Table of Contents
Introduction
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- Key findings
Data Sources
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- Abbreviations and definitions
Overview
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- Outlook for GDP growth
- UPS results confirm economic rebound
- Japan slowdown to be temporary
- Much higher energy prices
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- Figure 1: Forecasted GDP growth by region and major country, April 2009
- Air transport link to economic trends
- Exchange-rate trends
- Commodity-based currencies have surged
- Impact of currency moves on air travel
- Trend in the price of kerosene
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- Figure 2: Fuel price at 8 April 2011
- Figure 3: Price of jet fuel by region, 15 April 2011
- Impact on airline costs in 2011
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- Figure 4: Fuel impact on airline operating costs, updated in March 2011
- Outlook for spending on travel and tourism
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- Figure 5: Travel and tourism expenditure worldwide, 2011-21
- On the rebound
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- Figure 6: Real growth in worldwide travel and tourism expenditure, 2008-15
- Trend and outlook for air-traffic volumes (passengers and freight)
- Impact of political unrest in the Middle East and North Africa
- Chinese New Year distortion
- Japanese tsunami impact to be felt for some months
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- Figure 7: Year-on-year % change in key industry supply and demand parameters, 2010-11
- Airfreight in general hit by a trend reversal
- Supply getting ahead of demand?
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- Figure 8: Month-on-month % change in key industry supply and demand parameters, January 2011 vs February 2010
- Capacity up by 5% in March 2011 (plus 10% for LCCs)
- Middle East is growing fastest
- Asia Pacific now the biggest air transport market
- Airbus and Boeing note rising importance of Asia Pacific
- China
- Inter-regional capacity to/from Asia
- Scheduled capacity growth at major Asian hubs
- Africa impacted by civil unrest
- Growth to Nairobi
- Limited increases in North America
- Some carriers are lowering growth forecasts
- Capacity to/from Central and South America declines
- European international capacity growth boosted by Gulf carriers and LCCs
- Large capacity increases for Madrid and Amsterdam
- LCCs continue to grow faster
- Premium traffic growth slows
- Premium travel still 10% below pre-recession peak
- Premium revenues still 9% below pre-recession peak
- Slower growth in more price-sensitive economy-seat segment
- Geographical differences remain
- MENA impacted by political turmoil
- North Atlantic route in an uptrend
- South America enjoying strong growth
- Slow growth in Europe
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- Figure 9: Premium traffic growth, by route, 2010-11
- The impact of the Japan crisis on air travel
- A ‘V’-shaped recovery?
- Japan a producer of jet fuel
- 10% of worldwide air transport revenues
- Markets with the highest exposure
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- Figure 10: Summary of routes (domestic and international), serving Japanese airports, 2011
- Sharp drop in Japanese inbound and outbound travel in store
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- Figure 11: Japan outbound and inbound travel, by country, 2010
- Travellers urged to leave Tokyo
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- Figure 12: Japan domestic market seats per week, March 2011
- US carriers heavily exposed to Japan's international market
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- Figure 13: International flights to/from Japan and seats per week, March 2011
- Uncertain outlook for international carriers serving Japan
The Major Players
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- Ranked by passenger kilometres
- Emirates surges to the top
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- Figure 14: Airline ranking by revenue passenger kilometres on international flights, 2008 & 2009
- US and China dominate the domestic rankings
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- Figure 15: Airline ranking by revenue passenger kilometres on domestic flights, 2008 & 2009
- Figure 16: Airline ranking by revenue passenger kilometres on total (international + domestic) flights, 2009
- Ranked by passengers carried
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- Figure 17: Airline ranking by passengers carried on international flights, 2008 & 2009
- US and Chinese carriers dominate domestic rankings
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- Figure 18: Airline ranking by passengers carried on domestic flights, 2008 & 2009
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- Figure 19: Airline ranking by passengers carried on total (domestic and international) flights, 2008 & 2009
- Airfreight
- International
- Integrated freight-transport companies
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- Figure 20: Airline ranking by scheduled freight tonne kilometres (international only), 2008 & 2009
- Figure 21: Airline ranking by scheduled freight tonne kilometres (domestic only), 2008 & 2009
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- Figure 22: Airline ranking by scheduled freight tonne kilometres (domestic and international), 2008 & 2009
- Global airline industry worth US$1 trillion
- Most valuable airline in the world is Chinese
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- Figure 23: Enterprise values and market capitalisations of the world’s leading publicly quoted airlines, March 2011
Global Performance and Airfares
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- Figure 24: Performance data for system-wide global commercial airlines, March 2005-11
- Trends in airfares
- Higher ticket prices in Europe due to carbon permits
- A ‘cap-and-trade’ scheme
- A windfall possible?
- Ticket prices back to pre-recession levels in the UK
- More business class
- Summer airfares may climb 15% in the US
- International flights to increase even more
- Fees for extras add to the bill
- US airlines raising fares and cutting capacity
- Corporate business rebounding driven by higher yields
- Slight capacity declines instead of slight capacity increases
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Bankruptcies in the Airline Industry
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- Japan Airlines
- Forced to accept major downsizing
- Turning a corner
- Major setback
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- Figure 25: Forecast JAL Group international reservations for the ‘Golden Week’ holiday period, 28 April-8 May 2011
- Weak projected domestic load factors
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- Figure 26: Forecast JAL Group domestic reservations for the ‘Golden Week’ holiday period, 28 April-8 May 2011
- Mexicana
- Ownership structure
- Tenedora K backed by diverse group of investors
- Links to the government?
- Grupo Posadas had already sold out
- Only regional services remained prior to bankruptcy
- Long-haul fleet grounded
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- Figure 27: Mexicana’s long-haul fleet prior to bankruptcy, 2010
- What can emerge from the bankruptcy?
- Sale of Click Mexicana and MexicanaLink?
- oneworld and partners slow to react
- A link missing in oneworld’s network
- Aeromexico and LCCs take up the slack
- Slight growth in the domestic market in 2010
- Decline in international market
- Aeromexico IPO raises US$332 million for expansion
- Much improved financial position
- LCC competition to intensify
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- Figure 28: Domestic market shares (passengers) in Mexico, February 2011
- Aeromexico fleet development
- Long-haul route expansion
Mergers in the Airline Industry
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- Four major mergers
- United Airlines/Continental Airlines
- A 55/45% ownership split
- Over US$1 billion of synergies expected
- Fleet
- Route network
- Strong international presence
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- Figure 29: Summary of United/Continental’s foreign route network, 2010
- More US–EU flights than any other airline
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- Figure 30: Top 12 airlines ranked by weekly departures from European airports in July 2010
- Twice as many flights as Delta to Asia
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- Figure 31: Top 12 airlines ranked by weekly departures from Asian airports in April 2010
- Customer service features
- Joint venture with Air Canada
- Joint venture with All Nippon Airways
- Joint venture with Lufthansa
- Other partnerships
- British Airways/Iberia
- Europe’s third-largest airline group
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- Figure 32: Destinations served on each non-European continent by Europe’s three global mega-carriers, April 2010
- Lufthansa weak in Latin America but strong in Asia
- Only BA makes it all the way to Australia
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- Figure 33: Weekly flights from airports in the region, April 2010
- New York JFK leading North American airport for all three airlines
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- Figure 34: Number of weekly departures for each carrier at their top three airports in each region, April 2010
- BA has offloaded its pension risk
- Agreement with American Airlines
- Also a 55/45% split
- IAG shares began trading on 4 January 2011
- 2010 results showed a turnaround in operating profit
- Possible acquisitions on the horizon
- Southwest Airlines/AirTran
- Move represents departure from organic growth
- AirTran expands Southwest network in key hubs
- Atlanta a major attraction for Southwest
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- Figure 35: Hartsfield-Jackson Atlanta International Airport capacity (seats per week, to/from) by carrier, 25 April-01 May 2011
- Figure 36: Top 10 US destination airports from Hartsfield-Jackson Atlanta International Airport, by passengers, 2009-11
- AirTran’s route network
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- Figure 37: AirTran Airways’ top domestic markets*, February 2010-January 2011
- Figure 38: AirTran Airways top domestic origin-destination city pairs*, February 2010-January 2011
- Full integration by 2013
- AirTran brand to be maintained for the time being
- An ‘integration board’ to manage the process
- Will Southwest’s merger with AirTran be good for consumers?
