Airline industry


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Airline industry

  1. 1. Cat Ansay AIRLINE INDUSTRY
  3. 3. AIRLINE INDUSTRY <ul><li>Air travel remains a large and growing industry </li></ul><ul><li>Facilitates economic growth, world trade, international investment and tourism and is therefore central to the globalization </li></ul><ul><li>Travel for both business and leisure purposes grew strongly worldwide </li></ul><ul><li>Dynamic growth is centered on the Asia/Pacific region, where fast-growing trade and investment are coupled with rising domestic prosperity </li></ul><ul><li>Air travel for the region has been rising by up to 9% a year and is forecast to continue to grow rapidly </li></ul>
  5. 5. AIRLINE INDUSTRY DYNAMICS <ul><li>Airport Capacity </li></ul><ul><li>Route Structures </li></ul><ul><li>Technology </li></ul><ul><li>Cost to lease or buy the aircraft </li></ul><ul><li>Weather - Weather is variable and unpredictable. Extreme heat, cold, fog and snow can shut down airports and cancel flights, which costs an airline money </li></ul><ul><li>Fuel Cost - fuel is an airline's second largest expense. Fuel makes up a significant portion of an airline's total costs </li></ul><ul><li>Labor - is the an airline's No.1 cost; airlines must pay pilots, flight attendants, baggage handlers, dispatchers, customer service and others </li></ul>
  6. 6. KEY SUCCESS FACTORS <ul><li>Customer satisfaction – on time delivery </li></ul><ul><li>Competitive rates – affordability and value for money </li></ul><ul><li>Technology - efficiency </li></ul><ul><li>Airworthiness – compliance to safety and quality standards </li></ul><ul><li>Destination – destination diversity </li></ul>
  8. 8. EVOLUTION OF THE PHILIPPINE AIRLINE INDUSTRY <ul><li>2010” Growth in air travel rose to 10% </li></ul><ul><li>New revenue streams and new channels to market </li></ul><ul><li>Technology has become a competitive advantage </li></ul><ul><li>Opting for more customer self-service </li></ul><ul><li>IT transformation </li></ul>The Industry Today <ul><li>1952: Civil Aeronautics Act was passed by the Philippine Government </li></ul><ul><li>1973: Philippine Airlines (PAL) was granted had a virtual monopoly </li></ul><ul><li>1978: PAL was given a new franchise but with a provision </li></ul>Pre-Liberlization <ul><li>1995: Liberalization of the Airline Industry </li></ul><ul><li>Established domestic and international civil aviation liberalization policy </li></ul><ul><li>Restrictions on routes flight frequencies and fares were removed </li></ul><ul><li>Encouraged at least two operators in any route </li></ul><ul><li>Markets with at least two operators are deregulated with regard to fare </li></ul><ul><li>1999: PAL’s market share decreased significantly </li></ul>Pre-Liberlization
  9. 9. PRE-LIBERALIZATION PERIOD <ul><li>1952: the Philippine Government passed the Civil Aeronautics Act </li></ul><ul><li>1973: Philippine Airlines (PAL) was granted had a virtual monopoly of the country’s civil aviation industry </li></ul><ul><li>1978: PAL was given a new franchise but with a provision </li></ul><ul><ul><li>Government regulated fares to prevent PAL from engaging in monopoly pricing </li></ul></ul><ul><ul><li>ROI of PAL was capped to 12% </li></ul></ul><ul><ul><li>PAL recovered losses through government subsidies and charging higher fares in high density markets </li></ul></ul>
  10. 10. <ul><li>Restricted number of departures and passenger seats in a number of high density markets </li></ul><ul><li>Restriction of output below competitive levels has resulted to efficiency losses </li></ul><ul><li>Limited output in some markets resulted to higher fares </li></ul>EFFECTS OF PRE-LIBERALIZATION PERIOD
  11. 11. LIBERALIZATION PERIOD <ul><li>1995: Liberalization of the Airline Industry </li></ul><ul><ul><li>Domestic and international civil aviation liberalization policy was established </li></ul></ul><ul><ul><li>Restrictions and on routes and flight frequencies as well as government control on fares were removed </li></ul></ul><ul><ul><li>Encouraged at least two operators in any route </li></ul></ul><ul><ul><li>Markets with at least two operators are deregulated with regard to fare </li></ul></ul><ul><li>1999: PAL’s market share decreased significantly </li></ul><ul><ul><li>Competition intensified </li></ul></ul>
