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GLOBAL AVIATION GROUP
2013 AirlineDisclosuresHandbook
Financial reporting and management
trends in the global aviation industry
kpmg.com
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Introduction
Our 4th disclosure handbook takes a detailed look into upcoming changes in accounting
guidance that will materially impact airlines profits and balance sheets; looks to where
airlines are in terms of industry co-operation and consolidation; and seeks to provide a
forward looking view on the never ending task of cost reduction.
Looking to the key developments
in International Financial Reporting
Standards (IFRS) and US GAAP (wherethe projects are joint with IFRS), this
edition examines:
The upcoming positive news on
hedging for airlines (under IFRS)
including the use of options as
economic and accounting hedges,
hedging of aviation fuel purchases
and reduced compliance costs in
terms of hedge accounting testing
requirements. However, as always
with accounting rules on derivatives,
there appears to be a sting in thetail in terms of accounting issues
associated with the swapping of
foreign currency debt. Our
understanding as a result of the
January 2013 IASB Board meeting is
that this should be resolved by the
issuing of the new hedging standard;
Where is the joint IASB and US
Financial Accounting Standards
Board (FASB) project on lease
accounting up to? Our analysis
has highlighted six key issues that
airlines may consider critical for the
IASB and FASB to address prior to
finalising this standard; and Maintenance accounting for leased
aircraft sometimes described as a
dark art, we discuss the accounting
considerations and include example
disclosures.
The handbook then moves into
the complexity involved in airline
co-operation, co-investment and
mergers. The regulatory environment
for airlines is relatively unique in terms
of foreign ownership rules, the system
of route access and other restrictionsthat inhibit consolidation activity
(outside of open sky environments). We
look at what is currently happening in
this space and offer some insights from
other industries which have similarities
in their regulatory environments.
Finally, we continue our benchmarking
of full service/legacy airline cost bases to
their low cost counterparts. This analysis
looks at how the low hanging fruit
has been plucked and where airlines are
now in the cost reduction journey.
In compiling this guide, KPMGs Global
Aviation practice professionals have
reviewed the financial and other reportsof the worlds top 25 airlines by revenue
and a select six of the largest lower
cost airlines. We have also reviewed
other publicly available information
within these airlines websites and
analyst presentations. Details of the
principle sources of information used
are set out in Appendix 1.
KPMGs Global Aviation practice has
taken direct extracts from various
airline financial statements and other
published information. These havebeen extracted from the relevant
publicly available regulatory reports
noted above. No comment is made
by KPMGs Global Aviation practice in
regard to the adequacy or otherwise
of these policies, rather the examples
used are to demonstrate current
disclosure practice and to facilitate
discussion on key airline issues as
identified by airlines.
2013 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with
KPMG International. KPMG International provides no client services. All rights reserved.
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Highlights
Accounting standard changes
Derivatives accounting is
starting to look more like
economic reality.
KPMG investigates six of
the accounting impacts of
proposed changes to lease
accounting, three of whichwould have significant
balance sheet impacts for
airlines.
Under the proposals, airlines
will recognize operating lease
commitments on balance
sheet. This will increase
reported debt, lead to balance
sheet volatility due to the
remeasurement proposals,
and accelerate expenserecognition in many cases.
Maintenance accounting for
leased aircraft is driven by
a combination of the lease
contract, return conditions
and systems of aircraft
maintenance (internal and
outsourced). We look to
three common accounting
scenarios under IFRS.
Airlines are starting to move
to more innovative ways of
partnering
Until there is further market
deregulation in regions such
as Asia, traditional airline
partnering through code
shares, alliances and direct
investments is alive andwell and still dominates the
co-operation/merger and
acquisition landscape. The
recent Qantas/Emirates
announcement (subject
to regulatory approval)
demonstrates airlines are
starting to consider more
innovative tie ups.
The heavily used joint
venture structures in
the Energy and Natural
Resources sector appear
to be available to airlines.
We consider whether this is
the new frontier for airline
consolidation.
Cost structure of low cost and
legacy carriers are converging
During the six years of
the KPMG airline unit cost
survey, we have seen the
cost gap between legacy
and low cost carriers narrow
from 3.6 to 2.5 US cents per
Available Seat Kilometer.
This narrowing has plateaued
since 2009 during the
period subsequent to the
emergence from bankruptcy
protection of a number of
carriers during 2009 and
the recent global economic
downturn continues focus
on costs at all airlines.
KPMG outlines why webelieve the remaining portion
of this cost gap is structural
in nature, and is unlikely to
significantly contract into the
future.
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Contents
1 Hot topic accounting policies 1
2 The long haul to consolidation 11
3 Benchmarking airline costs 16
Appendix 1: Surveyed airline financial reports 25
Appendix 2: KPMGs Global Aviation practice contacts 27
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Operating Expenses
Jet fuel costs (34,703,369) (24,096,078)
Movements in fair value of fuel derivative contracts 85,447 1,954,071
Take-off, landing and depot charges (8,740,822) (7,707,019)
Depreciation (9,560,907) (8,569,370)
Aircraft maintenance, repair and overhaul costs (2,612,678) (2,577,185)
Employee compensation costs 6 (12,270,065) (9,851,935)
Air catering charges (2,662,984) (2,044,359)
Aircraft and engine operating lease expenses (3,931,549) (3,488,014)
Other operating lease expenses (668,916) (712,005)
Other flight operation expenses (9,342,935) (8,227,555)
Selling and marketing expenses (5,480,514) (4,602,745)
General and administrative expenses (2,261,549) (1,637,824)
(92,150,841) (71,560,018)
Finance costs 9 (220)
Finance income 9 85
Retranslation charges on currency borrowings (8)
Fuel derivative losses (12)
Net charge relating to available-for-sale financial assets 18 (19)
Share of post-tax profits in associates accounted for using theequity method
17 7
(Loss)/profit on sale of property, plant and equipment andinvestments
(2)
Net financing credit/(charge) relating to pensions 9 184
Profit before tax 537
Example disclosure
Some airlines reporting under IFRS call out the impact on the incomestatement of volatility related to hedging losses. The changes in IFRS 9should move most of this volatility to the same income statement line item asthe economic exposure. The following are examples of current line items onthe face of the income statement that try to call out this volatility.
Air China 2011 Annual Report (IFRS)
International Airlines Group 2011 Annual Report (IFRS)
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Allowing component part hedging
of fuel
At present, IAS 39 prohibits thehedging of a component of risk for anon-financial item.
IFRS 9 approach
Under the proposed guidance, anentity will be able to designatechanges in cash flows or fair valuesof a component of an item as thehedged item provided that, based onan assessment within the context ofthe particular market structure, the riskcomponent is separately identifiableand the changes in cash flows orfair value in relation to that item arereliably measurable. The treatment forfinancial and non-financial items will bethe same.
Airline industry implications
There is a lack of liquidity in themarket for jet fuel derivatives with amaturity of greater than six months
and therefore many airlines use crudederivatives with maturities of up to 2-3years to meet their risk managementobjectives. Under IAS 39, basis risk isincluded in the effectiveness testing,which creates income statementvolatility. Under IFRS 9, airlines candesignate the component of the jet
fuel price that relates to the crude
input as a separately identifiablerisk and this should reduce incomestatement volatility.