- Other considerations
- Southwest will challenge Delta at its main hub
- Changes in service delivery
- Some do expect prices to rise – especially in the longer run
- Becoming a major player
- Business travellers may balk
- LAN Airlines/TAM Airlines
- A complex holding structure
- Ranked among the top 15 in the world
- LAN a leader in South America
- TAM, market leader in Brazil
- Little network overlap
- Leading in ten of 15 major airports
- Services to North America and Europe
- Asia out of range
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- Figure 39: Intercontinental routes of TAM and LAN, August 2010
- All for one or two for Star?
- Merger delayed by antitrust probe
- LAN accused of anti-competitive practices
- American mulling a spin-off of its Eagle unit
Low-cost Carriers
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- Southwest still world’s biggest LCC
- IndiGo fastest growing
- No capacity reductions
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- Figure 40: Top 25 LCCs worldwide by capacity (ASKs/week), April 2011 vs April 2010
- Are LCCs really cheaper?
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- Figure 41: Additional charges as a proportion of total price and variance in airfares between low-cost and full-service airlines according to booking window in Europe, 2011
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- Figure 42: Difference in airfares across Europe for low-cost and full-service airlines, 2011
- Growth slowing in Europe
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- Figure 43: Passenger traffic for Europe’s six biggest low-cost carriers, 2010
- Many new routes but how much growth?
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- Figure 44: Summary of the route networks and fleets of the six major European LCCs, May 2011
- Ryanair diluting its business model?
- Airline to operate out of some of Europe’s main airports
- Growth is slowing down
- An end to the 'pile ’em high and sell ’em cheap' approach
- A different profile of CEO will be needed in future
- Reduced facilities make costlier airports viable
- Competitors have already taken steps to woo business travellers
- Offer of reserved seating
- Europe’s second-tier LCCs
- A fast-growing Russian LCC
- Past the million mark in September 2010
- Avianova is foreign-owned
- Targeting 40 aircraft by 2015
- Focus on domestic expansion
- Regulation slows down expansion
- Avianova enters Siberia
- North American niche players
- Porter Airlines, a successful Canadian niche player
- Not competing on price
- Hub is near to downtown
- Route expansion to major US cities
- Porter benefits from barriers to entry
- Small budget airlines connecting small cities
- Vision Airlines, a former charter operator
- Direct Air charters planes from other carriers
- Sun Country Airlines goes long-haul
- Allegiant Air
- Legacy carriers now charge for extras like LCCs
- Low distribution costs
- An issue with aircraft, however
- Low frequency
- REDjet, a new Caribbean LCC
- Four non-stop routes so far
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- Figure 45: REDjet’s initial route network alongside those of the competition, May 2011
- LCC model taking over Indian domestic market
- Indian domestic market has become low-cost
- Air India Express
- LCC model necessary for survival
- Surging growth in India’s domestic market
- Fare increases criticised
- Dedicated LCCs taking share
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- Figure 46: Indian domestic passenger traffic, November 2010
- Kingfisher and IndiGo neck and neck in Q1/2011
- Strong load factors
- IndiGo, the little airline with big growth plans
- IndiGo will start with most popular foreign routes
- IndiGo enjoys strong financial support
- GOL, the South American champion
- Competing with bus transport
- Varig acquisition in 2007
- GOL’s brands
- VARIG
- SMILES
- Gollog
- The Voe Fácil card
- A challenge to GOL?
