Route to recovery

17th September 2020

Patrick Lucas — Director, Economics – ACI World

Route to Recovery

State of the industry —

Supply side factors –Travel restrictions

Demand side factors

Pax traffic and projections

Revenue shortfall

From short term challenges to longer-term fundamentals

Evidence-based decision making in accelerating of the recovery —

Managerial levers

Policy levers

Supply side — COVID-19 Travel Regulations Map (Sept. 14)

Source: IATA

115 destinations (53%) have

eased travel restrictions

introduced in response to the

COVID-19 pandemic

93 destinations (43%)

continue to have their borders

completely closed to tourism

Source: UNWTO, Sept. 2020

Good news

Bad news

Despite solid international

guidance material, travel

restrictions remain largely

uncoordinated

Demand side –Global airport passenger traffic

Pre-2020 and 2020 Q1

5.66.2

6.8

7.7

8.8 9.1

2010 2012 2014 2016 2018 2019

Source: ACI

The Good The Bad

2%

-10%

-56%

-94% -91%

Jan-20 Feb-20 Mar-20 Apr-20 May-20

Passenger traffic in 202059.6% decline projected as compared to the projected baseline

The Ugly

Source: ACI

94.4% pax

decline in

April

0

500

1,000

1,500

2,000

2,500

3,000

Q1 Q2 Q3 Q4

Pax

(m

illio

ns)

Estimated under

COVID-19

Baseline-26.4%

-89.6%

-68.9%

-49.5%

Q1 Q2 Q3 Q4

pax

yae

r-o

ver-

year

pe

rcen

tage

ch

ange

-2,139

Passenger load factorsShrinking fleets and reduced schedules

58%46%

63%

-28%-39%

-23%

Total International Domestic

Jul-20 % change

Passenger load factors (PLF)

58%

86%July 2019 PLF

July 2020 PLF

From record highs

to record lows

Source: IATA

The airport business Pre-COVID-19Revenue streams % share

Non-aero or commercial activities (e.g. retail and duty

free) make-up a significant share of revenues

Retail concessions make-up 34% of non-aero revenues (47% for ASP and 41% for MEA)

Duty-free represents >70% of retail concession revenues at airports

COVID-19 reality

Unit revenues on non-aeronautical activities in decline in certain markets; Lower propensity to spend by any given pax

Aero55%

Non-aero41%

Non-operate

4%

Aero56% Non-aero

43%

Non-operate

1%

Aero51%

Non-aero47%

Non-operate

2%

Hubs

>40 million pax

Asia-Pacific

Middle East

Europe

33.8%

17.3%11.4%

5.8%

Retailconcessions

Car parking Property andreal estate

revenue or rent

Food andbeverage

Distribution of

non-aero

revenues

Hubs

>40 million pax

Source: ACI

Estimated airport industry losses for 2020

Revenue losses (billions USD)

28.6

4.414.3 20.9

-10.4

-39.1-33.4 -20.8

Q1 Q2 Q3 Q4

Projected revenues Estimated loss

Total airport industry losses amount to 104

billion USD in 2020 (Largest losses in Q2

2020)

Typical hub generates 1.3 billion USD –

Equivalent to 80 hubs getting revenues

completely wiped out

Huge proportion of non-aeronautical revenues is

directly passenger-related (>70%)

Chinese traveler – higher spending propensity

especially in the travel retail space (unrealized

expenditures)

68 USD104 USD

Source: ACI

60% decline

Projected pax recoveryDownside risks remain

20

40

60

80

100

120

140

160

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Back to 2019

passenger

volumes

Uncertainty

Pre-COVID-19

Business-as-usual pax

forecast

3.7% CAGR (2018-2040)

Prolonged recession &

continued escalation of

new COVID-19 cases –

“The second wave”

(2024-2025)

Original

forecast

Ind

ex

20

19

=1

00

Source: ACI World

Recovery in traffic contingent upon:

• Removal of quarantine measures and travel restrictions

• Timing of a universal vaccine and effective supply

chains to deploy it

• Economic conditions (income, prices & behavior)

That was then. This is now.

