Asia Pacific Aviation

Challenges & Opportunities

Andrew Herdman

Director General

Association of Asia Pacific Airlines

Aviation: moving the world

Source: ATAG

• Air travel delivers global mobility

• 3 billion passengers

• 8 million per day

• Carries 35% by value of global trade

• Wider social and economic benefits

• Outstanding safety record

• Committed to sustainable growth

Overview

• Asia Pacific aviation

• Focusing on competition

• Global regulatory challenges

• Business innovation

Asia Pacific Aviation

Data: 2012

Source: Combined AAPA + non-AAPA airlines GMT+5 to GMT+12

US$175 billion revenue

US$5 billion net profit

948 million passengers

676 million domestic

272 million international

17 million tonnes of cargo

5,612 aircraft

Asia Pacific carriers overall market share:

30% of global passenger traffic

39% of global cargo traffic

Source: IMF

Imbalances in the global economy

Global economic growth of 3% in 2013, but

hopes for a modest pick up in 2014

-4

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6

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1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013E

Emerging & Developing

economies

Advanced economies

GDP Growth % change

World

Global passenger and cargo traffic

Global international passenger and cargo traffic

Source: IATA

• Robust growth in passenger travel

• Air cargo market stagnant

Premium and economy traffic growth

Source: IATA

International air passengers by seat class

Seasonally Adjusted

Slower recovery in premium traffic but

common growth trend

Competition in Asia

Dynamic business models and

service innovation

• Asian regional traffic concentrated on major trunk routes

• Asia has 7 of the world’s top 10 busiest routes

• 85% of traffic on routes of 100,000 pax p.a.

• Intensely competitive Asian marketplace

• 75% of routes served by at least three airlines

• 27% of routes served by at least five airlines

• Compare Europe, 45% of routes served by just one or

two airlines

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Crude oil price (Brent)

Jet fuel price

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Persistently high oil prices

Source: US EIA

Jet fuel and Crude Oil Price ($/barrel)

Jet fuel prices averaging US$123 per barrel

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014F

Net Margin %US$ Billion

Global airline industry profitability

Source: IATA

Anticipating a modest improvement in airline

profitability, but margins remain very thin

Taxes: stop using aviation as a cash cow

• Myth that aviation is under taxed

• Taxes hurt the economy and job creation

• Damage extends to wider travel and tourism sector

• Aviation taxes make travel less affordable

Aviation plays a positive role in economic and

social development: a catalyst for growth and

job creation

-1 0 1 2 3 4 5 6 7

Africa

Latin America

Middle East

Europe

North America

Asia Pacific

2012 2013E 2014F

Divergence in earnings across regions,

with North American carriers recording

significantly stronger growth

Airline profitability by region

Source: IATA

Net Profit (US$ Billion)

Selected enterprise values by region

Source: AAPA Estimates

Market capitalisation as of 8 November 2013

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

Japan Airlines

Singapore Airlines

Korean Air

China Southern

China Eastern

Cathay Pacific

All Nippon Airways

Air China

Easyjet

Air France-KLM

BA-IBERIA

Lufthansa

Ryanair

Alaska Airlines

US Airways

Southwest

United Continental

Delta

US$ million

Market Capitalisation Long Term Debt

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Regulatory Challenges

Aviation is subject to intensive regulation

• Safety

• Security

• Environment

• Infrastructure

• Facilitation

• Passenger Rights

Global Regulatory Influences

Asia

Pacific

Wider impact of US and EU regulations:

Asia Pacific needs a unified voice

• Diverse geographic region

• Home to more than 4 billion people

- 60% of the world’s population

• Generates 37% of global GDP

• Wide range of income levels

• Dynamic economies leading the global

recovery

• Aviation widely recognised as a key contributor

to economic and social development

• Political diversity remains challenging: need

for multilateral cooperation

Asia Pacific

Safety

• Industry is delivering continuous improvements in

aviation safety performance

• Asia Pacific safety performance in line with world

standards

Flying is extraordinarily safe,

and getting safer still

Safety Performance Trends

Source: AAPA

Asia PacificWorld

1 major accident in 1 million flights

1 in 2 million

1 in 3 million

Safety

• Industry delivering continuous improvements in

aviation safety performance

• Asia Pacific safety performance in line with world

standards

• More efforts needed by some Asian governments

to ensure full compliance with agreed ICAO

standards of regulatory oversight

• Fully support ICAO led efforts on regional safety

initiatives

• Concerns remain over imposition of unilateral

sanctions by US and EU

Aviation Security

• Governments and industry need to work together

• Security procedures must balance risks against costs and inconvenience to the travelling public

• We need intelligence-led, outcome-based, security measures

• Air cargo supply chain is built on a web of trustedrelationships

• Global security best served through the mutualrecognition of national security regimes

• Cyber security an emerging threat

Aviation & Environment

• Aviation delivers continuous improvements in fuel

efficiency through technology, operations and

infrastructure

• Industry committed to ambitious environmental goals

• Delivering CNG2020 will require supplementary

market based measures

• Responsibility lies with governments

• ICAO remains the right forum to reach international

consensus

ICAO & market based measures

Strong political leadership required

• ICAO 38th Assembly committed to develop a global

MBM by 2016 for implementation in 2020

• Air transport industry strongly supportive

• Challenges ahead :

• Reconciling differing perspectives of developed

and developing countries

• Delivering a fair and equitable solution

• EU airspace proposal jeopardises international

cooperation

United

Nations

191

States

Passenger Facilitation

• Air travellers are faced with lengthy processing times at airports

• New technologies should facilitate speedier processing

• Governments need to work with industry to streamline the travel experience, including smoother handling of disruptions

Balancing national border control objectives

and efficient passenger facilitation

Passenger Rights

• Some governments introducing overarching and

highly prescriptive rules

• Patchwork of regulations creates confusion for

travellers and industry

• Reduces incentive to innovate, restricts

differentiated customer service offerings

• Need common principles on consumer protection

Consumer choice in a competitive marketplace

delivers customer value

Future Growth

Airline industry global trend

Source: Boeing CMO 2013-2032

Asia Pacific moving to leadership position

Source: Airbus

*Households with daily expenditures between US$10 and

US$100 per person (at PPP)

The growing middle class

Asia Pacific to lead world traffic

Source: Airbus

GMF2013-2032

Overall market grows x 2.5 by 2032

29% 5.5% 34%

26% 3.8% 22%

25% 3.0% 18%

8% 7.1% 12%

5% 6.0% 7%

4% 5.8% 4%

3% 5.1% 3%

% of 2012 world RPK20-year

growth

% of 2032

world RPK

World traffic by airline domicile (RPK billions)

Infrastructure

• Aviation infrastructure must keep pace with rapid

traffic growth

• Chronic congestion and delays already evident in

some areas

• Greater focus on operating efficiency, productivity

and cost-effectiveness

• Government responsibility to coordinate planning

and long term investment required

• Industry ready to play its part

Infrastructure is critical

Closing Thoughts

• Asian airlines are at the forefront of industry innovation

• Shared confidence and optimism about the future

• Airlines operate in a complex and challenging business

environment

• A global industry requires harmonised regulations

• Asia Pacific needs a unified voice

Industry committed to sustainable growth

Asian airlines forging ahead

www.aapairlines.org

Association of Asia Pacific Airlines

L27-1 Menara Prestige

1 Jalan Pinang

Kuala Lumpur 50450

MALAYSIA

Tel: +60 3 2162 1888

Fax: +60 3 2162 6888