Asia Pacific Aviation

EMBRACING FUTURE CHALLENGES

Andrew Herdman

Director General

Association of Asia Pacific Airlines

Overview• Asia Pacific aviation

• Industry trends & outlook

• Evolving business strategies

• Global regulatory challenges

• Future growth

Aviation: delivering global mobility

• Safely connecting people and business

• Wider social and economic benefits

• Outstanding safety record

• Committed to sustainable growth

Source: IATA WATS 2018E, ATAG Aviation Benefits Beyond Borders 2018

35%by value of

global trade

Goods worth

US$6 trillion

4.4 billionpassengers

12 million daily

Asia Pacific

Source: IMF WEO October 2018, ATAG Aviation Benefits Beyond Borders 2018

• Diverse geographic region

• Home to more than 4 billion people

• Dynamic economies generate 34% of global GDP

• Aviation widely recognised as a key contributor

to economic and social development

- Supports 30 million jobs and US$684 billion in GDP

• Wide range of income levels, rapidly growing

middle class

Source: Airbus GMF 2018 - 2037

Households with yearly income between $20,000 and $150,000 at PPP in constant 2017 prices

Growth of Asian middle class consumers

47%

52%

56%

0

1,000

2,000

3,000

4,000

5,000

6,000

2017 2027 2037

CIS

Latin America

Africa

Middle East

North America

Europe

Asia Pacific

Rising demand for goods & services including air travel

Asia Pacific Aviation

Source: Combined AAPA + non-AAPA airlines GMT+5 to GMT+12

US$186 billion revenue

US$9 billion net profit

1,486 million passengers

1,055 million domestic

431 million international

22 million tonnes of cargo

7,997 aircraft

Asia Pacific carriers overall market share:

34% of global passenger traffic

36% of global cargo traffic

2017 Data - Traffic: IATA World Air Transport Statistics, Financials: AAPA Estimates

World’s ten busiest domestic routesKareen

Source: IATA WATS 2018, 2017 data

Rank Route PAX (million)

1 Jeju – Seoul 13.5

2 Melbourne – Sydney 7.8

3 Fukuoka – Tokyo 7.6

4 Sapporo – Tokyo 7.4

5 Beijing – Shanghai 6.4

6 Hanoi – Ho Chi Minh City 6.4

7 Delhi – Mumbai 5.6

8 Tokyo – Okinawa 4.8

9 Jeddah – Riyadh 4.8

10 Beijing - Chengdu 4.6

almost all in Asia Pacific

World’s ten busiest international / regional routes

Rank Route PAX (million)

1 Hong Kong - Taipei 5.4

2 Dublin – London 3.4

3 Jakarta – Singapore 3.3

4 Bangkok – Hong Kong 3.1

5 Kuala Lumpur – Singapore 2.8

6 Hong Kong – Seoul 2.7

7 London – New York 2.7

8 Osaka – Taipei 2.6

9 Bangkok – Singapore 2.5

10 Tokyo – Taipei 2.5

Source: IATA WATS 2018, 2017 data

almost all in Asia Pacific

Industry Outlook

-4

-2

0

2

4

6

8

101

98

0

198

1

198

2

198

3

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8E

201

9F

Emerging &

Developing

economies

World

Advanced

economies

GDP Growth

% change

Global economic trends

2016 2017 2018E 2019F

+3.3% +3.7% +3.7% +3.7%

Policy uncertainty including trade frictions may

undermine confidence

World GDP Growth

Source: IMF WEO October 2018

Global passenger and cargo traffic

RPKs FTKs

Robust growth in air passenger markets

Trend rate +6.9% p.a.

Firm air cargo markets

Trend rate +5.1% p.a.

