Asia Pacific Aviation Navigating through Turbulence Andrew Herdman AAPA Director General IFSA ITCA WAEA Asia Pacific Conference Kuala Lumpur Malaysia, 29 April 2009
Presentation Outline Asia Pacific Aviation C bi d strength Combined h Current challenges Industry response Brighter skies
Aviation: moving the world Air travel delivers e global mobility 2,250 million passengers Outstanding safety record Carries 35% by value of global l trade Wider social and economic benefits Source: ATAG
Asia Pacific Diverse geographic region Home to 4 billion people 62% of the world s population Generates 26% of global GDP Wide range of income levels Dynamic economies but not immune to the global downturn Aviation recognised as a key contributor to economic and social development
AAPA global traffic share Passenger Revenue Passenger Kilometres Scheduled Systemwide Cargo Freight Tonne Kilometres Scheduled Systemwide AACO 4% AEA 19% ALTA 4% AFRAA 2% AEA 22% AACO 5% ALTA 2% AFRAA 1% ATA 27% Others 20% ATA 23% Others 8% AAPA 17% AAPA 32% PR China 7% PR China 7% Data: 2008 Source: IATA, AAPA and various
Asia Pacific Aviation US$ 145 billion revenue 618 million passengers 422 million domestic 196 million international 17 million tonnes of cargo 3,500 aircraft Asia Pacific overall market share: 27% of global passenger traffic 40% of global l cargo traffic Data: 2008 estimates Source: Estimates for combined AAPA + non-aapa airlines GMT+5 to GMT+12
AAPA customer service leadership AAPA carriers are global l leaders in service quality with world-class premium product offerings Premium cabins generate combined international ti revenues of ~US$ 12 billion 29% of total international passenger revenue Continuous innovation in seat comfort, cabin ambience, inflight entertainment, food and beverage, cabin crew, customer service
Competitive dimensions for airlines Revenue enhancement Tailoring products to markets Investing in premium products and services Active yield management Multiple brand strategies Improving cost competitiveness Fuel efficiency Labour productivity Value chain improvement Airports Air Navigation Service Providers Other service providers Airlines need more freedom to compete, just like other industries i
Current Challenges Sharp slowdown in the global economy Slump in international trade Weak passenger demand Currency volatility Higher cost of capital
Current Challenges Sharp slowdown in the global economy Slump in international trade Weak passenger demand Currency volatility Higher cost of capital
Slowing global economy World growth 2007 5.2% 2008 3.4% 2009 0 %? 2010 3 %? Advanced economies led the decline, but effects felt worldwide Source: IMF
Oil prices fall back to earth 200 180 160 Jet Fuel and Crude Oil Price ($/barrel) 2005 2008 Source: Platts, RBS Airlines struggled to keep pace with extreme volatility, many now facing hedging losses 140 120 100 Jet Fuel price 80 60 Crude oil price (Brent) 40 20 0 Sep, 2008 Nov, 2008 Jan, 2009 Jul, 2005 Sep, 2005 Nov, 2005 Jan, 2006 Mar, 2006 May, 2006 Jul, 2006 Sep, 2006 Nov, 2006 Jan, 2007 Mar, 2007 May, 2007 Jul, 2007 Sep, 2007 Nov, 2007 Jan, 2008 Mar, 2008 May, 2008 Jul, 2008 Fuel bill accounted for 35% of total costs for Asian airlines in 2008
Weak passenger & cargo demand 15% AAPA international passenger & cargo growth 10% 5% 0% -5% -10% -15% -20% RPK, FTK % Change -25% -30% Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 RPK Growth FTK Growth Source: AAPA Airlines suffer sharp falls in revenues
Recessions result in losses for airlines Global airline industry profit margin Impact will vary by region and relative strength of individual airlines Source: IATA Nov 2008
The global airline industry: profitability trends Source: IATA
Airlines responding to the downturn Trimming route networks and capacity in response to changing demand conditions Implementing wide range of measures to reduce staff costs, retrenchment only as a last resort Grounding surplus aircraft, seeking deferral of new deliveries Conserve cash, strengthen th balance sheet Working with industry partners to reduce unnecessary costs Another very tough year ahead
Future growth postponed A prolonged downturn could mean no growth 2008-2010 Significant implications for investment and capacity management Source: IATA Nov 2008
Long term growth prospects still bright Asia Pacific s share of world traffic will keep on growing Source: Boeing
Conclusions Aviation is at the heart of global economic development Nevertheless, airlines will be severely tested by the current downturn Asia Pacific airlines are taking appropriate steps to weather the storm Working with industry partners to identify joint cost savings and revenue opportunities Prospects for long term growth remain good
www.aapairlines.org Andrew Herdman Director General Association of Asia Pacific Airlines 9/F Kompleks Antarabangsa JalanSultanIsmail Kuala Lumpur 50250 MALAYSIA Tel: +60 3 2145 5600 Fax: +60 3 2145 2500