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strategic transportation & tourism solutions

Economic and Industry Update Dr. Michael W Tretheway Chief Economist, InterVISTAS Consulting Group ACI-NA Marketing Conference 7 June 2010


InterVISTAS Consulting Group Washington DC, Vancouver, London, the Hague • 85 employees • 8 offices in US, Canada, Europe, Caribbean • Specialities •

Air Service Development

Forecasting, Economic and regulatory analysis

Privatisation & Finance

Aviation marketing

Security and Borders Facilitation

Climate Change Strategy and inventories 1


Outline

• Industry Developments • Economic Update • Fuel Outlook • Climate Change

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strategic transportation & tourism solutions

Industry Developments


IATA 2010 • Today, changed forecast from loss of $3b to profit of $2.5 billion •

N America profit expected to be $1.9 billion

Better than rest of world due to greater capacity cuts

• Pax: +7.1% • Cargo: +18.5%

4


IATA Projections for 2010

5


IATA Projections & History

6


IATA Premium Passengers

7


Slower Growth? 2010 Hamburg Aviation Conference • Growth in coming decade likely to be •

less than historic

Less than previously forecast •

Climate change

Recovery of personal liquidity

Markets maturing

Perhaps 3.5% vs. 5% 8


Unbundling: credit card fees • Credit card cost to carriers •

Airline Business reports typical cost of airline accepting credit card is $7-10

• Holdback squeeze •

Frontier, Globespan claims it was a factor in their bankruptcies

• What’s next? •

Surcharges for use of card (KLM/AF)

AFOP – Alternative Forms of Payment (10%)

9


Unbundling #2 Ryanair

• 2009: approximately $1b in ancillary revenues • 20% of total revenues • And growing ! 10


World Aircraft Orders: 1995-2008 Total Aircraft Orders

3,000 Airbus

Boeing

2,500 2,000 1,500 1,000 500

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

0

11 Source: Airbus and Boeing websites


World Aircraft Deliveries: 19952015 Total Aircraft Deliveries

1,400 Airbus

Å Projected Æ

Boeing

1,200 1,000 800 600 400 200

Source: Airbus and Boeing websites The Airline Monitor, Jan/Feb 2009

2014 2015

2013

2011 2012

2010

2008 2009

2007

2004 2005 2006

2001 2002 2003

2000

1998 1999

1997

1995 1996

0

12


Aircraft Delivery • In spite of recession, globally we will see record aircraft deliveries in coming years • Much of the capacity will be delivered to Asia, Europe, Middle East • These markets will be hotly contested •

Especially Europe-Asia/Australia NZ

• Carriers may see trans-Atlantic/trans-Pacific as attractive opportunities •

US carriers do not have major order books and most on order is replacement

13


IATA’s Agenda for Freedom • Industry is seeking enabler of deeper alliances / consolidation •

“I won’t change my foreign ownership laws

But I won’t contest yours and will accept your foreign owned carrier”

• US & EU signed

14


Alliances/Mergers • UA-CO will be the last airline merger in the U.S. • Air New Zealand – Virgin Blue will be the last airline alliance in the world

• Reality •

We are likely to see a new wave of alliances •

Low cost carrier – Legacy carrier alliances may become a trend 15


LCC/Legacy Alliances • Proposed Air New Zealand – Virgin/Pacific Blue •

DJ new CEO is ex Qantas

Branding as New World Carrier, not LCC •

Is indicating it will pursue greater domestic share focussing on penetrating business travel

• WestJet – SW alliance never materialised •

WJ new CEO is ex Canadian, ex Alaska

Has invested in CRS/IT to enable alliances

Is seeking a range of alliance partners •

Not seeking to join a global alliance 16


Alliances Consequences for Airports • Potential new services •

International airline QSI shares may increase dramatically with a domestic LCC partner

• Potential service rationalisation • Switch in carriers assigned routes • Another round of co-location requests

17


Aircraft • 787 first route announced •

Continental: IAH to AKL a good example of the type of route this aircraft will eventually enable

First delivery: ANA November 2010

First flight: March 2011

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strategic transportation & tourism solutions

Economic Update


Econo-geek Vocabulary If there is a recovery, will it be? • V-shaped •

A rapid recovery back to previous level •

Most recessions are V-shaped

• U-shaped •

A period of stagnation, with a slow recovery

• L-shaped •

An extended period of stagnation •

Japan 1990s. Great Depression

• W-shaped •

A V-shaped recovery, followed by another recession •

US, 1970s

20


US Real GDP- recent Recession has ended

Recession begins

6

2

2010Q1

Q4

Q3

Q2

2009Q1

Q4

Q3

Q2

Q4

Q3

2008Q1

-2

Q2

0 2007Q1

Real GDP Growth (%)

