State of the Aviation Industry Presentation to the ACI Airport Economics & Finance 10 th 11 th February London, United Kingdom Laurie N. Price Director of Aviation Strategy Mott MacDonald Aviation
Current Crisis Before Credit Crisis Ongoing Credit Crisis
Agenda Introduction to Mott MacDonald/Aviation Services Key Issues facing the industry Examples in the UK and Europe Demand Congestion Low Cost Carrier growth Environment Summary Conclusions Questions
Mott MacDonald Aviation Services Strategy Policy & Development Technical Advisor Forecasting & Economics Project Management Transport & Facilities Planning Operations & Performance Cost planning Supervision & monitoring Engineering Design Environmental
Some Key Issues Facing the Air Transport Industry Economic Turbulence Fuel Prices Competition Security Environmental impact Taxation (APD vs ADT) Capacity Runway/ATC Congestion Slots Allocation/Availability Access to hub airports Pricing Demand Maturity (De) Regulation EU / US Open Skies Market distortions Consolidation Financial performance Investment Returns GATT Labour and training Distribution internet Frequency and capacity aircraft size
Recent Developments 30 + airlines failed during 2008 Fuel price fluctuation Market downturn Recession Industry losses mounting Calls for consolidation but regulatory issues Environmental militancy The Thai experience Taxation
Current Crisis
High Fuel Prices Have Caused Losses Forecast at USD5 billion for 2008 Net post tax profits, US$ billion 3.9 0.1 0.5 0.5 5.0 US airlines European airlines Asia Pacific airlines Other airlines Global total Source: IATA
12% 10% 8% 6% 4% 2% 0% 2% 4% 6% 8% 10% Recession Reducing Business and Consumer Confidence has hit the Aviation Markets Hard International RPKs and FTKs Passenger RPKs Air freight FTKs Jan 06 Apr 06 Jul 06 Oct 06 Jan 07 Apr 07 Jul 07 Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Oct 05 % change over year Jul 05 Source: IATA
140 120 100 80 60 40 20 0 Source: RBS Brent Oil Price, US$ per Barrel Spot price end November Oil Prices Futures curve end August Futures curve end November Jul 05 Jan 06 Jul 06 Jan 07 Jul 07 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 04 Jan 05 Jul 03 Jan 04 Jan 03
260 200 140 80 20 40 High Level of Aircraft Grounding Deliveries Retirements Parked (net) Monthly Average 2007 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Aircraft per month 2006 Source: Ascend
10 5 0 5 10 15 Source: SRS Analyser Cut Backs in Capacity, Particularly in US Growth in planned scheduled ASKs Within Asia Pacific Global capacity Within US Aug 07 Oct 07 Dec 07 Feb 08 Apr 08 Jun 08 Aug 08 Oct 08 Dec 08 Feb 09 Jun 07 Apr 07 % change over year Feb 07
16 12 8 4 0 4 Passenger Markets Likely to Fall 3% in 2009 8 7 6 5 4 3 2 1 0 1983 1987 1991 1995 1999 2003 2007 2009 2011 1975 1979 % change over year % change over year World GDP (right scale) Global passenger kilometres flown (left scale) 1971 Source: EIU/IATA
CO 2 Emissions From Aviation Will Fall Due to Recession and Fleet Changes 700 900 Billions tonne kilometres 600 500 400 300 Traffic volume (left scale) CO2 emissions (right scale) 850 800 750 700 650 600 550 500 Million tonnes CO2 200 1995 1997 1999 2001 2003 2005 2007 2009 2011 450
Worst ever 2 year Revenue Outlook 20 Airline revenue growth, adjusted for inflation 15 % change over year 10 5 0 5 10 15 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 Source: EIU/IATA
Fall in Revenues Offsets Fuel Cost Reduction in 2009 US$ billion 70 60 50 40 30 20 10 0 10 20 30 40 Change inrevenues 57 Change in Fuel Costs 52 48 43 35 38 29 28 23 26 29 21 14 16 16 4 3 2 3 3 17 21 35 32 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: IATA
% of revenues 4 3 2 1 0 1 2 3 4 5 Losses Likely to Worsen in 2009 in All Regions, Except the US Net profit margins by region Europe 2005 2006 2007 2008F 2009F US Asia Pacific Source: IATA