Airlines will however need to carefullyconsider the most appropriate crude oilderivative that best correlates to theirinterplane pricing benchmark to ensurethat the detailed requirements of theproposed standard are met as there isstill a risk of ineffectiveness if this isnot undertaken.
Removal of the 80-125 percent
effectiveness threshold
At present, IAS 39 is rules based andresults in income statement volatilitydespite company risk managementobjectives being met.
IFRS 9 approach
Under the proposed guidance, the80-125 percent threshold is removed.A hedge relationship will be considered
effective provided that: there is an economic relationship
between the hedged item and thehedging instrument;
the effect of credit risk doesnot dominate the value changesthat result from that economicrelationship; and
the hedge ratioof the hedgingrelationship is the same as thatresulting from the quantity of thehedged item that the entity actuallyhedges and the quantity of thehedged instrument that the entityactually uses to hedge that quantityof hedged item.
Airline industry implications
Since retrospective effectivenesstesting is no longer required tosupport existence of a valid hedging
relationship, for fuel hedging inparticular this should drive efficiencyin back office functions of airlinetreasuries. We do note that changes tocurrent hedge documentation will berequired.
Disclosure changes
Disclosures will be required under IFRS9 in addition to the requirements ofIFRS 7. These disclosures will include:
the entitys risk managementstrategy and how it is applied tomanage risk;
how the entitys hedging activitiesmay affect the amount, timing anduncertainty of its future cash flows;and
the effect that hedge accountinghas had on the entitys primaryfinancial statements.
The adoption of the standard is alsolikely to lead to a reduction in the useof non-statutory financial informationin airline financial statements asmany airlines are already disclosingan underlying or normalised profitmeasure that eliminates some of theincome statement volatility that existsunder IAS 39 in relation to hedgeaccounting.
The amendments that will beintroduced by IFRS 9 more closely alignhedge accounting and management ofrisk and are likely to be welcomed bythe airline industry.
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Leases on the balance sheet
Introduction
The IASB and FASB released a jointexposure draft on lease accountingin August 2010. Since that time theBoards have made significant changesto the proposals. A revised exposuredraft is expected in early 2013.
Under the proposals operating leaseagreements will be brought ontothe balance sheets of lessees, whowill recognize new liabilities withcorresponding right of-use assets thatwill be depreciated over the term ofthe lease.
Operating leases of aircraft are usedextensively within the airline industryand capitalising these leases willsignificantly change the balance sheetsof many airlines. The current proposalsalso significantly change the incomestatement profile of many leases,accelerating expense recognitioncompared to current operating leasetreatment.
The IAWG, in conjunction with KPMGacting as accounting advisor, hasidentified six issues with a significantimpact on airlines, which airlineswill wish to see resolved prior tothe issuance of a final standard. Thefollowing summarises these concerns.
Foreign currency revaluation of the
right-of-use asset and lease liabilities
Proposal
The right-of-use asset will be recognisedon the balance sheet as a non-financialasset, measured initially at the presentvalue of the estimated future leasepayments. As a non-monetary asset thisbalance will be outside of the scope ofIAS 21 for subsequent measurement.
The lease liability will be recognised onthe balance sheet as a financial liability a monetary item and therefore
will be within the scope of IAS 21 forrevaluation.
Airline industry implications
Many airlines with a functional currencyother than USD are a party to USDdenominated leases.
Under the proposals, adjusting theliability but not the asset for changesin exchange rates has the potential tocreate significant income statementvolatility.
If the standard does not address thisissue, then airlines in this positionthat also hold USD denominated
debt may consider designating theforeign currency risk on the liability in ahedge. This accounting would requirecareful consideration and liaison withaccounting advisors and auditors.
Introduction of a new lease
classification test
Proposal
The current IAS 17 Leasesrequirescapitalisation on the balance sheet as
a finance lease only when significantlyall the risks and rewards of ownershipof an asset are transferred to thelessee. The expense for leases that didnot fall into this category is generallyrecognised straight-line over the termof the lease.
The proposals include a new leaseclassification test and retain thepossibility for a straight-line expenserecognition for some leases, forexample certain real estate leases.
Airline industry implications
Many existing aircraft operating leasesare expected to require recognitionin the income statement on anaccelerated basis under the proposals.This will lead to a greater incomestatement charge for interest in thefirst half of the lease than in the secondhalf. This will impact airlines differentlydepending on the current portfolio ofoperating leased aircraft.
Component accounting for the right-
of-use asset
Proposal
The proposals are unclear in relationto the ability to recognise significantcomponents of the right-of-use asset,consistent with the required treatmentunder IAS 16 Property, Plant andEquipment.
Airline industry implications
Under IAS 16 airlines are required
to identify significant componentsof aircraft and separately assess theuseful economic life and residual value.This ensures that the charge to theincome statement is consistent withthe use of the asset.
Airlines would welcome the ability toaccount for the right-of-use asset in thesame way. For example, this wouldallow for the separate measurement ofsignificant maintenance componentsand ensure consistent treatment across
the fleet of owned and leased aircraft.
Identification and separate
treatment of service component
Proposal
If a contract includes a servicecomponent, then the lessee wouldaccount separately for the componentsunless there are no observable pricesthat can be used to allocate thepayments between service and lease
components. Lessors would alwaysaccount for the components separately,using the revenue guidance to allocatepayments.
Airline industry implications
Within the airline industry it is commonfor contracts to involve items such ascomplicated maintenance arrangementsor the provision of operating crew thatare likely to require significant judgmentin distinguishing between service
and lease components and allocating
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payments. Whilst this requirement isnot new the accounting implicationsof identifying service contracts versusleases are likely to be greater.
Requirement for additional
disclosures
Proposal
The lessee will be required to presentor disclose separately the leaseliabilities.
The right-of-use assets will bepresented or disclosed separately toproperty, plant & equipment that theentity does not lease.
The amortisation of the right-of-useasset and the interest expense on thelease liability will require identificationseparate from other amortisation andinterest expense.
For leases featuring accelerated
expense recognition, payments ofprincipal will be presented as financingactivities, payments of interest willbe presented as either operating orfinancing activities, and payment ofvariable amounts will generally bepresented as operating.
Airline industry implications
The requirements above are moredetailed and may be more onerous toapply than the current requirements
in relation to finance leases that arerecognised on the balance sheet.
The separate recognition of theright-of-use asset for aircraft inparticular may be confusing to users ofthe financial statements.
Introduction of new terminology and
thresholds specific to leases
Proposal
The exposure draft includes a numberof terms that have not previously beenincluded in International FinancialReporting Standards. These include:
significant economic incentive;
threshold tests; and
right-of-use asset.
Airline industry implications
The current IAS 17 terminology andclassification criteria relating to financeleases and operating leases are wellunderstood by preparers and users offinancial statements.
There is a risk that introducingnew, additional terms may createunnecessary complexity.
