Transcript Slide 1 - Bureau of Infrastructure, Transport and Regional Economics

The Future for
Australian Aviation:
Policy, Market & Infrastructure
Challenges
Ian Thomas
Senior Consultant
Industry Affairs
BTRE Transport
Colloquium ‘05
Market Overview


BTRE Transport
Colloquium ‘05
Domestic market:
- Return to stable duopoly
- Further restructuring likely
International market:
- Local/regional pressure for
liberalisation (eg Pacific)
- Foreign ownership, control
rules under review
- Competition intensifying
The scorecard: 15 years into
domestic deregulation
Upside:
 Strong traffic growth
 Greater competitiveness
 Product innovation
 Cheaper fares
 Encourages market entry, allows exit
Downside:
X High volatility
X Depleted yields
X 4 failures
X Single dominant operator
BTRE Transport
Colloquium ‘05
The highs and lows
35
Domestic Deregulation
30
Average annual
traffic growth
2.3 times GDP AAGR
25
Entry, exit
Compass 2
20
15
Market
re-growth
Entry Impulse,
Virgin Blue
% 10
5
0
Compass 1
collapse
-5
Exit Impulse,
Ansett fails
Asian crisis
-10
GDP
PAX
ASK
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
19
90
-15
Frequency
Source: BTRE, CAPA
BTRE Transport
Colloquium ‘05
Percentage change in CY Traffic,
Capacity & Frequency v GDP
Long-term growth trend
despite crises
Capacity, Traffic & Load Factor Trends
60
82
80
50
78
40
76
bln 30
74 %
20
Trend lines
10
RPKs: +15.7%
ASKs:+17.6%
CY2004
72
70
68
ASKs
RPKs
Load factor (% )
Linear (RPKs)
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
19
19
91
66
90
0
Linear (ASKs)
Source: BTRE, IMF
BTRE Transport
Colloquium ‘05
High passenger loads, traffic levels
Record profits
1400
New peak
Major Airline Profits &
Profit Per Passenger,
Capacity Unit
Previous peak 2000
1200
1000
800
600
$m
400
200
0
-200
Total Op. Profit ($m)
Source: CAPA, Airlines
BTRE Transport
Colloquium ‘05
$ Profit/PAX
Total PAX (m)
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
19
19
90
91
-400
70
65
60
55
50
45
40
35
30
25 $
20
15
10
5
0
-5
-10
-15
-20
$ Profit/1,000 ASKs
Aggregate earnings eclipse previous
peak by 42% in 2004
More competition = less profit
Qantas
Ansett
Virgin
Impulse
1400
1200
Qantas/Virgin
Qantas/Ansett
1000
Qantas/
Australian
Ansett
Compass 1&2
800
600
$Am
400
200
0
-200
-400
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Ansett
Qantas
Virgin
Australian
Source: CAPA, Airlines
BTRE Transport
Colloquium ‘05
Combined Profits of Major Airlines
Year-on-year, 1990-2004
Commercial impact
Basic
LCC
Building
Complexity/cost?
Simple product
Value –plus
Product
International/domestic
Partners, Connectivity?
One class
On-board food,
drink sales
No hot food
Focus on leisure,
small business market
Minimal costs
Pricing drives growth
VIRGIN LIGHT
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Colloquium ‘05
BluePlus fares, BlueZone seating
Hot food
FF programme
Airport lounges
Satellite TV
VIRGIN HEAVIER
From traditional LCC……to
Ansett II?