Propensity to Fly and Economic Output 10.00 1.00 Turkey Saudi Arabia Mexico Greece Spain Australia Canada Germany Italy UK Sweden Austria France Japan USA Denmark Ireland Switzerland Norway Trips per Capita 0.10 Brazil Argentina Russia Poland Indonesia China India 0.01 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Source: Mott MacDonald analysis of ACI and World Bank data GDP per Capita ($US)
Source: Boeing current market outlook 2007 20 year Forecast: Strong Long Term Growth
Terminal Passengers at UK Airports Annual Growth Rates 30.00% 300.00% 1985/86 Libya/Chernobyl Passenger Annual Growth Rates (%) 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 1973 1983 Europe Deregulation 1979 US Deregulation 1978 1983 1988 Lockerbie 1995 Introduction of Low Cost Airlines 2003 Iraq War / SARS 1988 1993 1998 2003 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% Crude Oil Price Annual Growth Rates (%) -5.00% -10.00% 1977 Bermuda II 1974 Fuel Crisis 1982 Falklands War 1981 Fuel Crisis + Recession 1991 Gulf War 2001 Terrorist Attacks -50.00% -100.00% Note: Historic oil price shown in US$ and the exchange rates between USD and GBP were not considered Source: CAA Airport Statistics, OPEC
Capacity and Demand Forecast in SE England (Assuming no new Runways) 2800 Air Transport Movements Capacity 2400 2000 1600 1200 800 Demand for Slots Unmet Unmet Unmet Unmet LCY LCY LCY LCY LCY LTN LTN LTN LTN LTN STN STN STN STN STN LGW LGW LGW LGW LGW 400 LHR LHR LHR LHR LHR 0 2007/08 2014/15 2021/22 2028/29 2035/36 Year The unmet demand by 2035/36 is in the region of 1.2 million slots almost as big as the capacity of the 5 London airports today. Source: CAA, Future of Air Transport White Paper and supporting documents
Capacity and Demand Forecast in SE England (Assuming new Runways at LHR, STN and LGW) 2800 2400 Demand for Slots Unmet Air Transport Movements Capacity 2000 1600 1200 800 LCY LTN STN Unmet LCY LTN STN LCY LTN STN LGW Unmet LCY LTN STN LGW LCY LTN STN LGW LGW LGW 400 LHR LHR LHR LHR LHR 0 2007/08 2014/15 2021/22 2028/29 2035/36 Year Even with new runways at Heathrow, Stansted and Gatwick, there is unmet demand of 540,000 slots by 2035/36. Source: CAA, Future of Air Transport White Paper and supporting documents
Change in the Market Impacts Infrastructure Requirements Regional airline growth Low cost carriers Smaller aircraft Increased utilisation Lower Pax per ATM Lower costs More ATMs More slot demand 2. Each new LCC based aircraft requires up to 2500 slots
EU Low Cost Market Share
Airport Congestion in Europe EC Study found: Air traffic forecast to grow by 2.3 times between 2003 and 2025 More than 60 EC airports will be congested by 2025 Top 20 saturated for 10 hours a day Planned capacity increases will not meet forecast demand Situation in the UK is already critical in the South East of England
Aviation Environment
Aviation Environmental Impact Aviation misjudged Air transport now carrying more passengers and freight with: Less noise Less emissions Less fuel Less cost
Source: Airbus Global Market Forecast 2006 2025 Air Travel Increasingly Fuel Efficient
25.0 20.0 15.0 10.0 5.0 0.0 (7) Bio mass (8) Marine Trans (9) Aviation (6) Industry (5) Manufact (4) Consumer fuel (3) Oth energy 26% % 18% EU CO2 Emissions Aviation Just 2%!!! 2% (1) Energy Ind (2) Rd Trans Source: European Environment Agency
Source: Boeing Noise Improvements
Summary Demand will return Increasing segmentation Increasing consolidation Increasing congestion Regulators not keeping pace Poor record in promoting aviation positive record on environmental impact Infrastructure investment remains key runway, ATM, surface access
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