Asia Pacific AviationAsia Pacific AviationIndustry Overview &

Regulatory Challenges

Andrew HerdmanAndrew HerdmanDirector General

Association of Asia Pacific Airlines

O er ieOverview• Air travel• Air travel

• Global mobilityy• Future growth

• Asia Pacific aviation• Regulatory challengesRegulatory challenges

Aviation: moving the world

• Air travel delivers global mobility

• 2,800 million passengers

• Carries 35% by value of global trade

• Wider social and economic benefits

• Outstanding safety record

Source: ATAG www.aviationbenefitsbeyondborders.org

Crisis Management Response

Accidents earthquakes typhoonsAccidents, earthquakes, typhoons, floods, volcanic ash …

Current Business Conditions

Global passenger and cargo traffic

Global international passenger and cargo traffic

Passenger traffic growth maintained, b t k d dbut very weak cargo demand

Source: IATA

Premium and economy traffic

Source: IATA

Slower recovery in premium traffic

Oil price volatility

Persistently high oil prices reflectPersistently high oil prices reflect political risk factors

Global airline industry profitability

Margins squeezed by high oil prices

Global Economic Outlook

Global recovery moderatesWorld growth2010 +5.2%2011 +3 8%2011 +3.8%2012E +3.3%2013F +3.9%

Pattern of two speed growth maintainedSource: IMF

Pattern of two-speed growth maintained

World output – long term historical trends

Source: Maddison (2010) & Conference Board

Output measured on PPP basis

Asia Pacific

• Diverse geographic regionH t th 4 billi l• Home to more than 4 billion people

• 62% of the world’s population• Generates 27% of global GDP• Generates 27% of global GDP • Wide range of income levels• Dynamic economies delivering global growth• Dynamic economies delivering global growth• Aviation widely recognised as a key contributor

to economic and social developmentp• Political diversity remains challenging: need for

multilateral cooperation

Asia Pacific Aviation

Asia Pacific Aviation

US$163 billion revenue

652 million passengers457 million domestic195 million international

17 6 million tonnes of cargo17.6 million tonnes of cargo

4,984 aircraft

Asia Pacific carriers overall market share:27% of global passenger traffic

Source: Combined AAPA + non-AAPA airlines GMT+7 to GMT+12

41% of global cargo trafficData: 2011 Estimates

Airline enterprise values by region

Southwest

Delta Air Lines

Amer

ica

L fth

Ryanair

Air Canada

US Airways

United Continental

North

A

Air China

Aeroflot

BA - Iberia

AF - KLM

Lufthansa

Euro

pe

Qantas

Cathay Pacific

China Eastern

All Nippon

Air China

Asia

Pacif

ic

- 5,000 10,000 15,000 20,000 25,000

Q

US$ million

Market Capitalisation Long Term Debt

Source: AAPA EstimatesMarket capitalisation as of 08 March 2012

Airline Strategies

Refocusing on growth

• Competition demands constant focus on productivity improvements and reducing unit costs

• Innovation in both services and business models

• Ongoing capital investment in fleets airports and other• Ongoing capital investment in fleets, airports and other services infrastructure

• Recruitment and training of skilled workforceRecruitment and training of skilled workforce

• Manage risks including currency and oil price volatility

• Crisis management preparedness

Aviation as a business also faces significant regulatory constraints and government policy risks

Evolving Business Models

• Full Service Network Carriers• Still investing heavily in premium services

S• Streamlining short haul operations• Establishing LCC subs and associates

• Point-to-Point LCCs• Initially focused on domestic short-haul• Venturing into international and longer-haul markets• Experimenting with codeshares, connections, adding

customer service

• Further signs of convergence• Long-haul invariably uses wide body aircraft, involves cargo

operations, two-class passenger configurations• Development of hybrid partnerships and new ventures

Business model innovation in Asia

Growth: complementary business models

2010 Traffic = 4.8 trillion RPK 2030 Traffic = 12.3 trillion RPK

Global network carriers expected to thriveGlobal network carriers expected to thrive despite competition

Future Growth

Asia Pacific traffic will grow significantly

Source: Airbus GMF2011-2030

Asia Pacific fleet expansion

Source: Boeingg

CMO 2011 - 2030

Aviation – sustainable growth?

