Future Growth of the Airline Industry
How will global competition drive change?
Andrew Herdman
Director General
Association of Asia Pacific Airlines

Geneva, Switzerland
22 February 2011

Overview
• Current business conditions
• Future growth drivers
• Evolving airline strategies

Aviation: moving the world

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Air travel delivers global mobility

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2,500 million passengers

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Outstanding safety record

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Carries 35% by value of global trade

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Wider social and economic benefits

Source: ATAG

Airlines managed through the downturn
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Trimmed route networks and capacity in response to lower demand

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Reduced utilisation, grounded surplus aircraft, deferred some new deliveries

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Implemented wide range of measures to reduce staff costs, retrenchment as a last resort

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Conserved cash, shored up balance sheets

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Worked with industry partners to reduce unnecessary costs

Airlines focused on survival whilst preserving their ability to respond to an upturn

Global economic recovery
World growth
2009A - 0.6%
2010E +4.8%
2011E +4.2%
2012F +4.5%

Source: IMF

Led by dynamic Asia Pacific economies

Recovery in passenger and cargo volumes
Global international passenger and cargo traffic

Overall volumes returned to pre-recession levels Source: IATA

Slower recovery for premium traffic
Global international passenger traffic by class

Source: IATA

Refocusing on growth
• Ongoing capital investment in fleets, airports and other services infrastructure
• Recruitment and training of skilled workforce
• Airfares do not keep pace with general price inflation
• Constant focus on productivity improvements and reducing unit costs
• Manage risks including currency and oil price volatility

Governments still view our industry as a soft target for arbitrary taxes

Oil price volatility
Real oil prices

Oil as % of World GDP

Source: FT

• Macro-economic impact
• Future carbon emissions pricing

Global airline industry profitability

Welcome return to profitability in 2010, but some caution over prospects for 2011

Poor returns to airline shareholders

Paradoxically, the industry has never suffered from capital scarcity

Airline EBITDA margins by region

Source: IATA

Airline profitability by region

Asia Pacific and US airlines outpacing
European carriers

Will capacity growth pressure profits?

Source: Ascend

Future Growth

Long term growth prospects remain bright

Source: Airbus
GMF2010

Projected annual growth rates

Asia Pacific traffic will grow significantly
Traffic by airline domicile

Source: Airbus

Airline Strategies

Competitive dimensions for airlines
• Revenue enhancement
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Tailoring products to markets
Investing in premium products and services
Active yield management
Multiple brand strategies

• Improving cost competitiveness
• Asset utilisation
• Fuel efficiency
• Labour productivity

• Value chain improvement
• Partnering with service providers

Evolving Business Models
• Full Service Network Carriers
• Streamlining short haul operations
• Establishing LCC subs and associates

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

• Further signs of convergence and hybridisation
• Long haul invariably uses wide body aircraft, involves cargo operations, two-class passenger configurations

Asia: customer service leadership
• Asian carriers are global leaders in service quality with world-class premium product offerings • Premium cabins generate 27% of total international passenger revenue
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