02_the general trend of the global airline industry

7/30/2019 02_The General Trend of the Global Airline Industry

1/41


2/41


3/41

Passenger Traffic transported by different airline business models

2003 - 2010

2003 2010 % change

Full Service Airlines 1.3 billion 1.63 billion 25%

* Share by top 200 world airlines

Low Cost Carriers 178 million 615 million 245%

Regional Airlines 147 million 216 million 47%

Charter Airlines 83 million 54 million -32.5%

Total 1.7 billion 2.5 billion 47%

Source: ICAO, AEA, ATA, AAPA, AACO


4/41

Cargo $38,440 5.6%

Network Airlines $466,165 5.3%

Charter Airlines $11,755 3.6%

Low cost carriers $46,413 7.6%

Regional Airlines $13,272 5.6%

Revenues

($millions)

Operating

Margin

$817

$15,719 $-9,714 (2009)

$26

$2,584

$36

Net Result

($millions)

Financial Returns of different Airline Business Models (2010)

Source: Airline Business, August 2011


5/41

Geographical Distribution of Passenger Traffic*

2000 - 2010

Passengers 2000 Passengers 2010 % Change

(millions) (millions)

North America 726 777 7%

Europe 420 716 70%Asia-Pacific 378 742 96%

* Share by top 200 world airlines

Central/South America 82 137 67%

Middle East 44 107 143% .

Africa 29 42 45%

Total 1.67 billion 2.52 billion 35%

Source: ICAO, AEA, ATA, AAPA, AACO


6/41


7/41

Main Drivers for Traffic Growth

Increased traffic growth on existing routes and on new non-stop routes that will

connect main cities to secondary cities (e.g. London Bangalore)

Dynamic growth in emerging markets (China, India, Asia Pacific, Latin America)

Continued growth of Low Cost Carriers (particularly in Asia)

Greater and continued market liberalisation worldwide

More demand for overseas holidays and wealthier people buying second homes

overseas

More travel obligations as Businesses continue to visit clients the personal

touch remains an important relationship tool for global companies.

Strong economic growth is an important contributor to traffic growth


8/41

Europe

North America

Asia Pacific

Middle East

Latin America

Africa

CIS

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

2009 Traffic

Long term growth prospects of air traffic (2009- 2030)

% of 2009

World RPKs

28%

28%

27%

6%

5%

3%

3%

% of 2029

World RPKs

25%

20%

33%

9%

6%

4%

3%

2030 Traffic

Revenue Passenger Kilometres (billions)

Source: Airbus General Market Forecast 2010


9/41

66% of the global middle class will be in Asia-Pacific in 2030

Global middle class is expected to rise to 4.9 billion people by 2030

Source: Airbus General market Forecast


10/41Source: IMF, World Bank

Global GDP Growth/Decline and Length of Recession

#

#

#

#

#

#

#

##

#

##

#

#

###

###

####

##

#

#

#

#

#

#

#

#

#

#

##

#

#

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2010

World GDP growth/decline

0%

1%

2%

3%

4%

8%

7%

5%

6%

1973-75

Oil Crisis

- 4X to $12 Stock Market

1991-93

1st Gulf War

Oil Hike* 2X to $33

1980-82

Iran-Iraq war

Oil Shock- 3X to $39

2001-03

US Weakening

9/11 2nd Gulf War

Oil Contracted

to $15 per barrel

2008-2012

Credit Crunch

Multiple Govt Bailout Stock market turmoil

Fluctuating oil prices

Greece meltdown

EU contagion

#


11/41Source: ICAO, IATA and Economist Intelligence Unit, December 2010

Global Growth in Passenger Traffic and GDP1971 - 2010

#

#

#

#

#

#

#

##

#

##

#

#

###

###

#

#

##

##

#

#

#

#

#

#

#

#

#

#

##

#

#

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2010

World GDP growth#

%C

hangeofGDPyea

roveryear

GDP Growth

0%

1%

2%

3%

4%

8%

7%

5%

6%

0%

2%

4%

6%

8%

10%

12%

14%

-2%

-4%

World scheduled airline RPKs

RPK Growth

%C

hangeinPassengerTrafficyearoveryear


12/41


13/41

Annual net profitability of ICAO member airlines(1970 to 2008)

Source: (ICAO, 2011)

The overall cumulative net profitability of the sector rarely achieves more than 2 per cent


14/41

Why is it so difficult to make money in the Airline Industry???????


