Manitoba Aviation Council 2011 Conference Aviation Industry Update
strategic transportation & tourism solutions
Karla Petri Manager, Economic & Financial Analysis InterVISTAS Consulting, Inc. April 27, 2011
InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy
1. Who we are…
A leading management consulting company with extensive expertise in the transportation and tourism industries Over 400 clients and 2,000 projects worldwide Project experience in 63 countries 90 professionals in 7 offices Multilingual capabilities
Our History
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Our Corporate Partners
www.dhv.com
www.delcan.com
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international consultancy and engineering group
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operating in transportation, aviation, building and manufacturing, water, urban and regional development, and environmental sustainability
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operating in the transportation, information technology and water sectors
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staff: 5,500
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offices in Europe, Asia, Africa and North America
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Head Office: Amersfoort, The Netherlands
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multidisciplinary engineering, management and technology consulting firm
www.naco.nl
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airport consultancy in airport development and design
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specialized in terminal and ancillary buildings, airside & landside infrastructure, integrated noise modeling
staff: 600
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staff: 200
10 offices in Canada, 9 offices in the U.S., 3 offices international
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offices in Europe, Africa and the U.S.
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Head Office: The Hague, The Netherlands
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Head Office Canada: Markham ON
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Head Office U.S.: Chicago IL
InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy
Econo-geek Vocabulary Economic Recovery can take many forms: • 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
6
US Real GDP Growth (Historical) 10% 8% 6% 4% 2%
2007
2003
1999
1995
1991
1987
1983
1979
1975
1971
1967
1963
1959
1955
1951
-2%
1947
0%
-4% Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research
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US Real GDP Growth (Historical) 10% 8% 6% 4%
2007
2003
1999
1995
1991
1983
1979
1975
1971
1967
1963
1959
W WW 1955
1951
-2%
1947
0%
1987
2%
-4% Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research
8
US Real GDP Growth (Historical) 10% 8% 6%
2003
1999
1995
1991
1987
1983
1979
1975
V V WW 1971
1967
1959
1955
W
1951
-2%
1947
0%
1963
2%
2007
4%
-4% Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research
9
US Real GDP • Most forecasts still have V-shaped recovery • But there is risk recovery could be W-shaped
Managing contraction of Fed Assets
Without 2nd recession
Without inflation
will be a challenge
10
Canada Real GDP Growth
CIBC update
6% 4%
5.0%
4.5%
3.5% 2.4%
2%
1.1% 0.3% 0.4%
-0.7%
-4% -6%
-3.0% -1.0% -3.7% -5.4%
Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009 11
H2-2011
H1-2011
H2-2010
H1-2010
Q4-2009
Q3-2009
Q2-2009
Q1-2009
Q4-2008
Q3-2008
Q2-2008
-2%
Q1-2008
0% Q4-2007
Annualized Q/Q Growth Rate
4.6%
Real GDP Growth - Mexico 8%
Forecast Data
Historical Data
6% 4% 2%
-4% -6%
2 Recessions -8% Sources: Historical Data: Mexico: International Monetary Fund Forecast Data: Mexico: International Monetary Fund
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-2%
1997
0%
Global Economic Shift - 2040 US$ Trillion 2000
2040
North America
11
30
Japan
4
6
China
1
26
India
0.5
12
Brazil
0.8
4
• China is already • A larger economy than Japan • A larger generator of tourists than Japan
IATA Industry Statistics Global traffic:
Passenger traffic up 6.0%
Freight up 2.3%
North America traffic:
Airlines have seen a 6.7% growth in passenger traffic and an 11.9% capacity increase
Freight has grown 11.9% (second only to Latin America)
Critical Factors:
Political unrest in Middle East will slow recovery
Earthquake in Japan, and aftermath, will dampen demand and slow recovery (Japanese travel market represents 6.5% of worldwide passenger traffic)
Industry is vulnerable to fuel prices increases
Source: IATA, March 29, 2011
Value of Goods Shipped by Air • Japan: 31% • US: 26% • Canada: 10% • Even for imports •
Canada’s use of Air Cargo is low by global standards for developed economies
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Air Capacity enables economic growth •
