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TRANSCRIPT
Global Trends in Aviation
Dr Frankie O’Connell
Ninth Annual Tourism Policy Workshop
Dromoland, 2018
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2015
2016
20170
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Number of passengers carried worldwide (1991 – 2017)
Billi
on
s o
f P
assen
gers
Source: O’Connell analysis from IATA, ICAO, AEA, AAPA, Airlines for America, ALTA, AACO, AFRAA
1972
1977
1981
1986
1991
1996
2001
2006
2011
2017
0
5
10
15
20
RP
Ks
(Tri
llio
ns)
World Traffic Forecast (measured in Revenue Passenger Kilometres)
1972 - 2037
Traffic is expectedto double over thenext 15 years
2037
Airbus forecastICAO data
2021
2026
2032
Air traffic has doubledevery 15 years
Source: IATA, ICAO, AEA, AAPA, Airlines for America,
ALTA, AACO, AFRAA, Airbus, Boeing, O’Connell
* Does NOT include travel within China
Within Asia*
Within China
Within North America
Within Europe
Middle East - Asia
North Atlantic
Within Latin America
Transpacific
Within/to CIS
Europe - Latin America
Africa - Europe
0 500 1,000 1,500 2,000 2,500 3,000 3,500
2017
Revenue Passenger Kilometres (billions)
Long term growth prospects of air traffic (2017- 2037)In terms of Revenue Passenger Kilometres (Demand)
2017 2017 - 2037
2017 - 2037
Source: Boeing Market Forecast
2018
Global Fleet
0
5,000
10,000
15,000
20,000
25,000
Nu
mb
er o
f ai
rcra
ft w
orl
dw
ide
21,450 Aircraft
30,000
35,000
40,000
45,000
Source: Airbus General Market Forecasts 2018
Fleet Evolution: 2018 - 2037
2037Global Fleet
10,600 Still inService
50,000 47,990 Aircraft
10,850 Replace
26,540 Growth
37,390Aircraft
NewDeliveries
New Deliveries
The number of outstanding firm orders at the start of 2018 was ~17,000 aircraft
1996
0
1,000
2,000
3,000
4,000
5,000
6,000
Advanced Countries
Developing/Emerging
Mill
ion
s o
f P
eo
ple
781
501
1,282
5.8 billion
23%
World Population
% of world Population flying
2006
828
1,125
781
6.6 billion
30%
2016
852
2,038
2,890
7.4 billion
39%
2026
865
3,020
3,885
8.2 billion
47%
2036
860
4,080
4,940
8.9 billion
56%
Growth of the Middle Class Global Population
1996 - 2036
2,063
Sourc
e: I
MF,
MID
T,
IAT
A
1960 2017 Gain
South Korea 28%
Saudia Arabia 31%
Turkey 32%
China 16%
Brazil 46%
Indonesia 15%
Nigeria 15%
Thailand 20%
Japan 63%
Mexico 51%
Greece 56%
Russia 54%
Global Average 34%
Vietnam 15%
India 18%
Ethiopia 6%
United States 70%
United Kingdom 78%
Germany 71%
83% 55 pts
83% 52 pts
74% 42 pts
57% 41 pts
86% 40 pts
54% 39 pts
49% 34 pts
52% 32 pts
94% 31 pts
80% 29 pts
78% 22 pts
74% 20 pts
54% 20 pts
34% 19 pts
33% 15 pts
20% 14 pts
82% 12 pts
83% 5 pts
76% 5 pts
People Movement from Rural to Urban
% of people living in urban/suburban areas
Source: World Bank
2017 rank 2037 rank
Rank by size of O-D passenger flows in, out & within country
Source: IATA Economics, 2018
Most important Passenger Traffic - Country markets 2017 to 2037
International City Pairs Daily Flights
New York – London 30
Hong Kong – Taipei 39
Jakarta – Singapore 38
Los Angeles – Mexico City 13
London - Dublin 52
China to India City Pairs Daily Flights
China – India? 6
Shanghai – Mumbai 0
Beijing – Delhi <1
Beijing – Mumbai <1
Shanghai – Delhi 2
Guangzhou – Delhi 2
There are only 6 daily direct flights joining 2.7 billion people between China and India
Connectivity around the world and its potential – 2018 data
Sourc
e: O
AG
, Aer
Cap
, O
’Connel
l
A new trend that is helping drive tourism is the growth in social media, and sights like
Instagram, with more than 500 million active users popularising many sites through the
power of the image.
Social Media-Fuelled Tourism
Now you’re less than 10 clicks away from seeing an image on Instagram to purchasing a
ticket to go there.
