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1
Change in Chinese Civil Aircraft Market Demand and Aircraft Selection
Air China Ltd.
3rd 11, 2008
1
Content
A.Comments on Chinese Civil Aircraft Demand
B.Aircraft Selection
2
3
A. Comments on Chinese Civil Aircraft Demand
Strong economic growth is the driving force of aircraft demand
• China’s GDP is keeping rapid growth during the past 30 years
compound growth rate in 26 years : 10.09%
compound growth rate in 10 years : 9.42%
compound growth rate in 5 years : 10.6%
4
Aviation market became mature with economic development. The average annual growth rate of aviation passengers is 16.4% from 2000 to 2007
• The number of aviation passengers from 2000-2007
5Source : CAAC
13,369 14,87417,137 17,518
24,19328,435
33,197
38,759
2000 2001 2002 2003 2004 2005 2006 2007
Unit : million peopleCAGR:16.4%
Aircraft numbers doubled from 2000 to 2007 with average annual growth rate 11.4% from 2000 to 2007
6
• The number of transport aircraft from 2000-2007
Source : CAAC
Unit: aircraftCAGR:11.6%
Passenger and aircraft demand will maintain growth momentum in the long run
• Historical data showed that passengers will keep rising
– From 1986 to 2007, compound growth rate for international and domestic capacity
are 16.6% and 16.4% respectively
– The growth rate of Chinese aviation passengers is 1.7 times of GDP
– If average GDP growth rate to 2015 is supposed to reach 8-9%, passengers will keep
increasing by 13-15%
• Aircraft demand will keep strong
– Chinese civil aircraft Increased from 527 in 2000 to 1134 in 2007
– Main aircraft manufacturers give a positive look on Chinese future aircraft market
7
Boeing predicted that over 29400 new aircrafts worth 3.2 trillion US dollars will be delivered in the future 20 years to global airlines, in which Asia Pacific areas accounted for 31%.
Source : Boeing website8
Airbus predicted that 24262 new aircrafts worth 2.8 trillion US dollars will be delivered in the future 20 years to global airlines, in which Asia Pacific areas accounted for 31%.
Source : Airbus website9
In the short term, aviation market demand witnessed a slowdown due to the effect of global economy. Airlines need to adjust fleet scale and development speed
• The year of 2007 marked peak of last aviation market growth, from 2008, airline industry entered into a “winter” period
10
Profit of global airline industry(Unit: 100 million dollar)
37
-130-113
-75-41
-23-5
56
2001 2002 2003 2004 2005 2006 2007 2008
Growth rate of aviation passenger (%)
-0.1%
3.2%
11.6%
7.1%
3.4%
-1.9%
5.0% 6.0%
2001 2002 2003 2004 2005 2006 2007 2008
Source: IATA
11
Jun 08 VS Jun 07
RPKIncrease rate
ASK Increase rate
Load factor(%)
FTK Increase rate
ATK Increase rate
Africa -1.5% -0.8% 67.6 -1.9% -4.7%
Asia-Pacific 3.2% 4.9% 75.8 -4.8% -0.9%
Europe 2.1% 4.4% 77.9 0.7% 3.5%
Latin-American
12.5% 10.1% 73.5 -12.7% 8.2%
Middle-East 9.6% 9.8% 75.5 12.1% 11.8%
North America
4.4% 6.1% 83.7 4.0% 6.6%
All 3.8% 5.5% 77.6 -0.8% 3.3%
According to the latest IATA statistic, global passenger growth rate of June 2008 reached a record low since SARS 2003. The total loss of worldwide aviation industry amounted to 9.3 billion US dollars
Source: IATA
Most carriers suffered a sharp fall, especially British airways which located in financial center London was hit most seriously
BA ( profit 2Q 2008 before tax,Unit: 100million pounds)
•Operation outcome of several airlines during first part of 2008
2.98
0.37
2007 2008
CX ( Profit Jan-Jun 2008,Unit : 100million HK dollars)
25.8
-6.6
2007 2008
AF-KLM ( net income 2Q 2008,Unit : 100million EUROs)
4.15
1.68
2007 2008
-59.4% -125.6%-87.6%
Source: airline websites 12
Airlines need to get prepared for passing the cold winter. Utilization of fleet improved and demand for new aircraft expended
• Carriers started to reduce aircraft scale but increase utilization
• Airlines is speeding up elimination of outdated aircraft and lots of
second-hand aircraft emerged from the market
• Airlines eyes on more efficient new aircrafts
• Industry crisis led to merge opportunities but the integration
process is full of difficulties
1313
14
Passenger turnoverUnit : million people
Number of aircrafts
Entering into 2008, domestic aviation market appeared fluctuations even slowdown. But aircraft numbers keep growing which led to a reduction of utilization and incompliance with market
Number of civil aircrafts and passengers in 2008 Aircraft utilization in 2008
Source :CAAC
15
From structural perspective, increase of domestic aircraft mainly focused on mainline aircrafts
Structure of transport aircrafts in 2000 Structure of transport aircrafts in 2007
Source :CAAC
Fierce competition led to excessive concentration of capacity in hub airport, where slot drives rapid growth of truck route aircraft • Airport passenger turnover ( million people)
16Source : CAAC
0
10000000
20000000
30000000
40000000
50000000
60000000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100
103
106
109
112
115
118
121
124
127
130
133
136
139
142
145
148
First 23 airports account for 80% turnoverAirports have reached or exceeded designed capacity The lack of slots became more obvious
Most medium and small sized airports are not fully used and suffer from operation loss. 50 of them are less than 10 million people per year
Civil aircraft development and composition need to be better matched with market demand.
