The global economy is experiencing one of the largest crises since 1929. The airline and leisure industries have been significantly impacted by the downturn as well as rising oil prices and airport charges. While the long term outlook remains positive, many airlines have failed and the industry saw large losses in 2008-2009. Low cost carriers have proven more resistant to the downturn. There are signs of potential recovery in 2010, but still much uncertainty, and travel behaviors may be altered by the crisis. Ancillary revenues and further cost optimization will be important to overcoming the challenges.
Falcon Invoice Discounting: Empowering Your Business Growth
Presentation IACA Agm Dec 2 2009
1. DRAFT
“Setting the scene : the current crisis and beyond…”
A.T. Kearney introduction
December 2nd, 2009
Hugo Azerad
Principal, A.T. Kearney Paris
2. Setting the scene…
Rebound
Conjuncture
Global Economic Environment
Aviation Industry Leisure Industry
A.T. Kearney 18/IACA 2009 2
3. Global economy is witnessing one of the largest crises
since 1929
GDP Growth in 2009
EU
Russia
Japan
USA
France
China
Qatar
Brazil
India
Evolution of unemployment Evolution of stock performance
Unemployment rate, in % of total labor force, 2000-2009 Dow Jones, Euro Stoxx 50, by month, 2002-2009, index 100
12 % 160
France 140
10 %
US 120 Dow
8%
100
Jones
Germany
6% 80 Euro
Japan Stoxx 50
4% 60
40
2%
20
0% 0
2004 2005 2006 2007 2008 2009 Jan. 02 Jan. 04 Jan. 06 Jan. 08 Jan. 10
Sources: Press search, IMF, financial reports, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 3
4. For the airline industry, this is coupled with a dramatic
recent surge in oil prices and airport / route charges
Evolution of Jet fuel prices Costs per passenger
In $/bbl, 2000-2009 In $/passenger, 2003-2007
130
Fuel as a % of total costs Landing and airport charges/pax
120 On average; 2003; 2009 8,8
Route charges/pax 8,6
31,7 %
110
Flag Carriers 7,6 7,7 7,6
100 23,3 % Low Cost Carriers
18,2 %
90
80 10,7 %
5,4
70 4,9 5,0
4,7
4,5
60
2003 2009
50
40
30
20
Start of the
10 2008 crisis
0
Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Oct 09 2003 2004 2005 2006 2007
Sources: AEA, IATA, ICAO, broker reports, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 4
5. The resulting deterioration in global travel demand has led
to airline carriers reducing capacity and cutting fares
Global capacity and passenger Economy fares on international markets
revenues evolution In % change over year, from September 2007 to March
Growth in scheduled ASK and in Passenger RPKs, in 2009
% change over year
15 % 15 %
ASKs Economy fares
RPKs
10 % 10 %
% change over year
5% 5%
0% 0%
-5% -5%
- 10 % - 10 %
- 15 % Jul Oct Jan Apr Jul Oct Jan Apr Jul - 15 % Jul Oct Jan Mar
07 07 08 08 08 08 09 09 09 08 08 09 09
Sources: IATA, SRS Analyser, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 5
6. However, there are good long term prospects for the airline
industry players...
Worldwide passenger long term traffic Worldwide air traffic development after
evolution cyclic peaks
World annual traffic, in trillions RPKs(1) In billion PKT
Oil Oil Gulf Asian WTC
SARS Financial
Crisis Crisis Crisis Crisis Attack crisis
4,5 6000 4.7% pa
2000 trend
4,0
5000
3,5 2008 peak 4.8% pa
IATA Forecast 1999 trend
3,0 4000
5.4% pa
2,5 2000 peak
1980 trend
3000
2,0
9.7% pa
1990 peak
1,5 2000 1970 trend
1,0 1979 peak
1000
0,5
3 years of
low growth
0,0 0
1972 1977 1982 1987 1992 1997 2003 -5 y -4 y -3 y -2 y -1 yCycle+1 y+2 y +3 y +4 y +5 y +6 y +7 y +8 y +9y
2009 peak
Note: RPKs = Revenue passengers kilometres = number of passengers x route length
Sources: Airbus, IATA, LH, AT Kearney analysis A.T. Kearney 18/IACA 2009 6
7. … that will have the financial stability to overcome the
crisis
Overview of airline failures since 2008 Evolution of global airlines
profitability
Non exhaustive Operating Profit in bn$, 2000-2009
19,7
15,0
10,7
4,3
3,3
-1,4
-3,8 -3,9
-4,8
-11,8
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Sources: IATA reports September 2009 , press search, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 7
8. Low Cost Carriers have proven to be more resistant to the
global downturn
Evolution of number of passengers
(% change vs. same period in 2008)
Jun Jul Aug Sep Jun 0,3 % 0,4 % Sep Jun Jul Aug Sep
Jul Aug
-1,2 %
-2,0 % -1,7 % -1,7 %
-3,8 %
-4,5 % -4,9 %
-5,5 %
-5,3 %
-7,0 % 6,23 m 5,07 m 2,9 m
15,8 % 15,9 %
14,4 %
5,3 %
4,3 % 4,7 % 11,4 %
0,8 %
Jun Jul Aug Sep Jun Jul Aug Sep
4,42 m 6,11 m
Leisure /
Business / Economy
Premium
Sources: Press researchn Company data, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 8
9. In prosperous times, Travel & Tourism demand has been
outperforming global growth indicators
Compared evolution of GDP and Travel & Tourism Demand(1)
Growth in %;1989-2012f; in the European Union
WTC Global Financial
SARS
Attack Crisis
8%
7%
6% Travel & Tourism
demand
5%
4%
3% ?
