The next revolution The next revolution in the in the aviation cycle: Aviation Cycle 2 0 0 7 - w hat now ? Peter Harbison Executive Chairm an Centre for Asia Pacific Aviation
Two Quiet Revolutions Two Quiet Revolutions and a Myth and a Myth in Asian Aviation in Asian Aviation Peter Harbison Peter Harbison Executive Chairman Executive Chairman Centre for Asia Pacific Aviation Centre for Asia Pacific Aviation Aviation Outlook Summit Aviation Outlook Summit Singapore, 9/10 November, 2006 Singapore, 9/10 November, 2006
Major Themes Major Themes � 2006 � 2006 - - Some major events Some major events - - and two and two quiet revolutions quiet revolutions � LCCs � LCCs - - the potential and the possible the potential and the possible � China and India � China and India - - growth and losses; the growth and losses; the Middle East - - growth and profits growth and profits Middle East � Airports and hub challenges � Airports and hub challenges � …… � ……and 2007? and 2007?
Why We Remember 2006 Why We Remember 2006 � The deal of the decade � The deal of the decade – – Air Air China and Cathay Pacific China and Cathay Pacific � The world � The world’ ’s dominant airline in s dominant airline in 10 years? 10 years?
Why We Remember 2006 Why We Remember 2006 5 6 0 � China 4 8 0 � China’ ’s continuing emergence s continuing emergence as a dominant aviation power as a dominant aviation power 4 0 0 3 2 0 2 4 0 Airport pax: 1984-2006F 1 6 0 8 0 0 8 4 8 5 8 6 8 7 8 8 8 9 9 0 9 1 9 2 9 3 9 4 9 5 9 6 9 7 9 8 9 9 0 0 0 1 0 2 0 3 0 4 0 5 0 6 F0 7 F0 8 F0 9 F 1 0 F I nternational Dom estic Regiona
Why We Remember 2006 Why We Remember 2006 � India � India’ ’s traffic explosion s traffic explosion - - and approaching maturity and approaching maturity
Why We Remember 2006 Why We Remember 2006 Bangkok million 40.0 � A new airport � A new airport - - a long time a long time coming, but now poised to coming, but now poised to 36.0 change dynamics change dynamics 32.0 28.0 24.0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
The Fuel and Share Price The Fuel and Share Price Duel Duel Fuel Price 1 6 0 Rising oil price Falling oil price Air China JAL 1 4 0 Air China AirAsia 1 2 0 Cathay 1 0 0 Jet Index Jan-06 = 100 Qantas 8 0 JAL JAL SI A 6 0 Thai Jet Airways Jet Airways Virgin Blue 4 0 2/ 1/ 06 16/ 1/ 06 30/ 1/ 06 13/ 2/ 06 27/ 2/ 06 13/ 3/ 06 27/ 3/ 06 10/ 4/ 06 24/ 4/ 06 8/ 5/ 06 22/ 5/ 06 5/ 6/ 06 19/ 6/ 06 3/ 7/ 06 17/ 7/ 06 31/ 7/ 06 14/ 8/ 06 28/ 8/ 06 11/ 9/ 06 25/ 9/ 06 9/ 10/ 06 23/ 10/ 06
A380 Delay A380 Delay � Disrupts fleet planning � Disrupts fleet planning � Uncertainty of aircraft availability � Uncertainty of aircraft availability � Fedex � Fedex cancels, Virgin delays, cancels, Virgin delays, Emirates inspects Emirates inspects � Extends the life of older � Extends the life of older widebodies widebodies � Slows the expansion of Emirates � Slows the expansion of Emirates… …. .
