Transcript Presidents Assembly Brussels PA0108

The State of the Industry – and what
AEA can do
The current crisis –
A catalyst for a structural change of
European aviation
European Aviation Club
12 March 2009
Brussels
Ulrich Schulte-Strathaus
AEA Secretary General
-1-
The Association of European Airlines
AEA member airlines' brands give credibility
and weight to the Association…
AEA leverages this weight and gives it
back, multiplied, to each individual
member.
member airlines
passengers
flights a day
destinations in
countries
tonnes of cargo
employees
Total turnover of
-2-
The worst crisis since the 1930s
1973-75 1979-80
Oil crisis Oil crisis
7
1981-83
Economic
crisis
6
%
5
2001-03
9/11
Economic
1990-92
1997-98
crisis
Economic
Asian
crisis
Financial
crisis
2008-?
2007
8
1989
Timeline of crises since 1961 (GDP Growth)
4
3
2
World recession =
GDP growth below 3%
1
Source: AEA research, IMF data
-3-
2009
2005
2003
2001
1999
1997
1995
1993
1991
1987
1985
1983
1981
1979
1977
1975
1973
1971
1969
1967
1965
1963
1961
0
Economies worldwide are suffering
Recession is Here
% growth GDP
9
2008
2009
% growth rate GDP
7
5
3
1
-1
Source: IMF
-4-
World
Brazil
India
China
Japan
Central &
Eastern
Europe
EU
US
-3
Concerted governmental action to …
contain the financial problems
Global Action
 Government bail-outs of banks and financial institutions
 Targeted assistance to e.g. Fannie Mae, Freddie Mac, AIG, Fortis,
Bradford & Bingley, Glitnir, Kaupthing, RBS, Lloyds TSB,…
 Government guarantees for interbank lending
 Government guarantees of savings deposits
 Interest rate cuts to counter economic slide
 IMF provides financial support to Iceland, Ukraine, Turkey
 IMF, EU and World Bank
provide financial support
to Hungary.
Eurozone
rescue
US rescue UK rescue
package
package
package
US$ 700 bn GBP 387 bn EUR 1000 bn
(EUR 550 bn)
(EUR 480 bn)
Source: AEA staff research, BBC
-5-
World economic outlook weakens further
IMF Revises World GDP Forecast
Gross Domestic Product, Constant Prices, Annual % Change
5
%
4
3
2
3.0
Oct'08
2.2
Nov'08
0.5
Jan'09
1
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
Source: IM F
IMF has progressively revised its world forecast for 2009 down, from +3.0% to +0.5%.
On 10 March 2009, Strass-Kahn warned that the world economy could shrink in 2009,
suggesting an even gloomier outlook than the current official forecast of 0.5% growth.
-6-
Confidence Levels are at historic lows
EU Economic Sentiment Index
120
110
Euro Area ESI
100
%
EU ESI
90
80
70
Base year of index is annual 2000. Source: European Commission.
In early 2009 the ESI for Euro Area and EU continued to fall.
Both indicators stand at their lowest levels since the series was launched in 1985.
-7-
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
60
Airlines
-8-
Traffic Trend Turnaround since mid-year
Traffic Trend Turnaround came mid-year 2008
AEA Total Scheduled Services
15
2008 RPK %
H1: +3.4%
H2: -0.8%
= Year +1.2%
10
5
Passenger RPKs
%
0
-5
-10
Total Freight
Tonne-Kms
-15
2008 TFTK %
H1: +3.1%
May-08
-25
Mar-08
-20
H2: -8.3%
= Year -2.8%
Source: AEA
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Dec-08
Nov-08
Oct-08
Sep-08
Aug-08
Jul-08
Jun-08
Apr-08
Feb-08
Jan-08
-30
Traffic Volumes are in free fall since mid
year 2008
Traffic Volumes Are in Free Fall
AEA Total Scheduled Services
15
10
Passenger RPKs
5
% growth
0
-5
-10
-15
Total Freight
Tonne-Kms
-20
Source: AEA
- 10 -
Jan-09
Nov-08
Sep-08
Jul-08
May-08
Mar-08
Jan-08
Nov-07
Sep-07
Jul-07
May-07
Mar-07
Jan-07
Nov-06
Sep-06
Jul-06
May-06
Mar-06
Jan-06
Nov-05
Sep-05
Jul-05
-25
All routes from Europe are affected
Passenger Traffic Volumes on Major AEA Route Areas
RPK % Growth
20
Far East
Australasia
15
Cross Border
Europe
%
10
5
0
North Atlantic
-5
Source: AEA
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Jan-09
Oct-08
Jul-08
Apr-08
Jan-08
Oct-07
Jul-07
Apr-07
Jan-07
Oct-06
Jul-06
Apr-06
Jan-06
Oct-05
Jul-05
-10
Passenger traffic will fall by 4% in 2009
2009 will bring the lowest growth in 30 years of passenger air transport
with the exception of external shocks
1991
Gulf War I
15
2001
9/11
2003-04
Gulf War II, SARS
% RPK growth
10
5
0
-5
2009: - 4%
Source: AEA
▼Passenger traffic levels started to fall in H2 2008
▼ AEA forecasts -4% growth in RPK in 2009
▼ Over a ‘normal’ baseline -4% equates to -6% loss in RPK
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2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
-10
Freight is an indicator of economic health
Freight traffic will weaken as recession spreads
… and will not recover until economies do.