15/41


16/41

World Airline revenues and expenses

1991 - 2011

Source: ICAO data to 2009 and IATA estimates and forecasts to 2011

$0

$100

$200

$300

$400

$500

$600

$700

Operating Revenues

$Billions

Operating Expenses


17/41


18/41

$

1970 1975 1980 1985 1990 1995 2000 2005 2010

0.6

0.8

1

1.2

1.4

1.6

1.8

2

2.2

2.42.6

Real Fare

Fare(Realprice)

$

$

$

$

$ $ $$$

$

$$

$

$$$

$$

$

Real Unit Cost$

1.40

0.90

1.10

0.40

0.50

0.60

0.70

0.80

1.00

1.20

1.30

RealUnitC

ost

Air Fares have halved since the 1970s

Yields are falling - So Airline Costs must follow suit

Source: IATA, ICAO and Haver


19/41

Dollarsp

erBarrel

The volatility of Jet Fuel and Crude Oil Prices ($/barrel)20032012

Source: Platts


20/41

Source: ICAO, IATA

$0

$100

$200

$300

$400

$500

$600

Operating Expenses Fuel Expenses

Billions

Comparison of Fuel Costs & Other Costs for Global Airline Industry

14% 12.9%

16.3%

25.3%29%

13.5% 13.6%

22%

31.5%

35.9%42.8%

Average price for fuel in 2011 was $112 per barrel - represented around 30% of costs Costing global airlines $178 billion

F l H d i P iti f 2008


21/41

% of Fuel

hedged for 2008

78% $55

Price hedged

70% $86

85% $70

29% $76

11% $88

36% $95

23% $96

70% $51

Fuel Hedging Positions for 2008


22/41


23/41


24/41

12%

46%

US Dollars

0%

10%

20%

30%

40%

50%

Income

Cost

40%

11%

Euro

15%

36%

Turkish Lira Other

Currencies

33%

7%

Currency Issues Income and ExpensesTurkish Airlines (2010 data)

ProportionofTotal

Source: Dursun, 2011M.Sc thesis


25/41


26/41

2002

Employee costs 2,409

Fuel and Oil 1,028

Depreciation & amortisation 770

Aircraft Operating Leases 199Engineering costs 673

Landing fees & En-Route fees 615

Handling/catering charges 1,110

Selling costs (IT related) 824

Accommodation, ground costs 822

Total Operating Costs 8,450

2010

1,998

2,372

732

69505

608

997

290

571

8,225

% Difference

-17%

130%

-5%

-65%-25%

-1%

-10%

-65%

35%

-3%

British Airways cost structure 2002 and 2010 ( sterling)

Source: BANote: The principle operating costs are only included in this slide

Seasonality of Traffic for Aer Lingus


27/41

+

)

$ $$

$$

$ $ $ $

$

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2008$

Passe

ngers

$ $

)

)

)

))

)

))

)

)

2009)

Seasonality of Traffic for Aer LingusMonthly Passengers

+

+

+

+

)

2010+

+

+

+

Source: Aer Lingus

Worlds top 12 Airline Groups by Net Profit


28/41

Worlds top 12 Airline Groups by Net Profit

Rank Airline US$ millions

2010 2009 2008 2007

1 Cathay Pacific 1,832 606 -1,117 427

2 Air China 1,825 711 -1,353 519

3 Lufthansa Group 1,493 -156 796 2,277

4 Emirates 1,463 963 187 1,4515 China Southern Airlines 857 48 -696 95

6 United-Continental 854 -718 - -

7 Singapore Airlines Group 824 152 737 1,395

8 Air France-KLM Group 812 -2,203 -1,142 1,080

9 China Eastern Airlines 734 25 -2,205 5010 Delta Air Lines 593 -1,237 -8,922 1,612

11 US Airways 502 -205 -2,210 427

12 Ryanair 496 431 148 687

Source: Airline Business, August 2011; 2010; 2009; and 2008

Note: PAL brought in revenues of around $1.67 billion in 2012 data suggests that it made a profi

of $67 million in 2010


29/41

Rank Airline US$ millions

2010 2009

Worlds top 10 Underperforming Airlines (Net losses)