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Maintenance Accounting
Introduction
Airframes, engines, auxiliary powerunits, landing gear and other aircraftparts require major maintenance eventson a routine basis. The cost of theseevents may be difficult to predict untilthe part is inspected.
Many airlines transfer parts of this riskto maintenance providers using risktransfer type arrangements. Theseagreements are generally billed andexpensed on a by the hour basisand are not covered further in thisdocument.
For owned or finance leased aircraft,industry practice is to capitalise anddepreciate maintenance expenses formajor or heavy events. This involvescapturing the embedded cost ofmaintenance on new aircraft.
For operating leased aircraft, the
treatment differs based on thecircumstances. Generally, the lesseeis required to return an aircraftwith a contractually agreed levelof maintenance. Deviations fromthis agreed level may be settledfinancially or may require an additionalmaintenance event to be performed bythe airline.
This section highlights observationsmade from airline disclosures aboutaccounting for maintenance costs.
Owned aircraft and aircraft under a
finance lease
IAS 37 Provisions, Contingent Liabilities
and Contingent Assetsprohibitsrecognition of a provision for futureoperating losses and future expenditurethat can be avoided. Therefore, thecost of future maintenance of own
assets is not provided for in advanceof a maintenance event as it can beavoided by either not flying the aircraft,or by selling the aircraft.
Under IAS 16, major inspections andoverhauls are identified and accountedfor as a separate component if thatcomponent is used over more thanone period. When a major inspectionor overhaul cost is embedded in thecost of an aircraft, it is necessary toestimate the carrying amount of thecomponent. Disclosures by airlinesthat account under IFRS demonstratethat this is common practice andembedded aircraft and enginemaintenance costs are identified as aseparate component and depreciatedover the period until the next event.
These initial embedded maintenanceassets are fully written off by the timewhen the next maintenance event isperformed and the cost of the newevent is capitalised and depreciated
over the period until the next event.Although this is common practice, thelevel of disclosure by airlines varies andat times it can be difficult to determinewhich maintenance events qualify forcapitalisation. Airlines refer to major orsignificant events or checks withoutdisclosing specific details.
It was observed that unlike IFRS, thepractice under US GAAP is to expensemaintenance costs as incurred.
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Aircraft under an operating lease
In contrast to the treatment ofmaintenance of owned aircraft, alessee may, through use of an aircraft,create an obligation to a lessor tomake good the aircraft to a level ofmaintenance determined in the leaseagreement. It is also possible that thelessor may be required to reimbursethe lessee for returning an aircraft witha level of maintenance greater than thereturn condition.
At the termination of an agreementthe settlement should be relativelystraight-forward to determine.During the life of the lease, whichmay typically be up to ten years, theaccounting can be complicated due tothe usage of the aircraft and intra-leasemaintenance events.
IFRSs do not contain industry specificguidance in relation to the accountingfor maintenance return conditions onoperating leased aircraft. It remains
to be seen how the proposals for thenew leases standard may impact theaccounting in this area.
Currently airlines turn to IAS 37 andIAS 16 for guidance. The generalposition observed within the industryis that when flight hours are flown, orcycles operated, to a level that requiresremedial maintenance or a settlementwith the lessor, then a presentobligation exists and must be providedfor. It has been observed that some
airlines also capitalise modificationsthat enhance the operatingperformance or extend the usefullives of aircraft. Such modificationsare depreciated over the shorter ofthe period to the next check and theremaining lease term.
It was observed that both Ryanair andQantas Airways recognised provisionsfor maintenance of aircraft, whichwas leased under an operating leaseand had to be returned in a specifiedcondition, during the lease term.
Various observed approaches toaccounting for maintenance of aircraft,
which is leased under an operatinglease and has to be returned in aspecified condition, are illustrated bythe following example. The approach isgenerally dependent upon the particularcircumstances of a given airline and theterms of lease contracts.
Example disclosure: Ryanair 2012 Annual Report (IFRS)For aircraft held under operating lease agreements, Ryanair is contractuallycommitted to either return the aircraft in a certain condition or to compensatethe lessor based on the actual condition of the airframe, engines and life-limitedparts upon return. In order to fulfill such conditions of the lease, maintenance,in the form of major airframe overhaul, engine maintenance checks, andrestitution of major life-limited parts, is required to be performed during theperiod of the lease and upon return of the aircraft to the lessor. The estimatedairframe and engine maintenance costs and the costs associated with therestitution of major life-limited parts, are accrued and charged to profit or lossover the lease term for this contractual obligation, based on the present value ofthe estimated future cost of the major airframe overhaul, engine maintenance
checks, and restitution of major life-limited parts, calculated by reference to thenumber of hours flown or cycles operated during the year.
Ryanairs aircraft operating lease agreements typically have a term of sevenyears, which closely correlates with the timing of heavy maintenance checks.The contractual obligation to maintain and replenish aircraft held underoperating lease exists independently of any future actions within the controlof Ryanair. While Ryanair may, in very limited circumstances, sub-lease itsaircraft, it remains fully liable to perform all of its contractual obligations underthe head lease notwithstanding any such sub-leasing.
Example disclosure: Qantas Airways Limited 2012 Annual Report (IFRS)
With respect to operating lease agreements, where the Qantas Groupis required to return the aircraft with adherence to certain maintenanceconditions, provision is made during the lease term. This provision is basedon the present value of the expected future cost of meeting the maintenancereturn condition, having regard to the current fleet plan and long-termmaintenance schedules.
The costs of subsequent major cyclical maintenance checks for owned andleased aircraft (including operating leases) are capitalised and depreciatedover the shorter of the scheduled usage period to the next major inspectionevent or the remaining life of the aircraft or lease term (as appropriate).
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Observed approaches to accounting
for maintenance of aircraft leasedunder an operating lease
Fact pattern:
Operating lease of a new aircraft;
Lease term of 9 years;
Major maintenance events(checks) required on the airframeevery 5 years at a cost of 100 unitsbased on consistent use of theaircraft over time;
Maintenance events are carried outat the end of the life of the previousmaintenance event and restore anadditional 5 years of maintenance life;
The lease requires that the aircraftis returned with at least 50%maintenance life (half life) withthe option to settle the differencebetween the maintenance liferemaining and 50 units where theaircraft is below 50% maintenancethreshold;
At the end of the lease, the lesseechooses to pay the lessor 30 unitsto make good the maintenancedeficit below half life conditions.
The current accounting approachesresult in a number of different incomestatement profiles as highlightedbelow. The examples ignorediscounting.
Profile of value of check remaining compared to value of the check to be
returned, and P&L charge/credit for each option
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9
Valueofcheckremaining
andch
arge/credittoP&L
Year
Check value remaining Observed practice 1 P&L chargeCheck value to be returned to lessor (half life)
Observed practice 2 P&L charge Observed practice 3 P&L charge
1 2 3 4 5 6 7 8 9 Net P&L charge
Observed Practice 1 20.0 20.0 20.0 20.0 20.0 7.5 7.5 7.5 7.5 130.0Observed Practice 2 0.0 0.0 10.0 20.0 70.0 0.0 0.0 10.0 20.0 130.0
Observed Practice 3 0.0 0.0 0.0 0.0 0.0 25.0 25.0 35.0 45.0 130.0
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Observed Practice 1
Accrue with usage, maintenance costsbooked against provision when incurred.
