strategic transportation & tourism solutions Economic and Industry Update Dr. Michael W Tretheway Chief Economist, InterVISTAS Consulting Group ACI-NA Marketing Conference 7 June 2010
strategictransportation
& tourismsolutions
Economic and Industry UpdateDr. Michael W Tretheway
Chief Economist, InterVISTAS Consulting GroupACI-NA Marketing Conference
7 June 2010
1
InterVISTAS Consulting Group
Washington DC, Vancouver, London, the Hague • 85 employees• 8 offices in US, Canada, Europe, Caribbean• Specialities
• Air Service Development• Forecasting, Economic and regulatory analysis• Privatisation & Finance • Aviation marketing• Security and Borders Facilitation• Climate Change Strategy and inventories
2
Outline
• Industry Developments
• Economic Update
• Fuel Outlook
• Climate Change
strategictransportation
& tourismsolutions
Industry Developments
4
IATA 2010
• Today, changed forecast from loss of $3b to profit of $2.5 billion• N America profit expected to be $1.9 billion
• Better than rest of worlddue to greater capacity cuts
• Pax: +7.1%
• Cargo: +18.5%
5
IATA Projections for 2010
6
IATA Projections & History
7
IATA Premium Passengers
8
Slower Growth?
2010 Hamburg Aviation Conference
• Growth in coming decade likely to be • less than historic
• Less than previously forecast• Climate change
• Recovery of personal liquidity
• Markets maturing
• Perhaps 3.5% vs. 5%
9
Unbundling: credit card fees
• Credit card cost to carriers• Airline Business reports
typical cost of airline accepting credit card is $7-10
• Holdback squeeze• Frontier, Globespan
claims it was a factor in their bankruptcies
• What’s next?• Surcharges for use of card (KLM/AF)• AFOP – Alternative Forms of Payment (10%)
10
Unbundling #2
Ryanair
• 2009: approximately $1b in ancillary revenues
• 20% of total revenues
• And growing !
11
World Aircraft Orders: 1995-2008
0
500
1,000
1,500
2,000
2,500
3,000
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Tota
l Airc
raft
Ord
ers Airbus Boeing
Source: Airbus and Boeing websites
12
World Aircraft Deliveries: 1995-2015
0
200
400
600
800
1,000
1,200
1,400
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Tota
l Airc
raft
Del
iver
ies Airbus Boeing
Source: Airbus and Boeing websitesThe Airline Monitor, Jan/Feb 2009
Projected
13
Aircraft Delivery
• In spite of recession, globally we will see record aircraft deliveries in coming years
• Much of the capacity will be delivered to Asia, Europe, Middle East
• These markets will be hotly contested• Especially Europe-Asia/Australia NZ
• Carriers may see trans-Atlantic/trans-Pacificas attractive opportunities • US carriers do not have major order books
and most on order is replacement
14
IATA’s Agenda for Freedom
• Industry is seeking enabler of deeper alliances / consolidation• “I won’t change my foreign ownership laws
• But I won’t contest yoursand will accept your foreign owned carrier”
• US & EU signed
15
Alliances/Mergers
• UA-CO will be the last airline merger in the U.S.
• Air New Zealand – Virgin Blue will be the last airline alliance in the world
• Reality• We are likely to see a new wave of alliances
• Low cost carrier – Legacy carrier alliances may become a trend
16
LCC/Legacy Alliances
• Proposed Air New Zealand – Virgin/Pacific Blue• DJ new CEO is ex Qantas
• Branding as New World Carrier, not LCC• Is indicating it will pursue greater domestic share
focussing on penetrating business travel
• WestJet – SW alliance never materialised• WJ new CEO is ex Canadian, ex Alaska
• Has invested in CRS/IT to enable alliances
• Is seeking a range of alliance partners• Not seeking to join a global alliance
17
Alliances
Consequences for Airports
• Potential new services• International airline QSI shares may increase
dramatically with a domestic LCC partner
• Potential service rationalisation
• Switch in carriers assigned routes
• Another round of co-location requests
18
Aircraft
• 787 first route announced• Continental: IAH to AKL
a good example of the type of route this aircraft will eventually enable
• First delivery: ANA November 2010
• First flight: March 2011
strategictransportation
& tourismsolutions
Economic Update
20
If there is a recovery, will it be?
• V-shaped• A rapid recovery back to previous level
• Most recessions are V-shaped
• U-shaped• A period of stagnation, with a slow recovery
• L-shaped• An extended period of stagnation
• Japan 1990s. Great Depression
• W-shaped• A V-shaped recovery, followed by another recession
• US, 1970s
Econo-geek Vocabulary
21
US Real GDP- recent
-8
-6
-4
-2
0
2
4
620
07Q
1
Q2
Q3
Q4
2008
Q1
Q2
Q3
Q4
2009
Q1
Q2
Q3
Q4
2010
Q1
Rea
l GD
P G
row
th (%
)
Source: NBER 27May2010
Recession begins
Recession has ended
22
Real GDP Growth – U.S.