25
1981-83
Economic
Crisis
% Freight TK growth
20
15
10
2008: -2.8%
2009: - 5%
5
0
-5
Source: AEA
▼Freight traffic levels started to fall mid-2008
▼ AEA forecasts -5% growth in FTK in 2009
▼ Over a ‘normal’ baseline -5% equates to -10% loss in FTK
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2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
-10
Premium traffic is losing importance
Short haul
Long haul
100%
0%
2000
2002
2004
*AEA Airlines, International routes
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2006
2008
14.4
14.3
14.4
10%
13.9
20%
13.7
20%
14.4
30%
7.8
30%
8.4
40%
9.3
40%
10.1
50%
10.4
50%
16.0
60%
18.1
60%
17.3
70%
21.0
70%
10%
Premium
80%
13.5
Premium
80%
Low
90%
14.3
Low
90%
13.2
100%
0%
2000
2002
2004
2006
2008
Source: AEA RB2
European Capacity cuts go deep
European capacity cuts go deep
% change in flights and seats on offer on services within Europe
0
-2
% growth
-4
-6
-8
-10
Number of Flights
Available Seat Kms
-12
Apr-09
Source: Schedule analysis
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May-09
Jun-09
Jul-09
Aug-09
Sep-09
Fewer aircraft are needed
In the last 3 months Europe's airlines have taken 102 aircraft out of service
5000
102 aircraft
taken out of
service
number of aircraft
4000
Nov-08
Feb-09
115 aircraft
fewer on
order
3000
2000
136 more
aircraft
parked
1000
29 aircraft
more under
option
0
In Service
Source: ASCEND
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Stored
On Order
On Option
Employment: 15,000 jobs lost already
Thousands
Further Job Losses are inevitable
AEA Carriers' total FTE count to 2007, announced cuts through 2008 to date
500
To date AEA carriers have already announced
15,000 job losses + another 5,000 positions
affected by other labour cost saving measures
(unpaid leave,reduced working hours,..) More
are likely to follow.
40,000 job losses
450
400
350
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2007
2006
2005
2004
2003
2008 & to
date
Source: AEA Yearbook & staff research
2002
2001
2000
300
Aviation in its entirety is losing traffic
ACI-Europe Passenger Traffic Development
% month-on-month Growth rate, per Airport Category
Major Airports >25 mill/pax
Large Airports 10-25 mill/pax
Medium Airports 5-10 mill/pax
Small Airports <5 mill/pax
10
%
5
0
-5
-10
Jan-08
Feb-08
Source: ACI-Europe
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Mar-08
Apr-08
May-08 Jun-08
Jul-08
Aug-08 Sep-08
Oct-08
Nov-08
Dec-08
Access to aircraft financing has been curtailed
Aircraft Lessors were caught in the financial markets turmoil
2000
Current Fleet
On Order
Number of Aircraft
1750
For Sale
1500
1250
For Sale
1000
750
500
250
RBS Aviation
Capital
DAE Capital
Boeing
Capital Corp
AerCap
Babcock &
Brown
CIT
Aerospace
AWAS
Aviation
Capital Group
ILFC
GECAS
0
Source: ASCEND
The aircraft leasing sector has not been unaffected by the financial crisis. Although
lease rates are falling, access to capital has become an issue which could touch
airlines and manufacturers alike. The stock of white-tails and aircraft entering the
market from bankruptcies will also depress the assest value of aircraft.