During the first five years, theprovision of 100 units for the majormaintenance check at the end of yearfive is recognised as the leased aircraftis flown usually on a cycles basis.When the major maintenance check isperformed at the end of year five, thecosts are booked against the provision.From year six to the end of the lease
term in year nine, a provision for cashsettlement of 30 units is recognised ona straight-line basis.
Observed Practice 2
Provision for contractual obligation forcash settlement is recognised duringthe lease term, and maintenanceexpensed as incurred.
When the maintenance condition fallsbelow 50% during year 3, a provisionfor cash settlement is recognised.
At the end of year 3 this is 10 units,representing the contractual abilityto settle the difference between theremaining maintenance life (2 yearsat a cost of 20 units per year) and the50% threshold. When a maintenanceevent is performed at the end of year5, a provision of 50 units will havebeen recognised as the provisionfor cash settlement. The cost of themaintenance event is 100 units and50 units of cost are recognised against
the provision and the remaining 50 unitsare expensed. This results in a chargethrough the income statement overthe period during which the remainingmaintenance life is below 50%.
Observed Practice 3
Provision raised for contractualobligation during the last maintenancecycle only, and major maintenanceevents within the lease are capitalisedas leasehold improvements.
When a maintenance event isperformed, its cost is capitalisedas a leasehold improvement underIAS 16 and depreciated over theremaining maintenance life. Thisresults in an expense holiday in
the income statement until the firstmaintenance event is performed.This practice is consistent with theobserved approach taken by many IFRSreporting airlines to the capitalisationof significant maintenance events forowned aircraft, where the recognitionof a component per IAS 16 is deferreduntil the first check. The provisionfor the contractual obligation for cashsettlement for the second maintenanceevent is recognised during the leaseterm, and maintenance expensed asincurred consistent with ObservedPractice 2 above.
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2. The long haul to consolidation
Over recent years, government regulations, economicuncertainty, natural disasters, technological change, changes inconsumer base and preferences have all collided and resultedin diminishing operating margins. In the last decade we havewitnessed tie ups of legacy carriers, overhauled airline alliancesand joint services agreements, ownership changes and newcode share agreements. We look at some of the most recent
initiatives to secure consolidation.
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"The growth LATAM Airlines Groupis expected to generate will allow usto offer flights to new destinationsfor our customers, create moreopportunities for our more than51,000 employees and greater valuefor shareholders. In addition, wecan support the economic, social
and cultural development of ourregion, improving the connectivityof passengers and cargo in SouthAmerica and the rest of the world."
Mauricio Rolim Amaro,
Vice Chairman of TAM S.A.
Mergers/Consolidations
The most integrated two airlinescan become is when they enterinto a merger and act in all ways asone airline.
The most recent tie up was finalisedin June 2012 between LAN AirlinesS.A. and TAM S.A. to create the
LATAM Airlines Group S.A. LATAMcomes after a number other mergers,with significant mergers between AirFrance-KLM, Delta and Northwest,Continental and United.
LATAM Airlines have continued inthe tradition of previous mergers withLAN and TAM continuing to operateand market their respective brands inparallel with one another. One of thepreeminent advantages of this mergeris that LAN and TAM state they partake
in complementary markets to eachother, increasing their network withoutfurther significant capital outlay.Synergies in the first twelve monthsare estimated to range betweenUS$170 million to US$200 million,increasing to between US$600 millionto US$700 million in the following fouryears. Despite the abundant benefits,such a transaction does not comewithout costs; LATAM Airlines estimatethe costs of the transaction to betweenUS$170 million and US$200 million.
The merger was not achieved withoutsignificant negotiation and rigorous
evaluation by regulators and otherstakeholders. This is illustrated by thetime taken to finalise the transaction.The merger was first announced inAugust 2010, following which is wasreferred to the relevant regulatorybodies for review.
Alliances
The three main alliances continueto grow with the introduction ofnew members. Since 2008, 22 newmembers, associates or affiliatemembers have been announced intotal: 5 oneworld, 9 Sky Team and6 Star Alliance. The Alliances areexpanding their membership base withairlines operating in complementarymarkets to those of existing members.
Star Alliance recently welcomedAviancaTaca and Copa Airlines in 2012,with only one other existing memberhailing from the South American region.Invitations to join the alliance have beenextended to Eva Air and ShenzhenAirlines, which would increase theirpresence in Asia.
Sky Teams access to the MiddleEast was further developed with theintroduction of Saudia and MiddleEast Airlines.
The oneworld alliance will welcome
two new members Malaysian Airlinesand SriLankan Airlines, cementing theirassociation with Asian carriers.
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The partnership [with EtihadAirways] simultaneously providesinternational presence, strategicpenetration and a bright future forour national carrier.
The aviation industry is underenormous pressure right now, withsmall airlines especially vulnerableto global economic instabilityand ongoing oil price volatility. Inthis context, consolidation offers
the best possible solution for AirSeychelles. This agreement willallow Air Seychelles to share thebenefits of the visionary strategy ofone of the worlds leading airlinesand leverage its economies of scaleand synergies.
Joel Morgan, Seychelles Minister
of Home Affairs, Environment,
Transport and Energy
January 25, 2012
Direct investmentDirect investment is no longer solelya transitional strategy to acquire acontrolling stake in another airline;it has also become a means tocommence a strategic partnership.
Etihad Airways has acquired a directinvestment in airlines over recent yearsincluding Air Berlin, Air Seychelles,Aer Lingus and Virgin Australia. Theownership interest acquired in eachhas varied but Etihad has articulatedbenefits from each investment.
The benefits communicated haveincluded:
Expansion of operations into growthmarkets, without considerablecapital requirements throughintegration of networks (includingthrough the establishment of codeshare arrangements).
Access to training andadministration facilities andexecution of joint marketinginitiatives, reducing the need forduplication.
Integrated reward programsto include mileage earning andredemption on each carriers flights.
Despite the benefits there may beobstacles to such an investment. It isnecessary to consider the relevant lawsand regulations of each country, asinvestment approval is usually required.
Interline and code sharearrangements
Interline and code share arrangementshave been in existence for manyyears. The aim of these agreementsis to effectively allow an airline toincrease the number of services thatthey can sell onto and allocates theselling carrier to market flights across abroader network.
Airlines have continued to use interlineand code share arrangements inrecent years, with the traditionalmodels expanded to include domesticnetworks and the integration ofadditional partners.
The next milestone will be the
expansion of the existing domesticcodeshare on each airline'sdomestic network, further improvingconnectivity of our services andgiving Virgin Australia guests accessto 250 destinations across theUnited States, Canada and Mexico.
Merren McArthur, Virgin Australia,
Delta begin codesharing to USA in
November, published 19 September
2011 by John Walton
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We have agreed to join forcesto give our customers the mostcomprehensive premium travelexperience on the planet.