-4%
-2%
0%
2%
4%
6%
8%19
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
15
Historical Data Forecast
Data
Sources:
Historical Data: U.S.: U.S. Bureau of Economic AnalysisForecast Data: U.S.: International Monetary Fund
23
Real GDP Growth – U.S.
-4%
-2%
0%
2%
4%
6%
8%19
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
1320
1420
15
Historical Data Forecast
Data
Sources:
Historical Data: U.S.: U.S. Bureau of Economic AnalysisForecast Data: U.S.: International Monetary Fund
Recession
Recession
24
US Real GDP Growth (Quarterly)
0.9%
2.8% 2.9%
-0.2%
-5.7%-6.3%
1.7%
0.4%
-1.5%-0.5%
2.2%
-8%
-6%
-4%
-2%
0%
2%
4%Q
4-20
07
Q1-
2008
Q2-
2008
Q3-
2008
Q4-
2008
Q1-
2009
Q2-
2009
Q3-
2009
Q4-
2009
Q1-
2010
Q2-
2010
Forecast
Sources: Historical – Bureau of Economic Analysis; Forecast – Federal Reserve Second Quarter 2009 Survey of Professional Forecasters (May 15, 2009);
Ann
ualiz
ed Q
/Q G
row
th R
ate
Lehman Brothers Collapse
Mid 2008 GDP growth obscured onset of recession
25
US Real GDP• Most forecasters have V-shaped recovery
• delayed but strong impact of stimulus • Restored liquidity• Return of Money Velocity
• But some risk recovery could be W-shaped• Managing contraction of Fed Assets
• Without 2nd recession• Without inflation
• will be a challenge
26
US Real GDP Growth (Historical)
-4%
-2%
0%
2%
4%
6%
8%
10%19
47
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research
27
US Real GDP Growth (Historical)
-4%
-2%
0%
2%
4%
6%
8%
10%19
47
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research
W WW
28
US Real GDP Growth (Historical)
-4%
-2%
0%
2%
4%
6%
8%
10%19
47
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
Sources: Historical – Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research
W WW V V
29
US Real GDP (Historical)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,00019
46
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
U.S
. Rea
l GD
P (b
illio
ns o
f 20
00 d
olla
rs)
Sources: Historical – Bureau of Economic Analysis;
Recessions are wiggles in a steadily growing economy
30
Real GDP Growth - Canada
-4%
-2%
0%
2%
4%
6%
8%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Historical Data
Forecast Data
Sources:
Historical Data: Canada: Statistics CanadaForecast Data: Canada: International Monetary Fund
Recession
No Recession
31
Canada
• Canada is definitely in a strong V-shaped recovery• Has already started to increase interest rates
• Canada’s banking sector has no bailout costs to recover• Is pushing G-8 to avoid a bank tax
32
Canada Real GDP Growth
1.1%0.3% 0.4%
2.4%
3.5%
4.6%5.0%
4.5%
-0.7%-3.7%
-5.4%
-3.0% -1.0%
-6%
-4%
-2%
0%
2%
4%
6%Q
4-20
07
Q1-
2008
Q2-
2008
Q3-
2008
Q4-
2008
Q1-
2009
Q2-
2009
Q3-
2009
Q4-
2009
H1-
2010
H2-
2010
H1-
2011
H2-
2011
Forecast
Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009
Ann
ualiz
ed Q
/Q G
row
th R
ate
33
Canada Real GDP Growth
1.1%0.3% 0.4%
2.4%
3.5%
4.6%5.0%
4.5%
-0.7%-3.7%
-5.4%
-3.0% -1.0%
-6%
-4%
-2%
0%
2%
4%
6%Q
4-20
07
Q1-
2008
Q2-
2008
Q3-
2008
Q4-
2008
Q1-
2009
Q2-
2009
Q3-
2009
Q4-
2009
H1-
2010
H2-
2010
H1-
2011
H2-
2011
Forecast
Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009
Ann
ualiz
ed Q
/Q G
row
th R
ate
2009: -2.4%
34
Canada Real GDP Growth
1.1%0.3% 0.4%
2.4%
3.5%
4.6%5.0%
4.5%
-0.7%-3.7%
-5.4%
-3.0% -1.0%
-6%
-4%
-2%
0%
2%
4%
6%Q
4-20
07
Q1-
2008
Q2-
2008
Q3-
2008
Q4-
2008
Q1-
2009
Q2-
2009
Q3-
2009
Q4-
2009
H1-
2010
H2-
2010
H1-
2011
H2-
2011
Forecast
Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009
Ann
ualiz
ed Q
/Q G
row
th R
ate
c
2009: -2.4%c
2010 revised: +3.0%
35
Canada Real GDP Growth (Sub-Annual)
1.1%0.3% 0.4%
2.4%
3.5%
4.6%5.0%
4.5%
-0.7%-3.7%
-5.4%
-3.0% -1.0%
-6%
-4%
-2%
0%
2%
4%
6%Q
4-20
07
Q1-
2008
Q2-
2008
Q3-
2008
Q4-
2008
Q1-
2009
Q2-
2009
Q3-
2009
Q4-
2009
H1-
2010
H2-
2010
H1-
2011
H2-
2011
Forecast
Sources: Historical – Statistics Canada; Forecast – Bank of Canada Monetary Policy Report (April 2009. Q3 from 31Aug 2009
Ann
ualiz
ed Q
/Q G
row
th R
ate
c
2009: -2.4%c
2011 revised: +3.3%
c
36
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%19
9719
98
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Historical Data
Forecast Data
Real GDP Growth - Mexico
