Designing Hubs : Market Outlook, Opportunities and Challenges Sukru Nenem Strategic Planning and Investments Manager Turkish Airlines Inc. and 1st Year Phd Candidate, University of Westminster mnenem@thy.com s.nenem@my.westminster.ac.uk Presented in Airneth Annual Conferance, The Hague, Netherlands, 18 April 2012
Larger Growth in the East
Gravity is Shifting!
Scheduled Traffic Development Global Airline Industry Passenger Split +0,6 Annual average point Load Factor İncrease since 2003 42% International Recent expansion in capacity comes with the concerns regarding overcapacity. 58% Domestic Since 2005, RPK growth has been faster than ASK growth which indeed increased the average load factors by approximately half percent annually. % 2,7 ASK increase since 2005 (CAGR) % 3,3 RPK increase since 2005 (CAGR) x milyar km 6000 5000 4000 3000 2000 1000 0 2003 2004 2005 2006 2007 2008 2009 2010 80,0 78,0 76,0 74,0 72,0 70,0 68,0 % ASK LF
Aircraft Order & Deliveries 4000 Total Backlogs 3000 More orders observed 2006 2008 2000 Narrow bodies compose 2/3 of the overall orders. Super wide bodies, new NEO type aircraft and growing market s orders have pumped up the orders. 1000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1600 1400 1200 1000 Orders & Delivery Airbus Boeing %62 Backlogs @ Boeing 800 600 400 200 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 %68 Backlogs @ Airbus Airbus Orders Sipariş Airbus Delivery Teslim Boeing - Orders Sipariş Boeing - Teslim Delivery
Future Trends / De-hubbing? Being a commodity : * Decreasing cost of production * Increasing per capita income * Increasing demand for travelling More local demand : 1/2 Average per capita trip per year is still around 0.5 * Faster increase in short haul travel demand * Price sensitive markets * Increasing charter & off-schedule ops. 63% Narrow Body Aircraft % (Overall indr., 2010) 70% Narrow Body Aircraft % (Overall indr., 2020) Increasing Demand for Narrow Bodies : * Cheaper operation despite increas. costs * Profitable low cost ops * New generation narrow bodies * Market liberalization
Fleet Orders % 40 Fleet renewal ratio
Fleet Orders Asia %9 Asia %13 Middle East %1 Middle East %2 Narrow Body %67 America %33 Europe and others %21 Narrow Body %72 America % 24 Europe and others %17 BOEING Lessor %3 AIRBUS Lessor %16 Wide Body %33 Asia %6 Middle East %13 Wide Body %28 Asia %9 Middle East %5 Others %14 Others %14
Why mega-hubs? Single Hub 100 routes 100 x 99 = 9.900 O&D s can be served. Dual Hub 70 routes 30 routes 70 x 69 = 4.830 O&D s can be served. 30 x 29 = 870 O&D s can be served. 5.700 O&D s are served (In sum) By transferring 30% of the routes (operations) to a secondary hub, 42% of the connections are lost. Transferring to a secondary hub is optimal if and only if 100 routes are connected to less than 57 destinations only. (when assummed that dual hub alternative enables full connection.)
For a strong hub Geogprahical advantage is a must. Strong demand flow should surround the hub. Local demand of the home market provides significant advantage. Technical infrastructure and the capacity of the airport needs to be sufficient enough to accomodate the demand. (and of course service quality!) A hub candidate airport can never become a real hub without a large enough airline using it as the base of its operations. The nature of hubs have a slightly different nature in the western part of the Atlantic. Due to the huge domestic traffic in the US and the different business models of the airlines, we observe a quite different nature of hubs there.
Local Demand Country Population (million) # Int. Passengers # Dom. Passengers UK ~ 62 164.2 24.2 The Netherlands ~ 16 44.6 N/A France ~ 65 91.9 21.3 Germany ~ 82 137.9 26.0 Austria ~ 8 22.0 N/A Turkey ~ 74 31.4 15.3 Qatar ~ 2 15.2 N/A UAE ~ 9 57.5 N/A China ~ 1.345 59.5 243.6 India ~ 1.214 34.0 47.3 Singapore ~ 5 38.7 N/A Australia ~ 23 25.7 51.9
Case : Turkey Pax Figures million passengers 80,00 70,00 60,00 50,00 40,00 30,00 20,00 10,00 50,0% 45,0% 40,0% 35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 5,0% Growth (%) 0,00 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Domestic Pax 5,03 7,20 10,00 13,80 15,98 17,92 20,62 25,29 29,17 31,64 34,14 36,67 39,35 42,22 International Pax 25,30 30,60 32,90 35,00 38,35 43,60 44,28 52,22 59,02 62,86 66,88 71,23 75,50 80,03 Domestic Growth % 1,2% 43,1% 38,9% 38,0% 15,8% 12,1% 15,1% 22,7% 15,32% 8,50% 7,90% 7,40% 7,30% 7,30% International Growth % 1,2% 20,9% 7,5% 6,4% 9,6% 13,7% 1,6% 17,9% 13,02% 6,50% 6,40% 6,50% 6,00% 6,00% 0,0%
TK Network Development 6.000 2010 2011 Weekly Frequency 5.000 4.000 2006 2007 2008 2009 2012T 3.000 2.000 2004 2003 2005 214 Destinations By the end of destinations, TK will fly 214 destinations. 1.000 98 118 138 158 178 198 218 Number of Destinations
Wave Structures Emirates British Airways Turkish Airlines Lufthansa - FRA
Destinations 250 200 150 100 50 0 41 42 37 28 32 33 35 28 26 28 27 28 152 103 107 109 119 132 78 76 77 76 75 79 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Dom. Int. Routes to be launched soon Novorsbirsk Abidjan Kano Ulanbatur Bilbao La Caruna Misrata İsfahan Bremen Edinburgh Marsilya Leipzig Kinshasa Buenos Aires Oran Krakow Aalborg Billund 10 TK is one of the ten largest network owner airline of the globe
TK Figures from 03 to 11 35 30 25 20 15 Total Passenger Count ( x million) 32.6 % 205 32.6 million # of passengers by the end of 2011 10 5 10,5 0 2003 2011 6.000 International Transfer Pax ( x 1000) 20 International and Domestic Pax (mil.) 5.000 4.000 3.000 2.000 1.000 0 5.580 % 492 941 2003 2011 15 10 5 0 5,4 5 17,6 2003 2011T 15,4 Light blue Int. Pax Purple Dom. Pax
Thank you for listening! Sukru Nenem Strategic Planning and Investments Manager Turkish Airlines Inc. and 1st Year Phd Candidate, University of Westminster mnenem@thy.com s.nenem@my.westminster.ac.uk Presented in Airneth Annual Conferance, The Hague, Netherlands, 18 April 2012