الخميس 2يونيو 2016
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AGM Opens in Dublin The International Air Transport Association (IATA) opened its 72nd Annual General Meeting (AGM) and World Air Transport Summit in Dublin, Ireland. ―Ireland is a great aviation country and the perfect location for the industry’s leaders to meet. Aviation is a force for good. This year, airlines will safely transport 3.8 billion passengers and 52 million tonnes of cargo. That will stimulate economies and spread prosperity. But aviation faces challenges in providing the safe, secure, efficient and sustainable connectivity that the world depends on. The next two days are an opportunity to work together as an industry to make flying even better,‖ said Tony Tyler, IATA’s Director General and CEO. The 72nd Annual General Meeting will feature a keynote address by Shane Ross TD, Ireland’s Minister for Transport, Tourism and Sport followed by Dr. Olumuyiwa Benard Aliu, President of the Council of the International Civil Aviation Organization (ICAO). The World Air Transport Summit will feature discussions on the top items impacting airlines including cyber security and sustainability. The first order of business was to elect Aer Lingus CEO Stephen Kavanagh President of the AGM. ―It is a pleasure to welcome the world’s airline leaders to Dublin. Ireland has for many years played an important role in the development of the global airline industry through the innovation of its businesses and people. Today we are home to a strong airline sector, a growing North Atlantic gateway, a vibrant leasing industry and thriving activities in aerospace. We see the impact of this success in our economy where aviation and tourism support over 220,000 jobs and $10.5 billion in GDP.‖ said Kavanagh. This is the second time the IATA AGM is being held in Ireland—the first being in 1962. The meeting of the world’s aviation leaders is being hosted by Aer Lingus, drawing some 1,000 participants to Dublin.
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(1) Industry Profitability Improves Dublin - The International Air Transport Association (IATA) revised its 2016 financial outlook for global air transport industry profits upwards to $39.4 billion (from $36.3 billion forecast in December 2015). That is expected to be generated on revenues of $709 billion for an aggregate net profit margin of 5.6%. 2016 is expected to be the fifth consecutive year of improving aggregate industry profits. In 2015 airlines generated a global aggregate profit of $35.3 billion (restated from $33.0 billion estimated in December 2015). All regions are making a contribution to the $4.1 billion boost over 2015 profits with improved results; but there are stark regional differences in performance. Over half of the industry profits will be generated in North America ($22.9 billion) while African carriers are forecast to continue generating an overall loss (-$0.5 billion). ―Lower oil prices are certainly helping—though tempered by hedging and exchange rates. In fact, we are probably nearing the peak of the positive stimulus from lower prices. Performance, however, is being bolstered by the hard work of airlines. Load factors are at record levels. New value streams are increasing ancillary revenues. And joint ventures and other forms of cooperation are improving efficiency and increasing consumer choice while fostering robust competition. The result: consumers are getting a great deal and investors are finally beginning to see the rewards they deserve,‖ said Tony Tyler, IATA’s Director General and CEO.
(2) Resilience On average, airlines will make $10.42 for each passenger carried. ―In Dublin, that’s enough to buy four double-espressos at Starbucks. Looked at from a different angle Starbucks will earn about $11 for every $100 in sales while airlines will make $5.60. We don’t begrudge Starbucks their profitability. But here is clearly still upside for airline profits,‖ said Tyler. For the second year in a row and only the second time in the airline industry’s history, the return on invested capital (9.8%) will exceed the cost of capital (estimated to be 6.8%). This is the minimum expectation level for investors. The airline industry is beginning to generate profits that would be expected of any normal business. ―The job of shoring up resilience by repairing balance sheets is under way. We have had a few years of good profits and some airlines have started to pay down debt. It will, however, take a longer run of profits before balance sheets are returned to full health,‖ said Tyler. Repaying accumulated debt will take several years of profitability to achieve. Airlines in North America and in some parts of Europe have seen the gearing of their balance sheets fall towards investment grade levels. But for much of the rest of the industry, it is a continuing challenge. ―Airlines are producing solid results even with some strong economic headwinds. It’s an impressive performance and the mood of the industry is generally optimistic,‖ said Tyler.