Passenger traffic over the long term

Source: ACI World

0

2

4

6

8

10

12

14

16

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

26

20

27

20

28

20

29

20

30

Bill

ion

s

Historical data

2019 level

Business-as-usual forecast (pre COVID-19)

Current projection3.7% CAGR

9/11

GFC

SARS

Great Lockdown:

• Pax expected to recover to 2019

levels in 2023-2024 (red line)

• Domestic markets by 2023

• International markets by 2024

• It will take up to 20 years to get

back to original trend (green line)

The demographics of aviationPre-COVID 19 Long term fundamentals still apply

>40% of world’s

population

presently resides

in these countries:

China

India

Indonesia

Philippines

Viet Nam

Fastest growing emerging markets 2019 – 2040

(over 50 million pax per annum)

• 80% of the World’s

population resides in

emerging markets and

developing economies

• Growing middle class

and propensity to travel

by air

Source: ACI World

Cashing in on the demographic dividend

Africa2075

64.7%

Asia2015

67.9%

2005, 68.2%

LAC2020

67.1%

2010, 67.1% 2010, 65.2%

45%

50%

55%

60%

65%

70%

75%

1950 1965 1980 1995 2010 2025 2040 2055 2070 2085 2100

Africa Asia Europe Latin America-Caribbean North America Oceania

% Share of working age population by region (1950-2100)

Source: United Nations Population Division

India2040

68.5%

2010, 73.3%

1990, 69.7% 2020, 69.7%

2005, 66.8%

45%

50%

55%

60%

65%

70%

75%

1950 1965 1980 1995 2010 2025 2040 2055 2070 2085 2100

India China Japan Brazil United States

Cashing in on the demographic dividend

% Share of working age population for selected countries (1950-2100)

Source: United Nations Population Division

Evidence-based decision making to accelerate the recovery

Managerial levers

Airport Service Quality –

Measuring the passenger experience

Worldwide survey collected on airport site of

departing passengers on a quarterly basis

composed of 55 questions related to service

attributes and passenger satisfaction

Approximately 675,000 passengers participated

in the survey in 2019 from 80 countries;

Analysis in study focused on the Asia-Pacific

region

Passenger essentials (statistically ranked)

• Cleanliness of airport terminal and washrooms

Passengers not only anticipate a clean environment, but they also expect a sanitized environment that will limit the spread of the virus.

• Feeling of being safe and secure

Airport staff play a key role in reassuring the passengers by applying and promoting safety measures.

• Ease of finding your way through the airport

With new procedures in place, passengers were less satisfied and now need additional support and guidelines to accomplish what is requested from them.

Measuring the passenger experience

Passenger satisfaction scores

Overall Satisfaction by Month – Asia-Pacific Region

Source: ACI ASQ Departures, 108 airports, Overall satisfaction score, average on a 5-pt scale

Gradient scale from 1 to 5

The demographics of dissatisfactionAsia-Pacific

Women have been more impacted than men

access, security, wayfinding, facilities and ambiance

dimensions attributes most affected

Passengers aged between 26 and 44 years were

less satisfied with:

concessions, the Wi-Fi, the waiting time, the cleanliness

and the ambiance at the airport

Expectations vary according to the passengers’

nationality

European and North Americans traveling in Asia

had decreasing satisfaction relative to other groups

Source: ACI ASQ Departures for participating airports in China (including Hong Kong and Macao), Chinese Taipei, India, Japan, Maldives and Republic of Korea.

