Aviation Industry Trends Dr. Mike Tretheway
Air Passenger Traffic Global air passenger traffic has been resilient. • Air travel has its ups and downs, but it has continued to grow
• ICAO expects global traffic to reach 5 billion over the next 20 years (3.5% AAGR).
Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA). Realizing the vision together
Global Air Passenger Traffic by Region World Regions will Grow at Different Rates • Air passenger traffic is expected to continue to grow at different rates around the world by region. • Driven by economic growth, Latin America, Middle East and Asia Pacific are expected to lead global growth over the next 20 years.
Source: Boeing Current Market Outlook 2011-2030. Realizing the vision together
Air Passenger Traffic International traffic grows faster than domestic
33%
67% 24%
76%
Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA). Realizing the vision together
Tourism Source Markets Shift and Diversification of Tourism Source Markets
• Total tourism demand accounted Top 10 Origin Markets - 1990 for by the top 10 United States, Germany, Japan, United Kingdom, markets worldItaly, France, Canada, Austria, Netherlands, Sweden wide
Top 10 Origin Markets 2010 Germany, United States, China, United Kingdom, France, Canada, Japan, Italy, Russia, Australia
has declined from 70% in 1990 to less than 50% in 2010.
47%
70% Canada 3.2% Canada 4.1%
53%
30% U.S. 8.2%
U.S. 14% Other
Other
Source: World Tourism Organization (UNWTO). Realizing the vision together
Tourism Source Markets Shift and Diversification of Tourism Source Markets • In addition, there has also been a shift in the relative ranking of tourism spending by market:
Top 10 Origin Markets 2010
Top 10 Origin Markets - 1990
United States, Germany, Japan, United Kingdom, Germany, United States, China, United Kingdom, Italy, France, Canada, Austria, Netherlands, Sweden France, Canada, Japan, Italy, Russia, Australia
• Germany overtakes U.S. as largest source; • China one of the top 3 source markets;
47%
70%
• Japan relative ranking has dropped. • These trends are a reflection of the growing significance of emerging markets, and highlight the importance of a targeted strategy.
Canada 3.2% Canada 4.1%
53%
30% U.S. 8.2%
U.S. 14% Other
Other
Source: World Tourism Organization (UNWTO). Realizing the vision together
Airline Industry Financial Performance Financial performance of airline industry continues to be volatile.
Source: International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA). Realizing the vision together
Fuel Prices Fuel prices are having big impact on airlines. • Fuel accounts for a significant proportion of total airline costs at about 25%.
$140 $120 $100 $80 $60 $40 $20 $Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 Oct-04 Feb-05 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12
• Airlines are learning to live with high fuel prices
$160
USD Per Barrel
• After peaking in 2008, fuel prices have dropped, but continue to fluctuate regularly.
Crude Oil Spot Prices
Source: U.S. Energy Information Administration, Airlines for America (Air Transport Association). Realizing the vision together
Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100
US$
$80 $60
•Its not down •Its not back to $145
$40 $20 $2010
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2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 upper 2 sigma average
$60
low er 2 sigma $40 $20 $2010
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2016 Realizing the 9 vision together
2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 upper 2 sigma average
$60
low er 2 sigma $40
•Everyone seems to agree $20 $2010
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2016 Realizing the 10 vision together
2 Sigma Range of Forecasts Forecast 95% ranges Note the scale $120 $100 $80 upper 2 sigma average
$60
low er 2 sigma $40
•Everyone seems to agree $20 $2010
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2016 Realizing the 11 vision together
If History Repeats ‌. Oil Price with Full Historical Range Note the scale $300 $250 $200 Upper range $150
Base price forecast Lower range
$100 $50 $2010
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If History Repeats ‌. Oil Price with Full Historical Range
Airlines have learned to manage with high fuel prices. But not with fuel price volatility!
$300 $250 $200
Upper range $150
Base price forecast Lower range
$100 $50 $2010
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Alternative Fuels In the future, airports may have to be capable of providing & handling two type of fuels – kerosene fuel and bio-fuel. • Although aircraft efficiency has improved, only way for the airline industry to meet IATA’s stated goal of zero carbon emissions by 2050 is by adopting alternative fuels.
• Over the next 20 years, it is expected that bio-fuels will be introduced into commercial aircraft. • Bio-fuel will be used in parallel with kerosene fuel for a considerable period of years. • Implications for airports include source, infrastructure, handling
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Alternative Fuels In the future, airports may have to be capable of providing & handling two type of fuels – kerosene fuel and bio-fuel. • Furthermore, demand for oil is expected to continue to outpace growth of supply as emerging markets continue to grow, and reliance on oil & coal as an energy source increases after the nuclear disaster in Japan. • Price of fuel expected to continue to increase in the long-term and may reach $150-$200/barrel in 10 years.
