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The Future of Air Cargo in the Middle East: The region is ideally located by nature and the B777-300ER and its belly-hold…

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3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE - November 10th, 2011 …

3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE - November 10th, 2011

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  • 1. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 0© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 ‘JOIN THE DEBATE’ AIR CARGO IN THE MIDDLE EAST THE MIDDLE EAST REGION IS IDEALLY LOCATED BY NATURE November 2011 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 1BHG, the ‘idea factory’ thinking ahead strategies www.1bluehorizon.com       
  • 2. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 1© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 O Firstly I would like to thanks Aero podium and especially his Chairman ’Taki’ for organizing such interesting conference and not only in the Middle East: ‘Mabrouk’... O The ambition of the following couple of slides is very modest: It is just a matter to share a couple of thoughts regarding the air cargo business, from a Middle East perspective… O Crisis in the airline industry led to the emergence of LCC´s (Low Cost Carriers) – The crisis has not been caused, but deepened by terrorist attacks on September 11, 2001. Originally, the root cause was the decline of the historically unequalled high yield level in the late 90s and, in parallel, considerable cost increase… O LCCs capitalize on their simple and efficient business model and their extremely lean cost structure (up to 60% lower unit costs in comparison with network carriers). A sort of Low Cost Air Cargo business models might emerge for the Air Freight industry, from the Middle East by creating (one) ‘1BlueHorizon’… O Today’s air cargo supply chain requires reliability, speed and flexibility. Sometimes a scheduled belly flight might not be enough. Be it for the shipment size or weight, or a routing that is not offered by passenger flights… O Last but not least, the Middle East is ideally located with over 1/3 of the world’s population living 3 hours flight from here… definitely a competitive advantage to consider! FOREWORD
  • 3. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 2© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 SHORT-HAUL MEDIUM-HAUL LONG-HAUL The United Arab Emirates are strategically located within eight hours flight away from 2/3 of the world’s population – A Global Aviation Hub ULTRA LONG-HAUL Note: Short-Haul are flights taking less than three hours to complete, or a flight distance under 2000 miles Medium-Haul are flights lasts from three and six hours Long-Haul involves long distances typically requiring over six and a half hours to cover, and are often non-stop flights Ultra Long-Haul considers the longest distances flown by commercial aircraft, requiring over 12 hours to cover, and are also often non-stop flights Source: 1BlueHorizon Group Research & Analysis
  • 4. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 3© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 North America and Asia are the two fastest growing air cargo traffic markets (cargo traffic flows between regions in 2005 – 2010) North America 2.0% Latin America 0.8% Europe 8.4% Africa 0.5% Middle East 1.0% Asia 15.0% South Pacific 0.4% 5.4% 14.5% 15.7% 2.3% 3.7% 2.8% 16.8% 1.9% 4% 4.1% 4.8% 4.8% 7% 3.4% Note: Traffic flows of less than 1% between regions are not shown, hence total sum accounts only for 93% of total cargo traffic Column indicates growth in the 2005 – 2009 for transcontinental traffic Source: World Air Transport Statistics, 50th Edition
  • 5. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 4© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 The strongest growth in air freight cargo was expected for major routes to and from Asia and within Asia… It was a forecast… unfortunately! The reality is a bit different… closer to 1 % Source: IATA, Passenger and Freight Forecasts 2007 - 2011 . 1BlueHorizon Group Research & Analysis
  • 6. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 5© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 Cargo rates have come under downward pressure from weak demand and falling utilization and the overall rates are 4% down Source: IATA, International freight growth by major routes: Jan-2009 to Aug-2011
  • 7. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 6© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 Overall, cargo profitability has declined further this year, and revenues are weak (Airlines are expected to carry 46.4 million tones of cargo in 2011) It ‘appears unlikely that a revival in air freight will begin before 2013’
  • 8. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 7© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 If Worldwide the cargo business is particularly challenging, what way to go from a Middle East perspective? Belly hold capacity Costly freighters  The forward-looking indicators for demand point to further weakness in the months ahead, while declining sea freight rates and strong increased twin aisle capacity (Belly hold) are further pressuring the competitive environment.  Coupled with still high jet fuel prices these developments are putting “downward pressure on cargo profitability”. Source: © 1BlueHorizon Group Research & Analysis,