  12. 12. EFFECTS OF THE LIBERALIZATION PERIOD <ul><li>Sizeable increase in passenger traffic </li></ul><ul><li>Introduction of airline service in new markets </li></ul><ul><li>Increased tourism </li></ul><ul><li>Increased competition has provided passengers with discounted fares </li></ul>
  13. 13. AIRLINE INDUSTRY TODAY <ul><li>Growth in air travel rose to 10% in 2010 </li></ul><ul><li>Airlines looking at new revenue streams and new channels to market </li></ul><ul><li>Technology has become a source of competitive advantage </li></ul><ul><li>Airlines are opting more for customer self-service </li></ul><ul><li>Leading airline players are on their way to IT transformation </li></ul>
  14. 14. CIVIL AVIATION AUTHORITY OF THE PHILIPPINES (CAAP) <ul><li>Formerly known as the ATO until it was change in 2008 </li></ul><ul><li>Establish and prescribe rules and regulations for the inspection and registration of aircraft owned and operated in the Philippines and all air facilities </li></ul><ul><li>Establish and prescribe rules and regulations for the enforcement of laws governing air transportation </li></ul><ul><li>Determine, fix and/or prescribe charges and/or rates pertinent to the operation of public utility facilities and services </li></ul><ul><li>Operate and maintain national airports, air navigation and other similar facilities in compliance to ICAO </li></ul>
  15. 16. PHILIPPINE AIRLINES (PAL) <ul><li>Incorporated in February 25, 1941 </li></ul><ul><li>National flag carrier of the Philippines </li></ul><ul><li>Principal activity is to provide air transportation for passengers and cargo within and outside the Philippines </li></ul><ul><li>Flies to the most popular domestic jet routes and international and regional points that visited by Filipinos or provide a good source of visitors to the Philippines </li></ul><ul><li>Route network covered 20 points in the Philippines and 30 international destinations </li></ul>
  16. 17. HISTORY OF PHILIPPINE AIRLINES (PAL) <ul><li>February 1941: PAL was founded by a group of businessman headed by Andres Soriano </li></ul><ul><li>September 1941: Philippine government invests in PAL paving the way for the airline’s nationalization </li></ul><ul><li>July 1946: PAL becomes the first airline to cross the Pacific </li></ul><ul><li>December 1946: PAL starts regular service between Manila and San Francisco </li></ul><ul><li>August 1971: Frankfurt is added to the European route as PAL continues to expand </li></ul><ul><li>January 1974: PAL becomes a monopoly </li></ul><ul><li>January 1995: Lucio Tan becomes Chairman and CEO </li></ul><ul><li>September 1998: PAL suspends operations as the Asian financial crisis takes its toll, aggravated by industrial action by its unions. It pulls out of most routes and drastically reduces its fleet. PAL would resume operations on a limited scale on October 7, 1998. </li></ul>
  17. 18. HISTORY OF PHILIPPINE AIRLINES (PAL) <ul><li>March 2000: PAL reports a net income of Php44.2 million for fiscal year 1999-2000, its first year under rehabilitation.  The result snaps six straight years of losses and produces one of the most dramatic turnarounds in Philippine business. </li></ul><ul><li>March 2001: PAL reports a profit of 419 million pesos at the end of fiscal year 2000-2001, its second year under rehabilitation.  </li></ul><ul><li>March 2003: PAL registers net income of 295 million pesos for fiscal year 2002-2003. </li></ul><ul><li>May 2006: PAL passes the IATA Operational Safety Audit – a requirement for maintaining IATA membership – making PAL the only Philippine registered airline to be certified safe by IATA. </li></ul><ul><li>June 2007: Philippine Airlines reports a net income of $140.3 million for its fiscal year ending March 31, 2007 - the largest annual profit in the airline's 66-year history. </li></ul>
