asian aviation market overview and outlook by capa

Asian market overview and outlook: 2012 5th Asian Ground Handling International Conference, Bangkok

Brendan Sobie

Senior Analyst and Southeast Asia Chief Representative

Asian market overview

Asia is where all the action is

Asia’s airports are rising fast

China’s bubble just won’t pop

Rapid growth of low-cost carriers

Low-cost long-haul trend picks up momentum

Legacy carriers opt for multi-brand strategies

Profits on the decline

The new unique Asian confluence

There has never been a comparable growth

potential situation:

Economic thresholds being reached by hundreds of

millions of people

Airline liberalization transforms entry opportunities

Lower priced travel means “now everyone can fly”

Intra-Asian trade is grossly underdeveloped – meaning

more business travel

Airline innovation in this hothouse creates new hybrids –

that can succeed

Asian overview: top 12 markets

Source: CAPA - Centre for Aviation, Innovata and IMF

Notes: Seats and ASKs for week commencing 19-Mar-2012; GDP and population based on IMF figures for 2011

Asian overview: top 10 airports

Source: CAPA - Centre for Aviation and airport reports

Asia overview: Top airports

Tokyo Narita slips from top 10 as traffic falls by 17%

in 2011 to 28m. Partial recovery expected in 2012

Manila, Mumbai and New Delhi also just below the

top 10 at around 30m. In FY2010/11 New Delhi was

at 29.9m and Mumbai at 29.1m. Manila was at

27.1m in 2010 with 12.8% growth

Vietnam’s major airports are smaller but growing

fast. Ho Chi Minh reported traffic of 16.7m in 2011

(7.5% growth). Hanoi in 2010 was at 9.5m (22%

growth – one of the fastest in the world)

More rapid growth expected in 2012 for Jakarta but

growth at other top 10 airports will likely moderate

Airports in Motion: Asia rising

2001

Airports in Motion: Asia rising

2011

Airports in Motion: China

Airports in Motion: China

Beijing will eclipse Atlanta as the world’s largest

airports in 2H2012

There are huge growth opportunities in China’s

secondary airports. 21 airports in China handled

over 10m passengers in 2011

8 airports in China handled over 20m in 2011. In

2001 only Beijing was above the 20m threshold

Chinese carriers recorded 9% increases in domestic

and international passenger numbers in 2011

The bubble just won’t pop!

China passenger traffic and

forecast: 2003 to 2030

China cargo traffic and

forecast: 2003 to 2030

Chinese carriers are starting to

challenge traditional hubs

Rapid growth of LCCs in Asia

Source: CAPA – Centre for Aviation and OAG

LCC Capacity Share (% of seats) within Asia-Pacific, 2001 to 1Q2012


LCC penetration rates are now at or above the

global average of 26% in six of the 12 major Asian

markets – Singapore (26%), Thailand (27%), India

(38%), Malaysia (48%), Indonesia (51%) and

Philippines (57%)

LCC penetration rates are still well below global

averages in the other six major Asian markets –

South Korea (18%), Vietnam (14%), Japan (12%),

China (6%), Hong Kong (6%) and Taiwan (3%).

These are where the big opportunities are

Much smaller Myanmar (12%) presents a new

frontier market for Asia’s LCCs


Seven LCCs are launching in Asia this year

(including three in Japan), giving the region 50 LCCs

LCCs are expected to operate 1,000 aircraft or 1/3 of

the region’s narrowbody fleet by 2015

Lion Air is committed to expanding its fleet to over

450 aircraft by 2026. AirAsia is committed to

expanding its fleet to at least 350 aircraft by 2026.

IndiGo is committed to a fleet of 280 aircraft by 2026


AirAsia Group A320 delivery schedule, 2012-2026

Source: AirAsia Group

Low-cost, long-haul – yes, it can work

Jetstar (2006)

AirAsia X (2007)

Scoot (expected launch: June-2012)

Cebu Pacific (expected launch: 3Q2013)

Failures – Oasis Hong Kong, Viva Macau but very

different business models

But AirAsia X couldn’t make it work?