Canada now has one of the most restrictive international air policies in the world
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
U.S. $ per barrel
Fuel Prices Crude Oil Spot Prices January 2007 to May 2011
$160
$140
$120
$100
$80
$60
$40
$20
$-
Impacts on Global Airline Industry 2010 fuel bill estimated at $139B 2011 fuel bill forecast at $166B (based on $96/barrel FC)
annual increase of $27B (2011 over 2010)
29% of operating expenses (2011) compared with 14% (2003)
2011 fuel bill represents a cost increase of 370% since 2003
Political unrest in the Middle East is pulling oil prices up
Earthquake in Japan and aftermath is impacting recovery
Revenue impact - industry profits of $8.6 billion are forecast for 2011 (following profits of $16.0 billion in 2010) For every dollar increase in the barrel of oil price (over FC) industry will experience additional costs of $1.6B Source: IATA, March 29,2011
Fuel Cost as a Percentage of Airline Operating Costs Year
% of Operating Costs
Average Price per Barrel of Crude
Total Fuel Cost
2003
14%
$28.8
$44 billion
2004
17%
$38.3
$65 billion
2005
22%
$54.5
$91 billion
2006
26%
$65.1
$117 billion
2007
28%
$73.0
$135 billion
2008
33%
$99.0
$189 billion
2009 E
26%
$62.0
$125 billion
2010 F
26%
$79.4
$139 billion
2011 F
29%
$96.0
$166 billion
Source: IATA Industry Financial Forecast Table, March 2011
Medium Term Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100
US$
$80 $60
•Its not down •Its not back to $145
$40 $20 $2010
2011
2012
2013
2014 19 2015
2016
2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 upper 2 sigma average
$60
low er 2 sigma $40 $20 $2010
2011
2012
2013
2014
2015
2016 20
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
2011
2012
2013
2014
2015
2016 21
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
2011
2012
2013
2014
2015
2016 22
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
2011
2012
2013
2014
2015
2016
Consequences of Fuel Increase •
Will impact airline profitability
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Will accelerate adoption of efficient aircraft
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Will favour move to turboprop •
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Especially Q400 •
Same speed as RJs
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Much lower fuel consumption
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Comfort comparable to RJs
Will affect decision on 737/A320 replacement •
At $100 oil, engine update
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At $175, new aircraft
InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy
Aircraft Delivery • In spite of recession, globally we will see record aircraft deliveries in coming years • 1,400 projected for 2011 • Much of the capacity will be delivered to Asia, Europe, Middle East • These markets will be hotly contested
Especially Europe-Asia/Australia NZ 26
World Aircraft Deliveries: 1995-2015 Total Aircraft Deliveries
1,400 Airbus
Å Projected Æ
Boeing
1,200 1,000 800 600 400 200
Source: Airbus and Boeing websites The Airline Monitor, Jan/Feb 2009
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2014 2015
2013
2011 2012
2010
2008 2009
2007
2004 2005 2006
2001 2002 2003
2000
1998 1999
1997
1995 1996
0
2011: A Critical Year for the Future The future narrow body aircraft #1: New engines on an existing airframe •
15+% reduction in fuel and carbon
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New complementary technologies
#2: New engines on a new airframe •
20-40% reduction in fuel and carbon
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Larger decrease in total operating cost
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But a more expensive aircraft
KEY: The 2011 decision will determine (i.e., lock in) the course, economics & impact of aviation for two decades
Narrow Body Replacement Airbus •
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Initial announcement is A320neo •
New engine option
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15% fuel/carbon reduction
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Airbus view: •
No further engine technology for next 10 years
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Thus deploy new engine technology immediately
The engineering is not far advanced •
Airbus could still switch to new airframe if market demands •
E.g., A-350 switch
Narrow Body Replacement Boeing • Indicates it is likely to decide on NBR in 2011 •
Would take longer to bring to market
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But may offer a better long term product
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But a higher cost per aircraft
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Key issue: •
What will fuel prices be in 2020-2045?
