Economic and Industry Update

Transcription

1 strategic transportation & tourism solutions Economic and Industry Update Dr. Michael W Tretheway Chief Economist, InterVISTAS Consulting Group ACI-NA Marketing Conference 7 June 2010

2 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 1

3 Outline Industry Developments Economic Update Fuel Outlook Climate Change 2

4 strategic transportation & tourism solutions Industry Developments

5 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 world due to greater capacity cuts Pax: +7.1% Cargo: +18.5% 4

6 IATA Projections for

7 IATA Projections & History 6

8 IATA Premium Passengers 7

9 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% 8

10 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%) 9

11 Unbundling #2 Ryanair 2009: approximately $1b in ancillary revenues 20% of total revenues And growing! 10

12 World Aircraft Orders: ,000 Airbus Boeing 2,500 2,000 1,500 1, Total Aircraft Orders Source: Airbus and Boeing websites

13 World Aircraft Deliveries: ,400 Airbus Boeing 1,200 1, Projected Total Aircraft Deliveries Source: Airbus and Boeing websites The Airline Monitor, Jan/Feb 2009

14 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-pacific as attractive opportunities US carriers do not have major order books and most on order is replacement 13

15 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 yours and will accept your foreign owned carrier US & EU signed 14

16 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 15

17 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 16

18 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 17

19 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

20 strategic transportation & tourism solutions Economic Update

21 Econo-geek Vocabulary 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 20

22 US Real GDP- recent 21 Real GDP Growth (%) 2007Q1 Q2 Q3 Q4 2008Q1 Q2 Q3 Q4 2009Q1 Q2 Q3 Q4 2010Q1 Recession begins Source: NBER 27May2010 Recession has ended

23 Real GDP Growth U.S. 8% 6% 4% Historical Data Forecast Data 2% 0% -2% % Sources: Historical Data: U.S.: U.S. Bureau of Economic Analysis Forecast Data: U.S.: International Monetary Fund 22

24 Real GDP Growth U.S. 8% 6% 4% 2% Recession Historical Data Forecast Data Recession 0% -2% % Sources: Historical Data: U.S.: U.S. Bureau of Economic Analysis Forecast Data: U.S.: International Monetary Fund 23

25 Annualized Q/Q Growth Rate 4% 2% 0% -2% -4% -6% -8% US Real GDP Growth (Quarterly) Q % 0.9% Q % 2.9% Forecast 2.2% 1.7% Q Q % Lehman Brothers Collapse Q % Mid 2008 GDP growth obscured onset of recession Q % Q % 0.4% Sources: Historical Bureau of Economic Analysis; Forecast Federal Reserve Second Quarter 2009 Survey of Professional Forecasters (May 15, 2009); Q Q Q Q

26 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 2 nd recession Without inflation will be a challenge 25

27 US Real GDP Growth (Historical) 10% 8% 6% 4% 2% 0% -2% % Sources: Historical Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 26

28 US Real GDP Growth (Historical) 10% 8% 6% 4% 2% 0% W WW -2% % Sources: Historical Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 27

29 US Real GDP Growth (Historical) 10% 8% 6% 4% 2% 0% W WW V V -2% % Sources: Historical Bureau of Economic Analysis; Recessions as defined by the National Bureau of Economic Research 28

30 US Real GDP (Historical) 14,000 12,000 10,000 8,000 6,000 4,000 2, U.S. Real GDP (billions of 2000 dollars) Recessions are wiggles in a steadily growing economy Sources: Historical Bureau of Economic Analysis;

31 Real GDP Growth - Canada 8% 6% 4% Historical Data Recession Forecast Data 2% 0% -2% -4% No Recession Sources: Historical Data: Canada: Statistics Canada Forecast Data: Canada: International Monetary Fund 30

32 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 31

33 Canada Real GDP Growth 6% 4% Forecast 4.6% 5.0% 4.5% 3.5% 2% 0% 2.4% 1.1% 0.3% 0.4% Q Q Q Q Q Q Q Q Q H H H H % -4% -0.7% -3.0% -1.0% -3.7% -6% -5.4% Sources: Historical Statistics Canada; Forecast Bank of Canada Monetary Policy Report (April Q3 from 31Aug Annualized Q/Q Growth Rate