2%
GDP
1%
0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
- 1%
- 2%
- 3%
- 4%
- 5%
Note ; (1)Travel & Tourism demand encompasses all components of Travel & Tourism consumption, investment, government spending and exports
Sources: World Travel & Tourism Council, Oxford economics, EIU, Eurostat, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 9
10. There is furthermore a strong unveiled potential and good
long term prospects for global travel & tourism
Trips and real GDP per Capita Outbound travel expenditure
In number of trips, in US$ per Capita, 2008 per capita
Trips per Capita In % of GDP per capita, 2008
Switzerland 6%
Ireland 5%
Estonia 5%
UK 4%
Austria 4%
Denmark 4%
Netherlands 4%
Finland 3%
Belgium 3%
Portugal 3%
Germany 3%
Czech Republic 3%
Poland 3%
Hungary 2%
Norway 2%
Spain 2%
France 2%
Italy 1%
2008 Real GDP per Capita
Sources: Airbus, IATA, PaxIS, Global Insight, European Travel Monitor, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 10
11. Travel & tourism will however have to take into account the
crisis-driven evolution of customers’ behavior
Holiday organization Holiday makers selecting Savings on
In % of respondents; Germany; lower-price destinations holiday budget
2006-2009 In % of respondents; Germany; In % of respondents; Europe;
2008
38%
Partial Timing of
10% 11% holidays 29%
Booking 14% 14%
Complete 35%
32% 31% Destination 26%
Package 30% 30%
Accommodation 19%
32%
Self Timing of 15%
58% 57% 58% 55% booking
Organised
Type of
transportation 10%
2006 2007 2008 2009 2006 2008 2009
Sources: World Travel Trends Report, European Travel Monitor, Reisemonitor 2009, ADAC, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 11
12. To overcome the crisis there is still potential to develop
revenues with ancillary services…
Ancillary revenues for Airline Carriers ILLUSTRATIVE
In % of total revenues, 2008
Spice Jet Checking Facility /
Air Arabia Luggage
Frontier
Air Berlin
Spanair
Norwegian
LCC LTU
On-board Duty Free
West Jet Shopping
Air Asia On-board Duty free
Sky
Air Deccan
Allegiant
Vueling
Easyjet On-board Food
Ryanair
SAS
Emirates
Alitalia
Legacy Korean
Austrian In-flight
Entertainment
United
Aer Lingus
Alaska
0% 5% 10 % 15 % 20 %
Sources: Air Transport World, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 12
13. … and there is urgency to get to the next level in cost
structure optimization
Airlines cost structure optimization levers A.T. Kearney value proposition for
overcoming the crisis
Global Cost Benchmark for Airlines
optimization
Purchasing
Catering Insource/ Consolidate
outsource suppliers /
Increasing ease of optimization implementation
Handling Service level renegotiate
GCB
Redesign
Maintenance
Best practices implementation
processes
Performance management Joint
Crews Labor costs/ improvement
team structure process Global Cost Benchmarking
Fleet rent Benefit
sharing…
Route Route
charges optimization
Purchasing Chess Board ®
Airport Airport
management
charges
Fuel Hedging
Airline Cost structure
Source: A.T. Kearney analysis A.T. Kearney 18/IACA 2009 13
14. There are some macroeconomic signs of a potential
recovery in 2010, but still much uncertainty…
Industrial and Services Tourism confidence index Recovery scenarios
confidence indicators Tourism panel experts, 2008-2009
Return to Normalcy (U)
25
45%
20
15 66%
Worse
10 62%
5
42%
0
September
-5 2009
27%
or ...
- 10
- 15 9%
Better Global Downturn (W)
- 20 10%
- 25 Industrial Confidence
28%
Services Confidence
- 30
- 35 Start of the Sep 08- Dec 08
2008 crisis
- 40 Jan 09- Apr 09
May 09 - Aug 09
2006 2007 2008 2009
Sep 09 - Dec 09
Sources: European Commission surveys, Eurostat, WTO barometer, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 14