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- Figure 47: Brazil’s domestic market share by carrier, March 2011
- Azul has only existed for little over two years
- 50 destinations by year-end 2011
- Fleet of Embraer E-jets and ATR 72 turboprops
- 40 potential destinations
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- Figure 48: Azul’s current fleet in service and on order, May 2011
- Strong load factors in spite of fleet expansion
- Rapidly gaining share
- Azul is riding crest of growth wave
- An IPO on the horizon?
- Reproducing JetBlue’s business model
Major Airline Alliances
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- Code-sharing a key feature
- Alliances have about a 50% share of supply
- Star grows share, oneworld loses
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- Figure 49: Global alliances vs LCCs and unaligned carriers seats, ASKs and flights, March 2011 vs March 2010
- Reaching out to LCCs
- American and WestJet
- Airline alliances date only from 1997
- Star Alliance the clear leader
- Star is strong in Continental Europe, North & South America and East Asia
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- Figure 50: Airlines, by alliance, 2011
- Recent developments
- Oneworld
- Airberlin
- Kingfisher Airlines
- SkyTeam
- Saudi Arabian Airlines
- Middle East Airlines
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- Figure 51: Middle East Airlines’ route network, 2011
- Other airlines on the runway
- Star Alliance
- Ethiopian Airlines – a future member
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- Figure 52: : Ethiopian Airlines’ passenger route network, 2011
- Figure 53: Ethiopian Airlines’ cargo route network, 2011
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- Figure 54: Ethiopian Airlines’ fleet, including planes on order, 2011
- Believes alliances are restricting
- Does have code-shares
- Maintained its service standard during recession
- Direct connection to Europe from Asia Pacific
Distribution Trends
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- Direct channels 80% cheaper than GDS
- Direct Connect
- American tries to go it alone
- A resolution to be expected?
- From commodities to personalised offers
- DOJ restrictions placed on Google
- Deal to affect offline agencies also
- Airlines versus GDSs – the battle shifts into courts
- Suits allege anti-competitive practices
- Sabre sues AA and joins as a defendant in another case
- Sabre joins Travelport as defendant
- American’s claims
- Airlines want more control over distribution
- Airlines need to cut costs
- Complex corporate fares
- Travel agents support the GDS’ position
- Direct Connect distribution to result in higher costs
- Airlines want to sell ancillaries directly
Frequent-Flyer Programmes
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- Airlines make money by selling miles
- FFP passengers generate 3-9% of total RPKs
- More than half a billion members
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- Figure 55: Frequent-flyer programme membership totals, 2008-11*
- Similar structure with some differences
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- Figure 56: Comparative details of major airline frequent-flyer programmes, 2011
- FFP miles generally expire after three years, but not all
- Blackout periods and limited redemptions
- Redemption possibilities limited at peak periods
- Speed up security for frequent flyers?
- More selective screening
- Relying on historical FFP data
- TSA scheme would add to FFP perks
- General improvement in security surveillance procedures
- ‘Secure Flight’ implemented
- About 3% still subjected to secondary searches
What Next?
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- 800 million more travellers by 2014?
- China the biggest contributor to growth
- Great opportunities but also major challenges
- Forecast details
- Top ten to make up 95% of the world market
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- Figure 57: Top ten international air passenger markets in 2014
- China, UAE and Vietnam to grow fastest
- Airfreight has bounced back strongly
- Top ten to make up almost 100% of world market
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- Figure 58: Top ten international airfreight markets in 2014
- Fastest-growing markets
- Regional outlook over period 2009-14
- US to continue as world’s biggest aviation market
- More mergers needed
- US Airways to merge at some point
- Branson ready to sell up?
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