Source: The Worlds Leading Airline
Partnership, Alan Joyce, Qantas Group
CEO, Sydney 06 September 2012
Qantas and JAL have a long-standing relationship, as codesharepartners and fellow oneworldalliance members. We are also
delighted to be joining withMitsubishi Corporation- one ofJapans great global brands - tolaunch Jetstar Japan, building on thesuccessful expansion of the Jetstarbrand across Asia.
The Qantas Group has a wealth ofexperience in establishing low costcarriers and were looking forwardto working with our two partnerson this new venture which will offerlow fares to the Japanese travelling
public.
Alan Joyce, Qantas Chief Executive
Officer, Qantas Airways Limited
Joint service and profit/revenueshare agreements
We continue to see the expansionof profit, revenue and servicearrangements.
One of the latest formal arrangementswas the Qantas and Emiratesannouncement on 6 September 2012of an airline partnership (subject toregulatory approval). The aspiration ofthe partnership is to extend beyond theoperation of joint routes and to provide
customers with access to improvednetworks, frequencies, lounges, loyaltyprograms and the overall customerexperience.
Such an agreement does not excludethe need for regulatory approval. Qantasstates that the arrangement is subjectto regulatory approval and wouldinclude if permitted, integrated networkcollaboration including coordinatedpricing, sales and scheduling.
This is just one in a long line ofarrangements which on the back ofAnti Trust Immunity (ATI) allowsmember airlines to share information,pricing, capacity and frequency, aswell as route strategies. Such alliancesare designed to offer benefits tothe customer (in terms of increasedchoice), and to the airline: moreefficient use of capacity, scheduling,and a metal-neutral approachto joint sales, while staying withinregulatory constraints including foreign
ownership limits.
An interesting development is theextent to which overlapping alliancesthemselves compete. For example, a
customer wishing to travel from New
York JFK to Tokyo Narita has the choice(amongst others) of flying:
East, via London Heathrow, withthe first leg (JFK-LHR) on analliance between British Airways(AA), American Airlines (AA) andIberia (IB), and the second sector(LHR-NRT) on another metal neutralalliance between BA and JapanAirlines (JAL); or
West, via any connecting point in
the US (or direct) on a metal neutralalliance between AA and JAL, withcertain connections allowed on acodeshare with Cathay Pacific.
Franchise
A concept used in many industriescurrently being modelled withinthe aviation industry is franchising.Although not strictly applying thetraditional concept, this new modelinvolves bringing together partners
who each contribute capital as well asoperational strengths.
Jetstar Japan was launched in August2011 and is a partnership betweenQantas Airways, Japan Airlines andMitsubishi Corporation. The airlineadopts the low cost model assumedby Jetstar Airways Australia and usesthis as a prototype to establish a lowcost airline servicing the domesticJapanese market.
The parties collectively have a firmunderstanding of the businessmodel, regulatory and legislativeenvironment, consumer demands andcapital avenues.
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Consolidation outlook
Until we see liberalisation of aviationmarkets in geographics such as Asiawe will continue to see more ofthe traditional methods of airlineco-operation and tie-ups. Why is thisthe case? There are three key inhibiters
to aviation consolidation.
Ownership and control restricitions;
Competition regulation; and
Route right access issues.
Whilst competition regulation affectsall industries, it is when you add inforeign ownership caps and route rightaccess based on nationality youget a complex web that mergers andacquisitions have to navigate through.
The closest industry we can see toairlines in terms of the above issuesis that of the Energy and NaturalResources sector. It is common inthis sector to utilise unincorporatedcommercial joint ventures usually todevelop a specific mine or group of
mines. We have noted previously thatairlines could contribute assets(eg aircraft), rights and other resources(eg people) that service a route networkinto a unincorporated commercialjoint venture. Whilst the competitionregulatory issues remain, a merger of asubset of the airlines could be achieved.Potential benefits could include:
No legal change in ownership;
No change in labour agreements forexisting workforce;
No change in Air OperatingCertificates as key post holdersand systems of safety aremaintained; and
A re-set of the accounting values which could include fair valueingnew intangibles (some being non
depreciable) and property, plant andequipment (very likely downwards).
We recognise these structureswould require significant legal andother diligence, the benefits couldbe significant. It will be interesting tosee if any airlines utilises one of thesestructures prior to the next version ofour handbook.
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3. Benchmarking airline coststhe endof low cost flying?
Introduction
KPMGs study of airline unit costs shows that over the pastsix years, the difference between the cost base of low costcarriers (LCCs) and legacy airlines has narrowed dramatically. Inmany geographies, from a passenger viewpoint, the distinctionbetween the two business models (particularly in short-haul) is
also becoming increasingly blurred. So where does the industrygo next? We review the trends between 2006 and today as wellas consider the ongoing cost implications.
We will show why we consider that:
The remaining cost gap betweenlong haul and short haul may narrowfurther but will not be eliminated, asit is inherently structural in nature;
Legacy airlines are likely to explore
new business models in their short-haul feeder networks;
LCCs are likely to take one oftwo routes: certain airlines willremain ruthlessly low price (and bynecessity, low cost which is thestrategy of the likes of Ryanair),while others will compete againstlegacy carriers for their highervalue customers (as shown by theevolution of Virgin Australia).
The disclosure of successes and theacknowledgement of challenges facedby airlines on the journey to sustainedprofitability continues to develop, asthe industry continues to developmethods for conveying the value ofcost saving initiatives.
KPMG investigates the outliers in thisspace which outline success stories forunit cost containment.
Cost glide-path has converged
As demonstrated by Chart 1, in 2006 theaverage unit cost (excluding impairmentcharges) of legacy carriers was 3.6 UScents/ASK higher than low cost carriers(LCCs). By 2011, as a result ofaggressive streamlining and restructuringthe difference was just 2.5 US cents/ASK, a reduction of over 30%.
The majority of this convergencehappened in 2008 and 2009 (see Chart2), which we attribute to aggressivestreamlining by legacy carriers inresponse to the financial crisis. Thelack of further convergence after 2009indicates that the impact of significantrestructurings in 2008 (see below) hasbecome business as usual, and also
that the easy-wins have been taken.We believe that the remaining cost gapis more structural in nature.
In Chart 3, we demonstrate where thecost saving convergence has beenachieved. This chart shows that thesingle-most important componentof the cost savings have been madeoutside of the biggest cost bucketsfor an airline (fuel and staff costs), witha convergence of 0.4 US cents/ASKin other expenses: again consistent
with the airlines attacking the lowhanging fruit first.
Sample method
In our analysis, we have taken acost per ASK approach to comparethe cost bases of both legacyairlines and low cost carriers. Wehave selected the top 25 legacy
carriers by revenue and six lowcost carriers, distributed globally.
Six years of financial data (fromFY2006 to FY2011 inclusive) werecompiled and converted to USDat the average exchange rateacross the survey period for therelevant airline.
These were then converted to costper ASK measures and the weightedaverage cost per ASK for each of the
cost measures discussed for eachof the legacy and low cost carrierswere compared.
