Asia Pacific Aviation EMBRACING FUTURE CHALLENGES Andrew Herdman Director General Association of Asia Pacific Airlines
Overview Asia Pacific aviation Industry trends & outlook Evolving business strategies Global regulatory challenges Future growth
Aviation: delivering global mobility 4.4 billion passengers 12 million daily 35% by value of global trade Goods worth US$6 trillion Safely connecting people and business Wider social and economic benefits Outstanding safety record Committed to sustainable growth Source: IATA WATS 2018E, ATAG Aviation Benefits Beyond Borders 2018
Asia Pacific Diverse geographic region Home to more than 4 billion people Dynamic economies generate 34% of global GDP Aviation widely recognised as a key contributor to economic and social development - Supports 30 million jobs and US$684 billion in GDP Wide range of income levels, rapidly growing middle class Source: IMF WEO October 2018, ATAG Aviation Benefits Beyond Borders 2018
Growth of Asian middle class consumers 6,000 5,000 CIS Latin America 4,000 Africa 3,000 Middle East 2,000 North America 1,000 47% 52% 56% Europe 0 2017 2027 2037 Asia Pacific Rising demand for goods & services including air travel Source: Airbus GMF 2018-2037 Households with yearly income between $20,000 and $150,000 at PPP in constant 2017 prices
Asia Pacific Aviation Source: Combined AAPA + non-aapa airlines GMT+5 to GMT+12 US$186 billion revenue US$9 billion net profit 1,486 million passengers 1,055 million domestic 431 million international 22 million tonnes of cargo 7,997 aircraft Asia Pacific carriers overall market share: 34% of global passenger traffic 36% of global cargo traffic 2017 Data - Traffic: IATA World Air Transport Statistics, Financials: AAPA Estimates
World s ten busiest domestic routes Kareen Rank Route PAX (million) 1 Jeju Seoul 13.5 2 Melbourne Sydney 7.8 3 Fukuoka Tokyo 7.6 4 Sapporo Tokyo 7.4 5 Beijing Shanghai 6.4 6 Hanoi Ho Chi Minh City 6.4 7 Delhi Mumbai 5.6 8 Tokyo Okinawa 4.8 9 Jeddah Riyadh 4.8 10 Beijing - Chengdu 4.6 Source: IATA WATS 2018, 2017 data almost all in Asia Pacific
World s ten busiest international / regional routes Rank Route PAX (million) 1 Hong Kong - Taipei 5.4 2 Dublin London 3.4 3 Jakarta Singapore 3.3 4 Bangkok Hong Kong 3.1 5 Kuala Lumpur Singapore 2.8 6 Hong Kong Seoul 2.7 7 London New York 2.7 8 Osaka Taipei 2.6 9 Bangkok Singapore 2.5 10 Tokyo Taipei 2.5 Source: IATA WATS 2018, 2017 data almost all in Asia Pacific
Industry Outlook
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019F Global economic trends GDP Growth % change 10 8 6 World GDP Growth 2016 2017 2018E 2019F +3.3% +3.7% +3.7% +3.7% Emerging & Developing economies 4 World 2 0 Advanced economies -2-4 Policy uncertainty including trade frictions may undermine confidence Source: IMF WEO October 2018
Global passenger and cargo traffic RPKs FTKs Robust growth in air passenger markets Trend rate +6.9% p.a. Firm air cargo markets Trend rate +5.1% p.a. Source: IATA
Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 US$ per barrel Oil prices rising again 200 180 160 140 120 100 80 60 Crude oil price (Brent) Jet fuel price 40 20 0 Source: US Energy Information Administration
Airfares follow changes in oil prices Average airfare Average jet fuel price Airfares remain highly competitive Margins under pressure Source : IATA Industry Forecast June 2018
Global airline profitability trends US$ billion 50 Global net profit 40 36.0 34.2 38.0 33.8 30 20 10 5.0 14.7 17.3 8.3 9.2 10.7 13.8 0-10 -4.6-20 -30-40 -26.1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E North America Europe Asia Pacific Middle East Latin America Africa Source: IATA Strong passenger and air cargo markets Profit margin still just 4%
Revenue & Profit per Passenger Source: IATA Profit per Passenger below US$10 even in good years
Evolving Business Strategies
RPKs, Billion Airline business model share by region 3,000 2,500 19% Global Full Service Low Cost Market Share 76% 21% Growth +6.5% +13.6% 2,000 1,500 11% 26% 24% 1% 1,000 500-81% 63% 75% 6% 94% 28% 72% 91% Asia Pacific Europe North America Middle East Latin America Africa Full Service Low Cost Leisure 9% Source: IATA WATS 2018, 2017 data
Digitising the passenger experience Evolving consumer expectations Smartphone for everything Streamlining customer processes Online research + booking + ancillaries + payment + digital token Self-service check-in + bag drop + boarding Biometric identity checks Flight updates & baggage tracking Automated service recovery Challenge of harnessing new technologies to deliver a better passenger experience
Global Regulatory Challenges
