brighter skies ahead: asia pacific aviation
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Asia Pacific AviationBrighter Skies Ahead
Andrew HerdmanAndrew HerdmanDirector General
Association of Asia Pacific AirlinesAssociation of Asia Pacific Airlines
Willis Asia Pacific Insurance Conference3-5 March 20103 5 March 2010
Overview• Asia Pacific aviation
• Current challenges
Gl b l l i• Global regulatory issues
• Brighter skies beyond• Brighter skies beyond
• Sustainable AviationSustainable Aviation
Asia Pacific
• Diverse geographic regionDiverse geographic region• Home to 4 billion people
- 62% of the world’s population
• Generates 27% of global GDP• Wide range of income levels• Dynamic economies leading the y g
global recovery• Aviation widely recognised as a key y g y
contributor to economic and social development
Asia Pacific Aviation
US$ 128 billion revenue$
647 million passengers421 million domestic226 million international226 million international
15 million tonnes of cargo
4,300 aircraft
Asia Pacific carriers overall market share:Asia Pacific carriers overall market share:29% of global passenger traffic40% f l b l t ffi
Data: 2009 Estimate Source: Combined AAPA + non-AAPA airlines GMT+5 to GMT+12
40% of global cargo traffic
Current Challengesg• Fragile recovery in progress
• Asia Pacific leading the way
• Yields still under pressure
• Oil & currency volatility
• Restoring profitability
Global recovery underway
World growth2008 +3%2009E -1%2010F +4%2010F +4%
Led by dynamic Asia Pacific economiesSource: IMF
Led by dynamic Asia Pacific economies
Recovery in passenger and cargo volumes
AAPA international passenger & cargo growth40%
20%
30%
40%
ange
0%
10%
FTK
% c
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and
RPK Growth FTK Growth
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RPK Growth FTK Growth
2009 Passenger numbers fell 6%
Jan
Feb
Ma
Ap
May Jun
Ju Aug Se
pO
cN
ov Dec Jan
Feb
Ma
Ap
May Jun
Ju Aug Se
pO
cN
ov Dec Jan
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May Jun
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ov Dec Jan
2009 Passenger numbers fell 6%Air cargo down 11%
Source: AAPA
Passenger traffic by class of travel
Premium traffic particularly hard hit,Premium traffic particularly hard hit, and slower to recover
Future growth postponed
Loss of two years of previously anticipated growth
Source: IATA
Significant implications for investment, and it t th h t th l h icapacity management, throughout the value chain
Fleet still expanding with new deliveries
Additional capacity growth in 2010 may outpace p y g y pdemand growth, pressuring yields
Oil price volatilityJet Fuel and Crude Oil Price ($/barrel)
2005–2010
Fuel accounts for 25%-35% of overall airline costs
E t l tilit l d tExtreme volatility led to some significant hedging losses
Oil prices remain volatile, with added uncertainty regarding future carbon pricing y g g p ginclusive of emissions charges
Source: US EIA
Airlines managed through the downturn
• Trimmed route networks and capacity in response to lower demandlower demand
• Reduced utilisation, grounded surplus aircraft, deferred g psome new deliveries
• Implemented wide range of measures to reduce staff• Implemented wide range of measures to reduce staff costs, retrenchment as a last resort
C d h h d b l h t• Conserved cash, shored up balance sheets
• Worked with industry partners to reduce unnecessaryWorked with industry partners to reduce unnecessary costsAirlines focused on survival whilstAirlines focused on survival whilst preserving ability to respond to any upturn
Regulatory Issuesg y• Regional perspectivesg• Safety
S it & F ilit ti• Security & Facilitation• Structural reformStructural reform• Environment
Asia Pacific: regulatory perspectives
• Diverse region: multiple governments and regulators
• Institutional framework remains fragmented, although APEC and ASEAN do touch on aviation policy issues
• Need for multilateral cooperation
• Positive bias towards consensus, but sometimes slows the process
• Harmonisation is more about sharing best practices b f l i l ti t b t l i diff ftbefore legislating, not about resolving differences after unilaterally imposed regulations
• Global regulatory agenda still dominated by US and EU• Global regulatory agenda still dominated by US and EU
Asia Pacific lacks single voice and gunified negotiating power
Safety
• Asia Pacific aviation maintains a very good safety record• Still need to strengthen regional safety oversight and
make better use of available regulatory resources• Support ICAO recommendations and efforts to enhance