  • 9. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 8© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 As long-haul passenger flights increase with growing twin aisle fleet, belly hold capacity drives structural changes in the air cargo industry  The impact from increasing long-haul passenger flights on the Asia-North America cargo market facilitates a comprehensive analysis, unlike Asia- Europe where significant passenger and freight traffic is diverted through the Middle East with Dubai’s new Al Maktoum International Airport (DWC) expecting to be the world’s largest cargo hub*.  The implications are greater on Asian carriers as they, unlike their North American counterparts, operate dedicated freighter aircraft. The largest Cargo Markets by FTKs (billions): 2011 baseline and 2031F Source Airbus * For years, Dubai has arguably led the way for aviation growth in the Middle East, and with Dubai World Central–Al Maktoum International Airport (DWC) starting cargo operations recently, its phenomenal growth over the last decade shows no sign of slowing down. Even Dubai International Airport (DXB) has seen record growth in passenger and cargo figures year-on-year, an even bigger international airport is under development, tipped to handle more than 160 million passengers and 12 million tones of cargo annually once fully operational by 2030 Source: © 1BlueHorizon Group Research & Analysis,
  • 10. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 9© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 The leading change in the air cargo market is the long-range wide-body twin- engine Boeing B777-300ER with a belly-hold capacity of 23 tones  In 2006, the B777 was accounted for less than 1% of frequencies but in 2011 is at 20% – more than the B747-400. While airlines are expanding with the 777-300ER, they are also using it as a B747-400 replacement.  The implication for the cargo industry is that the 777-300ER carries about 18% more cargo volume than the 747-400. So not only are airlines growing frequencies and thus belly space, replacing a 747-400 with a 777-300ER leads to a significant increase in cargo capacity too.  More than 30% of B777-300ERs on order are destined for Asia! Emirates Airline (EK) operates more than 90 B777- 300ER and a few days back at Dubai Air Show (2011) EK announce a historic order for 50 777-300ERs… Etihad Airways (EY) out of Abu Dhabi is operating around 20 B777-300ER and the neighbor Qatar Airways (QR) more than 25…  For sure, on top of the Middle East Big 3 (MEB3) appetite, the region is ideally located by nature! Source: © 1BlueHorizon Group Analysis,
  • 11. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 10© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 MENA Region has a very high density of airport infrastructures with for most of them impressive ongoing improvements to meet future demand EGYPT K.S.A. JORDAN U.A.E Bahrain (8.8) (329,938) LEBANON Beirut (5.5) 92,098) OMAN Kuwait (8.3) 208,295) QATAR Doha (15.7) (707,831) 2 Major Airport Bubble represents airports size (in terms of Passenger Traffic and total Cargo volume) All figures in million PAX and Metric Tonnes (in 2009/10) Jeddah (17.8) (231,730) Riyadh (10.9) Dammam (3.2) Muscat (4.5) (64,452) Dubai Int. (50.7) (2,270,498) Abu Dhabi (9.2) (353,820) Cairo (16.2) (274,550) Luxor (1.8) Sharm el Sheikh (7.4) Hurghada (6.7) SYRIA Damascus (5.2) Sharjah (5.7) (501,824) Amman (5.4) Selected Countries  Most major airports in the region are continuously expanding capacity to keep pace with increasing passenger and cargo traffic.  The K.S.A., Qatar and the U.A.E. are clearly developing ambitious plan for air cargo.  Dubai World Central (DWC) Airport is far away the more impressive one (the future world’s largest commercial airport). Once fully completed in 2015, it will have six parallel runways, three passenger terminals and 16 cargo terminals. Marsa Alam (5.8) Ras Al Khaimah (0.0) (000,000) Fujairah (0.2) (120,000) Source: © 1BlueHorizon Group Research & Analysis,
  • 12. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 11© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 Most of the Middle east carriers are considering cargo activities as part of the expansion plans, with different approaches and ambitions Air carriers can principally be decomposed into three classes: freight carriers, combination carriers, and integrators. Freight carriers are devoted solely to freight, while the combination carriers include airlines or subsidiaries of large air carriers who carry passengers while storing freight in the belly of aircraft. Integrators oversee the entire process and act as the forward and the carrier. Freight carriers - Combination carriers - Integrators Source: © 1BlueHorizon Group Research & Analysis,
  • 13. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 12© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 Worldwide, one of the Top five carrier by schedules freight-tonnes carried is Emirates Airline (with a fleet of eight pure freighters…)
  • 14. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 13© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 … and further Qatar Airways (& Cargolux), Etihad Airways and Saudi Arabian Airlines