Sources:
Historical Data: Mexico: International Monetary FundForecast Data: Mexico: International Monetary Fund
2 Recessions
strategictransportation
& tourismsolutions
Fuel Prices
38
Fuel Prices
Crude Oil Spot PricesJanuary 2003 to June 2010
$-
$20
$40
$60
$80
$100
$120
$140
$160
Jan-
03
Mar
-03
May
-03
Jul-0
3
Sep-
03
Nov
-03
Jan-
04
Mar
-04
May
-04
Jul-0
4
Sep-
04
Nov
-04
Jan-
05
Mar
-05
May
-05
Jul-0
5
Sep-
05
Nov
-05
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep-
06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep-
07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep-
08
Nov
-08
Jan-
09
Mar
-09
May
-09
Jul-0
9
Sep-
09
Nov
-09
Jan-
10
Mar
-10
May
-10
U.S
. $ p
er b
arre
l
39
Consensus Economics Oil Price Forecast
$-
$20
$40
$60
$80
$100
$120
2010 2011 2012 2013 2014 2015 2016
US$
Oil Price Forecast
40
Consensus Economics Oil Price Forecast
$-
$20
$40
$60
$80
$100
$120
2010 2011 2012 2013 2014 2015 2016
US$
Oil Price Forecast
•Its not down•Its not back to $145
41
2 Sigma Range of ForecastsForecast 95% ranges
$-
$20
$40
$60
$80
$100
$120
2010 2011 2012 2013 2014 2015 2016
upper 2 sigma
average
low er 2 sigma
42
2 Sigma Range of ForecastsForecast 95% ranges
$-
$20
$40
$60
$80
$100
$120
2010 2011 2012 2013 2014 2015 2016
upper 2 sigma
average
low er 2 sigma
•Everyone seems to agree
43
2 Sigma Range of ForecastsForecast 95% ranges
$-
$20
$40
$60
$80
$100
$120
2010 2011 2012 2013 2014 2015 2016
upper 2 sigma
average
low er 2 sigma
•Everyone seems to agree
Note the scale
44
If History Repeats ….Oil Price with Full Historical Range
$-
$50
$100
$150
$200
$250
$300
2010 2011 2012 2013 2014 2015 2016
Upper range
Base price forecast
Lower range
Note the scale
45
Forecasting Lesson
• Airport forecasting with consensus macro trends• Can conceal what is possible
• Risk based forecasting should be used
Probability Based Forecast: Year 10
0%
2%
4%
6%
8%
10%
12%
14.5
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5
23.0
23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
28.0
28.5
29.0
29.5
Passenger Traffic (Millions)
Prob
abili
ty
Mean Value: 22.3 million passengers
10th Percentile 90th Percentile
Forecast Probability Range
0
5
10
15
20
25
30
35
40
45
50
Year 0 Year 5 Year 10 Year 15 Year 20
Ann
ual P
asse
nger
s (M
illio
ns)
Average
25th / 75th Percentile Range10th / 90th Percentile Range
5th / 95th Percentile Range
46
Oil Price Outlook
• Demand from developing world is increasing• Annually increasing demand by
800,000 barrels per day • 1% of total consumption
• US decrease of past few years was recession related
• Supply issues• Deep water drilling was the hoped offset to potential
decline in production in Middle East
• Greenland deep water (half the size of North Sea)
• But post BP-Gulf, will deep water proceed?
47
Pluggable Revenue Opportunity?
• PHEV (Pluggable hybrid electric vehicle)
• Equivalent to selling a few litres of fuel • Many airports purchase electric power
at favourable rates
• Passengers, rental car outlets, employees
• This is not the same as engine block heaters!
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& tourismsolutions
Climate Change
49
Is Aviation a Culprit or Victim?"Making selfish choices such as flying on
holiday or buying a large car are a symptom of sin.”• "Sin is not just a restricted list of moral mistakes. It is
living a life turned in on itself where people ignore the consequences of their actions."
• Richard ChartresBishop of London
51
Sophisticated Messaging on Roads & Rail Routes to LHR
52
Coming Soon to North America
Climate Change issue is not confined to Europe• North American attitudes are
shifting rapidly
• Aviation will be targeted
53
Government Regulation• It will not take long for the government to step in
and impose changes
• This will most likely come in the form of carbon taxes and/or carbon trading schemes
• Obama administration promising to bring in new regulatory framework on climate change in its top 15 priorities • Waxman-Markey passed House
• Likey final bill will tax energy at source
• Airports need to anticipate and adjust to regulatory changes
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