regional safety• Strong reservations about unilateral imposition of
operational bans on airlines, and effects of category downgrading of national authorities
• Need to harmonise ICAO/US/EU standards
Safety performance – by operator region
Western-built Jet Aircraft Major Accident Rates by Operator Region 2001 - 2009
1 60
1.80
by Operator Region 2001 - 20093-year moving averages
1 20
1.40
1.60
mil
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ors)
0 80
1.00
1.20
t Rat
es (p
er m
0 40
0.60
0.80
Maj
or A
ccid
ent
0 00
0.20
0.40M
0.002001 2002 2003 2004 2005 2006 2007 2008 2009
World IATA North America Europe Asia Pacific AAPA
Security & Facilitation
• Air travel is both highly safe and secure
• Security procedures must balance risks against costs and inconvenience to the public
• Instead of kneejerk reactions, we need greater consistency and less duplicationy p
• Governments need to work with industry for the benefit of the travelling publicg p
• New technologies, including biometric identification and electronic information exchange, are an and electronic information exchange, are an opportunity to enhance security whilst streamlining travel
Structural reform
• Progressive liberalisation of traffic rights has supported growth but led to highly fragmented industry structuregrowth but led to highly fragmented industry structure
• Restrictive national ownership and control rules stand in the way of necessary restructuring and internationalthe way of necessary restructuring and international consolidation
D ti k t i l d t f i i t t d• Domestic markets remain closed to foreign investment and competition
• Airlines unable to fully access international capital markets
• Also need to reform quasi-monopoly aviation serviceAlso need to reform quasi monopoly aviation service providers, including airports and air navigation
Alliances and codeshares try to workAlliances and codeshares try to work around these constraints
Long term growth prospects still bright
Traffic by airline domicile
•Rapid expansion of China domestic market•Asia Pacific’s share of world traffic will grow
Source: Airbus
•Asia Pacific s share of world traffic will grow
Growth: complementary business models
Global network carriers expected to th i d it titithrive despite competition
Emissions growth
Aviation is only a minor contributor to global CO2
emissions, but our relative share will grow
Global CO2 emissionsGlobal CO2 emissions“business as usual”
Global CO2 emissionsreducing to 550ppm
Airline CO2 emissions
Source: IATA, IPCC
United aviation industry strategy
• Four Pillar Strategy• Technology• Technology• Operations• Infrastructure
E i M• Economic Measures• Three Industry Targets
• Improving fuel efficiency 1 5% p a to 2020Improving fuel efficiency 1.5% p.a. to 2020 • Stabilizing emissions with carbon-neutral growth from 2020 • 50% reduction in net emissions by 2050, compared to 2005
• Global Sectoral Approach• Aviation carbon emissions accounted at global level• Aviation should only pay once• Aviation should only pay once• Access to global carbon markets
Ambitious but achievable targets
The politics of climate change
ICAOInternational Aviation
UNFCCCNational Targets
& Domestic Aviation4 GIACC MeetingsTasked to identify goals and optionst li it i i
5 major negotiating sessionsTasked to develop Climate Change
ti ti t t f COP15to limit emissions
Outcome: Final report to the ICAOCouncil
negotiating text for COP15.Outcome: Negotiations stalled Unable to resolve differences between Annex 1 and Non-Annex 1Council between Annex 1 and Non Annex 1 countries
ICAO HLM –ENV Nov 2009Outcome: Declaration on Climate
COP15 Copenhagen Dec 2009
Change recognised key role of industry
Political deadlock, but Copenhagen Accord includes US and major developing countries
ICAO G l A bl S 2010ICAO General Assembly Sep 2010Build on Resolution 36-22, considering recommendations from COP15, HLM and CAEP
Bonn negotiations Jun 2010
COP16 Mexico Dec 2010COP15, HLM and CAEPPromote global sectoral approach
COP16 Mexico Dec 2010
Conclusions
• Aviation is at the heart of global economic development
• The industry has weathered the storm of global recession
• But recovery remains uneven, and airlines are still struggling to restore profitability
• Growing economic influence of Asia Pacific needs to be matched by stronger engagement on key international policy issues
• Further steps needed to truly liberalise this most global
Prospects for long term growth remain good
of industries
Prospects for long term growth remain good
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