  • 15. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 14© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 The overall economic situation don’t encourage to invest in the fleet (asset management) especially for dedicated freighters A300-600RF 23 mio$ B747-400BCF 30-60 mio$ A330-200F 90 mio$ B777LRF 170 mio$ B747-8F 220 mio$ Converted – second hand B747-400F 50-90 mio$ B777ERF 65-80 mio$ 46 Tones 108 Tones 82 Tones 113 Tones 69 Tones 103 Tones 134 Tones For carriers looking for dedicated freighters, new aircraft are very expensive and conversion programs need to be considered very carefully as a credible alternate. The aircraft financing model needs also to be analyzed carefully and it is a place for ACMI providers based in the MENA region to support this particular industry. On the second hand market we will see the freighters prices dropping... For carriers offering premium air transport solutions through a heavy lift/out-size focus (niche), the fleet management is uncertain with the Russian aircraft (from a maintenance or new type perspective). Note: At this stage EADS EFW didn’t officially decide if they will launch a P2F conversion program for the A330-200/300
  • 16. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 15© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 O The Middle East is ideally located between Asia, Africa and Europe and America… The hub-and- spoke distribution strategy work perfectly in the Middle East even the environment is highly competitive… O The ambition of the major Middle East carriers impacts directly the cargo capacity if we consider the belly hold… and most of them operate the ‘777’ with great (mix) capacity… From my opinion I am not convince about the ‘combination carrier model’ and last week announcement from Saudi to push the privatization might give the opportunity to create a fully dedicated freight carrier. How to understand Qatar Airways taking shares in Cargolux… to create also a fully dedicated freight carrier? O The fuel price is clearly an advantage for the MENA region carriers, event most of them have to pay for it… O Within the MENA Region, we might encourage all regulators to be more restrictive in the technical approach (even without carrying Passengers). For those operating Russian fleet (heavy lift/out-size niche) and willing to follow the industry rules it is very difficult to compete against some ‘cow boy’… With such existing infrastructure and successful carriers, the future of Air Cargo in the Middle East is encouraging, mainly for those reasons
  • 17. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 16© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 SHOUKRAN - THANK YOU leo@1bluehorizon.com LEONARD FAVRE, 1BlueHorizon Group® Managing Director Leonard Favre is an experienced senior management advisor with over 10 years experience in the aviation industry, having started his involvement in this particular field of business when the Swiss National carrier Swissair collapse as one of the Swiss ministry of Economy adviser. He is based in Abu Dhabi (U.A.E.) and Bern (Switzerland). He holds Political Sciences & Economics degree from Lausanne University in Switzerland and two MBA, in Public Sector from IDHEAP Lausanne and in management from INSEAD Fontainebleau (close to Paris, France). He participated recently in postgraduate programs from the prestigious Harvard Business School (Boston, MA) in the field of Leadership and competitiveness. Leo combines hands-on experience with strategy management abilities, strong people management skills and motivational leadership qualities to archive results (ex Booz & co). While working for two prestigious management consulting boutiques, the last one as Principal Regional Head of aviation - transportation for the Middle East and South East Asia, he has worked on a wide range of issues at clients with significant experience in Europe and the Middle East, including several successful Low Cost Airlines (LCC) set-up or air carriers (passengers and cargo) restructuring and operational revitalization (CRO), due diligence screenings, strategic sourcing negotiations, mergers & acquisitions advisory, financial advisory, program office management, and strategic reviews. Until recently, he was vice-president Business development & Strategy for an all cargo company in the UAE and was involved in the lease (ACMI) of dedicated freighters with sound achievements and customer satisfaction. Leo is a regular contributor to conferences and forums and his vision of airline industry is always a valuable and knowledgeable input to create Blue Horizon. Leo is fluent in English, French and German with good command of Italian. Note: Detailed References upon request
  • 18. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 17© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 SOLUTIONS PACK 1BLUEHORIZON GROUP TURNKEY SOLUTIONS TO SOLVE A WIDE RANGE OF CRITICAL ISSUES... March 2011 We generate 1B l u e Horizon ® out of the Rough... www.1bluehorizon.com P R O P R I E TA R Y I N F O R M AT I O N        A b u D h a b i | B e r n | L o n d o n | M o n t r e a l | M o s c o w | P a r i s A s s e t M a n a g e m e n t | M a n a g e m e n t C o n s u l t i n g | I n t e r i m M a n a g e m e n t
  • 19. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 18© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 1BlueHorizon Group® is providing clients a comprehensive approach to go the extra mile, no matter how complex the issues, ahead of strategies… Source: © 1BlueHorizon Group | Business model P R O P R I E TA R Y I N F O R M AT I O N Interim Management IMPLEMENTATION Project Management Office Performance Improvement Strategy Asset Management ‘Big Four’Law firm Management ConsultingInnovative – Hands-on Knowleadge transfer Creating 1BlueHorizon® to solve a wide range of critical issues
