebody aircraft to enable future long haul services. This may be a likely step within the next decade. Regional feed also assists its alliance strategy, Realizing the vision together


Air Cargo Airlines are focusing more on air cargo. • Yield pressures on passenger services have airlines paying more attention to cargo revenues.

Source: InterVISTAS Market Research and GDS data. Notes: U.S. average includes AA, CO, DL, UA, US and WN. Realizing the vision together


Automation Automated kiosks are playing a greater role at airports. • Approximately 90% of domestic Air Canada passengers use kiosk, mobile check-in or automated bag-tag process. • WestJet has approximately 85% of passengers check-in via the internet or a kiosk on-site at the largest Canadian airports.

Automation & Check-In: • Mobile check-in and boarding passes have nearly replaced the traditional check-in process. • Canada was a pioneer in self bag-tag.

Auckland, New Zealand

August 2011, Amsterdam Bag-Drop

• Ryanair charges fee if kiosk is not used • Amsterdam airport is an example of a fully automated bag drop function.

Realizing the vision together


Climate Change


Is Aviation a Culprit or Victim? "Making selfish choices such as flying on holiday or buying a large car are a symptom of sin.” •

"Sin is not just a restricted list of moral mistakes. It is living a life turned in on itself where people ignore the consequences of their actions."

• Richard Chartres Bishop of London

Realizing the 28 vision together


Community Response /Backlash

Realizing the 29 vision together


Sophisticated Messaging on Roads & Rail Routes to LHR Realizing the 30 vision together


Coming Soon to North America Climate Change issue is not confined to Europe •

North American attitudes are shifting rapidly

•

Aviation will be targeted

Realizing the 31 vision together


IATA commitment • IATA goals • 2020: 25% improvement in fuel efficiency •

From technology and operating practices

• 2050 air travel to be carbon neutral •

Further technology and operational changes

Adoption of bio fuels

Realizing the 32 vision together


Thank You

Subscribe to Monthly Aviation Intelligence Report www.InterVISTAS.com

Realizing the 33 vision together

Profile for Leah Dupuis

Aviation Industry Trends  

Presentation by Mike Tretheway at SWIFT Conference, September 18, 2012

Aviation Industry Trends  

Presentation by Mike Tretheway at SWIFT Conference, September 18, 2012

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