(3) Main Forecast Drivers Oil Prices: The outlook is based on oil averaging $45/barrel (Brent) over the course of the year which is significantly lower than the $53.9 average price in 2015. The full impact of lower fuel prices is still being realized as hedges mature. Overall, fuel is expected to represent 19.7% of the industry’s expenses, down from a recent high of 33.1% in 20122013. The Global Economy: Weak economic conditions prevail. GDP is expected to expand by 2.3% in 2016. That is down from 2.4% in 2015 and the weakest growth since 2008 when the global financial crisis hit. Consumer spending is relatively strong, but the corporate sector is conserving cash and, despite some easing of government austerity budgets and low interest rates, there is little evidence of an acceleration in infrastructure spending. Passenger Demand: Passenger demand is robust with 6.2% growth expected in 2016. That is, however, a slowdown from the 7.4% growth recorded in 2015. Capacity is expected to grow slightly ahead of demand at 6.8%. Load factors are expected to remain high (80.0%), but with a slight slip from 2015 (80.4%). Yields are expected to fall by 7.0%. Unit costs, driven by lower fuel prices, are expected to fall by 7.7%. Overall the passenger business is projected to generate $511 billion in revenues, down from $518 billion in 2015. Cargo: The cargo side of the business remains in the doldrums with 2.1% growth in demand. Airlines are growing their fleets with long-haul wide-body aircraft to meet strong passenger demand growth. This adds cargo capacity to a flat air cargo market. Cargo yields are expected to fall by 8.0% this year. Overall cargo is expected to generate $49.6 billion in revenues, down from $52.8 billion in 2015.
Regional Diversity North American carriers continue to deliver the industry’s strongest financial performance with an expected net profit of $22.9 billion which is an improvement on the $21.5 billion reported for 2015. Passenger capacity is expected to expand by 4.3% in 2016, marginally outpacing an anticipated 4.0% increase in demand, but load factors are forecast to remain well above break-even levels. Cash flow has been sufficient for airlines in this region to improve balance sheets significantly by repaying debt, and return cash to shareholders through dividends and share buy-backs. European airlines are expected to post a $7.5 billion profit in 2016 (up from $7.4 billion in 2015). Passenger capacity is forecast to grow by 5.8%, ahead of expected demand growth of 4.9%. Terror incidents have had a dampening effect on demand in some key tourist centers. It is difficult to describe the state of European carriers as uniform. The major groupings have seen solid improvement based on stronger long-haul markets, while many small- and medium-sized carriers continue to struggle. Competition is intense (particularly on intra-Europe routes) and the burdens of high taxes, onerous regulation and inefficient infrastructure (particularly air traffic management) have yet to be meaningfully addressed. Additionally, for many carriers there is a wide gap between the expectations of labor and management. Airlines in Asia-Pacific are expected to post a $7.8 billion profit in 2016, up from $7.2 billion in 2015. Capacity is forecast to expand by 9.1% in 2016, ahead of demand which is likely to grow by 8.5%. AsiaPacific carriers have a 40% share of global air cargo markets. As a result they continue to feel the brunt of stagnation in this sector, which is holding back the improvement in financial performance. Challenges include intense competition as the budget sector expands, restructuring in the Chinese economy and continuing infrastructure and cost difficulties in the Indian market.
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(5) Middle East carriers are expected to post a $1.6 billion profit, up slightly on the $1.4 billion reported for 2015. Capacity is forecast to grow at 12.2%, outpacing an expected 11.2% expansion of demand. Efficient hubs continue to gain market share on connecting markets for the region’s major carriers, although local markets have been weakened by the impact of falling commodity revenues. Economic changes in the region’s oil economies are manifesting themselves in a spate of increases of charges and taxes which could dampen the region’s cost competitiveness. Airlines in Latin America are expected to see a $100 million profit in 2016 after a $1.5 billion loss in 2015. Demand is expected to grow by 4.2% while carriers are forecast to add 3.7% to capacity. Two of the region’s major economies—Brazil and Venezuela—continue in a deep economic and political crisis. The region has been hit disproportionately by the fall in commodity prices and revenues, which led to foreign exchange crises to add to the economic difficulties. Such has been the falling of exchange rates in Brazil and other major commodity economies in the region that airlines have seen hardly any decline of fuel costs in local currencies, while outbound residents have suffered a dramatic decline in purchasing power overseas. African airlines are expected to post a $500 million loss in 2016, a slight improvement on the $700 million that the region’s carriers lost in 2015. Capacity growth (5.3%) is anticipated to outpace demand growth of 4.5%. Carriers in the region continue to confront a plethora of challenges including intense competition on long-haul routes, political barriers to growing intra-Africa traffic, high costs and infrastructure deficiencies. In addition many major economies in the continent have been hit hard by the collapse of commodity prices, and the impact that has had on revenues and the inflow of hard currencies. Unresolved foreign exchange crises are adding to the economic difficulties facing airlines in this region.
