The Airline Crisis 25 th IFATCA ASP Regional Meeting Shixin CHENG Manager, Safety, Operations & Infrastructure IATA North Asia Region To represent, lead and serve the airline industry
Outlook for the airline industry 2008Q3 Update www.iata.org/economics 25 th IFATCA ASP Regional Meeting 2
Financial crisis risks recession 6 1600 5 S&P 500 (right scale) 1500 4 1400 % 3 1300 S&P 500 2 1200 1 3m US treasuries yield (left scale) 1100 0 05-Jan- 2006 22-Mar- 2006 06-Jun- 2006 18-Aug- 2006 02-Nov- 2006 19-Jan- 2007 04-Apr- 2007 18-Jun- 2007 30-Aug- 2007 15-Nov- 2007 01-Feb- 2008 17-Apr- 2008 01-Jul- 2008 1000 15-Sep- 2008 25 th IFATCA ASP Regional Meeting 3
Risk of recession now spreading Confidence in Europe and the US 110 EU business and consumer confidence 100 Index level 90 80 70 60 US consumer confidence 50 Jan-2004 Jul-2004 Jan-2005 Jul-2005 Jan-2006 Jul-2006 Jan-2007 Jul-2007 Jan-2008 Jul-2008 25 th IFATCA ASP Regional Meeting 4
Airline share prices down sharply Airlines Shareprices Indices Source: Bloomberg 350 Worldwide US Airlines 300 Asian Airlines European Airlines 250 200 US$ 150 100 50 0 Jul/05 Oct/05 Jan/06 Apr/06 Jul/06 Oct/06 Jan/07 Apr/07 Jul/07 Oct/07 Jan/08 Apr/08 Jul/08 25 th IFATCA ASP Regional Meeting 5
Fuel costs forecast to reach 40% of operating costs in 2009 250 200 Fuel bill, % opex (RHS) 45 40 35 $ billion 150 100 30 25 20 15 % operating costs 50 Fuel bill, $ million 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F 0 25 th IFATCA ASP Regional Meeting 6
Traffic volumes going into decline International passenger and freight tonne-kilometers Source: IATA 12% % change over year 10% 8% 6% 4% 2% 0% -2% Passenger RPKs Air freight FTKs -4% Jul/05 Oct/05 Jan/06 Apr/06 Jul/06 Oct/06 Jan/07 Apr/07 Jul/07 Oct/07 Jan/08 Apr/08 Jul/08 25 th IFATCA ASP Regional Meeting 7
Leading indicators worsening 58 56 JPMorgan Output PMI Index and Air Freight Demand Source: Bloomberg, IATA International FTKs JP Morgan Output PMI (+ 3 months) 8 6 PMI Value (50 = No-Chan nge) % Growth, International FTKs 54 52 50 ` 4 2 0 48-2 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 25 th IFATCA ASP Regional Meeting 8
Excess capacity limited by increasing number of aircraft parked Aircraft Retirements and Deliveries Source: Ascend 120 Deliveries Retirements Parked (net) 100 Aircraft per month 80 60 40 20 0 2003 2004 2005 2006 2007 Jan-Jul 2008 25 th IFATCA ASP Regional Meeting 9
Decrease in capacity expected in coming months 2008 Outloo ok (Mil) RTKs & ATKs Source: ICAO 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 1993 ATK RTK Load Factor Break even Load Factor Load Factors Excess capacity 85% 1994 1995 1996 1997 1998 1999 2000 The oil price break even point for airlines is at US$ 110 / barrel despite a decreasing trend in non fuel costs reaching its limits This could impact the whole air transport industry profitability system 2001 2002 2003 2004 2005 2006 2007 2008E 80% 75% 70% 65% 60% 55% 50% 25 th IFATCA ASP Regional Meeting 10
Losses expected to continue into 2009 10.0 8.2 8.5 10 5.6 5.0 3.7 Operating margin, % (LHS) 5 % sales 0.0-5.0-5.6-4.1-0.5-5.2-4.1 0-5 US$ billion -10.0-7.5 Net losses, $bn (RHS) -10-15.0-13.0-11.3 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008F 2009F -15 25 th IFATCA ASP Regional Meeting 11
27 airlines went bust in the first 6 months of this year. The worst is yet to come. 25 th IFATCA ASP Regional Meeting 12