• The market need for low passenger volume is high, however this kind of need is now using the narrow body aircrafts to fulfill
17Source : CAAC
72
15
13
26
27
59
74
140
586
>800
700-800
600-700
500-600
400-500
300-400
200-300
100-200
0-100
Totally 1012 domestic routes
72% , 726 routes
28% , 286 routes
Routes by different PDEW
0
10000000
20000000
30000000
40000000
50000000
60000000
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101
106
111
116
121
126
131
136
141
146
As the congestion of Top 20 airports, future passenger increase will emerge in medium and small sized airports. As a result, there will be diversified need for aircraft type
18
Distribution of China airport flow put in 2007 Comments
Share of TOP20 airports
76.6%
77.4% 77.4%77.9%
78.6%
79.9% 80.1%
79.0%78.6%
77.8%
76.8%
0
500010000
15000
2000025000
30000
3500040000
45000
1996 1997 1998 1999 2000 2001 2002 2004 2005 2006 2007
74%
75%
76%
77%
78%
79%
80%
81%
• From 1996-2007,average increase rate of China airport turnover is 12%
• The share of TOP20’s reach the peak of 80.06% in 2002 , after that decreased every year. In 2007, the share is 76.82%
• By the end of 2010, 45 new built regional airports will be put into use, the share of Top 20 will decline further
• As the congestion of Top20 airports, future passenger increase will emerge in medium and small airports
• From 1996-2007,average increase rate of China airport turnover is 12%
• The share of TOP20’s reach the peak of 80.06% in 2002 , after that decreased every year. In 2007, the share is 76.82%
• By the end of 2010, 45 new built regional airports will be put into use, the share of Top 20 will decline further
• As the congestion of Top20 airports, future passenger increase will emerge in medium and small airports
Source : CAAC
19
B. Aircraft selection
Fleet planning and selection have a direct effect on other decisions and will be influenced by other planning
Network planning Business plan
InfrastructureFleet planning
Financial planning
Corporate strategy
20
Fundamental point for aircraft selection is to match aircraft type with the market and network
• By the end of 2007, CA had 220 aircraft, 212 passenger and 8 cargo. Average aircraft age is 7.3. Average seat number is 177
• By the end of 2007, CA operated 127 destinations including 79 domestic and 46 international ones.
• International routes covered 28 countries, 46 cities and 2 regional cities. Domestic routes reached 79 cities.
21
CA is more prudent in capacity arrangement and fleet increase. Aircraft utilization is more important than scale
22
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
CA CZ MU
2004 2005 2006 2007
10%29%
30%
CA18%
CZ29%
MU20%
HU8%
Others25%
Passengers carried by domestic airlines from Jul, 07-Jun,08 ASK increase of CA 、 CZ and MU (2004-2007)
Source : Bombardier market division
CA total aircraft number is expected to reach 270 by 2010, most of which are narrow-body aircrafts
23
In the future, CA fleet will still be aligned in compliance with market and corporate strategy
• Long haul wide-body aircraft
– mainly used in international route of hub airports and newly opened
destinations
• Middle and long haul wide-body aircraft
– mainly used in domestic and around routes
• Narrow-body aircraft
– accounting for main part of fleet, flying domestic and around routes
– mainly using existing aircrafts, keep an eye for next generation narrow-body
aircraft
• Regional aircraft
– watching closely the development of regional aircraft
24
Request for future aircrafts
Beyond traditional fly safety, future aircraft will be
• environment friendly—lower noise and emission
• customer friendly---comfortable cabin
• airline friendly---reduce operating cost
25
Reduction of direct operating cost is the unchanged goal in aircraft selection
• Economy slowdown, soaring fuel price and fierce competition
bring higher challenge to airline cost control
• To reduce airline cost, aircraft and engine manufactures are
beginning new round of substitution
• fuel efficiency
– During the past 20years, fuel burn decreased from 8 liter per 100RPKs to 5;
future aircrafts should have better fuel efficiency
• reduction of maintenance cost
– Development and application of new material
26
Starting from the wide-body aircraft, new round of technology substitution begins
• Technology applied in A380 、 A350 、 B787 will lead the future aircraft development
• Similar technology trend appears both for Airbus and Boeing– Expand application of non-metal materials– Simplifying system design– Widely use of digital data and network– Aircraft health management and monitor (Airman/AHM)
• Product development of wide-body aircraft– Product line of Airbus has already showed the trend of stable and complete, A380
and A350 will be main products– Boeing is adjusting its products and 787 will be the future development basis
27
Narrow-body and regional jets are seeking new development
• Development of next generation narrow-body aircraft– New technologies in wide-body, such as new material and engine, will
widely used in narrow-body. The target is to reduce overall cost by at least 10%
• CSERIES——a game changer– 15% better cash operating costs-20% fuel burn advantage– Total life cycle cost improvement– Operational flexibility– Family of Aircraft with full commonality– Wide-body comfort in a single aisle aircraft– Mature 99% reliability at entry into service– Environmentally focused-20 EPNdB Margin to Stage IV
• Development of new regional aircraft– Reduce cost by using new technology and new materials
28
Conclusion Remarks
• Beneficial from the robust development of domestic economy, China’s civil aviation passenger and aircraft demand increased tremendously.
• From the long-term prospective, China’s economy still keeps growth trend, driven from that, domestic passenger needs and aircraft market will maintain expanding.
• While in the short-term, facing the fluctuation of world economy and shrink of aviation market, airlines need to adjust their fleet with the change.
• In addition to guarantee safety, future aircraft should also be friendly to environment and passenger, and to reduce the operation cost of airline as best as it can.
• There are full of opportunities and challenges in China aircrafts market. We believe that China aircraft industry will experience high development in the near future.
• Wish our own-designed big aircraft project achieve great success!
29
Thank you!
30