The next revolution in the in the aviation cycle: Aviation Cycle 2 - - PowerPoint PPT Presentation

The next revolution in the Aviation Cycle

The next revolution in the aviation cycle: 2 0 0 7 - w hat now ?

Peter Harbison Executive Chairm an Centre for Asia Pacific Aviation

Two Quiet Revolutions Two Quiet Revolutions and a Myth and a Myth in Asian Aviation in Asian Aviation

Peter Harbison Peter Harbison Executive Chairman Executive Chairman Centre for Asia Pacific Aviation Centre for Asia Pacific Aviation Aviation Outlook Summit Aviation Outlook Summit Singapore, 9/10 November, 2006 Singapore, 9/10 November, 2006

• 2006

2006 -

• Some major events

Some major events -

• and two

and two quiet revolutions quiet revolutions

• LCCs

LCCs -

• the potential and the possible

the potential and the possible

• China and India

China and India -

• growth and losses; the

growth and losses; the Middle East Middle East -

• growth and profits

growth and profits

• Airports and hub challenges

Airports and hub challenges

• ……

……and 2007? and 2007?

Major Themes Major Themes

• The deal of the decade

The deal of the decade – – Air Air China and Cathay Pacific China and Cathay Pacific

• The world

The world’ ’s dominant airline in s dominant airline in 10 years? 10 years? Why We Remember 2006 Why We Remember 2006

8 0 1 6 0 2 4 0 3 2 0 4 0 0 4 8 0 5 6 0

8 4 8 5 8 6 8 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 F0 7 F0 8 F0 9 F 1 0 F

I nternational Dom estic Regiona

• China

China’ ’s continuing emergence s continuing emergence as a dominant aviation power as a dominant aviation power

Airport pax: 1984-2006F

Why We Remember 2006 Why We Remember 2006

• India

India’ ’s traffic explosion s traffic explosion -

• and approaching maturity

and approaching maturity Why We Remember 2006 Why We Remember 2006

Bangkok 24.0 28.0 32.0 36.0 40.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 million

• A new airport

A new airport -

• a long time

a long time coming, but now poised to coming, but now poised to change dynamics change dynamics Why We Remember 2006 Why We Remember 2006

The Fuel and Share Price The Fuel and Share Price Duel Duel

4 0 6 0 8 0 1 0 0 1 2 0 1 4 0 1 6 0 2/ 1/ 06 16/ 1/ 06 30/ 1/ 06 13/ 2/ 06 27/ 2/ 06 13/ 3/ 06 27/ 3/ 06 10/ 4/ 06 24/ 4/ 06 8/ 5/ 06 22/ 5/ 06 5/ 6/ 06 19/ 6/ 06 3/ 7/ 06 17/ 7/ 06 31/ 7/ 06 14/ 8/ 06 28/ 8/ 06 11/ 9/ 06 25/ 9/ 06 9/ 10/ 06 23/ 10/ 06 Fuel Price JAL Air China AirAsia Cathay Jet Qantas SI A Thai Virgin Blue

Index Jan-06 = 100 Rising oil price Falling oil price

JAL JAL Jet Airways Jet Airways Air China

A380 Delay A380 Delay

• Disrupts fleet planning

Disrupts fleet planning

• Uncertainty of aircraft availability

Uncertainty of aircraft availability

• Fedex

Fedex cancels, Virgin delays, cancels, Virgin delays, Emirates inspects Emirates inspects

• Extends the life of older

Extends the life of older widebodies widebodies

• Slows the expansion of Emirates

Slows the expansion of Emirates… …. .

Quiet Revolution #1 Quiet Revolution #1 A quiet change in direction for Asia A quiet change in direction for Asia Pacific airlines Pacific airlines… ….. ..

LIBERALISATION

LCCs LCCs

FUEL PRICES

The Two Best Things The Two Best Things to Happen to Asian to Happen to Asian Flag Carriers Flag Carriers… ….. ..