2008 Istanbul Declaration: Eliminate rules that prevent restructuring. Refrain from punitive taxes. States should invest in infrastructure. Monopolistic business partners need to improve efficiency. 25 th IFATCA ASP Regional Meeting 13
4 Pillar Strategy 1. Technology Engines Aircraft Alternative fuels 3. Infrastructure ATM Airports 2. Operations Fuel Book Green Teams Regulatory 4. Economic Measures ETS Carbon Offset Minimize taxes and charges 25 th IFATCA ASP Regional Meeting 14
ACHIEVEMENTS OPERATIONS & INFRASTRUCTURE (in million tonnes CO2) TOTAL 8.23 9.68 CRISIS ACTION PLAN 2.95 3.74 IEMS 4.49 6.73 0.00 2.00 4.00 6.00 8.00 10.00 12.00 Identified'08/09 Implemented'08 Note: 1.Implemented : INFRA - Routes/TMA improvements published, OPS - According to airlines reports 2.Identified : INFRA - Potential savings for upcoming route/tma improvement, OPS - Green Team Assessment 25 th IFATCA ASP Regional Meeting 15
Fuel Campaign Results since 2004* 12 OPERATIONS & INFRASTRUCTURE FUEL CAMPAIGN 2004-2008 (in Million CO2 tonnes) 10 10.4 9.2 8 6.7 7.4 6 5.5 4 4.1 3.7 3.8 3.5 2.7 2 0 1.1 2004 2005 2006 2007 2008 Infrastructure Identified savings(ops) Implemented/Reported Savings(OPS) * ALL RESULTS ON ANNUAL BASIS 25 th IFATCA ASP Regional Meeting 16
Time for some new initiatives with 25 th IFATCA ASP Regional Meeting 17
25 th IFATCA ASP Regional Meeting 18
25 th IFATCA ASP Regional Meeting 19
25 th IFATCA ASP Regional Meeting 20
Flight Efficiency Plan 5 action points to reduce fuel burn & emissions: 1. Airspace design. 2. Route shortening, flight plan quality improvements. 3. TMAs, CDAs. 4. Airport ops, Collaborative Decision Making. 5. Awareness raising on ATM fuel performance management. 25 th IFATCA ASP Regional Meeting 21
25 th IFATCA ASP Regional Meeting 22
Focus on Low Hanging Fruit CDA s & Pilot Discretion Descents Clean air-speed departures RNAV/RNP Dynamic sharing Civil/Military airspace RVSM 25 th IFATCA ASP Regional Meeting 23
Fuel Savings on Arrivals 10% less fuel. 40% less noise. 50-200 kg per arrival. 150-600kg less CO 2. 25 th IFATCA ASP Regional Meeting 24
Fuel Savings on Departures Clean Airspeed Departures. Unrestricted climb to cruising altitude. Lift 250kts restriction below 10,000ft. 200-1600kg fuel saved per departure! 650-5000 kg less CO 2. 25 th IFATCA ASP Regional Meeting 25
Fuel Savings with PBN RNP Approach vs Traditional ILS 5,414 RNP Approaches (B737-800) 17,300 less track miles 200 tonnes fuel saved 650 tonnes CO2 saved 25 th IFATCA ASP Regional Meeting 26
Civil/Military Sharing Airspace 25 th IFATCA ASP Regional Meeting 27
Short Term Summary (as of 6 Oct 08) Section Potential Savings tonnes Fuel Potential Savings tonnes CO2 Potential Savings in US$ 2008 2009 2008 2009 2008 2009 INF AFI 9,000 6,000 28,000 19,000 9,799,920 6,480,000 INF AMERICAS 11,000 34,000 11,644,856 INF ASPAC 22,000 145,000 71,000 463,000 23,947,733 156,800,000 INF EUR 469,000 1,496,000 506,520,000 INF MENA 26,000 82,000 27,756,000 INF NASIA 21,000 67,000 22,681,608 TOTAL 63,000 646,000 200,000 2,060,000 68,074,117 697,556,000 # Based on the IATA average fuel price 140.6 per barrel as at 31st July 2008 25 th IFATCA ASP Regional Meeting 28
www2.iata.org/sites/industrycrisis 25 th IFATCA ASP Regional Meeting 29
IATA Crisis Action Plan Awareness Raised. Action Plans Many Developed. Fast Track Implementation How? 25 th IFATCA ASP Regional Meeting 30
Thank you! 25 th IFATCA ASP Regional Meeting 31