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$0$5
$10$15$20$25$30$35$40
$-5$-10$-15$-20$-25$-30
Net Profit/Loss
20
14
20
15
20
16
20
17
&
&
&&&
&
&&&
&&&&&&&
&&
&&
&
&
&
&
&&&
&
Total Airline Revenues &
$800
$0
$400
$600
$200
$100
$300
$700
$500
&
Air
line
Rev
enu
es (
US$
Bill
ion
s)
Ne
t P
rofi
t /
Loss
(U
S$ B
illio
ns)
Net Profit/Loss and Revenues for World Commercial Airlines
1978 - 2017
Source: ICAO, IATA, O’Connell, $38
Total Net Profit ($38 billion)
Total Revenues ($754 billion)
Proportion of Total Revenues to Total Net Profit (2017 data)
Source: IATA, O’Connell
Airline Consolidation in Europe2004 2008 - 20182005 - 2006 2007
Source: O’Connell
Lufthansa Group13.1%
IAG Group10.0%
Air France-KLM7.2%
Ryanair12.0%
easyJet, 8.4%
Norwegian, 3.3%
Wizz Air, 3.0%
Turkish Airlines, 5.8%
Aeroflot, 3.1% Others34.1%
European market fragmentation - 2018 European market is still highly fragmented compared to the US
Source: Citi Research, Diiio Mi
Top 5 Airlines have ~51% of EU market
Major Issues
• Rising Oil Prices ($74 per barrel October 2018 vs $43 per barrel October 2016)
• Falling Fares
• Incessant competition
• New airline business models (Long Haul LCCs increasingly entering global marketplace)
• Currency fluctuations (27% of Ryanair’s revenues is in UK£, while 40% of its Costs in US$)
• Global Economic Cycles
• Seasonality in Leisure and Business travel
• Overcapacity – Too many seats being supplied to the market
• Labour unrest (Airline crew strikes – Ryanair, Air France, Lufthansa; ATC strikes - in France)
• Runways and Airport Terminals close to full capacity
• Navigational Airspace approaching Full Capacity
• Political and Regulatory Environment (Open Skies)
• Shortage of Skilled labour (in the next 20 years: 800,000 pilots; 750,000 maintenance technicians)
• Changes in consumer preferences, expectations, demographics
• Weather, natural disasters, pandemics and other external shocks
•Aviation Taxes
• Industry Merging and development of Joint Ventures through Alliances and Equity Partners
• Brexit uncertainty (easyJet purchased Austrian AOC; Ryanair bought UK AOC)
• Technology game changing initiatives (Block Chain)
1996
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1998
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2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0%
10%
20%
30%
40%
50%
60%
North America South East Asia Latin America
LCC Penetration in N. America, W. Europe and S.E. Asia
1996 - 2017
Source: OAG analysis by O’Connell
Western Europe
Global Passenger Yields (excluding surcharges & ancillaries)
Source: IATA
Ind
ex
AIRSPACE CAPACITY
Source: Eurocontrol
Jan
Feb
Ma
r
Apr
May
Ju
n
Ju
l
Aug
Sep
Oct
Nov
Dec
20,000
22,000
24,000
26,000
28,000
30,000
32,000
34,000
36,000
2014 2015 2016 2017 2018
Average daily Traffic for the last 5 years
European Airspace is getting maxed out M
ovem
ents
per
day
Source: Eurocontrol
Introduction Growth Maturity Decline
Airline Business Model Lifecycle
Long Haul
LCCs
Gulf Carriers (eg EK, QR, EY)
LCC
EU
LCC
Asia
Hybrids(eg JetBlue)
Large
NetworkNational
Carriers(eg SAS, Alitalia,
LOT, Air Malta )
Charters
Time
Rel
ativ
e S
ales
& M
ark
et S
har
e P
ote
nti
al
Norwegian Airlines International Route Network – Summer 2018
• 2014: 41 Flights a week across the Atlantic
• 2018: 215 Flights a week Across the Atlantic
• However, there is limited Feed to Norwegian flights in North America
From Scandinavia – Norwegian is Strong
Summer 2017 – Summer 2018
Copenhagen - New YorkCopenhagen - Bangkok
Copenhagen - Miami/Orlando/Fort LauderaleCopenhagen - Boston
Copenhagen - San FranciscoCopenhagen - Los Angeles
Oslo - New YorkOslo - Bangkok
Oslo - Miami/Orlando/Fort LauderaleOslo - Los Angeles
Oslo - San Francisco
Stockholm - New YorkStockholm - Bangkok
Stockholm - Los AngelesStockholm - Miami/Orlando/Ft Lauderale
Stockholm - San Francisco
Departing seats (June 2017 to June 2018)
SAS Thai Airways Delta Air Lines United Airlines Norwegian
Are Airline Alliances are becoming Fractured?