The reporting periods in which theairlines are grouped, are basedon yearend dates between 1 Apriland 31 March of the following yeare.g. 2011 cost performance yearrelates to airlines with balancedates between 1 April 2011 and31 March 2012.
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Impact of restructuringcommencing during 2008 onthe cost differential
During 2008, legacy carriersexperienced significant impairmentcharges. These were particularly ofnote for Delta Airlines, United Airlinesand American Airlines.
The restructuring associated with thesecharges has had significant positiveimpacts on cost performance in thefollowing years.
These impacts have included:
Removal of relatively fuel inefficientaircraft from the passenger fleet
Re-arrangement of employeeentitlements
Re-negotiation of other major
contracts with suppliers includingMRO operations.
Examples of the impacts of theserestructures on the carriers which weresubject to significant impairments inthe 2008 performance year is providedas follows:
Delta Airlines
4,200 employees participating involuntary redundancies in March 2008
United Airlines
Announced removal of 100 aircraftfrom its fleet including 94 B737 andsix B747 aircraft
Estimated FTE reduction of9,000 positions
American Airlines
Removed 79 MD-80 aircraft from,and added 90 B737-800 aircraft toits operational fleet since 2008
Significant reduction in workforceannounced
These restructuring activities acrossthe legacy carriers have significantlycut into the cost advantage of low costcarriers.
We note that the impact of the Chapter11 process for American Airlines andthe bankruptcy proceedings for JALare not reflected in the numbers as theairlines re-set the balance sheets onexit from restructuring.
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$7,296 million Delta
primarily for goodwill
($6,939 million) triggeredby significant declinein market capitalisation
and high fuel prices atthe time.
$2,625 million Unitedprimarily for goodwill($2,277 million),triggered by high
fuel prices, analystdowngrade of stock,
credit rating downgradeand announcementto remove 100 aircraft
from fleet.
$190 million Alaskan AirretireMD80 fleet
$183 million British Airwaysfleet asset impaired
and discontinuedoperations
$148 million China Easternimpairment of fleetassets to market
value
$725 million AMR Corpimpairfleet assets (MD-
80s B757s andB767s)
$371 million AirChinaimpair fleetassets
$319 million ScandinavianAirlinesimpairfleet assets and
holding in Spainair
$327 million Air Chinaimpair fleet
assets
$182 million Deltaimpairfleet assets(50 seateraircraft)
$121 million Lufthansaimpair aircraft
assets
$291 million Unitedimpairintangibles and
fleet assets
$205 million ScandinavianAirlinesimpairfleet
NB: JALbankruptcy financialaccounts not
reported
$158 million RyanAirimpairholdings ofAer Lingus
$147 million
AllNipponimpair fleet
assets
$135 million JALimpair fleet
2011/2012 EuroZone crisis (otherannouncements)
740 millionEuro AirFrance KLMannounce majorrestructuring andderivative losses.
Large number of
European carriers
still to report their
FY2012 results.
0
3000
6000
9000
12000
15000
USD millions
723
2006 2007 2008 2009 2010 2011
748
13,511
1,217 950
1,831
Global FinancialCrisis $ million
Delta 7,296
United 2,625
AMR Corp (AmericanAirlines)
1,128
US Airways 640
China Eastern 426
Ryan Air 385
China Southern Airlines 269
Scandinavia Airlines 244Qantas 152
Thai Airways 145
Source: KPMG analysis for KPMG International, 2013 Airline Disclosures Handbook
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Chart 1: Legacy versus low cost carrier cost per ASK2006 to 2011 (excluding impairment charges)
2006 2007 2008 2009 2010 20110
2
4
6
8
10
US
centscostperASK
Reporting Period
Legacy Low cost
Source: KPMG analysis for KPMG International, 2013 Airline Disclosures Handbook
Chart 2: Reduction in cost per ASK advantage of low cost carriers over legacycarriers from 2006 to 2011 (excluding impairment charges) by year
4.0
Cost advantage
to low costcarriers in 2006
Cost advantage
to low costcarriers in 2011
2007 2008 2009 2010 20110.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
US
centscostadvantageper
ASK
3.6
2.5
0.00.00.7
0.5
0.1
Source: KPMG analysis for KPMG International, 2013 Airline Disclosures Handbook
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Chart 3: Cost per ASK bridge between legacy and low cost carriers bycategory in 2011 (excluding impairment charges)
0
2
4
6
8
10
9.8
0.50.5
0.3 0.00.4
0.3 0.0 0.2 0.1 0.1
7.3
UScentscostperASK
Legacy
c/ASK2011
Fuel
Manpower
Other
expenses
Engineering
Sellingand
Marketing
Depn,
Amort
andOpLease IT
Landingand
Parkingfees
Airmeals
OtherAOV
Lowcost
c/ASK2011
Source: KPMG analysis for KPMG International, 2013 Airline Disclosures Handbook
Chart 4: Reduction in the composition of cost disadvantage to legacy
carriers over low cost carriers between 2006 and 2012 by cost category
0.2 0.1
0.4 0.1 0.10.1 0.1 0.1 0.0 0.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
IT
Costdisadvantageto
legacycarrie
rsin2006
Costdisadvantageto
legacycarrie
rsin2011
Fuel
M
anpower
Other
expenses
Engineering
Sellingand
M
arketing
Depn,
Amort
and
OpLease
Landingand
Parkingfees
Airmeals
O
therAOV
3.6
2.5
Source: KPMG analysis for KPMG International, 2013 Airline Disclosures Handbook
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Fuel
The cost differential with respect tofuel costs has decreased over theperiod of the survey. This is primarilybecause of the actions taken bylegacy carriers to reduce fuel bills , asLCCs already have relatively new andfuel-efficient fleet.
Over the period the weighted averagefuel cost per ASK fuel has increased8.5% for the legacy carriers comparedto 11.8% for LCCs. A significant
contributor to this is the significant
efforts by legacy carriers to eliminate
their older fleet. As an example, Chart5 below shows that although the fuelcosts of LCCs and legacy carriers haveboth moved in response to underlyingfuel price, certain legacy carriers (ofwhich SAS is an example in our dataset) have significantly out-performedthe average.
In the future, we expect fuel efficienciesto continue as a result of fleetinvestment. For example, in July 2011AMR (parent company of AmericanAirlines) announced the largest fleet
replacement order in history, with
460 narrow-body single-aisle orders(B737 and A320 next generationfamilies) with the stated aim ofachieving the youngest and mostfuel-efficient fleet among its U.S. airlinepeers with deliveries starting in 2013.
Although this will act to reduce fuelcosts, we believe that LCCs will alsobenefit from new technology, andthe structural differences inherent inlegacy carriers (including longer averagestage lengths) will mean that fuel costdifferences will not converge to nil.