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$100 per barrel favours new engine on existing plane (737G4)
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$175 per barrel favours new aircraft
InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy
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%
Likely to be theme for 2013 conference
Traveler Demographic Trends strategic transportation & tourism solutions
IATA Premium Passengers
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International vs. Domestic In recent years, international traffic growth was seen as a “safe haven” for legacy carriers
LCCs have begun to make inroads in international markets, including Canada, the Caribbean and Latin America
Leisure travel on key international routes has dropped precipitously
At present, some domestic markets are proving to be more stable than international markets
Changing Airline Fees strategic transportation & tourism solutions
Airline Ancillary Fees Airlines have turned to ancillary fees as a source of incremental revenue Additional fees on passenger tickets allow airlines to differentiate base fares from optional add-ons:
Fuel surcharges (return of…)
A la carte add-ons to base fares for services such as: expedited processing, meals, seat assignments, extra baggage
Allegiant and Spirit charge a convenience fee for ticketing done via the internet or on the phone
Southwest has bucked the “add-on fees” trend
Consumer backlash could result from excessive fees being levied
Ancillary Revenues Ancillary Revenues as Portion of LCC Revenues 2007-2008
Allegiant Air 20.4% Ryanair 18.0% easyJet 15.8% Vueling 14.4% Spirit 13.5% Sterling 11.5% Jetstar 10.0% AirAsia 9.0% Viva Macau 8.0% SpiceJet 8.0% SkyEurope 8.0% JetBlue 7.3% Air Asia X 7.0% Air Deccan 6.5% Norwegian 5.9% Air Berlin 5.3% Mandala 5.0% WestJet 4.8% AirTran 4.7% IndiGo 4.4% Southwest 3.0% 0%
5%
10%
15%
20%
Source: Centre for Asia Pacific Aviation and airline reports, via Boeing Current Market Outlook 2008-2027.
25%
Ancillary Revenues – Sell-up
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E-Commerce strategic transportation & tourism solutions
Technology and Price Travel is larger than the next four categories of e-commerce purchases combined Over 65% of all travel now booked online Downward pressures on ticket prices
The credit crunch is further driving the use of price comparison websites for travel products
LCCs continue to grow rapidly and are targeting growth in midhaul destinations and bring massive comparative economies of scale
Simultaneous with increasing airline fuel costs (370% increase)
British Airways targeting the leisure market to make up for the fall in business passengers; ba.com now offers Dynamic Packaging of holidays
Increased demand for Specialised Holidays
Time Rich Travellers - Aging population and early retirement means a growing market Share of travellers between age 60-69 Wellness: 28% Tours: Cruise:
33% 39%
[All holidays – 17% between 60 -69 Source: Communication Networks Study on German Travel market
• By 2050 % of European population above the age of 60 to increase by 50%. • Share above the age of 80 is also set to rise dramatically, growing 2.5 times.
• Cruise market in Europe has grown to over 4.4 Mio in 2008 (Up 10% Vs 2007)
• Money Rich or Time Poor Travellers Leisure time squeezed for the more affluent traveller. Shorter, more frequent trips & growing demand for experience-rich travel. Many consumers lack time to do everything they would like and look for convenience to simplify their lives All-inclusive holidays cuts down travel planning necessity whilst learning holidays combine activities.
