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7/30/2019 02_The General Trend of the Global Airline Industry
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Passenger Traffic transported by different airline business models
2003 - 2010
2003 2010 % change
Full Service Airlines 1.3 billion 1.63 billion 25%
* Share by top 200 world airlines
Low Cost Carriers 178 million 615 million 245%
Regional Airlines 147 million 216 million 47%
Charter Airlines 83 million 54 million -32.5%
Total 1.7 billion 2.5 billion 47%
Source: ICAO, AEA, ATA, AAPA, AACO
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Cargo $38,440 5.6%
Network Airlines $466,165 5.3%
Charter Airlines $11,755 3.6%
Low cost carriers $46,413 7.6%
Regional Airlines $13,272 5.6%
Revenues
($millions)
Operating
Margin
$817
$15,719 $-9,714 (2009)
$26
$2,584
$36
Net Result
($millions)
Financial Returns of different Airline Business Models (2010)
Source: Airline Business, August 2011
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Geographical Distribution of Passenger Traffic*
2000 - 2010
Passengers 2000 Passengers 2010 % Change
(millions) (millions)
North America 726 777 7%
Europe 420 716 70%Asia-Pacific 378 742 96%
* Share by top 200 world airlines
Central/South America 82 137 67%
Middle East 44 107 143% .
Africa 29 42 45%
Total 1.67 billion 2.52 billion 35%
Source: ICAO, AEA, ATA, AAPA, AACO
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Main Drivers for Traffic Growth
Increased traffic growth on existing routes and on new non-stop routes that will
connect main cities to secondary cities (e.g. London Bangalore)
Dynamic growth in emerging markets (China, India, Asia Pacific, Latin America)
Continued growth of Low Cost Carriers (particularly in Asia)
Greater and continued market liberalisation worldwide
More demand for overseas holidays and wealthier people buying second homes
overseas
More travel obligations as Businesses continue to visit clients the personal
touch remains an important relationship tool for global companies.
Strong economic growth is an important contributor to traffic growth
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Europe
North America
Asia Pacific
Middle East
Latin America
Africa
CIS
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
2009 Traffic
Long term growth prospects of air traffic (2009- 2030)
% of 2009
World RPKs
28%
28%
27%
6%
5%
3%
3%
% of 2029
World RPKs
25%
20%
33%
9%
6%
4%
3%
2030 Traffic
Revenue Passenger Kilometres (billions)
Source: Airbus General Market Forecast 2010
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66% of the global middle class will be in Asia-Pacific in 2030
Global middle class is expected to rise to 4.9 billion people by 2030
Source: Airbus General market Forecast
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Global GDP Growth/Decline and Length of Recession
#
#
#
#
#
#
#
##
#
##
#
#
###
###
####
##
#
#
#
#
#
#
#
#
#
#
##
#
#
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2010
World GDP growth/decline
0%
1%
2%
3%
4%
8%
7%
5%
6%
1973-75
Oil Crisis
- 4X to $12 Stock Market
1991-93
1st Gulf War
Oil Hike* 2X to $33
1980-82
Iran-Iraq war
Oil Shock- 3X to $39
2001-03
US Weakening
9/11 2nd Gulf War
Oil Contracted
to $15 per barrel
2008-2012
Credit Crunch
Multiple Govt Bailout Stock market turmoil
Fluctuating oil prices
Greece meltdown
EU contagion
#
7/30/2019 02_The General Trend of the Global Airline Industry
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Global Growth in Passenger Traffic and GDP1971 - 2010
#
#
#
#
#
#
#
##
#
##
#
#
###
###
#
#
##
##
#
#
#
#
#
#
#
#
#
#
##
#
#
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2010
World GDP growth#
%C
hangeofGDPyea
roveryear
GDP Growth
0%
1%
2%
3%
4%
8%
7%
5%
6%
0%
2%
4%
6%
8%
10%
12%
14%
-2%
-4%
World scheduled airline RPKs
RPK Growth
%C
hangeinPassengerTrafficyearoveryear
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Annual net profitability of ICAO member airlines(1970 to 2008)
Source: (ICAO, 2011)
The overall cumulative net profitability of the sector rarely achieves more than 2 per cent
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Why is it so difficult to make money in the Airline Industry???????