Chart 5: Basis movements in fuel cost per ASK
Legacy vs low cost airlines, including performance outlier SAS
2007 2008 2009 2010 2011-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Legacy fuel basis movement Low cost fuel basis movementSAS fuel basis movement
-3.1%2.9%
44.3%
-21.1%
7.4%
25.7%
3.8%
31.9%
-33.4%
16.7%23.5%
16.2%
-19.1%-8.0%
9.9%
Source: KPMG analysis for KPMG International, 2013 Airline Disclosures Handbook
Manpower
The cost differential with respect tomanpower has decreased over theperiod of the survey, mainly due toan average decrease in manpowerunit costs experienced by thelegacy carriers, of 0.7% (on average)compared to an increase experiencedby low cost carriers of 0.9%.
Singapore Airlines and Air Canada bothhave sustained decreases in manpowercosts per ASK of 3.9% and 2.1%respectively per year on average overthe period of the survey.
Manpower costs unlike fuel costs are
subject to a significant lag time fromthe initiation of capacity reductions.This is noted below in the SingaporeAirlines case study.
Case Study Singapore Airlines
The average year on year decreasesin manpower costs experienced bySingapore Airlines over the surveyedperiod where notable in both the 2008and 2009 performance year, wherethey averaged a 14.1% manpower cost
per unit reduction year on year.
This cost containment outcome has
been achieved by actively improvingemployee productivity, and movingheadcount in line with capacitychanges.
Singapore Airlines discloses theexecution of this strategy in theTen-Year Statistical Record portion ofthe annual report.
In 2010 it was noted that capacityhad decreased 10%, however thiscapacity decrease was not matched
by a equivalent decrease in operationalheadcount until 2011.
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Singapore Airlines - The Year
in Review
The Airline implementedcompany-wide measures to
reduce operational and staff costsincluding the introduction of ashorter work month scheme foremployees, and deferment of non-essential projects.
Singapore Airlines,
Annual Report for the year ended
and as at 31 March 2010
Staff 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07
Average
strength
(numbers) 13,893 13,588 13,934 14,343 14,071 13,847
Seatcapacity per
employee
(seat-km) 8,163,082 7,952,620 7,583,874 8,212,278 8,096,020 8,127,667
Passengerload carriedper employee
(tonne-km) 594,663 588,714 563,318 598,047 618,295 613,211
Revenue per
employee
($) 868,790 863,931 728,075 909,817 906,801 819,232
Valueadded peremployee
($) 237,472 310,480 219,678 294,666 368,382 368,831
Source: Singapore Airlines, Annual Report, for the year ended and as at 31 March 2012
Case study Air Canada
Air Canada on average, experiencedyear on year decreases of 2.1% inmanpower costs over the surveyedperiod.
Air Canada discloses their costperformance across a number ofcategories in the management
discussion and analysis section of itsannual report.
In the 2009 performance year, therewas a 4.8% reduction in FTEs, resultingin a significant improvement in theefficiency of manpower costs ascapacity had contracted 4.4% in thisparticular year.
In response to historically highfuel prices, on June 17, 2008 AirCanada announced capacity andstaff reductions for the fall andwinter schedule.
Air Canada,
Annual Report for the year ended
and as at 31 December 2008
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Full Year Change(cents per ASM) 2011 2010 cents %
Wages and salaries 2.31 2.39 (0.08) (3.3)
Benefits 0.69 0.62 0.07 11.3
Aircraft fuel 5.08 4.18 0.90 21.5
Airport and navigation fees 1.52 1.51 0.01 0.7
Capacity purchase agreements 1.51 1.53 (0.02) (1.3)
Ownership (DAR)(1) 1.60 1.82 (0.22) (12.1)
Aircraft maintenance 1.03 1.03 - -
Sales and distribution costs 0.92 0.92 - -
Food, beverages and supplies 0.42 0.44 (0.02) (4.5)
Communications and information technology 0.29 0.31 (0.02) (6.5)
Other 1.83 1.87 (0.04) (2.1)
Total operating expense 17.20 16.62 0.58 3.5
Remove:
Cost of fuel expense and cost of ground packages at Air Canada
Vacations
(5.54) (4.61) (0.93) 20.2
Operating expense, excluding fuel expense and excluding thecost of ground packages at Air Canada Vacations (2)
11.66 12.01 (0.35) (2.9)
(1) DAR refers to the combination of depreciation, amortization and impairment, and aircraft rent expenses.
(2) Refer to section 20 Non-GAAP Financial Measures of this MD&A for additional information.
Source: Air Canada, Annual Report, for the year ended and as at 31 December 2011
The decrease in manpower costs perunit noted in the 2011 performanceyear, was predominately driven byproductivity improvements offsettinghigher average salaries and increases inaverage FTEs.
Although the legacy airlines have madesignificant inroads into staff costs, we
believe that the residual difference toLLCs will be more difficult to eliminatedue to structural differences, includinghistorical union arrangements, andlonger routes involving longer (andcostly) layovers.
However, in short-haul, it is increasinglylikely that legacy airlines will seek tocontinue to manage their cost baseclosely in order to be competitiveagainst the LCCs. This may involvethe continuing development of new
businesss models; including lower
cost subsidiaries (e.g. Virgin Australiasacquisition of Tiger Airways); outsourcingof some or part of short-haul operations(as with Finnair and Flybe); or potentially,closer alliances between LCCs andlegacy carriers (as has previously beenexplored with JetBlue and Lufthansawith feeder traffic beyond LufthansasUS gateways).
Cost outlook
We expect legacy airlines to continueto focus on costs. SAS is an exampleof an airline that makes extensivedisclosures about its efforts in this area.
Many of the easier cost targets havenow been eliminated, and while bothLCCs and legacy carriers will continuetheir focus, we believe that the costgap will never be eliminated in full
because of inherent structural issues:
Legacy carriers will not be able tofully move away from historical staffcost and practices;
Only LCC will viably be able tomaintain the staff, engineering, andmaintenance efficiencies created bysingle fleet types;
Because of the lack of network
limitations, LCCs have an inherentability to seek lower cost airportsand routes.
However, LCCs themselves arelikely to diverge in their own businessmodels. Some will seek to continueto be lowest price, which inherentlymeans: lowest cost. Others will seekto try and take market share away fromthe legacy airlines by targeting theirhigher value customers. This will entailadding new products and services
(free baggage, priority boarding,
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pre-assigned seating). The challengein doing this will be to maintain costcontrol to remain competitive againstincreasingly streamlined competitors.
Legacy carriers will continue to needto evolve their business models
through partnership, joint venturesand mergers and acquisitions to meetthe cost challenges in competing withthe newer and large gulf hub carriersand the growth of the large Chineseinternational carriers.
Case Study SAS
SAS makes significant disclosuresof its unit cost performance, whichsuccessfully conveys the messagethat management have taken decisiveaction in reducing their cost base.
Lower units costs (CASK)
Through Core SAS, Scandinavian Airlines has reduced its unit costs (CASK) by 23% and its
operational costs by 24% since 2008. As a result, SAS is now better equipped for the
prevailing situation with increased competition, an uncertain macroeconomic trend and
accelerating fuel prices.
Cost reduction (excluding fuel costs) 2008-2011
0
5
10
15
20
25
30
35
SEKbillion
Currency-a
djusted
costbase
Adjustmentf
or
extraordinarycos
ts
14%
lowerAS
K
2011vs.