Changes in family structure: Growth in Specialist Travel Growth in more adventurous and language travel led by - people having children later - higher disposable income for the young - rise in single person households Share of travellers below the age of 30 Language Holidays: 72% Winter Sport:
33%
Adventure Holidays: Club Holidays:
43%
30%
[All holidays – 24% below the age of 30] Source: Communication Networks Study on German Travel market
A particularly relevant group of travellers to Travel Agents.... “Those aged 16-24 place a high value on the expertise, support and timesaving advantages of using a travel agent� October 2008 ABTA survey
Environmental Impacts strategic transportation & tourism solutions
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Factors Potential for increased environmental regulation that will affect the industry
Pacific Carbon Trust, BC (all BC government travel must be offset)
LEED requirements on new buildings
Travelers are beginning to demand carbon neutral travel What will be impacts be on aviation?
Coming Soon to North America Climate Change issue is not confined to Europe
North American attitudes are shifting rapidly
Aviation will be targeted
InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy
InterVISTAS Canadian Workforce Study *
Key findings of a comprehensive analysis of 31 Canadian airports – Occupations, labour-related trends and recommendations. * The Canadian Council for Aviation and Aerospace, in partnership with the Canadian Airports Council, and with funding from the federal government, commissioned InterVISTAS Consulting Inc. to conduct the Airport Occupations Study.
External Trends – Industry Impacts Aging population New Technologies Increasing / Changing Security Requirements Environmental and Sustainability Expectations Increased International Travel Asian Development Competition with U.S. Airports – cost structure Regulatory burden Low Cost Carriers
Workforce Impacts “Greying” of the airport workforce 7% of total workforce have left in the last 12 months - no net increase in workforce Majority of employees are satisfied with salaries Employee benefits - typically superior to most private sector jobs Skilled workforce required Comprehensive and complicated training needs – costly and time consuming (previous generation TC trained) Growing regulation will increase the need for training On the job training plays a more important role than formal education Gap identified in mentoring and training and on-line curriculum
Boeing Global Employment Forecasts •
•
Growing maintenance personnel requirements: •
Will grow to 600,000, globally by 2029
•
Will require 30,000 net additional each year
•
Includes replacement staff to cover retirements and incremental staff for industry growth
North America •
Will require 137,000 •
Compare to Europe at 122,000
•
Asia at 220,000
InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy
Local Economic Outlook Impacts of credit crisis/ recession were felt less so in Manitoba Manitoba’s Economic growth remained positive Canadian Business Travel recovering * Projected to increase 4.6% in 2011 * Source: Conference Board of Canada, Canadian Business Travel Outlook 2011 survey (survey of 56 Canadian Corporations with travel budgets exceeding $1M)
Consumer Confidence Improving US is optimistic
“Present Situation Index” (current economic and employment situation) is highest it has been in 2 years
Sharp increase in “Expectations Index” (economy, income and employment expectations) for the next 6 months
Canada is optimistic
“Present Situation Index” is showing an upward trend in Q1 2011 (less so in BC and the Atlantic)
Modest increase in “Expectations Index” (less so in Quebec)
Source: TNS Global Canada Quarterly Newsletter, Spring 2011 , www.tnsglobal.com
Consumer Confidence Improving Manitoba is optimistic
“Present Situation Index” highest in Manitoba and Saskatchewan
“Expectations Index” Manitoba Saskatchewan and Alberta show highest levels
Source: TNS Global Canada Quarterly Newsletter, Spring 2011 , www.tnsglobal.com
Overview Manitoba in good shape, relative to other areas Key impacts:
Canada’s low use of Air Cargo compared to other developed nations
Canada’s restrictive regulatory environment
Rising / unpredictable fuel prices
Shocks – unrest in Middle East Japan earthquake /energy
Key aircraft decisions
Airline industry costs / downward pressure on ticket prices
Aging Canadian workforce and training / skills gap
Passenger expectations / behavior / travel & tourism trends
Positive economic outlook and consumer confidence for Manitoba
Thank You subscribe to Canadian Aviation Intelligence Report:
strategic transportation & tourism solutions
www.interVISTAS.com
Questions: karla.petri@InterVISTAS.com