1 1-

• LCCs

LCCs… …. .

and and

2 2 -

• High Fuel Prices

High Fuel Prices

Quiet Revolution #1 Quiet Revolution #1

The discipline imposed by these The discipline imposed by these challenges has provoked : challenges has provoked :

• Reduced flying to points which lose

Reduced flying to points which lose money money

• Increased seat load factors

Increased seat load factors

• Increased yields (average fares)

Increased yields (average fares)

• Lower ASK growth rates

Lower ASK growth rates

Asia Pacific Airlines Asia Pacific Airlines Reduce seats Reduce seats

No growth (or reduction) in ( No growth (or reduction) in (ASKs ASKs) ) -

• June 2006:

June 2006:

• ANA

ANA

• China Airlines (Taiwan)

China Airlines (Taiwan)

• Japan Airlines (

Japan Airlines (-

• 13%)

13%)

• Korean Air

Korean Air

• Malaysia Airlines (

Malaysia Airlines (-

• 13%)

13%)

• Philippine Airlines

Philippine Airlines

• Qantas

Qantas

• Singapore Airlines

Singapore Airlines

• Thai Airways

Thai Airways

Total seat growth Total seat growth -

• below 4%

below 4% Below Below long term average long term average

AAPA Growth Rate Slows AAPA Growth Rate Slows

Asia Pacific Airlines ASK %age Growth 2005/06 Asia Pacific Airlines ASK %age Growth 2005/06 AEA Airlines AEA Airlines

… …as Load Factors as Load Factors Climb too Climb too

AAPA Load Factors Climb AAPA Load Factors Climb 10% LF differential 10% LF differential 5% LF differential 5% LF differential

6 0 .0 7 0 .0 8 0 .0 9 0 .0 1 0 0 .0

8 9 -9 0 9 0 -9 1 9 1 -9 2 9 2 -9 3 9 3 -9 4 9 4 -9 5 9 5 -9 6 9 6 -9 7 9 7 -9 8 9 8 -9 9 9 9 -0 0 0 0 -0 1 0 1 -0 2 0 2 -0 3 0 3 -0 4 0 4 -0 5 0 5 -0 6 0 6 -0 7 1 H SIA overall yields (S cents/ SIA overall yields (S cents/ltk ltk) ) 1990 1990-

• 2006

2006

Yields and Fuel Prices Yields and Fuel Prices Rise in Unison Rise in Unison… …. .

• Thanks to new entry, governments are

Thanks to new entry, governments are recognising recognising that they have that they have… … OPTIONS OPTIONS

• Alternatives to subsidy and protection now

Alternatives to subsidy and protection now emerge, as new entrants offer alternatives to emerge, as new entrants offer alternatives to regulatory restrictions and protectionism regulatory restrictions and protectionism

• The

The “ “national interest national interest” ” is redefined is redefined

Quiet Revolution #2 Quiet Revolution #2

• The Malaysia Case Study

The Malaysia Case Study -

• exercising

exercising the option: the option:

• LCC operations

LCC operations

• Expand domestic market

Expand domestic market

• Remove the need for subsidy

Remove the need for subsidy

• Offer an alternative short haul flag carrier

Offer an alternative short haul flag carrier

• Flag carrier restructuring delivers an

Flag carrier restructuring delivers an effective network airline effective network airline

• Everybody wins

Everybody wins -

• almost there

almost there… …

Quiet Revolution #2 Quiet Revolution #2

• “

“Ownership and control Ownership and control” ” – – cross border joint cross border joint ventures, are undermining the core of ventures, are undermining the core of regulation regulation

• Low fares

Low fares – – delivering policy options to delivering policy options to governments governments

• A major (but unsung) development

A major (but unsung) development – – standardisation standardisation of licensing:

• f licensing:

Malaysia/Thailand/Indonesia Malaysia/Thailand/Indonesia

The LCC: Agent of Change The LCC: Agent of Change

A Simple Picture A Simple Picture

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 2001 2002 2003 2004 2005 2006 seats in million

Asia Pacific LCC seat growth Asia Pacific LCC seat growth

• but still heavily regulated

but still heavily regulated

Current orders only: Current orders only: 150% increase in LCC capacity to 2012

150% increase in LCC capacity to 2012

• over 600 aircraft
• ver 600 aircraft

LCC Expansion LCC Expansion

AirAsia AirAsia jumps to 1st jumps to 1st Air Deccan to 3rd Air Deccan to 3rd Indigo to 4th Indigo to 4th Virgin Blue currently largest Virgin Blue currently largest Air Deccan 4th Air Deccan 4th Indigo 15th Indigo 15th

Source: OAG Source: OAG

Major Potential Major Potential Short Haul Short Haul Growth Markets Growth Markets

LCCs LCCs: Independent : Independent vs vs Government/ Government/subsidaries subsidaries