(6) Value Creation The airline industry continues to add value to its customers, to the wider economy, and to governments: Consumer benefits from the industry’s improved performance are significant. In 2016 the average return airfare (before surcharges and taxes) is expected to be $366 which is a 62% reduction on 1995 levels (after adjusting for inflation). Passenger numbers are expected to reach 3.8 billion. And the network of unique city pairs will reach 18,243 The number of direct airline jobs is expected to rise by 2.8% in 2016 to 2.61 million. The total airline payroll in 2015 is expected to reach $153 billion (up 6.4% from $144 billion in 2015). Compared with 2015, average unit labor costs are expected to rise by 0.1% as productivity per employee improves 3.4%. Airline employees are also extremely productive for the economies in which they work, generating gross value added (GVA—the company level equivalent to GDP) of $100,186 per employee in 2016 (up 5.3% on 2015) The industry tax bill is expected to grow to $118 billion in 2016, a 5.5% increase on 2015. Airlines’ environmental performance continues to improve. The industry is on target to meet its goal of improving fuel efficiency by an average of 1.5% annually until 2020. Current analysis shows that on average the sector has improved fuel efficiency by 2.4% per year since 2009, a figure that is expected to normalise in the coming years Investments in new aircraft are a major driver of fuel efficiency improvements. In 2016, airlines are expected to take delivery of almost 1,900 new aircraft. About half are projected to replace less fuelefficient older aircraft.
(7) The industry remains committed to achieving carbon-neutral growth from 2020. This is in addition to a 1.5% average annual improvement in fuel-efficiency to 2020 and complements the long-term goal of cutting net emissions in half by 2050 (compared with 2005 levels). View the Economic Performance of the Airline Industry Report View Tony Tyler's State of the Industry Speech For more information, please contact: Corporate Communications Telephone: Dublin: +353 1 240 7938 Geneva: +41 22 770 2967 Email: corpcomms@iata.org Notes for Editors: IATA (International Air Transport Association) represents some 260 airlines comprising 83% of global air traffic Follow us on Twitter at http://twitter.com/iata2press for news specially catered for the media or look for AGM discussions using #IATAAGM
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Tyler: Airline business still not easy As he takes the IATA AGM stage for the last time as director general, Tony Tyler remains all business and doggedly determined to continue addressing those issues that hamper the global airline industry. Tyler highlighted some of the key issues he expects to be at the top of the agenda at the 72nd AGM here in Dublin. ―The biggest issue will be the environment in the run-up to the ICAO Assembly in September,‖ he noted. ―There is a huge opportunity to fix this issue and we need to do our part to show that this industry is united and that we will continue to work with governments towards market-based measures’ implementation. ―As always, safety is on the agenda, and on the security side there are clearly challenges. Most recently, the Brussels [terrorist attacks] show that public areas are vulnerable. So let’s do all we can to reduce crowding in public areas. Let’s get people moving quickly through airport terminals and through security without long queues. In the US, the TSA congestion is unacceptable; everyone recognizes that and something needs to be done,‖ Tyler said. “We also still need to work on taxes and get governments to see aviation as a driver of economic growth rather than a cash cow. And with infrastructure, there are still significant problems in China, the Gulf and elsewhere, while the US is making slow progress with NextGen. Airport charges are another issue, particularly as what you see with some large hubs is that airports are effectively monopolies. So we need effective regulation where the airport is required to consult with its customers. It’s important for governments to recognize that.‖
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(2) But the ―number one priority,‖ Tyler believes, is the overall state of the global economy. ―There’s plenty to worry about there. The way some of the industry is performing right now is somewhat defying economic gravity. The figures are pretty good, but I think airlines are finding out that cheap oil is nice, but it doesn’t solve all problems. The strong US dollar has not been good for all airlines and the big European carriers and some of the Asian carriers are finding it a very challenging business. My personal observation is that labor militancy seems to be up a bit also. So there’s certainly an improvement over previous times, but it’s still not an easy business.‖ But it’s a business from which, at least in the near term, Tyler plans to take a hiatus. So how will the DG feel as he takes the stage this year? ―Certainly I have mixed feelings as this will be my last AGM as DG and prior to that as [Cathay Pacific] CEO and an [IATA] board member,‖ he said. ―But I am looking forward to a new life.‖
