Manitoba Aviation Council 2011 Conference. Aviation Industry Update

Transcription

1 Manitoba Aviation Council 2011 Conference Aviation Industry Update strategic transportation & tourism solutions Karla Petri Manager, Economic & Financial Analysis InterVISTAS Consulting, Inc. April 27, 2011

2 InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy

3 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

4 Our History 3

5 Our Corporate Partners international consultancy and engineering group operating in transportation, aviation, building and manufacturing, water, urban and regional development, and environmental sustainability staff: 5,500 offices in Europe, Asia, Africa and North America Head Office: Amersfoort, The Netherlands multidisciplinary engineering, management and technology consulting firm operating in the transportation, information technology and water sectors staff: offices in Canada, 9 offices in the U.S., 3 offices international Head Office Canada: Markham ON Head Office U.S.: Chicago IL airport consultancy in airport development and design specialized in terminal and ancillary buildings, airside & landside infrastructure, integrated noise modeling staff: 200 offices in Europe, Africa and the U.S. Head Office: The Hague, The Netherlands

6 InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy

7 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

8 US Real GDP Growth (Historical) 10% 8% 6% 4% 2% 0% -2% % Sources: Historical Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 7

9 US Real GDP Growth (Historical) 10% 8% 6% 4% 2% 0% W WW -2% % Sources: Historical Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 8

10 US Real GDP Growth (Historical) 10% 8% 6% 4% 2% 0% W WW V V -2% % Sources: Historical Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 9

11 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 2 nd recession Without inflation will be a challenge 10

12 6% 4% Canada Real GDP Growth 3.5% CIBC update 4.6% 5.0% 4.5% 2% 0% 2.4% 1.1% 0.3% 0.4% Q Q Q Q Q Q Q Q Q H H H H % -4% -0.7% -3.0% -1.0% -3.7% -6% -5.4% Sources: Historical Statistics Canada; Forecast Bank of Canada Monetary Policy Report (April Q3 from 31Aug Annualized Q/Q Growth Rate

13 Real GDP Growth - Mexico 8% 6% 4% 2% 0% Historical Data Forecast Data -2% % -6% -8% 2 Recessions Sources: Historical Data: Mexico: International Monetary Fund Forecast Data: Mexico: International Monetary Fund

14 Global Economic Shift US$ Trillion North America Japan 4 6 China 1 26 India Brazil China is already A larger economy than Japan A larger generator of tourists than Japan

15 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

16 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 Air Capacity enables economic growth Canada now has one of the most restrictive international air policies in the world

17 $160 $140 $120 $100 $80 $60 $40 $20 $- Fuel Prices U.S. $ per barrel Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Crude Oil Spot Prices January 2007 to May 2011

18 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

19 Fuel Cost as a Percentage of Airline Operating Costs Year % of Operating Costs Average Price per Barrel of Crude Total Fuel Cost % $28.8 $44 billion % $38.3 $65 billion % $54.5 $91 billion % $65.1 $117 billion % $73.0 $135 billion % $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

20 Medium Term Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100 $80 US$ $60 $40 $20 Its not down Its not back to $145 $

21 2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 $60 $40 upper 2 sigma average low er 2 sigma $20 $

22 2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 $60 $40 $20 Everyone seems to agree upper 2 sigma average low er 2 sigma $

23 2 Sigma Range of Forecasts $120 Note the scale Forecast 95% ranges $100 $80 $60 $40 $20 Everyone seems to agree upper 2 sigma average low er 2 sigma $

24 If History Repeats. $300 Oil Price with Full Historical Range Note the scale $250 $200 $150 $100 Upper range Base price forecast Lower range $50 $

25 Consequences of Fuel Increase Will impact airline profitability Will accelerate adoption of efficient aircraft Will favour move to turboprop Especially Q400 Same speed as RJs Much lower fuel consumption Comfort comparable to RJs Will affect decision on 737/A320 replacement At $100 oil, engine update At $175, new aircraft

26 InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy

27 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

28 World Aircraft Deliveries: ,400 Airbus Boeing 1,200 1, Projected Total Aircraft Deliveries Source: Airbus and Boeing websites The Airline Monitor, Jan/Feb

29 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 New complementary technologies #2: New engines on a new airframe 20-40% reduction in fuel and carbon Larger decrease in total operating cost But a more expensive aircraft KEY: The 2011 decision will determine (i.e., lock in) the course, economics & impact of aviation for two decades

30 Airbus Narrow Body Replacement Initial announcement is A320neo New engine option 15% fuel/carbon reduction Airbus view: No further engine technology for next 10 years 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

31 Boeing Narrow Body Replacement Indicates it is likely to decide on NBR in 2011 Would take longer to bring to market But may offer a better long term product But a higher cost per aircraft Key issue: What will fuel prices be in ? $100 per barrel favours new engine on existing plane (737G4) $175 per barrel favours new aircraft

32 InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy

33 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

34 Traveler Demographic Trends strategic transportation & tourism solutions

35 IATA Premium Passengers 34

36 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

37 Changing Airline Fees strategic transportation & tourism solutions

38 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

39 Ancillary Revenues 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% Ancillary Revenues as Portion of LCC Revenues % 5% 10% 15% 20% 25% Source: Centre for Asia Pacific Aviation and airline reports, via Boeing Current Market Outlook

40 Ancillary Revenues Sell-up 39

41 E-Commerce strategic transportation & tourism solutions

42 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

43 Increased demand for Specialised Holidays Time Rich Travellers - Aging population and early retirement means a growing market Share of travellers between age Wellness: 28% Tours: 33% Cruise: 39% [All holidays 17% between 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.

44 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: 43% Club Holidays: 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 place a high value on the expertise, support and timesaving advantages of using a travel agent October 2008 ABTA survey

45 Environmental Impacts strategic transportation & tourism solutions 44

46 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?

47 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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49 InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy

50 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.

51 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

52 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

53 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

54 InterVISTAS 1. Who is InterVISTAS 2. Economic Update 3. Aircraft Orders 4. Trends 5. Canadian Workforce 6. Outlook Canadian / Manitoba Economy

55 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)

56 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 Q (less so in BC and the Atlantic) Modest increase in Expectations Index (less so in Quebec) Source: TNS Global Canada Quarterly Newsletter, Spring 2011,

57 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,

58 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

59 Thank You subscribe to Canadian Aviation Intelligence Report: strategic transportation & tourism solutions Questions: