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Asia Pacific Aviation
Challenges & Opportunities
Andrew Herdman
Director General
Association of Asia Pacific Airlines
Aviation: moving the world
Source: ATAG
• Air travel delivers global mobility
• 3 billion passengers
• 8 million per day
• Carries 35% by value of global trade
• Wider social and economic benefits
• Outstanding safety record
• Committed to sustainable growth
Overview
• Asia Pacific aviation
• Focusing on competition
• Global regulatory challenges
• Business innovation
Asia Pacific Aviation
Data: 2012
Source: Combined AAPA + non-AAPA airlines GMT+5 to GMT+12
US$175 billion revenue
US$5 billion net profit
948 million passengers
676 million domestic
272 million international
17 million tonnes of cargo
5,612 aircraft
Asia Pacific carriers overall market share:
30% of global passenger traffic
39% of global cargo traffic
Source: IMF
Imbalances in the global economy
Global economic growth of 3% in 2013, but
hopes for a modest pick up in 2014
-4
-2
0
2
4
6
8
10
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013E
Emerging & Developing
economies
Advanced economies
GDP Growth % change
World
Global passenger and cargo traffic
Global international passenger and cargo traffic
Source: IATA
• Robust growth in passenger travel
• Air cargo market stagnant
Premium and economy traffic growth
Source: IATA
International air passengers by seat class
Seasonally Adjusted
Slower recovery in premium traffic but
common growth trend
Competition in Asia
Dynamic business models and
service innovation
• Asian regional traffic concentrated on major trunk routes
• Asia has 7 of the world’s top 10 busiest routes
• 85% of traffic on routes of 100,000 pax p.a.
• Intensely competitive Asian marketplace
• 75% of routes served by at least three airlines
• 27% of routes served by at least five airlines
• Compare Europe, 45% of routes served by just one or
two airlines
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3
Crude oil price (Brent)
Jet fuel price
US
$ p
er
ba
rre
l
Persistently high oil prices
Source: US EIA
Jet fuel and Crude Oil Price ($/barrel)
Jet fuel prices averaging US$123 per barrel
-5.6-4.1
5.0
14.7
-26.1
-4.6
19.2
8.47.4
11.7
16.4
-5
-4
-3
-2
-1
0
1
2
3
4
-30
-25
-20
-15
-10
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25
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014F
Net Margin %US$ Billion
Global airline industry profitability
Source: IATA
Anticipating a modest improvement in airline
profitability, but margins remain very thin
Taxes: stop using aviation as a cash cow
• Myth that aviation is under taxed
• Taxes hurt the economy and job creation
• Damage extends to wider travel and tourism sector
• Aviation taxes make travel less affordable
Aviation plays a positive role in economic and
social development: a catalyst for growth and
job creation
-1 0 1 2 3 4 5 6 7
Africa
Latin America
Middle East
Europe
North America
Asia Pacific
2012 2013E 2014F
Divergence in earnings across regions,
with North American carriers recording
significantly stronger growth
Airline profitability by region
Source: IATA
Net Profit (US$ Billion)
Selected enterprise values by region
Source: AAPA Estimates
Market capitalisation as of 8 November 2013
- 5,000 10,000 15,000 20,000 25,000
Japan Airlines
Singapore Airlines
Korean Air
China Southern
China Eastern
Cathay Pacific
All Nippon Airways
Air China
Easyjet
Air France-KLM
BA-IBERIA
Lufthansa
Ryanair
Alaska Airlines
US Airways
Southwest
United Continental
Delta
US$ million
Market Capitalisation Long Term Debt
No
rth
Am
eric
aE
uro
pe
Asi
a P
acif
ic
Regulatory Challenges
Aviation is subject to intensive regulation
• Safety
• Security
• Environment
• Infrastructure
• Facilitation
• Passenger Rights
Global Regulatory Influences
Asia
Pacific
Wider impact of US and EU regulations:
Asia Pacific needs a unified voice
• Diverse geographic region
• Home to more than 4 billion people
- 60% of the world’s population
• Generates 37% of global GDP
• Wide range of income levels
• Dynamic economies leading the global
recovery
• Aviation widely recognised as a key contributor
to economic and social development
• Political diversity remains challenging: need
for multilateral cooperation
Asia Pacific
Safety
• Industry is delivering continuous improvements in
aviation safety performance
• Asia Pacific safety performance in line with world
standards
Flying is extraordinarily safe,
and getting safer still
Safety Performance Trends
Source: AAPA
Asia PacificWorld
1 major accident in 1 million flights
1 in 2 million
1 in 3 million
Safety
• Industry delivering continuous improvements in
aviation safety performance
• Asia Pacific safety performance in line with world
standards
• More efforts needed by some Asian governments
to ensure full compliance with agreed ICAO
standards of regulatory oversight
• Fully support ICAO led efforts on regional safety
initiatives
• Concerns remain over imposition of unilateral
sanctions by US and EU
Aviation Security
• Governments and industry need to work together
• Security procedures must balance risks against costs and inconvenience to the travelling public
• We need intelligence-led, outcome-based, security measures
• Air cargo supply chain is built on a web of trustedrelationships
• Global security best served through the mutualrecognition of national security regimes
• Cyber security an emerging threat
Aviation & Environment
• Aviation delivers continuous improvements in fuel
efficiency through technology, operations and
infrastructure
• Industry committed to ambitious environmental goals
• Delivering CNG2020 will require supplementary
market based measures
• Responsibility lies with governments
• ICAO remains the right forum to reach international
consensus
ICAO & market based measures
Strong political leadership required
• ICAO 38th Assembly committed to develop a global
MBM by 2016 for implementation in 2020
• Air transport industry strongly supportive
• Challenges ahead :
• Reconciling differing perspectives of developed
and developing countries
• Delivering a fair and equitable solution
• EU airspace proposal jeopardises international
cooperation
United
Nations
191
States
Passenger Facilitation
• Air travellers are faced with lengthy processing times at airports
• New technologies should facilitate speedier processing
• Governments need to work with industry to streamline the travel experience, including smoother handling of disruptions
Balancing national border control objectives
and efficient passenger facilitation
Passenger Rights
• Some governments introducing overarching and
highly prescriptive rules
• Patchwork of regulations creates confusion for
travellers and industry
• Reduces incentive to innovate, restricts
differentiated customer service offerings
• Need common principles on consumer protection
Consumer choice in a competitive marketplace
delivers customer value
Airline industry global trend
Source: Boeing CMO 2013-2032
Asia Pacific moving to leadership position
Source: Airbus
*Households with daily expenditures between US$10 and
US$100 per person (at PPP)
The growing middle class
Asia Pacific to lead world traffic
Source: Airbus
GMF2013-2032
Overall market grows x 2.5 by 2032
29% 5.5% 34%
26% 3.8% 22%
25% 3.0% 18%
8% 7.1% 12%
5% 6.0% 7%
4% 5.8% 4%
3% 5.1% 3%
% of 2012 world RPK20-year
growth
% of 2032
world RPK
World traffic by airline domicile (RPK billions)
Infrastructure
• Aviation infrastructure must keep pace with rapid
traffic growth
• Chronic congestion and delays already evident in
some areas
• Greater focus on operating efficiency, productivity
and cost-effectiveness
• Government responsibility to coordinate planning
and long term investment required
• Industry ready to play its part
Infrastructure is critical
Closing Thoughts
• Asian airlines are at the forefront of industry innovation
• Shared confidence and optimism about the future
• Airlines operate in a complex and challenging business
environment
• A global industry requires harmonised regulations
• Asia Pacific needs a unified voice
Industry committed to sustainable growth
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