4

-4 -6 -8

Source: NBER 27May2010 21


Real GDP Growth – U.S. 8%

Historical Data

6%

Forecast Data

4% 2%

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

-2%

1997

0%

-4% Sources: Historical Data: U.S.: U.S. Bureau of Economic Analysis Forecast Data: U.S.: International Monetary Fund 22


Real GDP Growth – U.S. 8% 6%

Historical Data

Recession

4%

Forecast Data Recession

2%

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

-2%

1997

0%

-4% Sources: Historical Data: U.S.: U.S. Bureau of Economic Analysis Forecast Data: U.S.: International Monetary Fund 23


4%

US Real GDP Growth Mid 2008 GDP growth (Quarterly) obscured onset of recession 2.9%

Forecast

2.2% 1.7%

2% 0.9%

0.4%

-4%

-0.2%

Q2-2010

Q1-2010

Q4-2009

Q3-2009

-1.5%

-0.5%

-6%

Q2-2009

Q1-2009

Q4-2008

Q3-2008

Q2-2008

-2%

Q1-2008

0% Q4-2007

Annualized Q/Q Growth Rate

2.8%

-5.7%

Lehman Brothers Collapse-6.3% -8% Sources: Historical – Bureau of Economic Analysis; Forecast – Federal Reserve Second Quarter 2009 Survey of Professional Forecasters (May 15, 2009); 24


US Real GDP • Most forecasters have V-shaped recovery •

delayed but strong impact of stimulus

Restored liquidity

Return of Money Velocity

• But some risk recovery could be W-shaped •

Managing contraction of Fed Assets •

Without 2nd recession

Without inflation

will be a challenge 25


US Real GDP Growth (Historical) 10% 8% 6% 4% 2%

2007

2003

1999

1995

1991

1987

1983

1979

1975

1971

1967

1963

1959

1955

1951

-2%

1947

0%

-4% Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 26


US Real GDP Growth (Historical) 10% 8% 6% 4%

2007

2003

1999

1995

1991

1983

1979

1975

1971

1967

1963

1959

W WW 1955

1951

-2%

1947

0%

1987

2%

-4% Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 27


US Real GDP Growth (Historical) 10% 8% 6%

2003

1999

1995

1991

1987

1983

1979

1975

V V WW 1971

1967

1959

1955

W

1951

-2%

1947

0%

1963

2%

2007

4%

-4% Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 28


14,000 12,000 Recessions are wiggles in a steadily growing economy

10,000 8,000 6,000 4,000 2,000

Sources: Historical – Bureau of Economic Analysis;

2006

2001

1996

1991

1986

1981

1976

1971

1966

1961

1956

1951

0 1946

U.S. Real GDP (billions of 2000 dollars)

US Real GDP (Historical)

29


Real GDP Growth - Canada 8%

Historical Data

6%

Forecast Data

Recession

4% 2%

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

-2%

1997

0%

No Recession

-4% Sources: Historical Data: Canada: Statistics Canada Forecast Data: Canada: International Monetary Fund 30


