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Winnipeg

Peter Harbison, CAPA – Centre for Aviation

Canada Aviation Summit, Winnipeg, Sep-2019


(because demand is softening)

Oil: the good news and the bad news

• The good news - prices are trending down

• The bad news - prices are trending down

Source: https://markets.businessinsider.com/commodities/oil-price?type=wti

Oil prices are close to their 10 year average levels


Air freight continues to decline

Historically a useful forward indicator, air freight has been in decline since 2018

• “Industry-wide freight tonne kilometres (FTKs) declined by 3.2% year-on-year in July reflecting the widespread softness in world trade and a number of economic indicators.

• “The weakness in air freight volumes remains broad-based across regions in July”

IATA Economics 5-Sep-2019


FTK Growth by regionJul vs Jun-2019


“Canadian consumer confidence posts biggest dive this year”

Canadian consumer sentiment recorded its biggest monthly setback this year in August, amid growing concerns about the global economic outlook, polling suggests.The Bloomberg Nanos Canadian Confidence Index -- a composite indicator derived from phone surveys of households -- ended the month at 56.4, down from 58.6 at the end of July. The drop reflects waning optimism about Canada's economy, and effectively reverses the pick up in sentiment earlier this summer. It marks the first drop in the index of more than 2 points since November 2018.The deterioration coincides with the escalation of the U.S.-China trade war that is fuelingconcerns about a sharp global slowdown, with many Canadians increasingly worried they'll soon feel a bigger impact. Bloomberg, 3-Sep-2019

https://www.sfgate.com/business/article/Canadian-consumer-confidence-posts-biggest-dive-14409265.php


A challenging outlook

• Conflicting signals and trade disruption• Slowing economies are already affecting airline demand• Airlines need to review strategies – but travellers are going to

want cheaper fares

https://www.sfgate.com/business/article/Canadian-consumer-confidence-posts-biggest-dive-14409265.php


China domestic growth the lowest in a decade• Domestically

Internationally


Although China international capacity is up, as new entrants emerge


The Canada market


Winnipeg James Armstrong Richardson International Airport

• Winnipeg Airport has enjoyed solid passenger growth during the past three years• ULCC entry has benefitted Winnipeg passengers• Trends remain favourable for continued passenger growth, but domestic under some

pressure thanks to a slowing economy and the impact of the MAX grounding• Winnipeg is a significant freight hub (193,000 tonnes in 2018)

Source: CAPA – Centre for Aviation; OAG


Canada domestic capacity is down y-o-y

The summer 2018 base growth was very strong, but 4Q2019 is looking slim

Source: CAPA - Centre for Aviation; OAG


Canada int’l capacity is also tracking down

Summer 2018 growth was very strong



Canada’s international aviation and trade focus remains eastward (and US) looking

• The big growth markets are to the west• There is generally a close nexus between aviation and trade flows• But serving N Asia is complex and competitive• SE Asia and S Asia are even harder


Europe, a highly seasonal market, dominated by Star+

Peak capacity is twice the trough level

With a combined 69%Air Canada (41%), Air Transat (22%), and Lufthansa (6%), dominate the market in Sep-2019

In the troughs, AC’s share increases to over 50%

Source: CAPA - Centre for Aviation


Air Canada’s Europe (UK) focus10 AM London time

Both end to end and partner-connecting operations

Source: CAPA - Centre for Aviation and Planefinder


WestJet – Europe focus10 AM London time

WestJet has a much smaller market share

Source: CAPA - Centre for Aviation and Planefinder


No growth in the booming N Asian market

Canada-NE Asia capacity, 2017-2020

But with Asia becoming the future must-go market, this can only be a holding pattern



…or Japan

Canada-Japan capacity, 2017-2020

Declining, despite Japan’s recent international growth



Canada-China: no growth


In the capacity-capped market, Air Canada has approx. one-third market share



No growth in China (2)


It did grow – until the cap was reached



Australia/Canada-China: a contrast

Canada-China capacity, 2013-2020


Australia-China capacity, 2013-2020


Australia-China: Open skies

Approx. twice as many seats as Canada, with lost inbound tourism value:

