strategic transportation & tourism solutions
Economic and Industry Update Dr. Michael W Tretheway Chief Economist, InterVISTAS Consulting Group ACI-NA Marketing Conference 7 June 2010
InterVISTAS Consulting Group Washington DC, Vancouver, London, the Hague • 85 employees • 8 offices in US, Canada, Europe, Caribbean • Specialities •
Air Service Development
•
Forecasting, Economic and regulatory analysis
•
Privatisation & Finance
•
Aviation marketing
•
Security and Borders Facilitation
•
Climate Change Strategy and inventories 1
Outline
• Industry Developments • Economic Update • Fuel Outlook • Climate Change
2
strategic transportation & tourism solutions
Industry Developments
IATA 2010 • Today, changed forecast from loss of $3b to profit of $2.5 billion •
N America profit expected to be $1.9 billion
•
Better than rest of world due to greater capacity cuts
• Pax: +7.1% • Cargo: +18.5%
4
IATA Projections for 2010
5
IATA Projections & History
6
IATA Premium Passengers
7
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% 8
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%)
9
Unbundling #2 Ryanair
• 2009: approximately $1b in ancillary revenues • 20% of total revenues • And growing ! 10
World Aircraft Orders: 1995-2008 Total Aircraft Orders
3,000 Airbus
Boeing
2,500 2,000 1,500 1,000 500
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
11 Source: Airbus and Boeing websites
World Aircraft Deliveries: 19952015 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
2014 2015
2013
2011 2012
2010
2008 2009
2007
2004 2005 2006
2001 2002 2003
2000
1998 1999
1997
1995 1996
0
12
Aircraft Delivery • In spite of recession, globally we will see record aircraft deliveries in coming years • Much of the capacity will be delivered to Asia, Europe, Middle East • These markets will be hotly contested •
Especially Europe-Asia/Australia NZ
• Carriers may see trans-Atlantic/trans-Pacific as attractive opportunities •
US carriers do not have major order books and most on order is replacement
13
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 yours and will accept your foreign owned carrier”
• US & EU signed
14
Alliances/Mergers • UA-CO will be the last airline merger in the U.S. • Air New Zealand – Virgin Blue will be the last airline alliance in the world
• Reality •
We are likely to see a new wave of alliances •
Low cost carrier – Legacy carrier alliances may become a trend 15
LCC/Legacy Alliances • Proposed Air New Zealand – Virgin/Pacific Blue •
DJ new CEO is ex Qantas
•
Branding as New World Carrier, not LCC •
Is indicating it will pursue greater domestic share focussing on penetrating business travel
• WestJet – SW alliance never materialised •
WJ new CEO is ex Canadian, ex Alaska
•
Has invested in CRS/IT to enable alliances
•
Is seeking a range of alliance partners •
Not seeking to join a global alliance 16
Alliances Consequences for Airports • Potential new services •
International airline QSI shares may increase dramatically with a domestic LCC partner
• Potential service rationalisation • Switch in carriers assigned routes • Another round of co-location requests
17
Aircraft • 787 first route announced •
Continental: IAH to AKL a good example of the type of route this aircraft will eventually enable
•
First delivery: ANA November 2010
•
First flight: March 2011
18
strategic transportation & tourism solutions
Economic Update
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
20
US Real GDP- recent Recession has ended
Recession begins
6
2
2010Q1
Q4
Q3
Q2
2009Q1
Q4
Q3
Q2
Q4
Q3
2008Q1
-2
Q2
0 2007Q1
Real GDP Growth (%)
4
-4 -6 -8
Source: NBER 27May2010 21
Real GDP Growth – U.S. 8%
Historical Data
6%
Forecast Data
4% 2%
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-2%
1997
0%
-4% Sources: Historical Data: U.S.: U.S. Bureau of Economic Analysis Forecast Data: U.S.: International Monetary Fund 22
Real GDP Growth – U.S. 8% 6%
Historical Data
Recession
4%
Forecast Data Recession
2%
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-2%
1997
0%
-4% Sources: Historical Data: U.S.: U.S. Bureau of Economic Analysis Forecast Data: U.S.: International Monetary Fund 23
4%
US Real GDP Growth Mid 2008 GDP growth (Quarterly) obscured onset of recession 2.9%
Forecast
2.2% 1.7%
2% 0.9%
0.4%
-4%
-0.2%
Q2-2010
Q1-2010
Q4-2009
Q3-2009
-1.5%
-0.5%
-6%
Q2-2009
Q1-2009
Q4-2008
Q3-2008
Q2-2008
-2%
Q1-2008
0% Q4-2007
Annualized Q/Q Growth Rate
2.8%
-5.7%
Lehman Brothers Collapse-6.3% -8% Sources: Historical – Bureau of Economic Analysis; Forecast – Federal Reserve Second Quarter 2009 Survey of Professional Forecasters (May 15, 2009); 24
US Real GDP • Most forecasters have V-shaped recovery •
delayed but strong impact of stimulus
•
Restored liquidity
•
Return of Money Velocity
• But some risk recovery could be W-shaped •
•
Managing contraction of Fed Assets •
Without 2nd recession
•
Without inflation
will be a challenge 25
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 26
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 27
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 28