Canada • Canada is definitely in a strong V-shaped recovery •

Has already started to increase interest rates

• Canada’s banking sector has no bailout costs to recover •

Is pushing G-8 to avoid a bank tax

31


Canada Real GDP Growth 6% 4.6%

4%

4.5%

3.5% 2.4%

2%

1.1% 0.3% 0.4%

-0.7%

-4% -6%

H2-2011

H1-2011

H2-2010

H1-2010

Q4-2009

Q3-2009

Q2-2009

Q1-2009

Q4-2008

Q3-2008

Q2-2008

-2%

Q1-2008

0% Q4-2007

Annualized Q/Q Growth Rate

Forecast

5.0%

-3.0% -1.0% -3.7% -5.4%

Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009

32


Canada Real GDP Growth 6% 4.6%

4%

2009: -2.4% 2%

4.5%

3.5% 2.4%

1.1% 0.3% 0.4%

-0.7%

-4% -6%

H2-2011

H1-2011

H2-2010

H1-2010

Q4-2009

Q3-2009

Q2-2009

Q1-2009

Q4-2008

Q3-2008

Q2-2008

-2%

Q1-2008

0% Q4-2007

Annualized Q/Q Growth Rate

Forecast

5.0%

-3.0% -1.0% -3.7% -5.4%

Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009

33


Canada Real GDP Growth 2010 revised: +3.0%

6%

4.6%

4%

2009: -2.4% 2%

4.5%

3.5% 2.4%

c

1.1% 0.3% 0.4%

-0.7%

-4% -6%

H2-2011

H1-2011

H2-2010

H1-2010

Q4-2009

c

Q3-2009

Q2-2009

Q1-2009

Q4-2008

Q3-2008

Q2-2008

-2%

Q1-2008

0% Q4-2007

Annualized Q/Q Growth Rate

Forecast

5.0%

-3.0% -1.0% -3.7% -5.4%

Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009

34


6%

Canada Real GDP Growth (Sub2011 revised: Annual) +3.3% 4.6%

4%

2009: -2.4% 2%

4.5%

3.5% 2.4%

c

c

1.1% 0.3% 0.4%

-0.7%

-4% -6%

H2-2011

H1-2011

H2-2010

H1-2010

Q4-2009

c

Q3-2009

Q2-2009

Q1-2009

Q4-2008

Q3-2008

Q2-2008

-2%

Q1-2008

0% Q4-2007

Annualized Q/Q Growth Rate

Forecast

5.0%

-3.0% -1.0% -3.7% -5.4%

Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009

35


Real GDP Growth - Mexico 8%

Forecast Data

Historical Data

6% 4% 2%

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

-2%

1997

0%

-4% -6%

2 Recessions -8% Sources: Historical Data: Mexico: International Monetary Fund Forecast Data: Mexico: International Monetary Fund 36


strategic transportation & tourism solutions

Fuel Prices


38

May-10

Mar-10

Jan-10

Nov-09

Sep-09

Jul-09

May-09

Mar-09

Jan-09

Nov-08

Sep-08

Jul-08

May-08

Mar-08

Jan-08

Nov-07

Sep-07

Jul-07

May-07

Mar-07

Jan-07

Nov-06

Sep-06

Jul-06

May-06

Mar-06

Jan-06

Nov-05

Sep-05

Jul-05

May-05

Mar-05

Jan-05

Nov-04

Sep-04

Jul-04

May-04

Mar-04

Jan-04

Nov-03

Sep-03

Jul-03

May-03

Mar-03

Jan-03

U.S. $ per barrel

Fuel Prices Crude Oil Spot Prices January 2003 to June 2010

$160

$140

$120

$100

$80

$60

$40

$20

$-


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

US$

$80 $60 $40 $20 $2010

2011

2012

2013

2014

2015

2016 39


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 40


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

41


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

42


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

43


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

$150

Lower range $100 $50 $2010

2011

2012

2013

2014

2015

2016

44


Forecasting Lesson • Airport forecasting with consensus macro trends •

Can conceal what is possible

Risk based forecasting should be used Forecast Probability Range 50 Average 45 40

25th / 75th Percentile Range 10th / 90th Percentile Range 5th / 95th Percentile Range

Annual Passengers (Millions)

Probability Based Forecast: Year 10 12% Mean Value: 22.3 million passengers 10%

10th Percentile

90th Percentile

6%

4%

30 25 20 15

Passenger Traffic (Millions)

29.5

29.0

28.5

28.0

27.5

27.0

26.5

26.0

25.5

25.0

24.5

24.0

23.5

23.0

22.5

22.0

21.5

21.0

20.5

20.0

19.5

19.0

18.5

18.0

17.5

17.0

16.5

5 16.0

0% 15.5

10

15.0

2%

14.5

Probability

8%

35

0 Year 0

Year 5

Year 10

Year 15

45

Year 20


Oil Price Outlook • Demand from developing world is increasing •

Annually increasing demand by 800,000 barrels per day •

1% of total consumption

US decrease of past few years was recession related

• Supply issues •

Deep water drilling was the hoped offset to potential decline in production in Middle East

Greenland deep water (half the size of North Sea)

But post BP-Gulf, will deep water proceed? 46


Pluggable Revenue Opportunity? • PHEV (Pluggable hybrid electric vehicle) • Equivalent to selling a few litres of fuel •

Many airports purchase electric power at favourable rates

Passengers, rental car outlets, employees

• This is not the same as engine block heaters!

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strategic transportation & tourism solutions

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

49


Community Response /Backlash

50


Sophisticated Messaging on Roads & Rail Routes to LHR 51


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

North American attitudes are shifting rapidly

•

Aviation will be targeted

52


Government Regulation • It will not take long for the government to step in and impose changes • This will most likely come in the form of carbon taxes and/or carbon trading schemes • Obama administration promising to bring in new regulatory framework on climate change in its top 15 priorities •

Waxman-Markey passed House

Likey final bill will tax energy at source

• Airports need to anticipate and adjust to regulatory changes

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strategic transportation & tourism solutions

Thank You www.InterVISTAS.com

Economic and Industry Update  

Presentation by Mike Tretheway at ACI-NA Marketing Conference on June 7, 2010