Canada’s capacity cap prevents expansion in the peaks


USD2.5bn p/a


Canadian flag carriers have one of the highest int’l market shares

Air Canada, WestJet and Air Transat have acombined 58% seat share in international markets


International fares to/from Canada are typically 1/3 to 1/2 more expensive than to/from US (and those aren’t low by international standards)

This comes with a price


Benefits of a bit of competition: YYZ-LON

Source: CAPA - Centre for Aviation and Skyscanner3-Sep-2019


Benefits of a bit of competition: NYC-LON



Benefits of a bit of competition: YYZ-LON J class



Benefits of a bit of competition: NYC-LON J class



Benefits of a bit of competition: SYD-LAX



Benefits of a bit of competition: SYD-YVR



ULCCs in the Canada market• A breathing space – can they flourish?


1. Remove China caps in peak periods2. Establish a different bilateral access policy for

Asia/Western Canada, to accommodate future growth

International policy: Why not -

3. Establish unilateral open skies to regional cities:• Minimal impact on services to major Canadian cities

(many others transfer over US cities)• Stimulates regional development


The 737 MAX and the Airbus neos/LR

They will have a major impact on network planning for flights up to 8-9 hours


A tale of two aircraft

The 737 MAX• Grounding major impact in Canada in the short term, notably

for Air Canada

• Unlikely to fly before 1Q2020


MAX not back until 2020?

Despite Boeing’s continued optimism, there is broad scepticism that the aircraft will be flying this year

“New Delays Could Keep Boeing 737 MAX Grounded Into Holiday Travel Season“In Europe, some industry officials say they are increasingly convinced the bulk of the planes on that side of the Atlantic aren’t likely to resume carrying passengers until January at the earliest. European regulators have signaled they might need the extra time to examine anticipated changes to the MAX’s flight-control computers and the automated stall-prevention system dubbed MCAS. Misfires in MCAS led to the crashes of two MAX aircraft in less than five months that took a total of 346 lives and prompted a global grounding in mid-March.” “…carriers such as Southwest Airlines Co. and Air Canada have opted not to schedule any flights on the MAX until next year, when they feel more confident regulators will have signed off and the necessary training and maintenance will be complete. It could take upward of six weeks to train crews on new software and procedures and perform checks and maintenance on planes that have been parked since March, a Southwest executive said last week.”Wall St Journal, 1-Sep-2019

https://www.wsj.com/articles/the-four-second-catastrophe-how-boeing-doomed-the-737-max-11565966629?mod=searchresults&page=1&pos=2&mod=article_inline

https://quotes.wsj.com/LUV

https://quotes.wsj.com/CA/XTSE/AC


Air Canada fleet

Absence of the MAXs has reduced capacity in the domestic market

But it has also given some oxygen to the new ULCCs

Source: CAPA Fleet Database


Westjet fleet MAX impact

WestJet has also suffered



A tale of two aircraft

The Airbus neos/XLR• A game changing leader in medium to long haul• (Followed soon by the MAXs)• The potential for connectivity between smaller cities

in N America is exponential


A narrowbodyinternational future

In Jun-2109, Airbus launched its new A321XLR

Along with the 737MAXs, these narrow bodies will reshape airline route networks over the next decade

• 8,700km with 200 seats• SEL-YVR is 8,150• YWG-LON is 6300km

These extra long haul narrowbodies can connect YWG with Warsaw and beyond


Future international growth in Asia

Vietjet has 300 aircraft on order which are capable of connecting virtually any two points in Asia



The Takeaway

• Markets are slowing, with indicators pointing down• Canada’s focus remains eastward-looking, while the big

growth is in Asia – a market very hard to serve• Aviation policy refinement is necessary, as the present

one is costly and is not forward looking• The new gen narrowbody long haul aircraft will open up

multiple markets for smaller destinations


Thankyou and enjoy the conference!

d1 0925 peter harbison share - centre for aviation · peter harbison, capa –centre for aviation...

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