“Setting the scene : the current crisis and beyond…”
A.T. Kearney introduction
December 2nd, 2009
Hugo Azerad
Principal, A.T. Kearney Paris
DRAFT
2A.T. Kearney 18/IACA 2009
Setting the scene…
Global Economic Environment
Aviation Industry Leisure Industry
Conjuncture
Rebound
3A.T. Kearney 18/IACA 2009
Global economy is witnessing one of the largest crises since 1929
Evolution of unemploymentUnemployment rate, in % of total labor force, 2000-2009
Evolution of stock performanceDow Jones, Euro Stoxx 50, by month, 2002-2009, index 100
0 %
2 %
4 %
6 %
8 %
10 %
12 %
2004 2005 2006 2007 2008 2009
Japan
US
Germany
France
0
20
40
60
80
100
120
140
160
Jan. 10Jan. 08Jan. 06Jan. 04Jan. 02
Euro Stoxx 50
Dow Jones
Sources: Press search, IMF, financial reports, A.T. Kearney analysis
GDP Growth in 2009
Russia
Japan
China
India
Brazil
France
USA
EU
Qatar
4A.T. Kearney 18/IACA 2009
For the airline industry, this is coupled with a dramatic recent surge in oil prices and airport / route charges
Sources: AEA, IATA, ICAO, broker reports, A.T. Kearney analysis
Evolution of Jet fuel pricesIn $/bbl, 2000-2009
0
10
20
30
40
50
60
70
80
90
100
110
120
130
Jan 08Jan 06Jan 04Jan 02Jan 00
Start of the 2008 crisis
2009
31,7 %
23,3 %
2003
18,2 %
10,7 %
Low Cost Carriers
Flag Carriers
Fuel as a % of total costsOn average; 2003; 2009
Costs per passengerIn $/passenger, 2003-2007
8,88,6
7,67,77,6
5,45,0
4,74,9
4,5
20072006200520042003
Route charges/pax
Landing and airport charges/pax
Oct 09
5A.T. Kearney 18/IACA 2009
The resulting deterioration in global travel demand has led to airline carriers reducing capacity and cutting fares
Global capacity and passenger revenues evolutionGrowth in scheduled ASK and in Passenger RPKs, in % change over year
Sources: IATA, SRS Analyser, A.T. Kearney analysis
- 15 %
- 10 %
- 5 %
0 %
5 %
10 %
15 %
RPKs
ASKs
- 15 %
- 10 %
- 5 %
0 %
5 %
10 %
15 %
- 15 %
- 10 %
- 5 %
0 %
5 %
10 %
15 %
% c
han
ge
ove
r ye
ar
Economy fares
Economy fares on international marketsIn % change over year, from September 2007 to March 2009
Jul07
Oct07
Jan 08
Apr08
Jul08
Oct08
Jan 09
Apr 09
Jul 09
Jul08
Oct08
Jan09
Mar09
6A.T. Kearney 18/IACA 2009
However, there are good long term prospects for the airline industry players...
Note: RPKs = Revenue passengers kilometres = number of passengers x route lengthSources: Airbus, IATA, LH, AT Kearney analysis
Worldwide passenger long term traffic evolutionWorld annual traffic, in trillions RPKs(1)
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
2003199719921987198219771972 2009
OilCrisis
OilCrisis
GulfCrisis
AsianCrisis
WTCAttack
SARS
6000
5000
4000
3000
2000
1000
0
-5 y -4 y -3 y -2 y -1 yCyclepeak
+1 y+2 y +3 y +5 y+4 y +6 y +7 y +8 y +9y
2008 peak
2000 peak
1990 peak
1979 peak
3 years oflow growth
4.7% pa
2000 trend
4.8% pa
1999 trend
5.4% pa
1980 trend
9.7% pa
1970 trend
IATA Forecast
Worldwide air traffic development after cyclic peaksIn billion PKT
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
2003199719921987198219771972 2009
Financial crisis
7A.T. Kearney 18/IACA 2009
… that will have the financial stability to overcome the crisis
Sources: IATA reports September 2009 , press search, A.T. Kearney analysis
Evolution of global airlines profitabilityOperating Profit in bn$, 2000-2009
Overview of airline failures since 2008
-3,9-3,8
19,7
15,0
4,33,3
-1,4
-4,8
-11,8
10,7
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Non exhaustive
8A.T. Kearney 18/IACA 2009
Leisure / Economy
Jun SepJul Aug Jun SepJul Aug
4,42 m 6,11 m
Low Cost Carriers have proven to be more resistant to the global downturn
Sources: Press researchn Company data, A.T. Kearney analysis
Business / Premium
-5,3 %
-3,8 %-4,5 %
-7,0 %
-2,0 %
0,4 %0,3 %
-5,5 %
-1,7 %-1,7 %-1,2 %
-4,9 %
Jul Aug
JunJun SepJul Aug Sep
5,3 %4,7 %4,3 %
0,8 %
14,4 %15,9 %15,8 %
11,4 %
Jun SepJul Aug
Evolution of number of passengers(% change vs. same period in 2008)
6,23 m 5,07 m 2,9 m
9A.T. Kearney 18/IACA 2009
In prosperous times, Travel & Tourism demand has been outperforming global growth indicators
Compared evolution of GDP and Travel & Tourism Demand(1)
Growth in %;1989-2012f; in the European Union
- 5%
- 4%
- 3%
- 2%
- 1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GDP
Note ; (1)Travel & Tourism demand encompasses all components of Travel & Tourism consumption, investment, government spending and exportsSources: World Travel & Tourism Council, Oxford economics, EIU, Eurostat, A.T. Kearney analysis
Travel & Tourism demand
WTC Attack
SARSGlobal Financial
Crisis
?
