DRAFT“Setting the scene : the current crisis and beyond…”                A.T. Kearney introduction                     Dec...
Setting the scene…    Rebound          Conjuncture                     Global Economic Environment         Aviation Indust...
Global economy is witnessing one of the largest crisessince 1929                                                          ...
For the airline industry, this is coupled with a dramaticrecent surge in oil prices and airport / route chargesEvolution o...
The resulting deterioration in global travel demand has led to airline carriers reducing capacity and cutting fares Global...
However, there are good long term prospects for the airline      industry players...  Worldwide passenger long term traffi...
… that will have the financial stability to overcome thecrisisOverview of airline failures since 2008                     ...
Low Cost Carriers have proven to be more resistant to theglobal downturnEvolution of number of passengers(% change vs. sam...
In prosperous times, Travel & Tourism demand has beenoutperforming global growth indicatorsCompared evolution of GDP and T...
There is furthermore a strong unveiled potential and goodlong term prospects for global travel & tourismTrips and real GDP...
Travel & tourism will however have to take into account the  crisis-driven evolution of customers’ behavior  Holiday organ...
To overcome the crisis there is still potential to developrevenues with ancillary services…Ancillary revenues for Airline ...
… and there is urgency to get to the next level in coststructure optimizationAirlines cost structure optimization levers  ...
There are some macroeconomic signs of a potential  recovery in 2010, but still much uncertainty…  Industrial and Services ...
THANK YOU !              A.T. Kearney 18/IACA 2009 15
DISCLAIMERAny reproduction, partially or entirely, is forbidden without the prior express permission of thecopyright holde...
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Presentation IACA Agm Dec 2 2009

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Opening presentation for the IACA Annual General Meeting in December 2009 in Brussels

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Presentation IACA Agm Dec 2 2009

  1. 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. 2. Setting the scene… Rebound Conjuncture Global Economic Environment Aviation Industry Leisure Industry A.T. Kearney 18/IACA 2009 2
  3. 3. Global economy is witnessing one of the largest crisessince 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. 10Sources: Press search, IMF, financial reports, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 3
  4. 4. For the airline industry, this is coupled with a dramaticrecent surge in oil prices and airport / route chargesEvolution of Jet fuel prices Costs per passengerIn $/bbl, 2000-2009 In $/passenger, 2003-2007130 Fuel as a % of total costs Landing and airport charges/pax120 On average; 2003; 2009 8,8 Route charges/pax 8,6 31,7 %110 Flag Carriers 7,6 7,7 7,6100 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 2007Sources: AEA, IATA, ICAO, broker reports, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 4
  5. 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. 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 crisis4,5 6000 4.7% pa 2000 trend4,0 50003,5 2008 peak 4.8% pa IATA Forecast 1999 trend3,0 4000 5.4% pa2,5 2000 peak 1980 trend 30002,0 9.7% pa 1990 peak1,5 2000 1970 trend1,0 1979 peak 10000,5 3 years of low growth0,0 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. 7. … that will have the financial stability to overcome thecrisisOverview 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 2009Sources: IATA reports September 2009 , press search, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 7
  8. 8. Low Cost Carriers have proven to be more resistant to theglobal downturnEvolution 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 PremiumSources: Press researchn Company data, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 8
  9. 9. In prosperous times, Travel & Tourism demand has beenoutperforming global growth indicatorsCompared 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 exportsSources: World Travel & Tourism Council, Oxford economics, EIU, Eurostat, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 9
  10. 10. There is furthermore a strong unveiled potential and goodlong term prospects for global travel & tourismTrips and real GDP per Capita Outbound travel expenditureIn 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 CapitaSources: Airbus, IATA, PaxIS, Global Insight, European Travel Monitor, A.T. Kearney analysis A.T. Kearney 18/IACA 2009 10
  11. 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% bookingOrganised 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. 12. To overcome the crisis there is still potential to developrevenues with ancillary services…Ancillary revenues for Airline Carriers ILLUSTRATIVEIn % 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. 13. … and there is urgency to get to the next level in coststructure optimizationAirlines 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 structureSource: A.T. Kearney analysis A.T. Kearney 18/IACA 2009 13
  14. 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
  15. 15. THANK YOU ! A.T. Kearney 18/IACA 2009 15
  16. 16. DISCLAIMERAny reproduction, partially or entirely, is forbidden without the prior express permission of thecopyright holder. All logos and corporate names referenced in this report constitute theintellectual property of their respective right holders.© A.T. Kearney S.A.S. 2009 A.T. Kearney 18/IACA 2009 16

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