  18. 19. HISTORY OF PHILIPPINE AIRLINES (PAL) <ul><li>August 2009: Record loss of $301.4 million (later revised to $297.8 million) is reported for Fiscal Year 2008-2009 due to high fuel prices and effects of the global recession. </li></ul><ul><li>November 2009: PAL takes delivery of the country’s first Boeing 777 </li></ul><ul><li>July 2010: Annual loss for Fiscal Year 2009-2010 reduced to $14.3 million. </li></ul>
  19. 20. NET REVENUES BY ROUTE (2010-2011)
  20. 21. PAL FLEET PAL FLEET Owned   Boeing 737-300 1 Bombardier DHC 8-400 5 Bombardier DHC 8-300 3 Under Finance Lease   Boeing 747-400 4 Airbus 340-300 4 Airbus 330-300 8 Airbus 320-200 10 Under Operating Lease   Boeing 747-400 1 Boeing 777-300-ER 2 Airbus 320-200 9 Airbus 319-100 4 Total 51
  21. 22. CEBU PACIFIC (CEB) <ul><li>Cebu Air, Inc. (the Company) is an airline that operates under the trade name “Cebu Pacific Air” </li></ul><ul><li>Incorporated in August 26, 1988 </li></ul><ul><li>The leading low-cost carrier in the Philippines </li></ul><ul><li>Pioneered the “low fare, great value” strategy in the local aviation industry </li></ul><ul><li>Adopted the low cost carrier (LCC) business model in 2005 </li></ul><ul><li>Operates an extensive route network serving 50 domestic routes and 23 international routes </li></ul>
  22. 23. CEBU PACIFIC FLEET <ul><li>They take pride as the youngest fleet in the Philippines and in Asia </li></ul><ul><li>Average aircraft age of the Company’s fleet is approximately 3.1 years as of December 31, 2010. </li></ul>CEBU PACIFIC FLEET Airbus 320-200 14 Airbus 319-100 10 ATR 72-500 7 Total 31
  24. 25. Balance Sheet Income Statement Statements of Cash Flows PHILIPPINE AIRLINES FINANCIAL STATEMENTS
  25. 26. PHILIPPINE AIRLINES FINANCIAL STATEMENTS <ul><li>Biggest components of the Balance Sheet </li></ul>22.80% 24.80% Additional paid-in capital 37.70% 28.90% Long-term obligations - net of current portion 14.40% 16.60% Accrued expenses 73.70% 68.90% Property and equipment 7.60% 7.40% Receivables 2010 2011
  26. 27. PHILIPPINE AIRLINES FINANCIAL STATEMENTS <ul><li>Significant variances in the Income Statement </li></ul>1,147,599 -526.1% (4,889,814) -92.1% (384,713) Others 3,746,429 -31.4% 2,569,540 -35.3% 1,661,570 Financing charges 3,761,948 -30.3% 2,621,065 1.0% 2,646,022 General and administrative 4,037,930 -4.2% 3,868,047 13.3% 4,382,572 Reservation and sales 5,099,346 -6.3% 4,777,994 2.2% 4,881,594 Passenger service 9,957,436 9.0% 10,856,593 -19.4% 8,754,940 Maintenance 8,786,530 1.9% 8,957,125 4.1% 9,324,494 Aircraft and traffic servicing 49,506,426 -29.4% 34,928,708 15.4% 40,301,308 Flying operations EXPENSES AND OTHER CHARGES (INCOME) 4,006,403 20.1% 4,813,301 19.6% 5,758,866 Others 461,819 -47.9% 240,499 -0.1% 240,163 Interest income 4,597,819 0.2% 4,606,314 29.0% 5,941,290 Cargo 64,727,834 -15.9% 54,427,666 15.1% 62,667,001 Passenger REVENUE 2009 % Change 2010 % Change 2011
  27. 28. PHILIPPINE AIRLINES FINANCIAL STATEMENTS <ul><li>Inflow and Outflow of Cash in the Statements of Cash Flow </li></ul>7,189,728 -9,392,527 -9,537,790 Net cash flows from (used in) financing activities -20,542,681 -866,359 -2,053,555 Net cash flows used in investing activities 4,615,103 7,576,275 12,596,081 Net cash flows from operating activities 2009 2010 2011
  28. 29. Balance Sheet Income Statement Statements of Cash Flows CEBU PACIFIC FINANCIAL STATEMENTS
  29. 30. CEBU PACIFIC FINANCIAL STATEMENTS <ul><li>Biggest components of the Balance Sheet </li></ul>5.60% 17.80% Retained earnings 43.20% 32.80% Long-term debt - net of current portion 14.20% 11.20% Accounts payable and other accrued liabilities 82.50% 68.10% Property and equipment 10.90% 19.60% Cash and cash equivalents 2009 2010