Source: IATA

0

20

40

60

80

100

120

140

160

180

200

Jan

-08

Ma

y-0

8

Sep

-08

Jan

-09

Ma

y-0

9

Sep

-09

Jan

-10

Ma

y-1

0

Sep

-10

Jan

-11

Ma

y-1

1

Sep

-11

Jan

-12

Ma

y-1

2

Sep

-12

Jan

-13

Ma

y-1

3

Sep

-13

Jan

-14

Ma

y-1

4

Sep

-14

Jan

-15

Ma

y-1

5

Sep

-15

Jan

-16

Ma

y-1

6

Sep

-16

Jan

-17

Ma

y-1

7

Sep

-17

Jan

-18

Ma

y-1

8

Sep

-18

US

$ p

er

ba

rre

l

Crude oil price (Brent)Jet fuel price

Oil prices rising again

Source: US Energy Information Administration

Airfares follow changes in oil prices

Source : IATA Industry Forecast June 2018

Average airfare

Average jet fuel price

• Airfares remain highly competitive

• Margins under pressure

-40

-30

-20

-10

0

10

20

30

40

50

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E

US$ billion

North America Europe Asia Pacific Middle East Latin America Africa

5.0

14.717.3

-26.1

-4.6

8.3 9.2 10.713.8

36.034.2

38.033.8

Global airline profitability trends

Source: IATA

Global net profit

• Strong passenger and air cargo markets

• Profit margin still just 4%

Revenue & Profit per Passenger

Profit per Passenger below US$10 even in good yearsSource: IATA

Evolving Business Strategies

Airline business model share by region

RP

Ks, B

illi

on

Source: IATA WATS 2018, 2017 data

81%

63% 75%

94%

72%91%

19%

26% 24%

6%

28%

9%

11%

1%

-

500

1,000

1,500

2,000

2,500

3,000

Asia Pacific Europe North America Middle East Latin America Africa

Full Service Low Cost Leisure

Global Full Service Low Cost

Market Share 76% 21%

Growth +6.5% +13.6%

Digitising the passenger experience

• Evolving consumer expectations

• Smartphone for everything

• Streamlining customer processes

• Online research + booking + ancillaries + payment

+ digital token

• Self-service check-in + bag drop + boarding

• Biometric identity checks

• Flight updates & baggage tracking

• Automated service recovery

Challenge of harnessing new technologies to

deliver a better passenger experience

Global Regulatory Challenges

Global regulatory influences

Asia

Pacific

• Wider impact of US and EU regulations

• Asia Pacific needs a unified voice

• Need for harmonised global standards

Global regulatory challenges

Aviation is subject to intensive regulation

• Safety

• Security

• Sustainability

• Passenger Facilitation

• Consumer Protection

• Taxes & Charges

• Infrastructure

Ben

Aviation Safety Performance

Outstanding safety record built on focus,

commitment and cooperationSource: AAPA

*Data as of 10 October 2018

1 major accident in 2

million flights

1 major accident in 3

million flights

1 major accident in 4

million flights

1 major accident in 5

million flights

Western-built Jet Aircraft Major Accident Rates by Operator Region 2008-2018

3-year moving averages

Aviation Security

• Aviation remains highly secure despite perceived risks

• Threats and challenges evolving: no room for complacency

• Good security about comprehensive threat assessment and

balanced risk management, not the elimination of every

conceivable risk

• Shared global concern requires close international

coordination built on trusted relationships

• Mitigation measures need to be proportionate, focus on the

probable threat, avoid unnecessary disruption

• Approach to security can learn from safety management

Cybersecurity

• Universal dependence on information technology

• Growing connectivity and digitisation bring increased

challenges and vulnerabilities

• Cyber threats constantly evolving

• Criminals as well as State actors

• New regulatory initiatives

• Focus on ecosystem and resilience

Requires trust and cooperative efforts

Aviation & Sustainable development

Aviation continues to deliver on its commitments

• Aviation pursuing ambitious strategy:

- Fuel efficiency + Operational enhancements + Infrastructure improvements

+ Sustainable alternative fuels + Carbon offsets

- Carbon Neutral Growth from 2020

- A 50% reduction in net aviation CO2 emissions by 2050, relative to 2005

levels

• Aviation is the first industry sector to commit to CO2 reductions

using a global market based measure

• ICAO CORSIA

- Emissions reporting for all operators - 2019

- Carbon offsetting obligations - 2021 onwards

• Risk of duplicative measures undermining support

Passenger Facilitation

Need for closer collaboration to improve passenger

facilitation whilst enhancing border security

• Challenges of processing 12 million daily passengers

• Harness technologies to streamline airline, security &

border control processes

• Lack of data exchange standards and concerns over

privacy issues

• Proliferation of complex and inconsistent passenger

rights regulations confuse travellers

• Mass disruption events require close cooperation of

multiple stakeholders

Taxes & ChargesBen

• Opportunistic taxes hurt economic

development & impede job creation

• User charges must be transparent, cost-

related, non-discriminatory & for current use

• Economic regulation of monopoly service

providers required

Aviation is a catalyst for economic growth,

job creation & social development

Future Growth

Global Aviation - Future growth

Source: Boeing CMO 2018-2037

*Does not include travel within China

2017 traffic Added traffic 2018-2037 Annual growth %

Global aviation - future aircraft orders

Source: Boeing CMO 2018-2037

• Asia Pacific to account for 40% of new aircraft deliveries

• Corresponding infrastructure & manpower requirements

New airplane deliveries by region

Aviation – manpower development challenge

• Need to attract, train and develop skilled

manpower to meet future growth

• ICAO Next Generation of Aviation

Professionals (NGAP) programme

• Government policy on education and

training

• Private sector partnerships

• Commitment to workforce diversity and

gender equality

Source: Boeing Pilot and Technician Outlook 2018 - 2037

Asia Pacific839,00035%

North America569,00023%

Europe465,000 19%

Latin America165,000 7%

Middle East227,000 9%

Africa86,0004%

Russia / Central Asia83,000 3%

Demand for Pilots, Technicians & Cabin Crew

2018 - 2037

Infrastructure

• Airport Capacity

- Long-term planning to meet projected growth

- Capital investments required but need cost vigilance

- Slot management only an interim measure

• Various forms of public and private sector involvement

• Economic regulation & oversight

- Balancing interests of airlines, airports and travelling public

Governments have a responsibility to coordinate

infrastructure planning and regulatory oversight

• Aviation a key driver of global economic and social

development

• Infrastructure planning is now critical

• Airline strategies evolving in response to changing

market dynamics and consumer preferences

• Regulatory oversight should focus on maintaining

consistent global standards on safety, security and

ensuring a competitive business landscape

Closing thoughts

Asia Pacific airlines at the forefront of global air

transport development