dr. michael w tretheway · dr. michael w tretheway chief economist, intervistas consulting group...

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Economic and Industry UpdateDr. Michael W Tretheway

Chief Economist, InterVISTAS Consulting GroupACI-NA Economics and Finance Conference

4 May 2010

1

InterVISTAS Consulting Group

HQ in Vancouver

• 85 employees

• 8 offices in US, Canada, Europe, Caribbean

• Specialities• Forecasting, Economic and regulatory analysis

• Privatisation & Finance

• Aviation marketing

• Security and Borders Facilitation

• Climate Change Strategy and inventories


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Economic Update

3

Real GDP Growth – U.S.

-4%

-2%

0%

2%

4%

6%

8%19

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

15

Historical Data Forecast

Data

Sources:

Historical Data: U.S.: U.S. Bureau of Economic AnalysisForecast Data: U.S.: International Monetary Fund

4

Real GDP Growth – U.S.

-4%

-2%

0%

2%

4%

6%

8%19

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

15

Historical Data Forecast

Data

Sources:

Historical Data: U.S.: U.S. Bureau of Economic AnalysisForecast Data: U.S.: International Monetary Fund

Recession

Recession

5

US Real GDP Growth (Quarterly)

0.9%

2.8% 2.9%

-0.2%

-5.7%-6.3%

1.7%

0.4%

-1.5%-0.5%

2.2%

-8%

-6%

-4%

-2%

0%

2%

4%Q

4-20

07

Q1-

2008

Q2-

2008

Q3-

2008

Q4-

2008

Q1-

2009

Q2-

2009

Q3-

2009

Q4-

2009

Q1-

2010

Q2-

2010

Forecast

Sources: Historical – Bureau of Economic Analysis; Forecast – Federal Reserve Second Quarter 2009 Survey of Professional Forecasters (May 15, 2009);

Ann

ualiz

ed Q

/Q G

row

th R

ate

Lehman Brothers Collapse

Mid 2008 GDP growthobscured onset

of recession

6

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

7

US Real GDP

• Most forecasters have V-shaped recovery• delayed but strong impact of stimulus

• Restored liquidity

• Return of Money Velocity

• But recovery could be W-shaped• Managing contraction of Fed Assets

• Without 2nd recession

• Without inflation

• will be a challenge

8

US Real GDP Growth (Historical)

-4%

-2%

0%

2%

4%

6%

8%

10%19

47

1951

1955

1959

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

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

9

US Real GDP Growth (Historical)

-4%

-2%

0%

2%

4%

6%

8%

10%19

47

1951

1955

1959

1963

1967

1971

1975

1979

1983

1987

1991

1995

1999

2003

2007

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

W WW

10

US Real GDP (Historical)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,00019

46

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

U.S

. Rea

l GD

P (b

illio

ns o

f 20

00 d

olla

rs)

Sources: Historical – Bureau of Economic Analysis;

11

Real GDP Growth - Canada

-4%

-2%

0%

2%

4%

6%

8%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Historical Data

Forecast Data

Sources:

Historical Data: Canada: Statistics CanadaForecast Data: Canada: International Monetary Fund

Recession

No Recession

12

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%19

9719

98

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Historical Data

Forecast Data

Real GDP Growth - Mexico

Sources:

Historical Data: Mexico: International Monetary FundForecast Data: Mexico: International Monetary Fund

2 Recessions

13

Canada Real GDP Growth

1.1%0.3% 0.4%

2.4%

3.5%

4.6%5.0%

4.5%

-0.7%-3.7%

-5.4%

-3.0% -1.0%

-6%

-4%

-2%

0%

2%

4%

6%Q

4-20

07

Q1-

2008

Q2-

2008

Q3-

2008

Q4-

2008

Q1-

2009

Q2-

2009

Q3-

2009

Q4-

2009

H1-

2010

H2-

2010

H1-

2011

H2-

2011

Forecast

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

Ann

ualiz

ed Q

/Q G

row

th R

ate

14


1.1%0.3% 0.4%

2.4%

3.5%

4.6%5.0%

4.5%

-0.7%-3.7%

-5.4%

-3.0% -1.0%

-6%

-4%

-2%

0%

2%

4%

6%Q

4-20

07

Q1-

2008

Q2-

2008

Q3-

2008

Q4-

2008

Q1-

2009

Q2-

2009

Q3-

2009

Q4-

2009

H1-

2010

H2-

2010

H1-

2011

H2-

2011

Forecast


Ann

ualiz

ed Q

/Q G

row

th R

ate

2009: -2.4%

15


1.1%0.3% 0.4%

2.4%

3.5%

4.6%5.0%

4.5%

-0.7%-3.7%

-5.4%

-3.0% -1.0%

-6%

-4%

-2%

0%

2%

4%

6%Q

4-20

07

Q1-

2008

Q2-

2008

Q3-

2008

Q4-

2008

Q1-

2009

Q2-

2009

Q3-

2009

Q4-

2009

H1-

2010

H2-

2010

H1-

2011

H2-

2011

Forecast


Ann

ualiz

ed Q

/Q G

row

th R

ate

c

2009: -2.4%c

2010 revised: +3.0%

16

Canada Real GDP Growth (Sub-Annual)