10A.T. Kearney 18/IACA 2009
There is furthermore a strong unveiled potential and good long term prospects for global travel & tourism
Trips and real GDP per CapitaIn number of trips, in US$ per Capita, 2008
Sources: Airbus, IATA, PaxIS, Global Insight, European Travel Monitor, A.T. Kearney analysis
Trips per Capita
2008 Real GDP per Capita
Outbound travel expenditure per capitaIn % of GDP per capita, 2008
4%
3%
3%
1%
2%
2%
2%
2%
3%
3%
3%
3%
4%
4%
4%
5%
5%
6%
Italy
Finland
Netherlands
Belgium
Portugal
Germany
Czech Republic
Poland
Hungary
Norway
Estonia
UK
Ireland
Austria
Switzerland
Denmark
Spain
France
11A.T. Kearney 18/IACA 2009
Travel & tourism will however have to take into account the crisis-driven evolution of customers’ behavior
Holiday organizationIn % of respondents; Germany;2006-2009
Sources: World Travel Trends Report, European Travel Monitor, Reisemonitor 2009, ADAC, A.T. Kearney analysis
Holiday makers selecting lower-price destinationsIn % of respondents; Germany;
38%
35%
32%
200920082006
Savings on holiday budgetIn % of respondents; Europe; 2008
10%
15%
19%
26%
29%
Type of transportation
Timing of booking
Accommodation
Destination
Timing of holidays
32%30% 31%
30%
10%14% 11% 14%
Self
Organised
Complete
Package
Partial
Booking
2009
55%
2008
58%
2007
57%
2006
58%
12A.T. Kearney 18/IACA 2009
To overcome the crisis there is still potential to develop revenues with ancillary services…
0 % 5 % 10 % 15 % 20 %
Alaska
Aer Lingus
United
Austrian
Korean
Alitalia
Emirates
SAS
Ryanair
Easyjet
Vueling
Allegiant
Air Deccan
Sky
Air Asia
West Jet
LTU
Norwegian
Spanair
Air Berlin
Frontier
Air Arabia
Spice Jet
Ancillary revenues for Airline CarriersIn % of total revenues, 2008
LCC
Legacy
Sources: Air Transport World, A.T. Kearney analysis
On-board Duty free
ILLUSTRATIVE
Checking Facility /Luggage
On-board Duty Free Shopping
On-board Food
In-flight Entertainment
13A.T. Kearney 18/IACA 2009
… and there is urgency to get to the next level in cost structure optimization
Source: A.T. Kearney analysis
Incre
as
ing
e
as
e o
f o
pti
miz
ati
on
im
ple
me
nta
tio
n
Airline Cost structure
Fuel
Airport charges
Route charges
Fleet rent
Crews
Maintenance
Handling
Catering
Bes
t p
rac
tice
s im
ple
me
nta
tio
n
Insource/outsource
Labor costs/ team structure
Service level
Route optimization
Airport management
Hedging
Pe
rfo
rma
nce m
an
ag
em
en
t Pu
rch
as
ing
op
tim
iza
tio
n
Consolidate suppliers / renegotiate
Redesign processes
Joint improvement process
Benefit sharing…
Purchasing Chess Board ®
A.T. Kearney value proposition for overcoming the crisis
Global Cost Benchmark for Airlines
GCBG l o b a l C o s t B e n c h m a r k i n g
Airlines cost structure optimization levers
14A.T. Kearney 18/IACA 2009
There are some macroeconomic signs of a potential recovery in 2010, but still much uncertainty…
- 40
- 35
- 30
- 25
- 20
- 15
- 10
- 5
0
5
10
15
20
25
Services Confidence
Industrial Confidence
September 2009
2006 2007 2008 2009
Start of the 2008 crisis
Sources: European Commission surveys, Eurostat, WTO barometer, A.T. Kearney analysis
Industrial and Services confidence indicators
Global Downturn (W)
Return to Normalcy (U)
Recovery scenarios
or ...
Tourism confidence indexTourism panel experts, 2008-2009
28%
27%
45%
9%
66%
10%
62%
42%
Worse
Better
Sep 08- Dec 08
Sep 09 - Dec 09
May 09 - Aug 09
Jan 09- Apr 09
15A.T. Kearney 18/IACA 2009
THANK YOU !
16A.T. Kearney 18/IACA 2009
DISCLAIMER
Any reproduction, partially or entirely, is forbidden without the prior express permission of the copyright holder. All logos and corporate names referenced in this report constitute the intellectual property of their respective right holders.
© A.T. Kearney S.A.S. 2009