34 Canada Real GDP Growth 6% Forecast 4.6% 5.0% 4.5% 4% 3.5% Annualized Q/Q Growth Rate 2% 0% -2% -4% 1.1% Q Q % 0.3% 0.4% 2009: -2.4% Q Q Q Q Q Q % -1.0% -3.7% 2.4% Q H H H H % -5.4% Sources: Historical Statistics Canada; Forecast Bank of Canada Monetary Policy Report (April Q3 from 31Aug

35 Annualized Q/Q Growth Rate 6% 4% 2% 0% -2% -4% Canada Real GDP Growth 1.1% Q Q % 0.3% 0.4% Q Q : -2.4% Q % Q Q c -3.0% -1.0% Forecast Q revised: +3.0% 2.4% Q % H c 4.6% 5.0% 4.5% H H H % -5.4% Sources: Historical Statistics Canada; Forecast Bank of Canada Monetary Policy Report (April Q3 from 31Aug

36 Annualized Q/Q Growth Rate 6% 4% 2% 0% -2% -4% Canada Real GDP Growth (Sub- Annual) 1.1% Q Q % 0.3% 0.4% Q Q : -2.4% Q % Q Q c -3.0% -1.0% Forecast Q % Q % H revised: +3.3% c 4.6% 5.0% 4.5% H H c H % -5.4% Sources: Historical Statistics Canada; Forecast Bank of Canada Monetary Policy Report (April Q3 from 31Aug

37 Real GDP Growth - Mexico 8% 6% 4% 2% 0% Historical Data Forecast Data -2% % -6% -8% 2 Recessions Sources: Historical Data: Mexico: International Monetary Fund Forecast Data: Mexico: International Monetary Fund 36

38 strategic transportation & tourism solutions Fuel Prices

39 $160 $140 $120 $100 $80 $60 $40 $20 $- Fuel Prices Crude Oil Spot Prices January 2003 to June U.S. $ per barrel Jan-03 Mar-03 May-03 Jul-03 Sep-03 Nov-03 Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10

40 Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100 $80 US$ $60 $40 $20 $

41 Oil Price Forecast Consensus Economics Oil Price Forecast $120 $100 $80 US$ $60 $40 $20 Its not down Its not back to $145 $

42 2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 $60 $40 upper 2 sigma average low er 2 sigma $20 $

43 2 Sigma Range of Forecasts Forecast 95% ranges $120 $100 $80 $60 $40 $20 Everyone seems to agree upper 2 sigma average low er 2 sigma $

44 2 Sigma Range of Forecasts $120 Note the scale Forecast 95% ranges $100 $80 $60 $40 $20 Everyone seems to agree upper 2 sigma average low er 2 sigma $

45 If History Repeats. $300 Note the scale Oil Price with Full Historical Range $250 $200 $150 $100 Upper range Base price forecast Lower range $50 $

46 Forecasting Lesson Airport forecasting with consensus macro trends Can conceal what is possible Risk based forecasting should be used Forecast Probability Range Average 25th / 75th Percentile Range Probability Based Forecast: Year 10 12% Mean Value: 22.3 million passengers 10% 8% Probability 10th Percentile 6% 4% 90th Percentile 2% 0% Annual Passengers (Millions) th / 90th Percentile Range 5th / 95th Percentile Range 10 5 Passenger Traffic (Millions) 0 Year 0 Year 5 Year 10 Year 15 Year 20 45

47 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? 46

48 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! 47

49 strategic transportation & tourism solutions Climate Change

50 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 Chartres Bishop of London 49

51 Community Response /Backlash 50

52 Sophisticated Messaging on Roads & Rail Routes to LHR 51

53 Coming Soon to North America Climate Change issue is not confined to Europe North American attitudes are shifting rapidly Aviation will be targeted 52

54 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 53

55 strategic transportation & tourism solutions Thank You