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World Airline revenues and expenses
1991 - 2011
Source: ICAO data to 2009 and IATA estimates and forecasts to 2011
$0
$100
$200
$300
$400
$500
$600
$700
Operating Revenues
$Billions
Operating Expenses
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$
1970 1975 1980 1985 1990 1995 2000 2005 2010
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2.2
2.42.6
Real Fare
Fare(Realprice)
$
$
$
$
$ $ $$$
$
$$
$
$$$
$$
$
Real Unit Cost$
1.40
0.90
1.10
0.40
0.50
0.60
0.70
0.80
1.00
1.20
1.30
RealUnitC
ost
Air Fares have halved since the 1970s
Yields are falling - So Airline Costs must follow suit
Source: IATA, ICAO and Haver
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Dollarsp
erBarrel
The volatility of Jet Fuel and Crude Oil Prices ($/barrel)20032012
Source: Platts
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Source: ICAO, IATA
$0
$100
$200
$300
$400
$500
$600
Operating Expenses Fuel Expenses
Billions
Comparison of Fuel Costs & Other Costs for Global Airline Industry
14% 12.9%
16.3%
25.3%29%
13.5% 13.6%
22%
31.5%
35.9%42.8%
Average price for fuel in 2011 was $112 per barrel - represented around 30% of costs Costing global airlines $178 billion
F l H d i P iti f 2008
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% of Fuel
hedged for 2008
78% $55
Price hedged
70% $86
85% $70
29% $76
11% $88
36% $95
23% $96
70% $51
Fuel Hedging Positions for 2008
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12%
46%
US Dollars
0%
10%
20%
30%
40%
50%
Income
Cost
40%
11%
Euro
15%
36%
Turkish Lira Other
Currencies
33%
7%
Currency Issues Income and ExpensesTurkish Airlines (2010 data)
ProportionofTotal
Source: Dursun, 2011M.Sc thesis
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2002
Employee costs 2,409
Fuel and Oil 1,028
Depreciation & amortisation 770
Aircraft Operating Leases 199Engineering costs 673
Landing fees & En-Route fees 615
Handling/catering charges 1,110
Selling costs (IT related) 824
Accommodation, ground costs 822
Total Operating Costs 8,450
2010
1,998
2,372
732
69505
608
997
290
571
8,225
% Difference
-17%
130%
-5%
-65%-25%
-1%
-10%
-65%
35%
-3%
British Airways cost structure 2002 and 2010 ( sterling)
Source: BANote: The principle operating costs are only included in this slide
Seasonality of Traffic for Aer Lingus
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+
)
$ $$
$$
$ $ $ $
$
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2008$
Passe
ngers
$ $
)
)
)
))
)
))
)
)
2009)
Seasonality of Traffic for Aer LingusMonthly Passengers
+
+
+
+
)
2010+
+
+
+
Source: Aer Lingus
Worlds top 12 Airline Groups by Net Profit
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Worlds top 12 Airline Groups by Net Profit
Rank Airline US$ millions
2010 2009 2008 2007
1 Cathay Pacific 1,832 606 -1,117 427
2 Air China 1,825 711 -1,353 519
3 Lufthansa Group 1,493 -156 796 2,277
4 Emirates 1,463 963 187 1,4515 China Southern Airlines 857 48 -696 95
6 United-Continental 854 -718 - -
7 Singapore Airlines Group 824 152 737 1,395
8 Air France-KLM Group 812 -2,203 -1,142 1,080
9 China Eastern Airlines 734 25 -2,205 5010 Delta Air Lines 593 -1,237 -8,922 1,612
11 US Airways 502 -205 -2,210 427
12 Ryanair 496 431 148 687
Source: Airline Business, August 2011; 2010; 2009; and 2008
Note: PAL brought in revenues of around $1.67 billion in 2012 data suggests that it made a profi
of $67 million in 2010
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Rank Airline US$ millions
2010 2009
Worlds top 10 Underperforming Airlines (Net losses)
1 AMR -471 -1,468
2 Mesa Airlines -340 -
3 SAS Group -332 -373
4 Kuwait Airways -268 -590
5 Pakistan International Airlines -244 -60
6 Kingfisher -226 -348
7 Oman Air -202 -1688 Air Berlin -128 -13
9 Olympic Air -107 -
10 Tarom -105 -76
Source: Airline Business, August 2011; 2010; 2009; and 2008
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Imbalances European Air Freight Flows (2008)
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sia - N. Am 2,000 2.94 5,880
Volume(000 tonnes)
Rates(/kg)
Revenues(m)
Volume(000 tonnes)
Rates(/kg)
Revenu(m)