• Over the next 20 years, it is expected that bio-fuels will be introduced into commercial aircraft. • Bio-fuel will be used in parallel with kerosene fuel for a considerable period of years. • Implications for airports include source, infrastructure, handling
• Potential for carbon tax will also encourage adoption of alternative fuels. • Some airlines, such as United/Continental, BA, and Qantas have already tested alternative fuels. Realizing the vision together
Aircraft Deliveries: 1995-2020 Scheduled aircraft deliveries will increase global air capacity • Record deliveries of aircraft of all sizes will drive strong capacity growth. • This may result in capacity gluts in some markets, especially Europe to Asia. • Some of these aircraft could be redeployed to North American markets.
Source: Airbus, Boeing, The Airline Monitor (January/February 2012). Realizing the vision together
Ultra Low Cost Carriers • Growth in recent years driven by Ultra Low Cost Carriers (ULCCs) such as Allegiant Ryanair, Wizzair, etc.
Ultra low cost carriers are changing airport business model.
• ULCCs differ from LCCs : • Rely on traffic stimulation more than market steal; • Generate high proportions of ancillary revenues; and • Do not offer ‘frills’, even if they enhance revenues, if the frill adds to costs.
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Ultra Low Cost Carriers • ULCCs have power to shift passenger travel and airport usage patterns to much greater degree than traditional LCCs.
Ultra low cost carriers are changing airport business model.
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Ultra Low Cost Carriers • The ULCC business model is based strictly around low fares,
Ultra low cost carriers are changing airport business model.
which requires low costs. This means that airports can only attract ULCCs by offering sustained low fees (not simply introductory incentives). Airports must therefore adapt their own business models to maximise generation of nonaeronautical revenues from ULCC passengers.
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Ultra Low Cost Carriers • Canada has no ULCC Ultra low cost carriers are changing airport business model. presently. However, Allegiant Air attracts many Canadian travellers by offering steeply discounted fares at U.S. border airports. The current tax and border fee regime in Canada means that even with airport fees at zero, ULCCs cannot offer prices low enough to stimulate sufficient traffic.
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Google/Social Media/Visa Int’l: Re-packaging airline Product? • Internet companies have potential to repackage airline products:
Internet creates new interline products
• Kayak “hacker fares” create interline connections not available from carriers; • Google has invested in airline reservation business; • Could develop platform to enter business directly;
• Could offer value added packages for trip fulfillment: • Would you pay $125 for guarantee that you will get to your destination today? • Concierge services with call centre partner.
ITA Realizing the vision together
Google/Social Media/Visa Int’l: Re-packaging airline Product? • Skeptical? Did the following industries anticipate impact of internet companies? • Music • Video rental • Newspapers • Book publishing • Cable TV • Income tax • Investment • Coming: retail • Financial payments
Internet creates new interline products
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Fleet Growth
Key US LCCs & ULCCs continue to grow. Aircraft units on order/option represent 88% growth on current fleet. While some will be used for fleet replacement, these carriers will have the capacity to expand. Allegiant’s apparent lack of future fleet growth is misleading, as used aircraft need not be ordered with the lead time (or publicity) of new aircraft. G4 has increased its fleet by 107% in the last 5 years, and will continue to grow. Allegiant is also increasing total existing fleet capacity by 11% through seat reconfiguration.
5 Aircraft on Order/Option 5 in Current Fleet Realizing the vision together
Westjet Westjet planning to establish new regional airline with smaller aircraft. • WS announced plans to move ahead with a regional airline operating aircraft in the 70-seat range (e.g., Q400s, ATR72s) • Two objectives: 1. Drive domestic growth by adding markets not large enough to support 737 service. 2. Build connecting networks at key airports (YYC, YYZ) Having regional feed is a prerequisite if WS intends to add widebody aircraft to enable future long haul services. This may be a likely step within the next decade. Regional feed also assists its alliance strategy, Realizing the vision together
Air Cargo Airlines are focusing more on air cargo. • Yield pressures on passenger services have airlines paying more attention to cargo revenues.
Source: InterVISTAS Market Research and GDS data. Notes: U.S. average includes AA, CO, DL, UA, US and WN. Realizing the vision together
Automation Automated kiosks are playing a greater role at airports. • Approximately 90% of domestic Air Canada passengers use kiosk, mobile check-in or automated bag-tag process. • WestJet has approximately 85% of passengers check-in via the internet or a kiosk on-site at the largest Canadian airports.
Automation & Check-In: • Mobile check-in and boarding passes have nearly replaced the traditional check-in process. • Canada was a pioneer in self bag-tag.
Auckland, New Zealand
August 2011, Amsterdam Bag-Drop
• Ryanair charges fee if kiosk is not used • Amsterdam airport is an example of a fully automated bag drop function.
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Climate Change
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 Chartres Bishop of London
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Community Response /Backlash
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Sophisticated Messaging on Roads & Rail Routes to LHR Realizing the 30 vision together
Coming Soon to North America Climate Change issue is not confined to Europe •
North American attitudes are shifting rapidly
•
Aviation will be targeted
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IATA commitment • IATA goals • 2020: 25% improvement in fuel efficiency •
From technology and operating practices
• 2050 air travel to be carbon neutral •
Further technology and operational changes
•
Adoption of bio fuels
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Thank You
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