14,000 12,000 Recessions are wiggles in a steadily growing economy
10,000 8,000 6,000 4,000 2,000
Sources: Historical – Bureau of Economic Analysis;
2006
2001
1996
1991
1986
1981
1976
1971
1966
1961
1956
1951
0 1946
U.S. Real GDP (billions of 2000 dollars)
US Real GDP (Historical)
29
Real GDP Growth - Canada 8%
Historical Data
6%
Forecast Data
Recession
4% 2%
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-2%
1997
0%
No Recession
-4% Sources: Historical Data: Canada: Statistics Canada Forecast Data: Canada: International Monetary Fund 30
Canada • Canada is definitely in a strong V-shaped recovery •
Has already started to increase interest rates
• Canada’s banking sector has no bailout costs to recover •
Is pushing G-8 to avoid a bank tax
31
Canada Real GDP Growth 6% 4.6%
4%
4.5%
3.5% 2.4%
2%
1.1% 0.3% 0.4%
-0.7%
-4% -6%
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
Forecast
5.0%
-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
32
Canada Real GDP Growth 6% 4.6%
4%
2009: -2.4% 2%
4.5%
3.5% 2.4%
1.1% 0.3% 0.4%
-0.7%
-4% -6%
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
Forecast
5.0%
-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
33
Canada Real GDP Growth 2010 revised: +3.0%
6%
4.6%
4%
2009: -2.4% 2%
4.5%
3.5% 2.4%
c
1.1% 0.3% 0.4%
-0.7%
-4% -6%
H2-2011
H1-2011
H2-2010
H1-2010
Q4-2009
c
Q3-2009
Q2-2009
Q1-2009
Q4-2008
Q3-2008
Q2-2008
-2%
Q1-2008
0% Q4-2007
Annualized Q/Q Growth Rate
Forecast
5.0%
-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
34
6%
Canada Real GDP Growth (Sub2011 revised: Annual) +3.3% 4.6%
4%
2009: -2.4% 2%
4.5%
3.5% 2.4%
c
c
1.1% 0.3% 0.4%
-0.7%
-4% -6%
H2-2011
H1-2011
H2-2010
H1-2010
Q4-2009
c
Q3-2009
Q2-2009
Q1-2009
Q4-2008
Q3-2008
Q2-2008
-2%
Q1-2008
0% Q4-2007
Annualized Q/Q Growth Rate
Forecast
5.0%
-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
35
Real GDP Growth - Mexico 8%
Forecast Data
Historical Data
6% 4% 2%
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
-2%
1997
0%
-4% -6%
2 Recessions -8% Sources: Historical Data: Mexico: International Monetary Fund Forecast Data: Mexico: International Monetary Fund 36
strategic transportation & tourism solutions
Fuel Prices
38
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
Nov-06
Sep-06
Jul-06
May-06
Mar-06
Jan-06
Nov-05
Sep-05
Jul-05
May-05
Mar-05
Jan-05
Nov-04
Sep-04
Jul-04
May-04
Mar-04
Jan-04
Nov-03
Sep-03
Jul-03
May-03
Mar-03
Jan-03
U.S. $ per barrel
Fuel Prices Crude Oil Spot Prices January 2003 to June 2010
$160
$140
$120
$100
$80
$60
$40
$20
$-
Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100
US$
$80 $60 $40 $20 $2010
2011
2012
2013
2014
2015
2016 39
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
2015
2016 40
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
41
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
42
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
43
If History Repeats ‌. Oil Price with Full Historical Range Note the scale $300 $250 $200 Upper range Base price forecast
$150
Lower range $100 $50 $2010
2011
2012
2013
2014
2015
2016
44
Forecasting Lesson • Airport forecasting with consensus macro trends •
Can conceal what is possible
•
Risk based forecasting should be used Forecast Probability Range 50 Average 45 40
25th / 75th Percentile Range 10th / 90th Percentile Range 5th / 95th Percentile Range
Annual Passengers (Millions)
Probability Based Forecast: Year 10 12% Mean Value: 22.3 million passengers 10%
10th Percentile
90th Percentile
6%
4%
30 25 20 15
Passenger Traffic (Millions)
29.5
29.0
28.5
28.0
27.5
27.0
26.5
26.0
25.5
25.0
24.5
24.0
23.5
23.0
22.5
22.0
21.5
21.0
20.5
20.0
19.5
19.0
18.5
18.0
17.5
17.0
16.5
5 16.0
0% 15.5
10
15.0
2%
14.5
Probability
8%
35
0 Year 0
Year 5
Year 10
Year 15
45
Year 20
Oil Price Outlook • Demand from developing world is increasing •
Annually increasing demand by 800,000 barrels per day •
•
1% of total consumption
US decrease of past few years was recession related
• Supply issues •
Deep water drilling was the hoped offset to potential decline in production in Middle East
•
Greenland deep water (half the size of North Sea)
•
But post BP-Gulf, will deep water proceed? 46
Pluggable Revenue Opportunity? • PHEV (Pluggable hybrid electric vehicle) • Equivalent to selling a few litres of fuel •
Many airports purchase electric power at favourable rates
•
Passengers, rental car outlets, employees
• This is not the same as engine block heaters!
47
strategic transportation & tourism solutions
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
49
Community Response /Backlash
50
Sophisticated Messaging on Roads & Rail Routes to LHR 51
Coming Soon to North America Climate Change issue is not confined to Europe •
North American attitudes are shifting rapidly
•
Aviation will be targeted
52
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 •
Waxman-Markey passed House
•
Likey final bill will tax energy at source
• Airports need to anticipate and adjust to regulatory changes
53
strategic transportation & tourism solutions
Thank You www.InterVISTAS.com