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Asia Pacific AviationAsia Pacific AviationIndustry Overview &
Regulatory Challenges
Andrew HerdmanAndrew HerdmanDirector General
Association of Asia Pacific Airlines
O er ieOverview• Air travel• Air travel
• Global mobilityy• Future growth
• Asia Pacific aviation• Regulatory challengesRegulatory challenges
Aviation: moving the world
• Air travel delivers global mobility
• 2,800 million passengers
• Carries 35% by value of global trade
• Wider social and economic benefits
• Outstanding safety record
Source: ATAG www.aviationbenefitsbeyondborders.org
Crisis Management Response
Accidents earthquakes typhoonsAccidents, earthquakes, typhoons, floods, volcanic ash …
Global passenger and cargo traffic
Global international passenger and cargo traffic
Passenger traffic growth maintained, b t k d dbut very weak cargo demand
Source: IATA
Oil price volatility
Persistently high oil prices reflectPersistently high oil prices reflect political risk factors
Global recovery moderatesWorld growth2010 +5.2%2011 +3 8%2011 +3.8%2012E +3.3%2013F +3.9%
Pattern of two speed growth maintainedSource: IMF
Pattern of two-speed growth maintained
World output – long term historical trends
Source: Maddison (2010) & Conference Board
Output measured on PPP basis
Asia Pacific
• Diverse geographic regionH t th 4 billi l• Home to more than 4 billion people
• 62% of the world’s population• Generates 27% of global GDP• Generates 27% of global GDP • Wide range of income levels• Dynamic economies delivering global growth• Dynamic economies delivering global growth• Aviation widely recognised as a key contributor
to economic and social developmentp• Political diversity remains challenging: need for
multilateral cooperation
Asia Pacific Aviation
US$163 billion revenue
652 million passengers457 million domestic195 million international
17 6 million tonnes of cargo17.6 million tonnes of cargo
4,984 aircraft
Asia Pacific carriers overall market share:27% of global passenger traffic
Source: Combined AAPA + non-AAPA airlines GMT+7 to GMT+12
41% of global cargo trafficData: 2011 Estimates
Airline enterprise values by region
Southwest
Delta Air Lines
Amer
ica
L fth
Ryanair
Air Canada
US Airways
United Continental
North
A
Air China
Aeroflot
BA - Iberia
AF - KLM
Lufthansa
Euro
pe
Qantas
Cathay Pacific
China Eastern
All Nippon
Air China
Asia
Pacif
ic
- 5,000 10,000 15,000 20,000 25,000
Q
US$ million
Market Capitalisation Long Term Debt
Source: AAPA EstimatesMarket capitalisation as of 08 March 2012
Refocusing on growth
• Competition demands constant focus on productivity improvements and reducing unit costs
• Innovation in both services and business models
• Ongoing capital investment in fleets airports and other• Ongoing capital investment in fleets, airports and other services infrastructure
• Recruitment and training of skilled workforceRecruitment and training of skilled workforce
• Manage risks including currency and oil price volatility
• Crisis management preparedness
Aviation as a business also faces significant regulatory constraints and government policy risks
Evolving Business Models
• Full Service Network Carriers• Still investing heavily in premium services
S• Streamlining short haul operations• Establishing LCC subs and associates
• Point-to-Point LCCs• Initially focused on domestic short-haul• Venturing into international and longer-haul markets• Experimenting with codeshares, connections, adding
customer service
• Further signs of convergence• Long-haul invariably uses wide body aircraft, involves cargo
operations, two-class passenger configurations• Development of hybrid partnerships and new ventures
Growth: complementary business models
2010 Traffic = 4.8 trillion RPK 2030 Traffic = 12.3 trillion RPK
Global network carriers expected to thriveGlobal network carriers expected to thrive despite competition
Aviation – sustainable growth?
