A MAGAZINE FOR AIRLINE EXECUTIVES 2009 Issue No. 2 Taking your airline to new heights Happy Jetting A Conversation With Dave Barger, President And Chief Executive Officer, JetBlue Airways, Page 14. 11 Air Malta makes big changes across 20 Global carriers take various steps to remain entire organizations in the black 46 Planning departments follow industry best practices to compete 2009 Sabre Inc. All rights reserved. wearelistening@sabre.com
Aeroflot s Revolution A thorough examination of Aeroflot Russian Airlines through an extensive turnaround exercise has helped the carrier reinvent itself and once again become a top player in the world s air space. Making A By Barbara Childs and Luc Lachoix Ascend Contributors Comeback Five key indicators point to a slow but definite economic recovery for the emerging markets of BRIC and MENA. By Sam Shukla Ascend Contributor
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regional BRIC and MENA countries (Brazil, Russia, India, China and Middle East and North Africa) have noticeably felt the effects of the global economic slowdown, which accelerated sharply late last year. Each of the BRIC and MENA nations is recovering from the global downturn at its own pace. Each country must overcome a combination of economic factors such as fluctuating oil prices, the swine flu outbreak earlier this year, the recent banking industry collapse, tourism decline, business travel decreases and yield dilution. There are several indicators to gauge the recovery of the BRIC and MENA emerging markets. One of the most valuable indicators is gross domestic product (the total market value of all goods and services produced within a country in a given year equal to total consumer, investment and government spending plus the value of exports, minus the value of imports). Other important indictors include planned available seat kilometers, current and forecasted passenger volumes, commercial aircraft deliveries, and unemployment statistics. These five indicators combined can paint a picture of each BRIC and MENA nation and the general speed at which recovery is underway (barring any additional unforeseen world events). Gross Domestic Product GDP has traditionally been one of the strongest signs of economic conditions. By the first half of 2009, the gross domestic product versus 2008 of the BRIC countries had fallen from a robust range of 5.4 percent to 9.7 percent to 2.5 percent to 8.3 percent. The most drastic declines in GDP occurred in Russia (6 percent to 3 percent) and Brazil (5.4 percent to 2.5 percent). The MENA region GDP declined noticeably as well from a robust 5.3 percent in 2008 to 2.6 percent this year. Experts believe, however, that next year should bring healthy advances in countries such as Russia, India and China. Unemployment Statistics Update Following global trends, unemployment rates in the BRIC and MENA countries rose noticeably from calendar year 2008 into early 2009. The latest unemployment statistics, however, are showing a slowing down of unemployment filings. In some BRIC and MENA countries, the unemployment figures are declining, signaling job growth and a turnaround from the economic crisis. For example, in Brazil the overall unemployment rate stood at 7.9 percent in May 2008 and grew steadily to 8.9 percent in April. In May, however, unemployment fell to 8.8 Available Seat Kilometers ASKs ASKs 80,000,000,000 70,000,000,000 60,000,000,000 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 0 80,000,000,000 70,000,000,000 60,000,000,000 50,000,000,000 40,000,000,000 30,000,000,000 20,000,000,000 10,000,000,000 0 percent, resulting in 181,000 additional jobs being created. The same trend is occurring in Russia, where unemployment recently peaked at 10.2 percent in April but has since started a downward trend to 9.9 percent in May. This downward trend in Russia will continue if oil prices remain at reasonable levels. In India, unemployment was growing at a rate of.3 points per month since March 2008, to a recent peak of 9.5 percent. That unemployment growth rate International 4Q 2008 4Q 2009 Domestic 4Q 2008 4Q 2009 Instability of oil prices and lack of high-yield business passenger demand has carriers in BRIC and MENA taking a careful approach to domestic and international ASKs during the fourth quarter versus the same period last year. But despite current market challenges, there are still some conservative plans for ASK increases in these markets. has slowed down considerably to just.1 points per month, driven by a resurgence of domestic demand for goods and services. China is currently an anomaly among the BRIC and MENA nations. In terms of percentages, its unemployment rate has remained relatively consistent from 2008 to 2009 (4 percent to 4.2 percent). Economic experts in that region do not foresee large increases in unemployment in the months leading to a full economic recovery. 32 ascend
