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

  • 1. P R O P R I E TA R Y I N F O R M AT I O N ‘JOIN THE DEBATE’ AIR CARGO IN THE MIDDLE EAST THE MIDDLE EAST REGION IS IDEALLY LOCATED BY NATURE 3nd Annual Aviation Asset Management in the Middle East - Novotel World Trade Centre Dubai, UAE © 2011 1BlueHorizon Group - www.1bluehorizon.com 01BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved November 2011 The ‘idea factory’ thinking ahead strategies www.1bluehorizon.com
  • 2. P R O P R I E TA R Y I N F O R M AT I O N 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’... 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… 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… Foreword © 2011 1BlueHorizon Group - www.1bluehorizon.com 11BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved 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’… 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. 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!
  • 3. P R O P R I E TA R Y I N F O R M AT I O N SHORT-HAUL MEDIUM-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 © 2011 1BlueHorizon Group - www.1bluehorizon.com 21BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved LONG-HAUL 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 | Management Consulting Research & Analysis
  • 4. P R O P R I E TA R Y I N F O R M AT I O N 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% Europe 8.4% Middle East Asia 15.0% 14.5% 15.7% 2.3% 3.7% 16.8% 4% 4.8% 7% © 2011 1BlueHorizon Group - www.1bluehorizon.com 31BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved Latin America 0.8% Africa 0.5% Middle East 1.0% South Pacific 0.4% 5.4% 2.8% 1.9% 4.1% 4.8% 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. P R O P R I E TA R Y I N F O R M AT I O N The strongest growth in air freight cargo was expected for major routes to and from Asia and within Asia… © 2011 1BlueHorizon Group - www.1bluehorizon.com 41BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved It was a forecast… unfortunately! The reality is a bit different… closer to 1 % Source: IATA, Passenger and Freight Forecasts 2007 - 2011 . 1BlueHorizon Group | Management Consulting Research & Analysis
  • 6. P R O P R I E TA R Y I N F O R M AT I O N Cargo rates have come under downward pressure from weak demand and falling utilization and the overall rates are 4% down © 2011 1BlueHorizon Group - www.1bluehorizon.com 51BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved Source: IATA, International freight growth by major routes: Jan-2009 to Aug-2011
  • 7. P R O P R I E TA R Y I N F O R M AT I O N 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) © 2011 1BlueHorizon Group - www.1bluehorizon.com 61BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved It ‘appears unlikely that a revival in air freight will begin before 2013’
  • 8. P R O P R I E TA R Y I N F O R M AT I O N If Worldwide the cargo business is particularly challenging, what way to go from a Middle East perspective? 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 © 2011 1BlueHorizon Group - www.1bluehorizon.com 71BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved Belly hold capacity Coupled with still high jet fuel prices these developments are putting “downward pressure on cargo profitability”. Source: © 1BlueHorizon Group | Management Consulting Research & Analysis,
  • 9. P R O P R I E TA R Y I N F O R M AT I O N 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 largest Cargo Markets by FTKs (billions): 2011 baseline and 2031F © 2011 1BlueHorizon Group - www.1bluehorizon.com 81BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved The implications are greater on Asian carriers as they, unlike their North American counterparts, operate dedicated freighter aircraft.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 | Management Consulting Research & Analysis,
  • 10. P R O P R I E TA R Y I N F O R M AT I O N 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 © 2011 1BlueHorizon Group - www.1bluehorizon.com 91BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved 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 | Management Consulting Research & Analysis,
  • 11. P R O P R I E TA R Y I N F O R M AT I O N MENA Region has a very high density of airport infrastructures with for most of them impressive ongoing improvements to meet future demand K.S.A. JORDAN Bahrain (8.8) (329,938) LEBANON Beirut (5.5) 92,098) Kuwait (8.3) 208,295) QATAR Doha (15.7) (707,831) Dammam (3.2) Dubai Int. (50.7) (2,270,498) Abu Dhabi (9.2) (353,820) Cairo (16.2) (274,550) Sharm el Sheikh (7.4) Hurghada (6.7) SYRIA Damascus (5.2) Sharjah (5.7) (501,824) Amman (5.4) 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. Ras Al Khaimah (0.0) (000,000) Fujairah © 2011 1BlueHorizon Group - www.1bluehorizon.com 101BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved EGYPT U.A.E OMAN (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) (3.2) Muscat (4.5) (64,452) Luxor (1.8) (6.7) Selected Countries 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) Fujairah (0.2) (120,000) Source: © 1BlueHorizon Group | Management Consulting Research & Analysis,
  • 12. P R O P R I E TA R Y I N F O R M AT I O N 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 © 2011 1BlueHorizon Group - www.1bluehorizon.com 111BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved Source: © 1BlueHorizon Group | Management Consulting Research & Analysis,
  • 13. P R O P R I E TA R Y I N F O R M AT I O N Worldwide, one of the Top five carrier by schedules freight-tonnes carried is Emirates Airline (with a fleet of eight pure freighters…) © 2011 1BlueHorizon Group - www.1bluehorizon.com 121BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved
  • 14. P R O P R I E TA R Y I N F O R M AT I O N … and further Qatar Airways (& Cargolux), Etihad Airways and Saudi Arabian Airlines © 2011 1BlueHorizon Group - www.1bluehorizon.com 131BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved
  • 15. P R O P R I E TA R Y I N F O R M AT I O N 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 © 2011 1BlueHorizon Group - www.1bluehorizon.com 141BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved 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. P R O P R I E TA R Y I N F O R M AT I O N 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… 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 With such existing infrastructure and successful carriers, the future of Air Cargo in the Middle East is encouraging, mainly for those reasons © 2011 1BlueHorizon Group - www.1bluehorizon.com 151BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved understand Qatar Airways taking shares in Cargolux… to create also a fully dedicated freight carrier? The fuel price is clearly an advantage for the MENA region carriers, event most of them have to pay for it… 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’…
  • 17. P R O P R I E TA R Y I N F O R M AT I O N 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. SHOUKRAN - THANK YOU leo@1bluehorizon.com © 2011 1BlueHorizon Group - www.1bluehorizon.com 161BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved 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 enterprise improvement, due diligence screenings, strategic sourcing negotiations, cost reduction mandates, 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.