20
08
Inflation
Estimatedcostbase20
11
withoutCoreSA
S
Earningsefle
ct
2008-20
11
Costbase20
11
30.123.2
32.0
0.62.1 0.8
6.9
-23%
Source: SAS Annual Report 2011
Core SAS has generated costsavings of 23% since 2008 anda new platform for profitablegrowth has been created. The new
strategic focus 4Excellence waslaunched in autumn 2011, entailingthat SAS continues to maintainits strong focus on the unit cost.The objective is to reduce unitcost by 3-5% per year. This willbe implemented with the supportof cost reductions and increasedproductivity. The part of the unit-cost reduction that is intended to bebased on cost efficiency comprisesreduced administration, lower ITcosts, more efficient purchasingand centralization of internationalsales activities.
Customers will see a harmonizedproduct offering, which will alsoentail savings for SAS. In addition tocost efficiency, higher productivitywill help reduce the unit cost.Aircraft utilization will increase,partly due to increased productionto private travel destinations. Theaverage aircraft size will gradually
increase due to changes in theaircraft fleet. Extensive Leanefforts are also taking place in manyareas throughout the company,which will help SAS handle plannedcapacity growth in a cost-efficientmanner.
SAS Annual Report 2011
SAS introduces Lean
SAS is introducing Lean to continueimproving the unit cost. Thepurpose of Lean is to harmonizeSASs standard of delivery andquality to customers and achievecost efficiencies. The aim is thatall managers and employees willbase their work on these principles.High precision and reliability inSASs punctuality and regularity isa strong indicator of efficient andreliable processes. Accordingly,
SAS uses punctuality as a key
measure in the Lean program.Motivated and committed employeesand managers are a prerequisitefor creating permanent results.Everyone will apply the best-knownworking practice. To achieve theoverall targets, SAS has establisheda roadmap for the next fewyears with a focus on creating anunderstanding of, and compliancewith, the Lean principles.
Source: SAS Annual Report 2011
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Appendix 1: Surveyed airline financial reports
Company name Reporting GAAP Regulatory filings reviewed
AirAsia Malaysian IFRS Annual Report
Air Berlin EU IFRS Annual Financial Report
Air Canada Canadian GAAP Annual Report
Air China IFRS Annual Report
Air France-KLM Group EU IFRS Annual Financial Report
Alaskan Air Group US GAAP Form 10-K
All Nippon Airways Japanese GAAP Annual Report
AMR Corp (American Airlines) US GAAP Form 10-K
Cathay Pacific Airways Hong Kong IFRS Annual Report
China Eastern Airlines IFRS Annual Report
China Southern Airlines IFRS Annual Report
Delta Airlines US GAAP Form 10-K
Deutsche Lufthansa Group EU IFRS Annual Financial Report
easyJet EU IFRS Annual Report and Accounts
Emirates Airlines IFRS Annual Report
International Airlines Group (BritishAirways and Iberia)
EU IFRS Annual Report and Accounts
Japan Airlines (JAL) Japanese GAAP Annual Financial Report
JetBlue Airways US GAAP Form 10-K
Korean Air Lines Korean GAAP Annual Financial Report
Qantas Airways Australian IFRS Annual Report
Ryanair IFRS Annual Report and Form 20-F
Scandinavian Airlines System IFRS Annual Report & Sustainability ReportSingaporean Airlines Singaporean IFRS Annual Report
Southwest Airlines US GAAP Form 10-K
TAM Linhas Areas IFRS Form 20-F
Thai Airways International Thai GAAP Annual Report
Turkish Airlines CMB IFRS Annual Report
United Continental Holdings US GAAP Form 10-K
US Airways US GAAP Form 10-K
Reporting for relevant period included in survey
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Appendix 2: KPMG Contacts
For more information, please contact a professional from the
following KPMG member firms.
Global Leadership
Dr Ashley Steel
Global Chair Transport
15 Canada Square
London, E14 5GLU.K.T: +44 20 7311 6633E: [email protected]
Malcolm Ramsay
Global Head of Aviation
10 Shelley Street
Sydney 2000AustraliaT: +61 2 9335 8228E: [email protected]
Contact Us
Argentina
Eduardo H Crespo
+54 11 4316 5894
Australia
Malcolm Ramsay
+ 61 2 9335 8228
Belgium
Serge Cosijns
+32 3 821 18 07
BrazilMauricio Endo
+55 11 3245 8322
Canada
Laurent Gigure
+1 514 840 2393
Chile
Alejandro Cerda
+56 2 798 [email protected]
China
Jeffrey Wong
+86 21 2212 2721
Cyprus
Sylvia Loizides
+357 25869104
Czech Republic
Eva Rackova
+420 222 123 121
DenmarkJesper Ridder Olsen
+45 7323 3593
Finland
Pauli Salminen
+358 20 760 3683
France
Philippe Arnaud
+33 1 5568 [email protected]
Germany
Steffen Wagner
+49 69 9587 1507
Greece
Dimitra Caravelis
+30 2106062188
Hong Kong
Shirley Wong
+852 2826 7258
HungaryZoltan Szekely
+36 1 887 7394
India
Manish Saigal
+91 22 3090 2410
Indonesia
David East
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Ireland
Michele Connolly
+353 1 410 1546
Israel
Guy Aharoni
+972 4 861 4801
Italy
Alessandro Guiducci
+39 010 553 1913
Japan
Atsuki Kanezuka
+81 3 3266 7002
Korea
Ha Kyoon Kim
+82 2 2112 0271
Luxembourg
Philippe Neefs
+35222 5151 5531
Malta
Pierre Portelli
+356 2563 1132
Malaysia
Hasmanyusri Yusoff
+60377213388
Mexico
Alejandro Bravo
+525552468360
Netherlands
Herman van Meel
+31 20 656 7222
New Zealand
Paul Herrod
+64 9 367 5323
Norway
John Thomas Srhaug
+47 4063 9293
Peru
Victor Ovalle
+5116113000
Poland
Andrzej Bernatek
+48225281196
Portugal
Joo Augusto
+351 210 110 000
Russia
Alexei Romanenko
+7 495 663 8490 ext.12694
Saudi Arabia
Ebrahim Baeshen
+96626581616
Singapore
Wah Yeow Tan
+65 6411 8338
South Africa
Dean Wallace
+27 83 251 9585
Spain
David Hohn
+34 91 456 3886
Sweden
Anders Rostin
+46 8 723 9223
Switzerland
Marc Ziegler
+41 44 249 20 77
Taiwan
Fion Chen
+886 2 8101 6666
Turkey
Yavuz Oner
+90 216 681 90 00
U.K.
Ashley Steel
+44 20 7311 6633
U.A.E.
Andrew Robinson
+9 71 4356 9500
U.S.A.
Chris Xystros
+1 757 616 7009
Uruguay
Rodrigo Ribeiro
+59829024546
Vietnam
John Ditty
+84 8 3821 9266
8/12/2019 2013 Airline Disclosures Handbook
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