Asia Pacific Aviation

Regional Update and Developments

Andrew Herdman

AAPA Director General

Willis Asia Pacific Aviation Insurance Conference

Kota Kinabalu, Malaysia, 24-26 February 2009

Navigating through Turbulence

Presentation Outline• Asia Pacific Aviation

• Combined strength• Combined strength

• Historical performance

• Current challenges

• Safety overview

• Brighter skies

Aviation: moving the world

• Air travel delivers global mobility

• 2,250 million passengers

• Outstanding safety record• Outstanding safety record

• Carries 35% by value of global trade

• Wider social and economic benefits

Source: ATAG

• Diverse geographic region

• Home to 4 billion people

• 62% of the world’s population

• Generates 26% of global GDP

•

Asia Pacific

• Wide range of income levels

• Dynamic economies but not immune to the global downturn

• Aviation recognised as a key contributor to economic and social development

AAPA Association of Asia Pacific Airlines

• Regional trade association

• Current members include 17 major international airlines based in Asia Pacific

• Open to all scheduled international airlines based in Asia Pacific region

• Committed to promoting sustainable • Committed to promoting sustainable growth of the aviation industry serving both passenger and freight needs

• Permanent secretariat headquartered in Kuala Lumpur, Malaysia

• Representation in Washington and Brussels

always open to new members

AAPA global traffic share

Revenue passenger-kilometres scheduled systemwide

Freight tonne-kilometres scheduled systemwide

AEA 19%

AACO 4%

ALTA 4%

AFRAA 2%AEA 22%

AACO 5%

ALTA 2%

AFRAA 1%

Data: 2007 Source: IATA, AAPA and various

AAPA 17%

ATA 27%Others 20%

PR China 7%

AAPA 32%

ATA 23%

AFRAA 1%

Others 8%

PR China 7%

AAPA + non-member airlines

US$ 145 billion revenue

618 million passengers

422 million domestic196 million international

Asia Pacific Aviation – combined overview

196 million international

17 million tonnes of cargo

3,500 aircraft

Asia Pacific airlines global market share:27% of global passenger traffic40% of global cargo traffic

Data: 2008 estimates Source: AAPA + non-AAPA airlines GMT +5 to GMT +12

Historical performance

AAPA international passenger traffic trends

5%

10%

15%

20%

400

500

600

700

Int'l R

PK

gro

wth

Int'l R

PK

(b

illi

on

)

AAPA international RPK 1998-2008

Source: AAPA

-15%

-10%

-5%

0%

0

100

200

300

98 99 00 01 02 03 04 05 06 07 08

Int'l R

PK

gro

wth

Int'l R

PK

(b

illi

on

)

RPK RPK Growth

AAPA international cargo traffic trends

5%

10%

15%

20%

30

40

50

60

Int'l F

TK

gro

wth

Int'l F

TK

(b

illi

on

)

AAPA international FTK 1998-2008

Source: AAPA

-10%

-5%

0%

5%

0

10

20

30

98 99 00 01 02 03 04 05 06 07 08

Int'l F

TK

gro

wth

Int'l F

TK

(b

illi

on

)

FTK FTK Growth

60

80

100

120

140

160

180

200

Oil prices fall back to earth

Airlines struggled to keep pace with extreme volatility, many now facing hedging losses

Jet Fuel and Crude Oil Price ($/barrel)

2005–2008 Source: Platts, RBS

Jet Fuel price

Crude oil price (Brent)

0

20

40

60

Jul,

2005

Sep,

200

5

Nov,

200

5

Jan,

200

6

Mar

, 200

6

May

, 200

6

Jul,

2006

Sep,

200

6

Nov,

200

6

Jan,

200

7

Mar

, 200

7

May

, 200

7

Jul,

2007

Sep,

200

7

Nov,

200

7

Jan,

200

8

Mar

, 200

8

May

, 200

8

Jul,

2008

Sep,

200

8

Nov,

200

8

Jan,

200

9

Crude oil price (Brent)