• Aviation delivers continuous improvements in fuel efficiency through technology, operations and infrastructure

• The aviation industry is united and has committed to challenging environmental performance targets

• As a globally competitive energy-intensive industry weAs a globally competitive, energy-intensive industry, we would prefer a globally harmonised, sector-specific approach to international aviation emissions under ICAOD f h k f l i d i i• Dangers of a patchwork of overlapping and inconsistent measures

• EU ETS risks triggering a trade warEU ETS risks triggering a trade war

Governments set the climate change policy framework but there is a collective failure of political leadership on this issue

Regulatory Challenges

Global Regulatory Influences

AsiaAsia Pacific

•Wider impact of US and EU regulations

•Asia Pacific has limited influence

US and EU regulatory perspectives

• US continue to be driven by domestic political concerns– Safety, led by FAA– Politicisation of issues - FTL, Crew experience levels (minimum 1500FH)– International Aviation Safety Assessments (IASA) have global impact– FAR129 oversight of foreign operators

• EU also mainly driven by domestic political concerns– Safety: EC, EASA, Eurocontrol

– Centralised approach to both aero-political and regulatory issuespp p g y– Oversight of foreign air carriers

– Safety Assessment of Foreign Aircraft (SAFA)– EC operational ban focuses on weak regulatory oversight but unfairly targets airlinesp g y g y g– Third Country Operators (as proposed will have wide-ranging impact)

• Insensitivity about extra-territorial impacts: unilateral actionsH i i ff f US EU diff• Harmonisation efforts focus on US-EU differences

Asia Pacific : regulatory perspectives

• Highly diverse region: multiple governments and regulators• Inconsistencies remain in level of commitment to regulatory oversight

and effective implementationand effective implementation• Look to ICAO for leadership and guidance• Harmonisation more about sharing best practices before legislating,

t b t l i diff ft il t ll i d l tinot about resolving differences after unilaterally imposed regulations• Increase of third country ramp inspections – harmonization an issue• Current regional challenges includeg g

• Responding to growth and assuring skill and resource levels• SSP implementation including “Just Culture”• Runway safety – development of Runway Safety Teamsy y p y y• CFIT – Turboprop operations

• Difficulties in reconciling contradictory US/EU regulations

Safety performance – by operator region

Safety oversight – ICAO perspectives

• ICAO accident rates by region, all aircraft types (2006 – 2010) Averages World 1.20 NA 0.04 EURNAT 1.55 APAC 1.67

• Lack of effective implementation of critical elements of a safetyoversight system

• Average compliance levels: Global 60% Some APAC States as low as g p20 %

• South Korea received highest assessment of 98%

• Safety strategic objectivesPolicy and Standardization - Safety Monitoring - Safety Analysis – Safety Implementation• Continuing Airworthiness• Sharing of safety data and information• Regional safety and oversight

• Runway safety• Controlled Flight into Terrain• Loss of Control

• Safety Management • Aircraft system failures

Improving regional safety management

• Multilateral consultation and collaboration• ICAO – FAA – EC – NAA – Industry Stakeholders• Region’s regulators take joint action on regional shortcomings

• Regional GrowthLi i d l

• Runway safety

Region s regulators take joint action on regional shortcomings

• Agree on a regional safety strategy to address mutual challenges

• Limited regulatory resources• Skills & Training demands

• Data and information sharing

• Reinforce role of ICAO in setting global standards and regulatory g g g yoversight

• Challenge unilateral actions with over-bearing extra-territorial impactimpact

• Increased recognition of the benefits of industry standards

AAPA will continue to actively support the region’sAAPA will continue to actively support the region s regulators to address safety and security priorities

Security

• Air travel is both highly safe and secure• Security procedures must balance risks againstSecurity procedures must balance risks against

costs and inconvenience to the public• We need intelligence-led, outcome-based, security

measures• Governments must recognise the benefits of

mutual recognition of security regimesmutual recognition of security regimes• Cargo security must involve the entire supply

chainchain• Terrorists measure their success by how much we

(over)react

Closing Thoughts

• Society relies on aviation every day, and especially in a crisis

• Aviation is at the heart of global economic development with bright growth prospectsHi hl l d i d i b h h i l• Highly regulated industry, covering both technical, economic and customer service dimensions

• Strong collaboration between regulators and• Strong collaboration between regulators and industry stakeholders essential for success

• Asia Pacific needs stronger engagement on keyAsia Pacific needs stronger engagement on key international policy and regulatory issues

Shared confidence and optimism about the futureShared confidence and optimism about the future

www aapairlines orgwww.aapairlines.orgAssociation of Asia Pacific Airlines9/F Kompleks AntarabangsagJalan Sultan IsmailKuala Lumpur 50250MALAYSIA

Tel: +60 3 2145 5600Fax: +60 3 2145 2500