perspectives on aviation industry opportunities on aviation industry opportunities national civil...
TRANSCRIPT
Perspectives on
Aviation Industry
Opportunities
National Civil Aviation Development Forum
Dublin
February 2017
Peter Morris
Chief Economist
1
Agenda
• Global Industry Background and Trends
• Where is the industry going?
• Geographically
• Technically
• Economics/ Business models
• Where are the opportunities?
Macro
-
eco
no
mic
Change in Global Pattern of Economic Activity
Changing Consumer Landscape
So
cia
l /
En
vir
on
men
tal
Global Labour Market
Regulation and Scrutiny
Public Sector Challenges
Natural Resources
Bu
sin
ess
New Global Industry Structures
Changing Economics of Knowledge
Trends to watch for the future
A long term growth industry
4
A Global Interrelated Business
5
Passenger and cargo CUSTOMERS
AIRLINE BUSINESSES
MANUFACTURERSSUPPLIERS
FINANCE
GDS
AIR TRAFFICCONTROL
GOVTS & REGULATORS
•Fuel•Insurance•Handling•MRO•IT& IFE
•Airport Systems•Duty Free, Car Parking•Security
•Shareholders•Leasing•Debt•M&A•Fuel Hedging
AIRPORTSAGENTS &
INTERMEDIARIES
•Airframes•Engines•Components•Spares
Tourism and
Destination
Operators
•Car Hire
•CC
•Hotel
•Ground Transport
The Aviation Evolutionary Cycle
•Ownership
•Alliances
•Route network growth
•Segmentation
•Consolidation
•Aircraft performance
•Distribution options
• Information flow
•On board product
•Actual Performance
•Liberalisation
•Trade Blocs
•Competition
•Protectionism
•GDP and population
•Price
•Product & Information
•Shock Events
•Changing tastes
Customer Regulatory
Airline/ Airport market
structure
Technology Investment
Changes in the world’s economic centre of gravity
7
8 Source: PWC Feb 2017
The noughties saw major changes in regional capacity
Factors impacting airline and airport markets
Dimension Factor
Geopolitical War, Terror, Health issues
Political/ Economic Regulatory, Market Environment, Environmental
legislation
Macro Economic GDP Growth, Exchange Rates, Finance Rates
Airline Business Models Network, LCC, Regional on SH and LH
Supplier Costs Fuel, Labour, Airport, ATC, booking, Security
Competitor Behaviour Pricing, Products, Capacity, Alliances
Customer Behaviour Premium Markets, Destination Choice, FFPs
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Creating a competitive airline business model
Reducing cost Increasing revenue
Aircraft utilisation Premium services
Distribution Hubs/ networks
Staff utilisation/ cost Targeting niche markets
Airport charges
Aircraft technology
Product unbundling
Overheads
Outsourcing
(Hubs/ networks)
CRITICAL MASS THEN NEEDED TO PROTECT
PROFITABILITY
Roadmap for ‘The Basic Hardware’
12 Source: Flight Fleet Forecast 2016, Passenger Jets
Developing Markets set to grow faster than Established ones
Source: Flight Fleet Forecast 2016, Passenger Jets
The demographic downturn
Typical issue among developed
country workforces (US, DE, JP)
Potential losses of skills in critical
areas (e.g. pilots, engineers)
Productivity of different age groups
may vary significantly
Need to match future strategy with
demographic change in a proactive
manner
Similar factors may apply in high
growth environment with skills
shortages
15
Operating lessor share of fleet has stagnated since
peak in 2009
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Op
era
tin
g L
es
so
r F
lee
t a
s R
ati
o o
f To
tal
Fle
et
Pa
ss
en
ger
Fle
et
Ma
na
ge
d b
y O
pe
rati
ng
L
es
so
rs
Single-Aisle Twin-Aisle Share of Fleet
Source: Flight Fleets Analyzer (passenger aircraft in service / stored)
Competition is always round the corner
• The majority of the (8,000+) operating leased aircraft fleet is currently domiciled for
tax purposes in Ireland
• This has created a successful cluster of aviation leasing and related businesses
and expertise
• Other countries with proactive taxation regimes increasingly interested to compete
• Singapore currently offers some advantages but the current financial benefit is
relatively marginal
• From April 2017 Hong Kong proposes to offer a regime for aircraft leasing with an
Effective Tax Rate estimated below 4% (was 33%), compared with Ireland (12.5%)
and Singapore (10%). This could amount to a saving of nearly $1m per aircraft in PV
terms (@5%)
• Would be extended to non-HK based aircraft, and further advantages could accrue
for Chinese airlines using a HKG lessor
16
It can go wrong: Dubai Aerospace Enterprise
• Dubai Aerospace Enterprise was founded in 2006
• As a “global aerospace manufacturing and services corporation”, DAE was set up with
a capital base of USD15bn to establish “an integrated aerospace industry cluster”
• DAE Chairman in 2006: “Within 10 years, DAE will become an integral part of the
global aerospace industry and a leading player. We are putting down a marker for the
future.”
• The company originally had six divisions - DAE Capital, DAE Services, DAE
Manufacturing, DAE Airports, DAE Engineering and DAE University. It has since shut all
units except for leasing division DAE Capital and DAE Manufacturing. These are minor
players.
17
A Cautionary Tale
Our conclusion: The enterprise did not properly research its markets,
and failed to create the right business infrastructure, financial infrastructure or human
capital to support its ambitions. It clearly underestimated the intense global and
established competition in these aeronautical business areas
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Some Areas of Opportunity
Airline/ Airport
Fleet & Services
Network
Global
Education and Training
Travel Distribution
A New Generation of opportunity
19
New Long Haul Potential from Ireland?
• ‘Low Cost Long Haul’ wide body
operations show marginal profitability
• New generation narrowbodies offer 6-
8h flight capability
• Lower trip cost reduces financial risk
and improves profitability
• Dublin has good connectivity and
Transatlantic hub location - potential for
incumbents and new entrants
• Potential from Shannon?
20
Source: Barclays Analysis
A new information, education and training world beckons for Global
Travel
21
Source: Brown/ Costello Dublin City Uni Aug 16
https://onlinetraveltraining.com
On Line Academies
• 200 courses in 15 Languages
• Both promotional and qualification levels
• Content controlled by suppliers
• Suppliers communicate with closed user
groups
• Micro learning
Universities form an essential part of the education, training and talent
ecosystem for aviation and travel, which can be lucrative
Source: THEdS
Pilot training is evolving too
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Assessing opportunities
Identify Context
Industry trends
Trend scenarios
Understanding the players
Benchmark the competition
Quantify the outcome, scenarios
and reaction
Step off the pier
25
Summary
• Aviation has proved a robust global business, but has evolved
considerably since the 80s
• Growth has moved eastwards, challenging a W. Europe location
• Competition is a given in most areas of aviation goods and services
• Opportunities exist for developing:
• Advantageous regulatory framework (tax, facilitating market entry, COE)
• Proactive business encouragement (e.g. LCLH)
• Encourage co-operative physical ecosystems (Education, training, linked
businesses e.g. ‘Airport City’, MRO, manufacture)
• Develop new technology for products/ services to improve efficiency, flexibility
• Virtual products (training, distribution) for AsPac growth markets
Some questions for the panel
• What are the long term strengths Ireland can exploit?
• Regulatory
• Business Framework
• Geography
• EU Regional Bloc
• Education/ Training
• ‘Aviation ecosystems’
• Global Relationships
• What/ who are the enablers in Ireland and elsewhere to target?
• How can government best facilitate the opportunities?
• What opportunities will UK aviation chaos throw up?
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