• Aviation delivers continuous improvements in fuel efficiency through technology, operations and infrastructure
• The aviation industry is united and has committed to challenging environmental performance targets
• As a globally competitive energy-intensive industry weAs a globally competitive, energy-intensive industry, we would prefer a globally harmonised, sector-specific approach to international aviation emissions under ICAOD f h k f l i d i i• Dangers of a patchwork of overlapping and inconsistent measures
• EU ETS risks triggering a trade warEU ETS risks triggering a trade war
Governments set the climate change policy framework but there is a collective failure of political leadership on this issue
Global Regulatory Influences
AsiaAsia Pacific
•Wider impact of US and EU regulations
•Asia Pacific has limited influence
US and EU regulatory perspectives
• US continue to be driven by domestic political concerns– Safety, led by FAA– Politicisation of issues - FTL, Crew experience levels (minimum 1500FH)– International Aviation Safety Assessments (IASA) have global impact– FAR129 oversight of foreign operators
• EU also mainly driven by domestic political concerns– Safety: EC, EASA, Eurocontrol
– Centralised approach to both aero-political and regulatory issuespp p g y– Oversight of foreign air carriers
– Safety Assessment of Foreign Aircraft (SAFA)– EC operational ban focuses on weak regulatory oversight but unfairly targets airlinesp g y g y g– Third Country Operators (as proposed will have wide-ranging impact)
• Insensitivity about extra-territorial impacts: unilateral actionsH i i ff f US EU diff• Harmonisation efforts focus on US-EU differences
Asia Pacific : regulatory perspectives
• Highly diverse region: multiple governments and regulators• Inconsistencies remain in level of commitment to regulatory oversight
and effective implementationand effective implementation• Look to ICAO for leadership and guidance• Harmonisation more about sharing best practices before legislating,
t b t l i diff ft il t ll i d l tinot about resolving differences after unilaterally imposed regulations• Increase of third country ramp inspections – harmonization an issue• Current regional challenges includeg g
• Responding to growth and assuring skill and resource levels• SSP implementation including “Just Culture”• Runway safety – development of Runway Safety Teamsy y p y y• CFIT – Turboprop operations
• Difficulties in reconciling contradictory US/EU regulations
Safety oversight – ICAO perspectives
• ICAO accident rates by region, all aircraft types (2006 – 2010) Averages World 1.20 NA 0.04 EURNAT 1.55 APAC 1.67
• Lack of effective implementation of critical elements of a safetyoversight system
• Average compliance levels: Global 60% Some APAC States as low as g p20 %
• South Korea received highest assessment of 98%
• Safety strategic objectivesPolicy and Standardization - Safety Monitoring - Safety Analysis – Safety Implementation• Continuing Airworthiness• Sharing of safety data and information• Regional safety and oversight
• Runway safety• Controlled Flight into Terrain• Loss of Control
• Safety Management • Aircraft system failures
Improving regional safety management
• Multilateral consultation and collaboration• ICAO – FAA – EC – NAA – Industry Stakeholders• Region’s regulators take joint action on regional shortcomings
• Regional GrowthLi i d l
• Runway safety
Region s regulators take joint action on regional shortcomings
• Agree on a regional safety strategy to address mutual challenges
• Limited regulatory resources• Skills & Training demands
• Data and information sharing
• Reinforce role of ICAO in setting global standards and regulatory g g g yoversight
• Challenge unilateral actions with over-bearing extra-territorial impactimpact
• Increased recognition of the benefits of industry standards
AAPA will continue to actively support the region’sAAPA will continue to actively support the region s regulators to address safety and security priorities
Security
• Air travel is both highly safe and secure• Security procedures must balance risks againstSecurity procedures must balance risks against
costs and inconvenience to the public• We need intelligence-led, outcome-based, security
measures• Governments must recognise the benefits of
mutual recognition of security regimesmutual recognition of security regimes• Cargo security must involve the entire supply
chainchain• Terrorists measure their success by how much we
(over)react
Closing Thoughts
• Society relies on aviation every day, and especially in a crisis
• Aviation is at the heart of global economic development with bright growth prospectsHi hl l d i d i b h h i l• Highly regulated industry, covering both technical, economic and customer service dimensions
• Strong collaboration between regulators and• Strong collaboration between regulators and industry stakeholders essential for success
• Asia Pacific needs stronger engagement on keyAsia Pacific needs stronger engagement on key international policy and regulatory issues
Shared confidence and optimism about the futureShared confidence and optimism about the future