Areas of dissatisfaction – post security controlsBased on previous data and research, in “business as usual” times there is a positive

relationship between dwell time and satisfaction

Higher satisfaction levels are also linked to a higher spend propensity in commercial areas

Measuring the passenger experience

Source: ACI ASQ Departures for participating airports in China (including Hong Kong and Macao), Chinese Taipei, India, Japan, Maldives and Republic of Korea.

less satisfied with:

• shopping and eating facilities

• comfort at the gate areas

• internet access/Wi-Fi

Business as usual COVID-19

COVID-19 context –

Pax that have higher

dwell time:

Dwell time and satisfaction

Key takeaways from the ASQ research

Managerial implications

Airports need to accelerate the digitalization for all key

touchpoints

Technologies that offer a “touch-free” experience

Communicating with passengers

Educate on new procedures and earn their trust

Airports need to include all employees and stakeholders in

the recovery plan (whether customer facing or not)

Ensure employee engagement and feedback

Industry policy levers to support recovery

Ensuring public health and security

Pursuing measures to stimulate air

transport demand

Supporting the financial viability of

the industry

ACI has requested that the International Civil Aviation Organization (ICAO) develop

recommendations for States which should be risk based and informed by scientific and

health experts. principle of risk-based and proportionate measures based on scientific

evidence

avoid blanket quarantine rules

implement effective testing protocols before and after travel as a means to mitigate risk,

rather than imposing quarantine

Policy recommendationsReplace quarantine measures with robust testing programme —

Removing pax-based taxes — Unleash the full socio-economic benefits of aviationEstimated revenue from taxes on air transport and levied on airline tickets is $90 billion globally

Reducing or eliminating tourism taxes can result in higher national well-being by stimulating

tourism. The increased spending by these tourists will generate higher employment and GDP and

potentially offsetting or exceeding taxation revenues.

Policy recommendations

Impact - WorldEmployment

(Jobs - millions)

GDP

(US$ billions)

Aviation and tourism economic impacts

(direct and indirect)3.4 US$ 152

Catalytic impacts 1.8 US$ 31

Total macroeconomic impacts - World 5.2 US$ 183

Source: InterVISTAS analysisNotes: Tourism refers to aviation-facilitated tourism; Aviation and tourism impacts exclude indirect and induced tourism impacts

Relaxing restrictions on commerce Duty-free shopping upon arrival should also be enabled where not available

together with the appropriate tax legislation and reform. It represents a new

sustainable revenue stream for airport operators and their retail partners

Regulators should pursue temporary relaxation of limits and allowances for duty-

free products

Policy recommendations

Key fact:

Airport duty-free shopping on arrival is now an established practice on most continents across the globe and is

especially prevalent in Asia-Pacific, Latin America-Caribbean and the Middle East.

More than 45 countries already have introduced the concept of on-arrival duty free including some of the largest

aviation markets in the world—Australia, Brazil, India, Indonesia, Russian Federation, Thailand, Turkey and the

United Arab Emirates.

Aviation is linked to many of the UN’s Sustainable Development Goals

Alleviate travel and commerce restrictions — Because of aviation’s direct, indirect,

induced, and catalytic impact on tourism and employment, governments are urged to alleviate

travel restrictions as soon as recommended by international and national health authorities.

Policy recommendations

The entire aviation sector makes up 10.2 million jobs. Therefore, “on the ground at airports”, we

are talking about 60% of employment in the aviation sector is somehow related to airports

Source: ATAG, Aviation Benefits Beyond Borders, 2018

Passenger (and cargo)

traffic is the lifeblood for

many industries

SummaryEvidence based approaches

Recovery will take years – Downside risks

Some major domestic markets by 2023

International markets by 2024-2025

“Do not lose sight of the forest for the trees!”

Long term fundamentals, demography and mobility trends remain

Managerial levers

Building up passenger confidence (contactless environments, communications, sanitation, procedures, etc.)

Policy levers

Stimulate air transport demand by removing certain taxes and other impediments to air travel;

Facilitating commerce to create consumer choice

Global passenger survey:

• intention of travel again;

• factors influencing the intent to travel;

• confidence level;

• steps of journey perceived as more

stressful;

• new expectations;

• intention to consume on site

November

World Airport Traffic Forecasts:

• Detailed forecasts for over 110 country

markets

• Short, medium- and long-term

forecasts 2020 to 2040

December

Thank you

Airports are points of connectivity

Aviation continues to

be the hallmark that

connects people,

places, culture and

commerce