Percent increases Year 2005 To 2010 Gross Domestic Product 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% After a significant drop in gross domestic product this year for BRIC and MENA countries, 2010 holds promise for substantial GDP increases, with China leading the way. The collective MENA nations traditionally have some of the highest unemployment rates in the world. Recent statistics indicate an increase in unemployment from 9.4 percent in 2007 to 11 percent for the first half of 2009. Economists in the region believe that this unemployment rate will decline to 2007 levels and lower only when tourism increases significantly and younger generations of the labor force are able once again to emigrate to Europe, North America and Asia for work. Year 2010 Versus 2009 Passenger Volume Growth 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Brazil Russia India China MENA Year 2005 Year 2006 Year 2007 Year 2008 Year 2009 Year 2010 Passenger volumes for BRIC and MENA nations shows great growth potential, with Russia, India and China expected to achieve a more than 8.2 percent increase in passenger traffic next year versus this year, according to IATA. Available Seat Kilometers Airlines operating to and within the BRIC and MENA countries are continuing their cautious approach about domestic and international ASKs planned for the fourth quarter 2009 versus the same period last year. This is partly due to the continuous instability of oil prices and lack of high-yield business passenger demand. There are, however, some planned ASK increases for the BRIC and MENA countries despite the market challenges. Most carriers in Brazil, including GOL, TAM, TRIP and Azul, will increase ASKs, leading to an 11.3 percent gain versus the fourth quarter 2008. Internationally, a wide variety of carriers operating to Brazil from North America, Europe and Asia will drive a 3.3 percent increase in capacity during the fourth quarter versus the same period last year. In the Middle East, international capacity will grow by 12.4 percent during this year s last quarter; predominantly driven by British Airways, Air India, Emirates, Etihad Airways, Gulf Air, Jet Airways, Qatar and Lufthansa. Domestic capacity in the Middle East will remain flat this year versus last year. The North Africa region is planning to realize an increase of 3.6 percent in international ASKs in the fourth quarter, driven by EgyptAir, Royal Air Maroc and Afriqiyah Airways. Passenger Volumes Baring any additional, unforeseen world events, the passenger volume forecast for BRIC and MENA countries looks encouraging. Russia, India and China are collectively forecasted by the International Air Transport Association to achieve more than 8.2 percent increase in passenger traffic for 2010 versus 2009. This translates into an incremental 10.4 million passengers. In Brazil, passenger traffic is expected to grow by 4.9 percent next year. The MENA region will realize a growth of 6.5 percent in passenger traffic, adding more than 11 million incremental passengers. The top five countries leading the MENA region in absolute passenger growth for 2010 versus 2009 are UAE (3.6 million), Egypt (1.3 million), Saudi Arabia (900,000), Qatar (670,000) and Morocco (640,000). Commercial Aircraft Deliveries Carriers in the BRIC and MENA countries are continuing to invest billions in new aircraft technology despite the slow recovery. Airbus and Boeing delivered new aircraft to a variety of traditional network and low-cost airlines in the BRIC and MENA countries during the first half of the year. regional ascend 33
regional New Airbus And Boeing Deliveries January To June 2009 70 60 50 40 30 20 10 0 During the first half of the year, 118 Airbus and Boeing aircraft were delivered to carriers in BRIC and MENA countries. China took the lead with 62 new jetliner deliveries followed by Middle Eastern carriers with 25 deliveries. delivery of a total of 13 new aircraft to operate new and incremental services. A handful of new aircraft were delivered by Airbus and Boeing to Brazil, Russia and North Africa. This year s fourth quarter can be characterized by financial institutions, economists, investment bankers and airline executives as the beginning of a long recovery from a deep, worldwide economic recession. While all five of the major emerging markets indicators are not pointing toward a full recovery just yet, there is reason for some strong optimism. For example, GDP for all BRIC and MENA nations is expected to grow noticeably next year. Passenger volumes for 2010 are forecasted to increase for BRIC and MENA carriers between 5 percent and 8.5 percent. To date, no further aircraft delivery cancellations have been announced by Airbus and Boeing for the rest of the year. And finally, portions of the BRIC and MENA collection of nations such as Brazil, Middle East and North Africa will see an increase in available seat kilometers during the fourth quarter over last year. a A total of 118 Airbus and Boeing jetliners were delivered without further delay, deferment or cancellation. In China, a total of 62 new jetliners were inducted by venerable carriers such as China Southern, China Eastern, Cathay Pacific Airways, Hainan Airlines and Shenzhen Airlines. A variety of Middle Eastern carriers such as Emirates, Qatar, MEA, flydubai, Bahrain Air, Jazeera Airways and Air Arabia collectively accepted delivery of 25 new aircraft. Meanwhile in India, Indian Airlines, IndiGo, SpiceJet and Air India accepted Sam Shukla is a solution partner for Sabre Airline Solutions. He can be contacted at sam.shukla@sabre.com. +count it up Nearly 150 million The number of seats Ryanair, easy- Jet and Air Berlin accounted for in 2008, or 17.7 percent of total capacity within Europe, according to the 2009 edition of RDC Aviation s Low Cost Monitor. Seven of the top 10 intra- Europe carriers are network airlines, but their combined capacity fell 4 percent last year. 2026 The year in which the Aviation: The Real World Wide Web study by Oxford Economics predicted the world would carry 6 billion air passengers annually, up from just under 2.5 billion in 2007, according to Travel Daily Asia News. 55+ billion The amount of net losses in U.S. dollars, according to the Air Transport Association of America, U.S. passenger and cargo carriers cumulatively lost from 2001 through 2008. During the period, U.S. passenger airlines shed more than 150,000 jobs. 34 ascend