1.1%0.3% 0.4%

2.4%

3.5%

4.6%5.0%

4.5%

-0.7%-3.7%

-5.4%

-3.0% -1.0%

-6%

-4%

-2%

0%

2%

4%

6%Q

4-20

07

Q1-

2008

Q2-

2008

Q3-

2008

Q4-

2008

Q1-

2009

Q2-

2009

Q3-

2009

Q4-

2009

H1-

2010

H2-

2010

H1-

2011

H2-

2011

Forecast


Ann

ualiz

ed Q

/Q G

row

th R

ate

c

2009: -2.4%c

2011 revised: +3.3%

c


& tourismsolutions

Fuel Prices

18

Consensus Economics Oil Price Forecast

$-

$20

$40

$60

$80

$100

$120

2010 2011 2012 2013 2014 2015 2016

US$

Oil Price Forecast

19

Consensus Economics Oil Price Forecast

$-

$20

$40

$60

$80

$100

$120

2010 2011 2012 2013 2014 2015 2016

US$

Oil Price Forecast

•Its not down•Its not back to $145

20

2 Sigma Range of ForecastsForecast 95% ranges

$-

$20

$40

$60

$80

$100

$120

2010 2011 2012 2013 2014 2015 2016

upper 2 sigma

average

low er 2 sigma

21


$-

$20

$40

$60

$80

$100

$120

2010 2011 2012 2013 2014 2015 2016

upper 2 sigma

average

low er 2 sigma

•Everyone seems to agree

22


$-

$20

$40

$60

$80

$100

$120

2010 2011 2012 2013 2014 2015 2016

upper 2 sigma

average

low er 2 sigma

•Everyone seems to agree

Note the scale

23

If History Repeats ….Oil Price with Full Historical Range

$-

$50

$100

$150

$200

$250

$300

2010 2011 2012 2013 2014 2015 2016

Upper range

Base price forecast

Lower range

Note the scale

24

Forecasting Lesson

• Airport forecasting with consensus macro trends• Can conceal what is possible

• Risk based forecasting should be considered Forecast Probability Range

0

5

10

15

20

25

30

35

40

45

50

Year 0 Year 5 Year 10 Year 15 Year 20

Ann

ual P

asse

nger

s (M

illio

ns)

Average

25th / 75th Percentile Range10th / 90th Percentile Range

5th / 95th Percentile RangeProbability Based Forecast: Year 10

0%

2%

4%

6%

8%

10%

12%

14.5

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

20.5

21.0

21.5

22.0

22.5

23.0

23.5

24.0

24.5

25.0

25.5

26.0

26.5

27.0

27.5

28.0

28.5

29.0

29.5

Passenger Traffic (Millions)

Prob

abili

ty

Mean Value: 22.3 million passengers

10th Percentile 90th Percentile


& tourismsolutions

Industry Developments

26

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%

27

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%)

28

World Aircraft Orders: 1995-2008

0

500

1,000

1,500

2,000

2,500

3,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Tota

l Airc

raft

Ord

ers Airbus Boeing

Source: Airbus and Boeing websites

29

World Aircraft Deliveries: 1995-2015

0

200

400

600

800

1,000

1,200

1,400

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Tota

l Airc

raft

Del

iver

ies Airbus Boeing

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

Projected

30

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 yoursand will accept your foreign owned carrier


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Climate Change

32

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 ChartresBishop of London

33

Community Response/Backlash

http://euronews.net/images_news/1308-soir-uk.jpg

34

Sophisticated Messaging on Roads & Rail Routes to LHR

35

Coming Soon to North America

Climate Change issue is not confined to Europe• North American attitudes are

shifting rapidly

• Aviation will be targeted

http://commons.wikimedia.org/wiki/Image:AlGoreGlobalWarmingTalk.jpg

36

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

• Airports need to anticipate and adjust to regulatory changes


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Thank Youwww.InterVISTAS.com

dr. michael w tretheway · dr. michael w tretheway chief economist, intervistas consulting group...

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