  • 18. P R O P R I E TA R Y I N F O R M AT I O N MANAGEMENT CONSULTING SOLUTIONS PACK P R O P R I E TA R Y I N F O R M AT I O N 1BlueHorizon Group | Management Consulting Management Consulting: How assisting management to solve a wide range of critical issues… © 2011 1BlueHorizon Group - www.1bluehorizon.com 171BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved 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 g r a t e d C o m m u n i c a t i o n We generate 1BlueHo rizo n ® out of the Rough... www.1bluehorizon.com March 2011
  • 19. P R O P R I E TA R Y I N F O R M AT I O N ‘Big Four’Law firm Management 1BlueHorizon Group | Management Consulting (MC) is providing clients a comprehensive approach, no matter how complex the issues Innovative – Hands-on Knowleadge transferconsulting © 2011 1BlueHorizon Group - www.1bluehorizon.com 181BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved Operational Improvement Creating 1 B l u e H o r i z o n ® to solve a wide range of critical issues BUSINESS DEVELOPMENT IMPLEMENTATION Project Management Office Source: © 1BlueHorizon Group | Management Consulting Business model
  • 20. P R O P R I E TA R Y I N F O R M AT I O N Do you need help starting a new venture? Is it time for a Due Diligence as next step? Are you in need of a strategic business review? Looking for ways to differentiate from competitors? Aiming to restructure a poorly performing business? Are you in need of a sound Project Management office? Illustrative Aviation 1BlueHorizon Group|MC senior personnel core competencies lie in Airlines, General Aviation, Airports, Aerospace and Defense and are deployed on-sites © 2011 1BlueHorizon Group - www.1bluehorizon.com 191BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved Are you in need of a sound Project Management office? In today’s Aviation & Aerospace business environment, the margin of error is thin; clients need and expect seasoned advisors. With their respective disciplines, 1BlueHorizon Group senior personnel have experience in various corner of the world. 1BlueHorizon Group |MC is ready to field a team of relevant aviation and aerospace experts whenever and wherever they are needed Airlines Air Cargo Corporate Jet Airports MRO GCAA Source: © 1BlueHorizon Group | Management Consulting Industries & Capabilities – Core competencies Aviation
  • 21. P R O P R I E TA R Y I N F O R M AT I O N Project Management Office According to recent studies, 68% of projects do not meet time/cost/scope targets. The PMO strives to introduce economies of repetition in the execution of your projects and Providing innovative solutions, hands-on and knowledge transfer are our difference to maximized value creation - continuously ahead of strategies 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 Interim Management Management trainer 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 1BlueHorizon Group |MC senior personnel assists - ahead of strategies - stakeholders and management of companies in a variety of sectors who are faced with operating challenges, support of a project management office and/or requesting senior executive interim management support. Ahead of Strategies If you want a feasibility study or business plan to assess the case or are burning cash and running into trouble as you approach launch or help the executive teams assess the case for entering immunized © 2011 1BlueHorizon Group - www.1bluehorizon.com 201BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved execution of your projects and we participate actively in Strategic project management as facilitator… 1BlueHorizon Group |MC can help give comfort and control through our hands- on experience to maximize value creation… operational improvement is about seeing a company through the transformation of becoming more competitive. 1BlueHorizon Group |MC works side by side with you to maximize the potential of your people… 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. 1BlueHorizon Group |MC quickly understand what you need, with interactive mentoring if more suitable… … and our clients well recognize this! case for entering immunized joint ventures… 1BlueHorizon Group |MC senior personnel helping to maximize your potential, thinking ahead of strategies…
  • 22. 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 1 B lue H oriz on ®®®® creation A short selection of inescapable aviation related books © 2011 1BlueHorizon Group - www.1bluehorizon.com 211BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved “Baseline” (Philosophy) “Low Cost Carriers” “Courier services” “Various” Airlines’ Turnaround “Air Transport Management” Partners network - Aviation Source: © 1BlueHorizon Group | Management Consulting recommended bibliography (non exhaustive)
  • 23. P R O P R I E TA R Y I N F O R M AT I O N Contact: LEONARD FAVRE Partner, Managing Director Email: leo@1bluehorizon.com 1 BlueHorizon Group | Manag ement Consulting| P.O. Box 34154 Abu Dhabi, United Arab Emirates M: +971 50 6164 007 (U.A.E.) M: +41 79 2080 256 (Switzerland) S: leof007 © 2011 1BlueHorizon Group - www.1bluehorizon.com 221BHG | Aeropodium Conference AAMME Dubai 10.11.11 All rights reserved