Source: Centre for Asia Pacific Aviation

1 Adam Air 19 B737s 2 Air Blue 3 A320 15 A320 15 ATR-42 6 ATR-72 35 B737-300 7 A320 5 Cebu Pacific 10 A319 6 East Star 3 A320 7 GoAir 4 A320 8 Indigo 4 A320 9 Jazeera 4 A320 10 SpiceJet 6 B737-800 11 Spring Airlines 3 A320 6 B767-300 2 B737-800 31 B737-800 22 B737-700 14 Viva Macau 2 B767 Total 1 9 7 13 Virgin Blue AirAsia 4 Skymark Airlines 12 Fleet I ndependents Air Deccan 3 LCC Subsidiaries/ Govt Ow ner 1 Air Arabia Sharjah 6 A320 1 Air India Express Air India 6 B737-800 2 Freedom Air Air New Zealand 5 A320 3 Jetstar Qantas 27 A320 4 One-Two-Go Orient Thai 5 MD-82 5 Nok Air Thai Airways 7 B737-400 6 Tiger Airways Singapore Airlines 7 A320 Total 6 3 Fleet

LCC Fleet Breakdow n

Subsidiaries 2 4 % I ndependents 7 6 %

China, India and the China, India and the Middle East Middle East

• While

While AsiaPac AsiaPac airlines slowed: airlines slowed: – – China increased 12%+ China increased 12%+ – – India increased 25 India increased 25-

• 30%

30% – – LCCs LCCs grew 10 grew 10-

• 20%

20%

• Indian and Chinese airlines almost all

Indian and Chinese airlines almost all lost heavily. Air China a standout; lost heavily. Air China a standout;

• Most Asia Pacific airlines remained

Most Asia Pacific airlines remained profitable; profitable;

• Gulf airlines mostly profitable, notably

Gulf airlines mostly profitable, notably Emirates Emirates

Where the Orders are Going Where the Orders are Going

1 0 0 2 0 0 3 0 0 4 0 0 5 0 0 6 0 0 Korea Japan I ndia China Others Airbus Boeing Bombardier

Asia Pacific Asia Pacific-

• current orders

current orders

Changing Passenger Changing Passenger Profile in India Profile in India

5 .0 1 0 .0 1 5 .0 2 0 .0 2 5 .0 3 0 .0 3 5 .0 4 0 .0 4 5 .0 5 0 .0 5 5 .0 6 0 .0

9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 0 7 F 0 8 F 0 9 F 1 0 F

Business Lesiure

Busines Leisure/ VF

Source: Centre for Asia Pacific Aviation * Years ending 31-March

Growing the leisure market Growing the leisure market -

• projections to 2010

projections to 2010

New Route Potential New Route Potential in China in China

Source: Centre for Asia Pacific Aviation

Liberalised Liberalised access opens up access opens up many new city pairs many new city pairs

Source: Airbus,Centre for Asia Pacific Aviation

100 + cities > 0.5million 100 + cities > 0.5million 140 + airports 140 + airports Growth exceeds 15% Growth exceeds 15% Smaller airports keen to attract new entrants, revenues Tiger

Asia

China China -

• the

the LCCs LCCs’ ’ long march long march

Airport Competition Airport Competition -

• Asia/Middle East

Asia/Middle East

• 1 0 ,0 0 0 ,0 0 0

2 0 ,0 0 0 ,0 0 0 3 0 ,0 0 0 ,0 0 0 4 0 ,0 0 0 ,0 0 0 5 0 ,0 0 0 ,0 0 0 6 0 ,0 0 0 ,0 0 0 7 0 ,0 0 0 ,0 0 0

I nternational Dom estic Transit

The Top 24: The Top 24: pax pax 2005 2005

Source: Centre for Asia Pacific Aviation

Airport Competition Airport Competition -

• Asia/Middle East

Asia/Middle East

Source: Centre for Asia Pacific Aviation

1 Tokyo Haneda 63,303,843 2 Shanghai 41,517,550 3 Beijing 41,004,008 4 Hong Kong 40,269,847 5 Seoul/ Incheon 39,671,948 6 Bangkok 38,985,043 7 Osaka 35,250,608 8 Singapore 32,430,856 9 Tokyo Narita 31,451,274 10Sydney 29,234,504 11Jakarta 27,947,482 12Dubai 24,782,288 13Guangzhou 23,558,274 14Kuala Lumpur 23,213,926 15Taipei 21,700,702 16Melbourne 21,191,403 17Fukuoka 18,684,471 18Mumbai 17,408,886 19Manila 16,216,031 20Brisbane 16,170,548