Traditional
network
Disaggregated
Vertically-Integrated
International
domestic
regional
One brand
One product
One fare system
QANTAS 2000
BTRE Transport
Colloquium ‘05
Differential products, fares
Joint Ventures
QANTAS 2005
Qantas fragments….different
brands for different markets
International Policy:
The greatest challenge
 Where to next with “open skies”
 Australian airlines losing market
share to foreign operators
 Ownership/control limits need
addressing
- capital mobility issues
- consolidation constraints
 Government response to regional
liberalisation (ASEAN+3, other)
 Greater engagement with Asia
BTRE Transport
Colloquium ‘05
Asia growing rapidly, but
Australia/NZ only small players
Asia accounts
for 83% of
available
airline capacity
to/from region
Australasia,
3.0
Other, 0.3
North
America, 4.2
Middle East,
3.9
Europe, 6.1
Asia, 82.5
Source: Innovata APGdat
BTRE Transport
Colloquium ‘05
Australia/NZ fifth
to Asia, Europe, America
and Middle East
Capital access, rising debt
threaten growth
Fleet rebuilding, high growth
6
5
Capex
2002-2007
= $13.6b
4
Qantas Capex, Net Debt
Trends,
1994-2007
$1.4b in
equity
raisings
$b 3
2
Debt curve
1
Source: Qantas annual reports, Lehman Bros
BTRE Transport
Colloquium ‘05
Capex
Net debt
20
04
20
05
E
20
06
E
20
07
E
20
02
20
03
20
00
20
01
19
97
19
98
19
99
19
95
19
96
19
94
0
Regional fleet growth places
pressure on labour pool
300
High demand
impacts on
 training
 wage costs
 expansion
plans
Current Aircraft Orders
by Region
250
200
150
100
50
BTRE Transport
Colloquium ‘05
Narrow-body
/N
Z
Ea
A
us
le
id
d
M
rS
tr
al
ia
st
a
A
si
a
ou
th
A
si
SE
O
th
e
A
si
a
n
N
or
th
O
th
er
Ja
pa
na
C
hi
Orders for 1,056
aircraft in next
3-5 years,
80 in Australia/NZ
In
di
a
0
Medium twin-aisle
Source: Centre for Asia Pacific Aviation, Airlines
Large
Skills shortfall looms large
9000
7780
8000
7000
Est. Annual Airline Employee
Requirements by Type by Region,
2005-2009
6023
6000
4718
4472
5000
4000
2515
3000
2100
1422
2000
390
1000
Pilots
Maintenance
BTRE Transport
Colloquium ‘05
us
tr
al
ia
/N
Z
id
dl
e
M
A
Ea
st
si
a
ou
th
A
As
ia
th
er
S
SE
si
a
A
or
th
O
O
th
er
N
Ja
pa
n
hi
na
C
In
d
146,000 jobs
required over
5 years;
29,000+ per year
ia
0
Flight attendants
Ticket sales
Ground handlers
Managerial
Source: Centre for Asia Pacific Aviation
Australia & New Zealand
7,109 jobs over 5 years
Managerial
987
Ticket sales
938
Maintenance
14.5%
increase in
employees to
2009
1234
Ground handlers
1777
Flight attendants
1685
Pilots
489
0
200
400
600
800
Source: Centre for Asia Pacific Aviation
BTRE Transport
Colloquium ‘05
1000
1200
1400
1600
1800
2000
Surplus pilot supply may
disappear quickly
18,000
16,000
14,000
12,000
10,000
8,000
4,303 commercial pilots (non-airline)
6,000
4,000
6,025 licensed airline pilots
2,000
0
1996
1997
1998
1999
2000
ATPL
Source: CASA Annual Reports
BTRE Transport
Colloquium ‘05
2001
2002
2003
2004
CPL
Also available:
300 ex-Ansett pilots,
200 foreign pilots
Offshore competition for
pilots increasing
Overseas exodus to
high demand centres
Retirement
China
India
SE Asia
Middle
East
BTRE Transport
Colloquium ‘05
Qantas, Virgin,
Air NZ
Aust/NZ Pilot
Pool
Conclusions:
The Challenges Ahead
 Build on industry globalisation,
regional liberalisation
 Accelerate air service deregulation
programme, focus on Asia
 First stop is Singapore “open skies”
agreement; 5th freedom access to
Pacific
 Remove road-blocks to
consolidation (starting with New
Zealand)
BTRE Transport
Colloquium ‘05
Conclusions
 Failure to facilitate capital, alliance
development will impede growth
and may threaten viability
BTRE Transport
Colloquium ‘05
Only the brave.....
BTRE Transport
Colloquium ‘05
Thank You!
BTRE Transport
Colloquium ‘05