Outbound Inbound
900 1.4 1,260
sia - Europe 2,000 2.8 5,600 1,300 1.4 1,820
Europe
N. America 1,400 2.2 3,080 1,300 1.5 1,950
uropeAfrica 300 1.9 570 300 1.6 480
Imbalances - European Air Freight Flows (2008)
Source: AF/KLMAviation Strategy Jan/Feb 2010
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Aviation and the Environment
The Threat
Environmental concerns
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Environmental concerns
1973
2003
2007Source:Manch
esterMetropolita
nUniversity
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Global CO2 Emissions
Transportation19.2%
Residential &13.0%
griculture & deforest9.1%
Power Stations29.5%
Fossil Fuel Production8.4%
Industrial Processes
20.8%
Commercial
ation
Source: Emissions database for Global Athmospheric Research
Source: Emissions database for Global Atmospheric Research
Air Transports environmental Impact
Global Transport C0 2 Emissions by Mode
14.3%
2.2%1.4% 1.3%
Road
Tran
sport
AirTran
sport
Shipp
ing
Rail,In
landW
aterw
ay
Environmental
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Aviation is responsible for 2-3% of total man-made C02 emissions
Every tonne of fuel burnt by a jet engine produces 3.2 tonnes of C02
Its made up of Nitrogen oxide (Nox), soot and water vapour which forms
condensation trails and cirrus clouds
The Stern report stated that C02 emissions from aircraft could more than triple by
2050
ICAO Has drawn up guidelines for a global emissions trading scheme. This will
add $50 per long-haul flight in the future
New Designs:-
New Rolls Royce Trent 1000 produces 40% less N0x than previous engines
See a change in engine design as fan blades will be powered by Jet
Turbines (completely remove the cover around the engines)15% Fuel Savings
Bio-fuels: fuels are made from plants (carbon neutral) mixed with jet fuel
Environmental
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An Emissions Trading Scheme (ETS) has been running for a number of
years for ground based polluters such as factories. This has now extended toAviation.
The EU ETS was passed in 2008 and will come into full effect by 2012
It will impose a cap on aircraft emissions in EU airspace and place financial
burdens on aircraft operators that exceed their allowances
The EU ETS limits the carbon emissions that can be produced by aircraft
operators and establishes a regulated system in which airlines are allocated a
free allowance. When airlines exceed this allowance, they will have to purchase
additional carbon credits.
The EU ETS places the overall annual cap of carbon dioxide (CO2) that can
be emitted by airlines at 97% of historical emissions in 2012. This will reduce to
95% by 2020. Historical emissions are defined as the mean average of annual
emissions in the years 2004, 2005 and 2006.
Details of the EU ETS
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Details of the EU ETS
The cost and penalties for exceeding allowances and the finite pool of
available credits for purchase could make it difficult for airlines to grow.
The allocation of free allowances will account for 82% of the capped emissions
and will be distributed annually beginning in 2012. Operators will continue to
receive the same proportion of allowances in 2020 as they did in 2012.
A further 15% of the annual cap will be auctioned
The remaining 3% will be kept in reserve for new start up carriers.
Airlines will continue to expand and grow and this will force carriers to purchase
further credits . The two principle types of credits are i) European UnionAllowance (EUAs) units and Kyoto accredited Certified Emissions Reduction
(CERs) units. However the EUAs will be the main carbon credit currency for
operators in Europe.
A major carrier (e.g. Lufthansa) could spend in excess of250 million onemission credits between 2012 and 2020
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Leakage Problem facing the EU ETS
Ai f d l f h F ?
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Aircraft developments of the Future?
Development driven by Environmental issues
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Thank you all very much