Are Airline Alliances becoming Irrelevant?
American Airlines domestic network
British Airways European network Connectivity between BA and AA
Alliances are becoming increasingly Fractured
Joint Ventures & Equity Partners are becoming more relevant
Airline Business Model Lifecycle
Integration Level
Val
ue
Interline
SPAs
Code-sharing
Global Alliances
Source: O’Connell
Cost Sharing between International Airlines (JV)
Revenue Sharing (JV)
Profit sharing (JV)
Full Joint Venture (JV)
Merger & Acquisition
Regulatory Freedom Barrier
$8.2B
$5.4$4.8 $4.7 $4.6 $4.5 $4.3
$3.3 $3.2 $3
Equity 49% 3.5% 49% 10% 9.5%
JV * * *
Delta’s top 10 Markets from the US by Revenue (2017)
Delta Air Lines partnership based on its top International markets
34.433.3
28.922.7
19.519.4
16.211.410.39.59.4
5.24
IrelandBelgium
AustriaFinlandUkraine
RomaniaCzech Republic
BulgariaCyprusIcelandCroatia
LithuaniaGeorgia
0 50 100 150
Millions of passengers
United Kingdom? 288
200 250 300 350
249.2Spain235.1Germany
54.651.2
SwitzerlandPortugal
46.339.5
34.4
SwedenPoland
Denmark
European Airport Traffic Statistics by Country (EATS) - 2017
Sources: ADV, AENA, Assaeroporti, Avinor, Finavia, DHMI, HCAA, Transportstyrelsen, UAF, UK CAA, ACI Europe and individual airports
193175.1
167.3
TurkeyItaly
France105Russia
76
55.6
NetherlandsGreece 58
Norway
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10 11
Millions of Passengers
UK
as
a p
rop
ort
ion
of
Pass
en
ger
Traf
fic
(%)
BRUAMS
DUB
ALC
FAO
IBZ
FRA CDG
ORK
Dependence of UK by European airport (2017)
Source: O’Connell
NOC
SNN
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
10 20 30 40 50 60 70 80
Millions of Passengers
To/F
rom
EU
(%
)
EDI
LHR
LGW
Source: O’Connell
Dependence by UK airport on “EU 27” pax flows
MAN
STN
LTN
BHX
EMA
LPL
NCL
Conclusion
• Traffic is doubling every 15 years
• Global Markets are shifting fast with large Middle Class demographics
• Many industry challenges: Tight Financial Margins, Consolidation,
Long-Haul LCCs, Bottlenecks, Falling Fares
• Joint Ventures and Equity Partners are increasing in importance
• Large impact on UK regional airports with Brexit
• Large impact on Irish airports with Brexit
Thank you all very much
Global Connectivity to the UK – Summer 2018
The UK was served by 17,520 flights a week or 3.2 million seats a week in Summer 2018
BREXIT
Are Airline Alliances are becoming Fractured?
Are Airline Alliances becoming Irrelevant?
American Airlines domestic network
British Airways European network Connectivity between BA and AA
Global Connectivity to the UK – Summer 2018
The UK was served by 17,520 flights a week or 3.2 million seats a week in Summer 2018
84% of total flights came from the EU or 78% of the seats came from the EU
Global Connectivity to Ireland – Summer 2018
Ireland was served by 2,870 flights a week or 487,000 seats a week in Summer 2018
86% of total flights came from the EU or 81% of the seats came form the EU
Introduction Growth Maturity Decline
Airline Business Model Lifecycle
Time
Rel
ativ
e S
ales
& M
ark
et S
har
e P
ote
nti
al
Joint
Ventures
Equity
Partners
Alliances
Intra-European
44.4% ofTraffic Revenue
Lufthansa Group - 2015
North America
24.9%
Asia-Pacific
17.8%
South America
5.7%
Mid-East
3.6%
Africa
3.6%
The basic principle behind the joint ventures is so-called “metal neutrality” which is achieved through close cooperation in capacity and price
planning as well as revenue management. This allows travellers to freely combine flights from a harmonized range of offers and take advantage
of additional travel options and the increased availability of special fares and connecting flights. Passengers do not need to choose a preferred
partner when buying a ticket – instead, they are “neutral” in terms of the “metal” they fly with. For the airlines to reach their targets together,
revenues are managed in a single “pot,” itemized according to the share of production and then distributed.
This material cannot be copied or used unless permission is sought from Dr Frankie O’Connell
27 Members 13 Members 20 Members
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3 airline alliances