  30. 31. CEBU PACIFIC FINANCIAL STATEMENTS <ul><li>Significant variances in the Income Statement </li></ul>17,992,031 175.10% 49,503,211 88.50% 93,293,869 Other expenses 510,724,614 13.70% 580,896,015 10.10% 639,480,811 Passenger service 562,833,635 46.10% 822,510,363 -15.50% 694,888,478 General and administrative 852,012,389 16.70% 994,694,826 34.30% 1,335,983,655 Reservation and sales 1,062,847,730 62.20% 1,723,886,536 -6.90% 1,604,855,579 Aircraft and engine lease 1,546,753,381 24.00% 1,917,683,713 9.60% 2,100,929,764 Depreciation and amortization 1,846,503,289 39.10% 2,568,940,713 -10.90% 2,289,945,384 Repairs and maintenance 1,946,910,478 35.20% 2,631,833,249 -6.50% 2,461,807,197 Aircraft and traffic servicing 9,607,705,976 -7.80% 8,857,014,923 28.90% 11,417,488,512 Flying operations           EXPENSES 1,239,219,090 71.30% 2,122,246,979 10.10% 2,337,108,499 Ancillary revenue 1,338,530,768 25.80% 1,684,418,350 24.40% 2,095,612,223 Cargo 17,104,394,200 14.00% 19,504,340,982 26.40% 24,656,078,237 Passenger         Sale of air transportation services:           REVENUE 2008 <ul><li>% Change </li></ul>2009 % Change 2010
  31. 32. CEBU PACIFIC FINANCIAL STATEMENTS <ul><li>Inflow and Outflow of Cash in the Statements of Cash Flow </li></ul>55,008,391 (1,828,412,098) 1,900,036,105 Net cash provided by (used in) financing activities (1,920,320,321) (1,627,955,552) (5,923,107,192) Net cash used in investing activities 2,259,105,960 6,643,938,171 10,023,707,960 Net cash provided by operating activities 2008 2009 2010
  33. 34. PROFITABILITY PERFORMANCE MEASURE <ul><li>ROS - the greater a company's earnings in proportion to its assets (and the greater the coefficient from this calculation), the more effectively that company is said to be using its assets </li></ul><ul><li>ROE - The amount of net income returned as a percentage of shareholders equity </li></ul><ul><li>ROA – Often referred to as ROI. Indicates what return a company is generating on the firm's investments/assets </li></ul>13.9% 4.3% Return on Assets 38.7% 55.7% Return on Equity 23.8% 4.0% Return on Sales
  34. 35. LIQUIDITY/SOLVENCY PERFORMANCE MEASURE <ul><li>Current Ratio – This is an indication of the company’s ability to meet short-term obligations; the higher the ratio the more liquid the company is </li></ul><ul><li>Debt/Equity Ratio - It indicates what proportion of equity and debt the company is using to finance its assets </li></ul>178.9% 1,249.5% Debt/Equity Ratio 123.1% 36.2% Current Ratio
  35. 36. MARGIN ANALYSIS <ul><li>Profit Margins – Profitability ratios/margins are a good indicator of how efficient a company is operating. </li></ul><ul><li>Gross Margin Percentage - This number represents the proportion of each dollar of revenue that the company retains as gross profit </li></ul><ul><li>Profit Margin Percentage - </li></ul>23.8% 4.2% Profit Margin % 22.2% 4.1% Gross Margin %
  36. 37. CASH FLOW RATIOS <ul><li>Cash-based – The higher the ratio the more liquid are the current assets </li></ul><ul><li>Operating cash flow – Cash generated from the operations of a company </li></ul>81.5% 34.1% Operating cash flow 64.5% 38.9% Cash-based ratios
  37. 38. FUTURE TRENDS IN THE AIRLINE INDUSTRY <ul><li>To meet the requirements of their increasingly discerning customers, some airlines are having to invest heavily in the quality of service that they offer, both on the ground and in the air. Ticketless travel, new interactive entertainment systems, and more comfortable seating are just some of the product enhancements being introduced to attract and retain customers. </li></ul><ul><li>Successful airlines will be those that continue to tackle their costs and improve their products, thereby securing a strong presence in the key world aviation markets </li></ul><ul><li>Emergence of the Low Cost Carriers (LCCs) such as Air Asia, Jetstar </li></ul><ul><li>Growth in Tourism </li></ul><ul><li>A380: The largest passenger aircraft to date - Due to its size, many airports had to modify and improve facilities to accommodate it. The first aircraft,was delivered to Singapore Airlines on 15 October 2007 and entered service on 25 October 2007. As of October 2011 there had been 236 firm orders for the A380, of which 59 have been delivered. </li></ul>
  38. 39. <ul><li>Thank you </li></ul>26