2 0 0 5

1 Tokyo Haneda 45,822,503 1 Tokyo Haneda 56,402,20 2 Seoul/ Incheon 30,919,462 2 Osaka 36,821,52 3 Osaka 29,575,993 3 Seoul/ Incheon 36,727,12 4 Hong Kong 28,043,338 4 Hong Kong 32,752,35 5 Tokyo Narita 24,210,286 5 Bangkok 29,616,43 6 Singapore 23,196,242 6 Singapore 28,618,20 7 Bangkok 23,124,116 7 Tokyo Narita 27,389,91 8 Sydney 18,123,336 8 Sydney 25,755,18 9 Fukuoka 16,534,050 9 Beijing 21,691,07 10Beijing 15,044,700 10Fukuoka 19,615,10 11Taipei 14,478,196 11Taipei 18,681,41 12Jakarta 13,142,909 12Melbourne 16,536,76 13Kuala Lumpur 12,776,877 13Kuala Lumpur 14,732,87 14Melbourne 12,245,182 14Guangzhou 13,135,64 15Shanghai 11,076,000 15Manila 12,764,91 16Mumbai 10,957,287 16Shanghai 12,364,67 17Manila 10,574,839 17Dubai 12,320,66 18Guangzhou 8,959,654 18Mumbai 12,067,40 19Brisbane 8,845,803 19Brisbane 11,854,13 20Dubai 7,102,984 20Jakarta 10,679,20

2 0 0 0 1 9 9 5

• Twin drivers:

Twin drivers: Liberalisation Liberalisation & economic expansion & economic expansion

• Dubai & Chinese airports rise rapidly in rankings

Dubai & Chinese airports rise rapidly in rankings

Airport Competition Airport Competition -

• Asia/Middle East

Asia/Middle East

Source: Centre for Asia Pacific Aviation

0 .0 2 0 .0 4 0 .0 6 0 .0 8 0 .0 1 0 0 .0 1 2 0 .0

Asia Pacific/Middle East Asia Pacific/Middle East Airport Capacity: Airport Capacity: Current Current

Million passengers p/a Million passengers p/a

Source: Centre for Asia Pacific Aviation

0 .0 2 0 .0 4 0 .0 6 0 .0 8 0 .0 1 0 0 .0 1 2 0 .0

Current Capacity Planned Capacity

Source: Centre for Asia Pacific Aviation

Asia Pacific/Middle East Asia Pacific/Middle East Airport Capacity: Airport Capacity: 2012 2012

Million passengers p/a Million passengers p/a

• Dubai moves from 14th to 1st (Jebel Ali)

Dubai moves from 14th to 1st (Jebel Ali)

• Doha surges from 25th to 9th

Doha surges from 25th to 9th

Airport Competition Airport Competition -

• Asia/Middle East

Asia/Middle East

In conclusion In conclusion -

• for 2007:

for 2007:

• Of Myths and Risks

Of Myths and Risks

• The Asian aviation growth miracle

The Asian aviation growth miracle is becoming a MYTH is becoming a MYTH

• Only China and India domestic markets

Only China and India domestic markets are booming are booming -

• but most of their airlines

but most of their airlines are unprofitable are unprofitable

• Intra

Intra-

• Asian international services are

Asian international services are seriously constrained by regulation seriously constrained by regulation

• Time to re

Time to re-

• assess: the justification for

assess: the justification for intra intra-

• Asian international regulation and

Asian international regulation and protectionism no longer exists protectionism no longer exists

Time to Move from Myth to Time to Move from Myth to Legend Legend in Asia Pacific in Asia Pacific

One more Revolution is needed, to unlock One more Revolution is needed, to unlock growth: liberalisation growth: liberalisation -

• Move quickly to revive the ASEAN Agreement

Move quickly to revive the ASEAN Agreement for 2008 for 2008

• Add China to the ASEAN market

Add China to the ASEAN market

• China, Japan, South Korea accelerate

China, Japan, South Korea accelerate regional access regional access

• Pursue bilateral liberalisation

Pursue bilateral liberalisation

Time to Move from Time to Move from Myth to Legend Myth to Legend in Asia Pacific in Asia Pacific

• 2006 dramatically illustrated the need for

2006 dramatically illustrated the need for risk management, as fuel prices escalated risk management, as fuel prices escalated

• There is more to risk management than fuel

There is more to risk management than fuel price hedging price hedging

• Any airline, airport or tourism CEO who is

Any airline, airport or tourism CEO who is not prepared for a major setback in 2007 not prepared for a major setback in 2007 will have nowhere to hide will have nowhere to hide

A Word about Risk in 2007 A Word about Risk in 2007

• Risks:

Risks:

• Terrorist attacks

Terrorist attacks -

• local or

local or international international

• New security controls

New security controls

• Avian flu

Avian flu

• SARS

SARS

• Economic downturn

Economic downturn

• These risks are not unpredictable

These risks are not unpredictable -

• nly their timing is
• nly their timing is

A Word about Risk in 2007 A Word about Risk in 2007

Thankyou Thankyou! !