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AEA Airline financial outlook is dismal
AEA Airlines will once again post losses in 2009
after just 5 years of profits
5
4
Operating Profit
Net Profit (after Interest)
3
EUR bn
2
1
0
-1
-2
-3
Forecast Loss
-1.5bn to -2.5bn
-4
2000
Source: AEA
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2001
2002
2003
2004
2005
2006
2007
2008e
2009f
2008 marks the beginning of recession
Key figures
2007
2008 and
beyond
Demand (RPK)
+5.3%
+2.0% ▼
Capacity (ASK)
+4.6%
+4.0%
Seat Load Factor
77.0%
75.5% ▼
 Fuel: Single biggest, and most volatile cost factor
 Economic downturn will reduce demand increasingly
 Cost factors such as airport charges, ATC likely to increase
 Volume-dependent no-frills likely to maintain overcapacity
 Governments could impose further taxes to fund bail-out of other
sectors
 EU ETS could lead to trade sanctions from third countries
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External costs of utmost urgency
Global recession makes it even more imperative
to drive down external costs:
 An ETS in 2012 – from a cap-and-trade system to a
disincentive tax measure
 A proliferation of national taxes
 Volatility of fuel price: from 9% of our operating costs in
1998 to 34% in 2008
 And ATM fragmentation costs the environment €16mln
tons of CO2 and airlines € 5 bln a year
 Airport charges and ATM Unit Rates will increase in
2009 despite the recession
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Slovenia
Bosnia & Herz.
Czech Rep.
Croatia
Slovakia
Belgium-Lux.
Moldova
Sweden
Netherlands
Spain
Hungary
Ireland
France
Denmark
Albania
Switzerland
Germany
Romania
Poland
Portugal
Spain Canaries
Portugal S.
Serbia-Mont.
Malta
Austria
Finland
Turkey
Greece
Italy
Lithuania
Norway
FYROM
Bulgaria
UK
Cyprus
% change 2009 over 2008
ANSP Unit Rates rise, less traffic
European ATC Unit Rates will rise by 3.2% in 2009, despite reduced traffic levels
% Increase 2009 over 2008
30
25
- 23 -
20
15
10
5
Average increase of +3.2%
in unit rates for ATC Charges
0
-5
-10
-15
Source: Eurocontrol
Europe needs a Single European Sky
 For passengers: delays caused by
bottlenecks in the sky, circuitous
routings and holding patterns above
airports…
 For the environment: unnecessary
emissions of 16 million tons of CO2 a
year
 For the airlines: unnecessary costs
of around €5 billion a year
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EU ATM :
more costs… inferior performance
USA
Europe
ATM Airspace: 9,8 million km²
1
21
1
ATM Airspace: 10,5 million km²
ATC Organisation (civil + mil.) 47
En-Route Centres
58
Operating System
22
900
Movements per Air Traffic
Controller
480
$400
ATM Cost / Flight
$800
- 25 -
ATC Organisations (civil + mil.)
En-Route Centres
Operating Systems
Movements per Air Traffic
Controller
ATM Cost / Flight
Airport Charges increases 2008/2009
Airport Charges (-/+ %)
- 26 -
UK
Sweden
Spain
Norway
Germany
France
Denmark
Czech Republic
18
15
12
9
6
3
0
-3
-6
-9
-12
-15
Consequences of ETS post 2012
 Buying 15% of carbon allocation will massively increase the cost
base → additional financial hardship;
 Increase of administrative burden with regard to the MRV
guidelines + additional requirements by individual Member States;
 ETS will fundamentally change the operating economics of every
route and flight: Many communities will lose service;
 International distortion of competition;
 Some non-EU competitors will see traffic diversion as a gift; for
others, the EU ETS will be unacceptable, and will spark trade wars.
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2009 crisis management to ensure
Europe’s global sustainable competitiveness
 Europe as a region must confront unnecessary regulatory burdens:
 ETS & MRV as economic instrument
 Proliferation of national taxes (UK, NL, Ireland)
 Non-safety EASA rulemaking proposals
 Surge of costs for security measures
 Further unnecessary administrative burdens
 Role of EU institutions in airline restructuring process
 Structural inefficiencies of the value chain to be addressed jointly:
 Cost efficiency of airport services
 Cost efficiency of ANSP services
 Sufficient and well organised infrastructure
 Review of market orientation of all aviation service providers
- 28 -