Quiet Revolution #1 Quiet Revolution #1 A quiet change in direction for Asia A quiet change in direction for Asia Pacific airlines… ….. .. Pacific airlines LIBERALISATION FUEL PRICES LCCs LCCs
The Two Best Things The Two Best Things to Happen to Asian to Happen to Asian Flag Carriers… ….. .. Flag Carriers 1- - LCCs LCCs… …. . 1 and and 2 - - High Fuel Prices High Fuel Prices 2
Quiet Revolution #1 Quiet Revolution #1 The discipline imposed by these The discipline imposed by these challenges has provoked : challenges has provoked : � Reduced flying to points which lose � Reduced flying to points which lose money money � Increased seat load factors � Increased seat load factors � Increased yields (average fares) � Increased yields (average fares) � Lower ASK growth rates � Lower ASK growth rates
Asia Pacific Airlines Asia Pacific Airlines Reduce seats Reduce seats No growth (or reduction) in (ASKs ASKs) ) - - No growth (or reduction) in ( June 2006: June 2006: � ANA � ANA � China Airlines (Taiwan) � China Airlines (Taiwan) � Japan Airlines ( � Japan Airlines (- -13%) 13%) � Korean Air � Korean Air � Malaysia Airlines ( � Malaysia Airlines (- -13%) 13%) � Philippine Airlines � Philippine Airlines � Qantas � Qantas � Singapore Airlines � Singapore Airlines � Thai Airways � Thai Airways Total seat growth - - below 4% below 4% Below Below Total seat growth long term average long term average
AAPA Growth Rate Slows AAPA Growth Rate Slows Asia Pacific Airlines ASK %age Growth 2005/06 Asia Pacific Airlines ASK %age Growth 2005/06 AEA Airlines AEA Airlines
…as Load Factors as Load Factors … Climb too Climb too 10% LF differential 10% LF differential AAPA Load Factors Climb AAPA Load Factors Climb 5% LF differential 5% LF differential
Yields and Fuel Prices Yields and Fuel Prices Rise in Unison… …. . Rise in Unison 1 0 0 .0 9 0 .0 SIA overall yields (S cents/ltk ltk) ) SIA overall yields (S cents/ 1990- -2006 2006 1990 8 0 .0 7 0 .0 6 0 .0 0 6 -0 7 1 H 8 9 -9 0 9 0 -9 1 9 1 -9 2 9 2 -9 3 9 3 -9 4 9 4 -9 5 9 5 -9 6 9 6 -9 7 9 7 -9 8 9 8 -9 9 9 9 -0 0 0 0 -0 1 0 1 -0 2 0 2 -0 3 0 3 -0 4 0 4 -0 5 0 5 -0 6
Quiet Revolution #2 Quiet Revolution #2 � Thanks to new entry, governments are � Thanks to new entry, governments are recognising that they have that they have… … OPTIONS OPTIONS recognising � Alternatives to subsidy and protection now � Alternatives to subsidy and protection now emerge, as new entrants offer alternatives to emerge, as new entrants offer alternatives to regulatory restrictions and protectionism regulatory restrictions and protectionism � The � The “ “national interest national interest” ” is redefined is redefined
Quiet Revolution #2 Quiet Revolution #2 � The Malaysia Case Study � The Malaysia Case Study - - exercising exercising the option: the option: � LCC operations � LCC operations � Expand domestic market � Expand domestic market � Remove the need for subsidy � Remove the need for subsidy � Offer an alternative short haul flag carrier � Offer an alternative short haul flag carrier � Flag carrier restructuring delivers an � Flag carrier restructuring delivers an effective network airline effective network airline � Everybody wins � Everybody wins - - almost there almost there… …
The LCC: Agent of Change The LCC: Agent of Change � “ � “Ownership and control Ownership and control” ” – – cross border joint cross border joint ventures, are undermining the core of ventures, are undermining the core of regulation regulation � Low fares � Low fares – – delivering policy options to delivering policy options to governments governments � A major (but unsung) development � A major (but unsung) development – – standardisation of licensing: of licensing: standardisation Malaysia/Thailand/Indonesia Malaysia/Thailand/Indonesia
A Simple Picture A Simple Picture seats in million 8.0 7.0 6.0 Asia Pacific LCC seat growth Asia Pacific LCC seat growth 5.0 - but still heavily regulated but still heavily regulated - 4.0 3.0 2.0 1.0 0.0 2001 2002 2003 2004 2005 2006
LCC Expansion LCC Expansion Current orders only: 150% increase in LCC capacity to 2012 Current orders only: 150% increase in LCC capacity to 2012 - over 600 aircraft over 600 aircraft - Virgin Blue AirAsia AirAsia Virgin Blue Jetstar Air Deccan Air Deccan I ndigo Adam Air Jetstar Skym ark Airlines Adam Air Cebu Pacific GoAir Tiger Airw ays SpiceJet SpiceJet Viva Macau Air I ndia Express Air I ndia Express Virgin Blue currently largest AirAsia jumps to 1st jumps to 1st Virgin Blue currently largest AirAsia Nok Air Air Arabia Air Arabia Spring Airlines Air Deccan 4th Air Deccan to 3rd Air Deccan 4th Air Deccan to 3rd One-Tw o-Go One-Tw o-Go East Star Freedom Air Nok Air I ndigo Indigo 15th Indigo to 4th Indigo 15th Indigo to 4th Air Blue GoAir Cebu Pacific Jazeera Tiger Airw ays Air Blue Skym ark Airlines Spring Airlines Jazeera Viva Macau Freedom Air East Star 0 2 4 6 8 1 0 1 2 1 4 1 6 1 8 0 2 4 6 8 1 0 1 2 1 4 1 6 1 8
Source: OAG Source: OAG
Major Potential Major Potential Short Haul Short Haul Growth Markets Growth Markets
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