1 AMR -471 -1,468

2 Mesa Airlines -340 -

3 SAS Group -332 -373

4 Kuwait Airways -268 -590

5 Pakistan International Airlines -244 -60

6 Kingfisher -226 -348

7 Oman Air -202 -1688 Air Berlin -128 -13

9 Olympic Air -107 -

10 Tarom -105 -76

Source: Airline Business, August 2011; 2010; 2009; and 2008


30/41


31/41

Imbalances European Air Freight Flows (2008)


32/41

sia - N. Am 2,000 2.94 5,880

Volume(000 tonnes)

Rates(/kg)

Revenues(m)

Volume(000 tonnes)

Rates(/kg)

Revenu(m)

Outbound Inbound

900 1.4 1,260

sia - Europe 2,000 2.8 5,600 1,300 1.4 1,820

Europe

N. America 1,400 2.2 3,080 1,300 1.5 1,950

uropeAfrica 300 1.9 570 300 1.6 480

Imbalances - European Air Freight Flows (2008)

Source: AF/KLMAviation Strategy Jan/Feb 2010


33/41

Aviation and the Environment

The Threat

Environmental concerns


34/41

Environmental concerns

1973

2003

2007Source:Manch

esterMetropolita

nUniversity


35/41

Global CO2 Emissions

Transportation19.2%

Residential &13.0%

griculture & deforest9.1%

Power Stations29.5%

Fossil Fuel Production8.4%

Industrial Processes

20.8%

Commercial

ation

Source: Emissions database for Global Athmospheric Research

Source: Emissions database for Global Atmospheric Research

Air Transports environmental Impact

Global Transport C0 2 Emissions by Mode

14.3%

2.2%1.4% 1.3%

Road

Tran

sport

AirTran

sport

Shipp

ing

Rail,In

landW

aterw

ay

Environmental


36/41

Aviation is responsible for 2-3% of total man-made C02 emissions

Every tonne of fuel burnt by a jet engine produces 3.2 tonnes of C02

Its made up of Nitrogen oxide (Nox), soot and water vapour which forms

condensation trails and cirrus clouds

The Stern report stated that C02 emissions from aircraft could more than triple by

2050

ICAO Has drawn up guidelines for a global emissions trading scheme. This will

add $50 per long-haul flight in the future

New Designs:-

New Rolls Royce Trent 1000 produces 40% less N0x than previous engines

See a change in engine design as fan blades will be powered by Jet

Turbines (completely remove the cover around the engines)15% Fuel Savings

Bio-fuels: fuels are made from plants (carbon neutral) mixed with jet fuel

Environmental


37/41

An Emissions Trading Scheme (ETS) has been running for a number of

years for ground based polluters such as factories. This has now extended toAviation.

The EU ETS was passed in 2008 and will come into full effect by 2012

It will impose a cap on aircraft emissions in EU airspace and place financial

burdens on aircraft operators that exceed their allowances

The EU ETS limits the carbon emissions that can be produced by aircraft

operators and establishes a regulated system in which airlines are allocated a

free allowance. When airlines exceed this allowance, they will have to purchase

additional carbon credits.

The EU ETS places the overall annual cap of carbon dioxide (CO2) that can

be emitted by airlines at 97% of historical emissions in 2012. This will reduce to

95% by 2020. Historical emissions are defined as the mean average of annual

emissions in the years 2004, 2005 and 2006.

Details of the EU ETS


38/41

Details of the EU ETS

The cost and penalties for exceeding allowances and the finite pool of

available credits for purchase could make it difficult for airlines to grow.

The allocation of free allowances will account for 82% of the capped emissions

and will be distributed annually beginning in 2012. Operators will continue to

receive the same proportion of allowances in 2020 as they did in 2012.

A further 15% of the annual cap will be auctioned

The remaining 3% will be kept in reserve for new start up carriers.

Airlines will continue to expand and grow and this will force carriers to purchase

further credits . The two principle types of credits are i) European UnionAllowance (EUAs) units and Kyoto accredited Certified Emissions Reduction

(CERs) units. However the EUAs will be the main carbon credit currency for

operators in Europe.

A major carrier (e.g. Lufthansa) could spend in excess of250 million onemission credits between 2012 and 2020


39/41

Leakage Problem facing the EU ETS

Ai f d l f h F ?


40/41

Aircraft developments of the Future?

Development driven by Environmental issues


41/41

Thank you all very much

02_the general trend of the global airline industry

Documents