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IATA AGM host Aer Lingus is in growth mode Aer Lingus is the host airline of the 72nd IATA AGM here in Dublin. International Airlines Group (IAG) acquired Aer Lingus in September, bringing it under the Group umbrella that includes British Airways and Spanish carriers Iberia and Vueling. Stephen Kavanagh joined Aer Lingus in 1988 and was appointed CEO in March 2015. He talked with the Executive Report. A prestigious role to be this year’s AGM host airline … Yes, Aer Lingus is celebrating its 80th anniversary this year, so it’s quite a significant milestone in the company’s history. But it’s also important for Ireland and for how it has developed and highlighted the positive impact of aviation. So we are delighted to showcase both Aer Lingus and Ireland and its aviation and airline businesses. We’ve been a very long standing member of IATA and we last hosted the AGM in 1962, so we are delighted to have this opportunity. What issues do you expect to see raised at this AGM? Because we are in Europe, I think we will see a focus on the infrastructure issues in Europe, whether it be Single European Sky, runways or regulation. As an industry, we are highly regulated and some of that regulation is necessary, but not all of it adds value. That has been on the IATA agenda for some time and I can see it being echoed within [Ireland], a very liberal and deregulated marketplace.
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How do you take advantage of Ireland’s geographic location? It’s often seen that the geographic location of Ireland, on the periphery of a major market, is a strategic weakness. For example, the Irish government was obsessed with us maintaining connections with Heathrow. In fact, we see opportunity to grow from Dublin. Our geographic location gives us the shortest crossing over the Atlantic and that’s an advantage for any airline. That is something we are keen to continue to communicate. It underpins our strategy. IAG has a three-hub strategy – Heathrow, Madrid and Dublin – and each plays a part in the system. It’s a mindset change, to see opportunity where others see weakness. What’s it like working with the other IAG airline CEOs? As the operating companies retain their autonomy as airlines, the value is not just in what the Group offers and in the guidance from IAG, but also in the debate and discussions from within the companies. I have to say, there’s a little bit of competitiveness. We are delighted to deliver a return on capital against expectations from year one and now we’re striving to become the most profitable operating business within the Group. It’s very healthy competition. It’s in the right spirit. There are mutual learnings, which are shared, and there’s a lot of cooperation. So it’s been a very comfortable in terms of not just the structures, but also the personalities. It’s a very impressive team to be part of.
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What are your growth focus areas?
We have seen some recovery in the Irish economy; we are just beginning to see that drive our short-haul performance. Obviously, short-haul is where most of our volume is and it’s also where our most intense competitor is and so we continue to develop and that business. But our focus in terms of ASK growth has been across the Atlantic. We’ve grown at a compound rate of 12% since 2010 and we’ve continued that in 2016 under IAG’s ownership, where we’ve accelerated our growth and added three new destinations. We’ve commenced Los Angeles; we will start [New York] Newark and Hartford, Connecticut, in Q3. That will bring us to 10 gateways in North America. We are starting to get double dailies on our core gateways in North America, which allows us to maximize our efficiencies out of Dublin without compromising the efficiencies of our short-haul operation. We have double daily now on Chicago, JFK and Boston and we will look to increasing frequencies on our other gateways. We are also looking at future aircraft types and how aircraft such as the Airbus A321LR may fit into a revised hub strategy where frequency is invested in, but not at the expense of cost per seat. Norwegian, the low-cost, long-haul carrier, plans to start service to the US from Ireland, pending regulatory approval. How do you view the new competition? Every airline wishes for a monopoly in its home market. But life doesn’t work like that. Competition is good. Level competition is healthy and it stimulates the marketplace and we respond accordingly. We are in business because of extremely low entry fares. We operate a high volume, high load factor transatlantic operation. We compete on the basis of value and price is a key component. So we keep focused on our cost reduction and on the guest experience and we believe that we can retain our competitiveness.
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Please share your thoughts on Tony Tyler’s IATA leadership and his named successor, Alexandre de Juniac? We have been truly blessed with Tony for a number of years. He has that great balance of diplomacy and industry knowledge and he has been key to identifying the issues that IATA should focus on, reinforcing IATA’s core mandate. And the delivery over the past years has been exceptional and we look forward to that continuing. I think IATA has chosen very well.
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