  • 20. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 19© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 Family conglomerates (Governance, Portfolio analysis and investment Strategy) Economic development (Business review / Cluster / Project Management office) Air Transportation (Airline / Airport / General Aviation / Aerospace & Defense) Management Consulting Operational Improvement Our understanding of operational improvement is quite simple: Whereas restructuring is about stabilizing a company and fixing how it does things, operational improvement is about seeing a company through the transformation of becoming more competitive – going the Extra Mile. Asset Management Fleet Strategy & Planning With our Fleet Solutions, we can help you expand your fleet, transition from older models to newer aircraft types, or provide interim capacity. We back our support with a global team of technical experts and industry specialists who will provide you with the fleet solution and support that meets your specific needs. Interim Management Knowledge transfer Finding talent is difficult even at the best of time. Finding resources to assist for a short- term assignment of a proven heavyweight interim executive manager to manage a period of transition, crisis or change within an organization or to take on critical projects or senior positions for a limited time is even more difficult. Ahead of Strategies Three Practices Shareholders and management of companies with specialized needs often choose 1BHG for our unique custom turnkey solutions. If you want a business plan or a feasibility study to assess the case, or your are burning cash and running into trouble, or seek help to assess the case for entering immunized joint venture or looking for an interim management solution… 1BlueHorizon Group® highly competent seasoned professional will assist you to propel your business further… Going the extra mile ahead of strategies … 1BHG® Business model dedicated to particular Sectors is built around three Practices providing clients with turnkey solutions to maximize Value Creation Source: © 1BlueHorizon Group | Business model with Sectors (Horizontals) & Practices (Verticals) P R O P R I E TA R Y I N F O R M AT I O N … no matter how complex the issues are!
  • 21. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 20© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 Clients Feedback - What do Travel & Transportation Customers or Family conglomerates think about 1BlueHorizon Group P R O P R I E TA R Y I N F O R M AT I O N “1BlueHorizon Group is the only consulting firm that works successfully on all levels: Board level, middle management, implementation" “1BHG senior personnel come in with strong views but integrate perfectly in our teams" “1BHG has convinced us through it's excellent industry- and technology expertise" "The 1BHG team knows perfectly well how to push the necessary change" “1BHG guys are implementation - oriented and their cooperation with my people is very good " “1BHG Practice has very qualified people who really know a lot about our industry" "In each project step, we could clearly identify 1BHG's added value and improve the overall bottom line" Note: A list of qualifications is made available separately
  • 22. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 21© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 A short selection of inescapable aviation related books “Baseline” (Philosophy) “Low Cost Carriers” “Courier services” “Various” Airlines’ Turnaround “Air Transport Management” Source: © 1BlueHorizon Group | Recommended bibliography (non exhaustive) P R O P R I E TA R Y I N F O R M AT I O N Published books and decisive management theories that facilitate critical dialogue and support 1BlueHorizoncreation Partners Network – Aviation Sector
  • 23. 22© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE LEONARD FAVRE Partner, Group Managing Director 1BlueHorizon Group P.O. Box 34154 M +971 50 6164007 (U.A.E.) Abu Dhabi M +41 79 2080256 (Switzerland) United Arab Emirates leof007 leo@1bluehorizon.com www.1bluehorizon.com Abu Dhabi | Bern | Montreal | Moscow | Paris Any clarifications or questions regarding this document should be addressed to: P R O P R I E TA R Y I N F O R M AT I O N We are used to generate 1BlueHorizon® out of the Rough... Customers with specialized needs often choose us for our unique custom turnkey solutions to propel their business further… © 1BlueHorizon Group®. All rights reserved. Without the prior written consent of 1BlueHorizon Group®, it is not permitted to modify this document or create derivative works. High quality global airline industry insight requires investment. Please do not cut & paste the document. Email info@1bluehorizon.com to get / buy additional rights. The information contained in this document has not been independently verified. It does not purport to be all-inclusive or to contain all the information that a prospective investor in securities of the Company may desire or require in deciding whether or not to offer to purchase such securities, or any type of legal transaction. The information and opinions contained in this presentation and any other are material discussed verbally are provided as at the date of this presentation and are subject to verification, completion and change without notice. In giving this presentation, neither the Company nor its advisers and/or agents undertakes any obligation to provide the recipient with access to any additional information or to update this presentation or any additional information or to correct any inaccuracies in any such information which may become apparent.
  • 24. 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE 23© 2011 1BlueHorizon Group - www.1bluehorizon.com All rights reserved1BHG | Aeropodium Conference AAMME Dubai 10.11.11