Fuel bill accounted for 35% of total costs for Asian airlines in 2008

Signs of the times … changing fortunes

• Sharp slowdown in the global economy

Current Challenges• Sharp slowdown in the global economy

• Slump in international trade

• Weak passenger demand

• Currency volatility

• Higher cost of capital

• Sharp slowdown in the global economy

Current Challenges• Sharp slowdown in the global economy

• Slump in international trade

• Weak passenger demand

• Currency volatility

• Higher cost of capital

-10%

-5%

0%

5%

10%

15%

RP

K, F

TK %

Cha

nge

AAPA international passenger and cargo growth

AAPA international traffic trends 2007-2008

-30%

-25%

-20%

-15%

-10%

Jan-

07

Feb

-07

Mar

-07

Ap

r-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

No

v-07

Dec

-07

Jan-

08

Feb

-08

Mar

-08

Ap

r-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

No

v-08

Dec

-08

RP

K, F

TK %

Cha

nge

RPK Growth FTK GrowthSource: AAPA

Impact of the global economic slowdown

World growth

2007 5.2%

2008 3.4%

2009 0.5%?

2010 3.0%?

Slowing global economy

Source: IMF

Advanced economies led the decline, but effects felt worldwide

Awful, Brutal or Catastrophic?

A prolonged downturn could mean no growth 2008-2010

Source: IATA Nov 2008

Significant implications for investment and capacity management

Recessions result in losses for airlines

Global airline industry profit margin

Source: IATA Nov 2008

Impact will vary by region and relative strength of individual airlines

The global airline industry: profitability trends

-2

0

2

4

6

8

$ billion

+$3.7 :Industry profits: +$12.9

Source: IATA

-14

-12

-10

-8

-6

-4

-2

2000 2001 2002 2003 2004 2005 2006 2007 2008E 2009F

US Europe Asia

-$13.0 -$11.3 -$7.5 -$5.6 -$4.1 -$0.5 -$5.0 -$2.5

Industry losses:

Airline capital structure by region

11895

12291

40

Debt61

40

60

80

100

120

140

US

D b

illi

on

21 22

Equity45

40

0

20

40

Revenue EV Revenue EV Revenue EV

North America Europe Asia Pacific

EV = Enterprise value = Long-term debt + market capitalisation Revenues 2007; Market Cap as at 28 October 2008

Source : AAPA estimates

Airlines facing sharply higher cost of capital with a US$200 billion debt burden

Airlines responding to the downturn

• Trimming route networks and capacity in response to changing demand conditions

• Implementing wide range of measures to reduce staff costs, retrenchment only as a last resort

• Grounding surplus aircraft, seeking deferral of new • Grounding surplus aircraft, seeking deferral of new deliveries

• Conserve cash, strengthen balance sheet

• Working with industry partners to reduce unnecessary costs

Another very tough year ahead

Safety overview

Safety

• Flying is by far the safest form of travel

• 25 million flights with 2,250 million passengers

• 17 major accidents with 397 fatalities

• Asia Pacific recorded significant improvement • Asia Pacific recorded significant improvement in safety performance in 2008

• Nevertheless, no room for complacency

• Further need to strengthen regulatory oversight across the region

Aviation Safety Performance Trends

Single Year Major Accident Rates

0.80

1.00

1.20

1.40

1.60

Majo

r Accid

ent R

ate

s (per m

il secto

rs)

Major Accident Rates by Operator Region

2004 - 2008

Dataset: Western-built large jets

0.00

0.20

0.40

0.60

2004 2005 2006 2007 2008

Majo

r Accid

ent R

ate

s (per m

il secto

rs)

World America Europe

ASPAC IATA 5-year average World

5-year average ASPAC

Brighter skies

Long term growth prospects still bright

Source: Boeing

Asia Pacific’s share of world traffic will keep on growing

Conclusions

• Aviation is at the heart of global economic development

• Nevertheless, airlines will be severely tested by the current downturn

• Asia Pacific airlines are taking appropriate steps to weather the storm

Positive prospects for long term growth

• Growing economic influence of Asia Pacific needs to be reflected in the wider debate on key international policy issues

• Fresh thinking needed on industry regulation and ownership structure

www.aapairlines.org

Andrew Herdman

Director General

Association of Asia Pacific AirlinesAssociation of Asia Pacific Airlines

9/F Kompleks Antarabangsa

Jalan Sultan Ismail

Kuala Lumpur 50250

MALAYSIA

Tel: +60 3 2145 5600

Fax: +60 3 2145 2500