Global regulatory influences Asia Pacific Wider impact of US and EU regulations Asia Pacific needs a unified voice Need for harmonised global standards
Global regulatory challenges Ben Aviation is subject to intensive regulation Safety Security Sustainability Passenger Facilitation Consumer Protection Taxes & Charges Infrastructure
Aviation Safety Performance Western-built Jet Aircraft Major Accident Rates by Operator Region 2008-2018 3-year moving averages 1 major accident in 2 million flights 1 major accident in 3 million flights 1 major accident in 4 million flights 1 major accident in 5 million flights Source: AAPA *Data as of 10 October 2018 Outstanding safety record built on focus, commitment and cooperation
Aviation Security Aviation remains highly secure despite perceived risks Threats and challenges evolving: no room for complacency Good security about comprehensive threat assessment and balanced risk management, not the elimination of every conceivable risk Shared global concern requires close international coordination built on trusted relationships Mitigation measures need to be proportionate, focus on the probable threat, avoid unnecessary disruption Approach to security can learn from safety management
Cybersecurity Universal dependence on information technology Growing connectivity and digitisation bring increased challenges and vulnerabilities Cyber threats constantly evolving Criminals as well as State actors New regulatory initiatives Focus on ecosystem and resilience Requires trust and cooperative efforts
Aviation & Sustainable development Aviation pursuing ambitious strategy: - Fuel efficiency + Operational enhancements + Infrastructure improvements + Sustainable alternative fuels + Carbon offsets - Carbon Neutral Growth from 2020 - A 50% reduction in net aviation CO 2 emissions by 2050, relative to 2005 levels Aviation is the first industry sector to commit to CO 2 reductions using a global market based measure ICAO CORSIA - Emissions reporting for all operators - 2019 - Carbon offsetting obligations - 2021 onwards Risk of duplicative measures undermining support Aviation continues to deliver on its commitments
Passenger Facilitation Challenges of processing 12 million daily passengers Harness technologies to streamline airline, security & border control processes Lack of data exchange standards and concerns over privacy issues Proliferation of complex and inconsistent passenger rights regulations confuse travellers Mass disruption events require close cooperation of multiple stakeholders Need for closer collaboration to improve passenger facilitation whilst enhancing border security
Taxes & Charges Ben Opportunistic taxes hurt economic development & impede job creation User charges must be transparent, costrelated, non-discriminatory & for current use Economic regulation of monopoly service providers required Aviation is a catalyst for economic growth, job creation & social development
Future Growth
Global Aviation - Future growth 2017 traffic Added traffic 2018-2037 Annual growth % Source: Boeing CMO 2018-2037 *Does not include travel within China
Global aviation - future aircraft orders New airplane deliveries by region Asia Pacific to account for 40% of new aircraft deliveries Corresponding infrastructure & manpower requirements Source: Boeing CMO 2018-2037
Aviation manpower development challenge Demand for Pilots, Technicians & Cabin Crew 2018-2037 Middle East 227,000 9% Latin America 165,000 7% Europe 465,000 19% Africa 86,000 4% Russia / Central Asia 83,000 3% Asia Pacific 839,000 35% North America 569,000 23% Need to attract, train and develop skilled manpower to meet future growth ICAO Next Generation of Aviation Professionals (NGAP) programme Government policy on education and training Private sector partnerships Commitment to workforce diversity and gender equality Source: Boeing Pilot and Technician Outlook 2018-2037
Infrastructure Airport Capacity - Long-term planning to meet projected growth - Capital investments required but need cost vigilance - Slot management only an interim measure Various forms of public and private sector involvement Economic regulation & oversight - Balancing interests of airlines, airports and travelling public Governments have a responsibility to coordinate infrastructure planning and regulatory oversight
Closing thoughts Aviation a key driver of global economic and social development Infrastructure planning is now critical Airline strategies evolving in response to changing market dynamics and consumer preferences Regulatory oversight should focus on maintaining consistent global standards on safety, security and ensuring a competitive business landscape Asia Pacific airlines at the forefront of global air transport development