Transcript Global Airline Industry Update - New Jersey Business Travel

Global Airline Industry Update
Ed McKenna
Director, Ultramar Strategic Solutions
November 19th, 2015
NJBTA Education Day: Agenda
Introduction
GDP Growth
1H15 Global Commercial Aviation Results
Regional Updates
 Europe / Middle East
 Asia
 Latin America
 North America
2016 Buyer’s Landscape
Q&A
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Introduction
35+ years in strategic roles in the travel industry, both
on the travel agency and corporate sides

20 years travel agency experience in:
 Technology
 Reporting
 Operations

15 years corporate experience in:
 Travel Program Management
 Procurement (Regionally & Globally)
Joined Ultramar Strategic Solutions in September, 2015
as Director of Strategic Solutions
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Global Airline Industry Overview: GDP Growth
Region
2014
2015
2016
United States
2.4
2.7
2.8
Latin America
0.9
0.4
2.0
Brazil
0.1
-1.3
1.1
United Kingdom
2.8
2.6
2.6
Germany
1.4
1.5
1.6
Japan
0.0
1.1
1.7
China
7.4
7.1
7.0
Australia
2.2
2.4
2.9
India
7.3
7.5
7.9
Africa (Sub-Sahara)
4.6
4.2
4.6
Worldwide
2.6
2.8
3.3
Gross Domestic Product (GDP)
Primary indicator used to gauge the
health of a country’s economy
Consists of 4 components:




Investment
Net Exports
Government Expenditure
Personal Consumption Expenditures
Source: World Bank (November 2015)
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1H15 Global Commercial Aviation Results
Financial Results - 1H15
Carrier
Revenues
Why are the Financial Results so good?
Profits
American Airlines
$20,700M
$3,100M
Delta Airlines
$18,600M
$2,200M
United Air Lines
$18,500M
$1,900M
Air France / KLM
$13,161M
$1,127M
Lufthansa Group
$16,441M
$1,021M
Japan Air Lines*
$5,588M
$996M
Emirates **
$13,150M
$600M
IAG / British Airways
$11,088M
$594M
Singapore Airlines*
$5,137M
$256M
Cathay Pacific
$6,500M
$254M
* Results based on April 1, 2015 – September 30, 2015 time frame
** Based on April 1, 2014 – March 31, 2015 and normalized
All Oil and Ancillary Fee related?
–
Airline Spend  $823B (1% of Global GDP)
–
Fuel represents 30% of total costs ($1 flux in barrel of oil
generates $100M in incremental cost/savings)
–
Carriers will spend $70B less in fuel in 2015 vs 2014 (-33%)
–
2014 ancillary fees generate $39B incremental revenue (+17%)
Are Customers Benefitting from the Newly Found Fortunes?
–
New aircraft (1,700 to be delivered in 2015 alone)
–
Lower Air fares
–
Enhanced premium product offerings
–
Amenities (On Board & Lounges)
–
Carriers introducing more non-stop to secondary markets
Today’s Airlines are Profit Driven
–
Minimal government assistance
–
Cost structure is based on $100 oil (per barrel)
–
Becoming very lean & efficient thru intense competition
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Europe / Middle East Outlook
Aer Lingus part of IAG (British Airways, Iberia)
Ultra Low Cost Carriers (ULCCs) impact:
 Norwegian Airlines challenging British Airways in London
 Ryan Air & EasyJet establishing corporate type programs
Capacity Expansion
 Aggressive capacity expansion from Middle Eastern carriers
 Significant expansion on the North Atlantic from both legacy-network carriers
(BA & LH), as well as ULCC such as Norwegian
Uneasy political situation, especially in Southern Europe / Middle East
Labor issues, most notably at Air France and Lufthansa German Airlines
Currency fluctuations impacting earnings
 Strong US Dollar and GB Pound Sterling
 Weaker Euro
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Asia Outlook
Cathay Pacific aggressively adding new cities in Europe & North America
Korean Air facing intense LCC competition and pressure from Chinese carriers
Singapore Airlines experiencing sluggish growth, profits and yield
 Emphasis on Scoot Airlines expansion (Singapore’s LCC)
Japan Airlines predicting strong growth
 Strengthening its oneWorld relationship with new DFW to Tokyo service
Qantas restructuring has produced record breaking earnings
 JetStar expansion into Asia
Slower economic growth in China will impact long-term growth
 China has experienced blistering economic growth for many years
Expansion of non-stop service from secondary cities in China to Europe & North
America
 United added San Francisco to Chengdu and will add Xi’an in 2016
 Xiamen and China Southern Airlines keen to expand
 787-8 Dreamliner
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Latin America Outlook
Uneven Regional Economic Performance
 Brazil’s economy still in the doldrums
 Brazilian carriers are cutting domestic Brazil capacity significantly
 Olympic Games in Rio should provide additional relief
 Continued turmoil in Venezuela
 Currency devaluations in Brazil & Colombia leading to double-digit inflation
 Commodity prices has fallen significantly
United Airlines 5% stake in Azul SA
 United looking to strengthen its footprint, especially in Brazil
 Similar strategy to Delta’s relationship with GOL
Aeromexico / Delta Joint Venture
 Increase flight options with both carriers in the US and Mexico
 Strengthens Aeromexico position in the face of LCC competitors (InterJet & Volaris)
Increased non-stop service to US and Europe
 LATAM building up Sao Paolo service to Europe in response to their move to oneworld
 Azul added non-stop flights from Sao Paolo to Orlando and Fort Lauderdale
 Evaluating Sao Paolo service to/from New York/JFK in 2016
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North America Outlook
Day of
Week
Analysis
NYC
to Hong
Travel
Moderate
economic
growth for
expected
to continue
in 2016 Kong
& 2017
American / US Airways merger complete
Continued Consolidation at Hub airports
 United transfer of JFK / West Coast service to Newark
Capacity Expansion
 Addition of new flights, especially over the North Atlantic and Pacific
 Upgauging of equipment
Enhanced Product Offerings
 NYC/Boston to West Coast
 Expansion of JetBlue’s Mint service
Air Canada: Strong International Growth
 Targeting US travelers with connections in Toronto
 PRASM and load factors in Western Canada are down significantly due to oil crash
Ultra LCC Impact
 Frontier, Sprit and Allegiant establishing routes in Chicago and Seattle
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2016 Buyer’s Landscape
Geopolitical Events
 The Great Unknown
What is Old is New Again!
 Revenue-based performance contracts with certain carriers
 Carriers want more “premium” business
Market Share Performance Remains Important
 Ability to move international travel will impact positively domestic discount structure
JV/JB Corporate Deals Now the Norm
 Single carrier & world-wide alliance programs are a thing of the past
Increased Capacity = Opportunity?
 After years capacity discipline, carriers are adding more flights/seats
 North Atlantic, in particular, becoming hyper-competitive
Ultra Low Cost Carriers (LCCs)
 Expanding into new markets like Chicago & Seattle
 Limited ability to leverage expanded ULCC networks with legacy carriers
 Benefit of lower published pricing to be competitive
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Take the Pulse & Determine Scope
Whether utilizing 3rd party consulting services or doing internally, the first steps of any airline sourcing initiative
include determining the company mindset/culture, data collection and scope of work
Before taking action, take the “Pulse”
 What’s the appetite for change?
 What’s the traveler’s satisfaction threshold?
Understanding your Top Markets
 Where are the opportunities within these top markets?
 What international markets can I shift to obtain stronger domestic discounts?
Past and Present will dictate the Future
Can I “turbo source” or is a formal sourcing initiative more appropriate?
Do I need 3rd party consultants to assist me?
Is my sourcing initiative a North American / US only exercise or is my company looking
for additional points-of-sale pricing?
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What to Expect When Negotiating
What do airlines look for from buyers?



Above and beyond FMS/QSI
Premium Spend and Segments
Commitments to not “Overcommit”
Which agreement(s) do I choose?



Hard Savings vs. Cost Avoidance
Route Coverage or Spend Coverage
Carrier Friction
What is FMS/QSI?
Fare Market Share (FMS) or Quality Service Index (QSI)
is a measurement frequently used by carriers which
represents a carrier’s “expected” (given no
corporate agreements exist) market share in an
individual market or combined set of markets.
Many factors are considered in determining these
numbers, including, but not limited to:
1.
2.
3.
4.
Non-stop versus connections
Frequencies offered
Total number of seats available
Departure / arrival times and the appeal to the
traveler
5. Equipment utilized
6. Airline hubs
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Post-Implementation Management
On your Market, Get Set …. and GO
Internal Marketing
Status Matching
Performance
Content Customization … Don’t be afraid
Always Remember … Nothing is Permanent
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Q&A
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Thank You!
Ed McKenna
Director, UTM Strategic Solutions
[email protected]
212-856-5635
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