Moving into a new era of growth -Directions and drivers Peter Harbison, CAPA Centre for Aviation CAPA India Aviation Summit, Mumbai, 30 January 2018
Basics in uncertain times 1. Fuel prices: a threat? 2. Evolving airline trends in 2017 Long haul LCCs wide and narrowbody TheGulf carriers: regrouping? 3. The impact of new aircraft technology on route network planning and airport city pairs 4. It s now or never for Indian aviation
The impact of oil prices
Oil prices are important drivers (Brent Crude prices USD) Three months change One year change 2016/17 One month change 5 year change 2012/17 Jet fuel prices are up 15% in the past quarter, and have risen by nearly one third in the past 12 months
The influence of oil prices: Paxgrowth well above classic multiples Barrel price (USD) 140 120 100 80 60 40 Jan-2011 = Index 100 20 2011 2012 2013 2014 2015 2016 2017 2018 2019 $ USD70 135 130 125 120 115 110 105 100 95 90 85 80 Passenger yield / Load Factor / Passenger growth 10% 8% 6% 4% Airline operating profit (EBIT) Passenger growth Profit Load factor Average ticket price Oil barrel price Source: CAPA Centre for Aviation, IATA
Long haul low cost in the ascendancy
5 years global int l capacity growth Seats 180% Long Haul LCC Non-LCC Non-LCC * Gulf carriers ~ 2012 9.7m 368.2m 317.6m 50.6m 2013 11.8m 383.2m 323.8m 59.4m 2014 15.2m 408.2m 340.5m 67.7m 2015 17.8m 430.9m 352.4m 78.4m 2016 22.0m 456.8m 368.4m 88.4m 2017 26.1m 486.4m 393.9m 92.5m Market Share Long Haul LCC Non-LCC Non-LCC * Gulf carriers ~ 2012 2.6% 97.4% 84.0% 13.4% 2013 3.0% 97.0% 82.0% 15.0% 2014 3.6% 96.4% 80.4% 16.0% 2015 4.0% 96.0% 78.5% 17.5% 2016 4.6% 95.4% 76.9% 18.5% 2017 5.1% 94.9% 76.9% 18.1% Seat Growth Long Haul LCC Non-LCC Non-LCC * Gulf carriers ~ 2013 21.7% 4.1% 4.1% 2.0% 2014 28.6% 5.7% 6.5% 5.1% 2015 17.8% 5.9% 5.6% 3.5% 2016 23.6% 6.5% 6.0% 4.5% 2017 18.4% 6.7% 6.5% 6.9% Source: CAPA Centre for Aviation and OAG 160% 140% 120% 100% 80% 60% 40% 20% 0% -20% -40% 2012 2013 2014 2015 2016 2017 Long haul LCCs have more than doubled market share since 2012 Long Haul = Route greater than 4,000km * Non-LCC excluding Gulf carriers ~ Gulf Carriers = EK, EY, QR & TK LCC Non-LCC Non-LCC excluding Gulf carriers
The new order arrives:existing fleets and orders Europe I 5,434 O 1,913 Central Asia I 117 O 17 NE Asia I 4,451 O 1,168 SE Asia has 1:1 fleet:orders I = In Service O = On Order Africa I 658 O 118 North America I 5,409 O 1,421 in service Latin America I 1,298 O 701 Middle East I 1,400 O 1,035 South Asia I 591 O 825 Pacific I 440 O 184 SE Asia I 1,449 O 1,505 in service on order South Asiahas 1.3:1 The great bulk of these are narrowbodies Source: CAPA Fleet Database Aircraft on order with delivery scheduled to 2028
Long haul narrow body allowing connections between smaller city pairs
LH LCC Narrowbody in service & on order A320 neo AirAsia Citilink GoAir HK Express IndiGo Jetstar Airways Lion Air Lucky Air Peach Scoot Thai AirAsia VietJet Air 737 MAX Lion Air SpiceJet 9 Air 24% 30% A320 neo in service 54 + 1,105 on order 737 MAX in service 0 + 234 on order Particularly important for under 5,000km connectivity Full service LCC Aircraft on order with delivery scheduled to 2028 Source: CAPA Fleet Database
The Super-Connectors: losing steam?
The Super-Connectors: losing steam? 10 Year Growth rate: 13% p/a But in 2017 growth was only 0.5% Emirates: 2.8% Qatar: 0.8% Etihad: -3.6% Turkish: 1.8% Seats ASKs Flights Emirates 159.4% 177.6% 91.5% Etihad 210.4% 296.9% 266.1% Qatar 253.3% 365.9% 185.7% Turkish 240.5% 372.8% 186.7% Seats ASKs Flights Source: CAPA Centre for Aviation and OAG
The Super-Connectors: Revising strategies Previously only organic long haul growth; now to network with flydubai(and 40 787-10s ordered at the Dubai Airshow for Emirates + 225 737Maxs for flydubai) Reducing in size, dropping partnership strategy, but no new strategy yet (Temporarily?) hamstrung by blockade; strong investments, in IAG, LATAM and Cathay Pacific Uncertainty at home; reduced expansion plans; new IST airport next year
India s last roll of the dice
India s aviation industry: time is of the essence There is a narrow window of opportunity for the privatisationof Air India Policy India s government needs to establish a clear and transparent policy environment for foreign (and local) investment Infrastructure India s airports are fast running out of capacity and the replacement clock is ticking
Why India needs a liberal aviation policy The vast majority of new aircraft to be based in India will be single aisle, narrowbodyaircraft Many of them will operate on routes of three to five hours and longer This creates enormous opportunities for international connections to and from smaller Indian cities, opening up new business markets Witha liberal policy, India s missed opportunity as a hub can be revitalised, as new aircraft types open up smaller gateways Source: Boeing Market Outlook 2018
Air India privatisation. This is the last chance It s now or never for Air India Industry s pace of change is accelerating The economy is performing strongly Overall, conditions are as good as they ll ever get In its current form there is limited prospect of growth or new employment It needs a new impetus for expansion As long as it languishes, there can be no healthy domestic market To secure the best outcome, financially and operationally, the airline should remain intact
CAPA Airport Capacity Saturation Index India s airports are fast running out of capacity and the replacement clock is ticking Airport Current Capacity (mn) Projected Capacity (mn) Saturation date @ 10% CAGR Saturation date @ 12.5% CAGR Saturation date @ 15% CAGR Delhi 64-72.5 90-100 FY23 FY22 FY21 Mumbai 50-52 50-52 FY19 FY19 FY18 Bangalore 20 50-55 FY27 FY25 FY24 Hyderabad 12 50-55 FY31 FY28 FY27 Chennai 23-26 30 FY21 FY20 FY20 Kolkata 24-26 26 FY23 FY22 FY21 Cochin 10 20 FY26 FY24 FY23 Other AAI 90-92 115-125 FY22 FY21 FY21
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