Nope, unique factors

Air Asia X drops Europe to focus on medium-haul

Routes intended to be about gaining awareness and

feeding into short-haul AirAsia hub

Break-even was acceptable outcome

MAS equity swap changes dynamics

Upcoming IPO creates need for all routes to be profitable

Long routes (above about 10 hours) are very difficult to be

profitable under LCC model at current fuel prices

Jetstar postpones Europe and North America: would be

“network extension”; revenue opportunities are in Asia

Europe not in immediate plans for Scoot

Legacy carriers respond

Recognizing most of the growth in Asia is at the

budget end, Asia’s legacy carriers have adopted new

multi-brand strategies

Qantas pioneered this concept with Jetstar in 2003.

Despite the initial sceptics and failures in other

regions, the multi-brand strategy has proven to be a

successful formula in Asia

Singapore Airlines, Thai Airways, All Nippon Airways

and Japan Airlines are all launching new budget

brands this year. Garuda Indonesia and Vietnam

Airlines also have joined this trend

Legacy carriers respond:

Why SIA is establishing Scoot?

SIA's long-haul low-cost subsidiary strategy to restore growth after a lost decade CAPA > Aviation Analysis >

26th May, 2011

http://www.centreforaviation.com/

http://www.centreforaviation.com/analysis/


Why Thai is establishing Thai Smile?

Thai Airways to use Thai Smile to fight back at AirAsia and rapid LCC growth in Thailand CAPA > Aviation Analysis >

8th September, 2011




Changing models

Most of these ideas don’t

work in the rest of the

World. Rapid growth

changes everything

Changing

models


Changing models

Rapid expansion like Asia’s is disruptive

It changes practices that may survive in mature

economies, where inertial forces tend to outweigh

innovation

Consequently, expect proliferation of models, where

the main changes used to be eg “more premium

economy vs business” – now you see a whole

different airline subsidiary


Regional home

Singapore Airlines and SilkAir

Cathay Pacific and Dragonair

Thai Airways and Thai Smile (regional/LCC hybrid)

Malaysia Airlines and Sapphire

Garuda with new dual-class CRJ1000 operation


Premium focus

Thai Airways Strategic Plan for 2012-2018

Garuda Indonesia “Quantum Leap” Business Plan

for 2011-2015

Malaysia Airlines “Our Way Forward” Business Plan

(introduced in Dec-2011)

Cathay Pacific introduces premium economy


New-generation widebody orders

Source: CAPA – Centre for Aviation, Airbus and Boeing. Note: figures as of Feb-2012

Boeing 787 and Airbus A350 orders by region

Asian market outlook:

Lower profits

Profits were down in 2011 and for several carriers

profits could further drop in 2012. A return to 2010

levels is not likely anytime soon. But Asia is still the

best place to be

Japanese market should bounce back in 2012. Will

benefit from liberalization, in particular LCCs

Asian carriers with high exposure to long-haul

routes, face the biggest challenges. But they will

likely remain profitable including Cathay and SIA

Garuda, MAS and Thai should see profit

improvements due to their restructuring efforts


Lower profits

Asian carrier capacity will up almost 10% this year.

But demand could lag slightly, leading to further load

factor declines

High double-digit capacity growth is expected in

Indonesia, Vietnam and the Philippines.

Overcapacity is a risk in some markets

AAPA capacity was up 6% in 2010 while demand

was up only 4%, leading to a 2 point load factor

drop. Total Asian capacity, including LCCs, was up

an estimated 9% in 2010 while demand was up an

estimated 8% (UBS figures)

Asian

market

outlook

Asia Pacific airlines’ “ambitious fleet plans” threaten excess capacity, lower load factors in 2012 CAPA > Aviation Analysis >

27 January, 2012




The growing middle class

2/3 of all middle class growth will be in Asia

Global middle class to grow from 1.8bn to 4.9bn by

2030

China’s middle class will reach 900m by 2030

India’s middle class will reach 600m

Rapid middle class growth also expected in

Indonesia


The next decade

Important to recognize that what is happening now in

this region is totally without precedent

It is not simply a once in a generation change…It is

a once in history change

Consequently, it will be turbulent and often

surprising. Full of opportunities – for those who know

what is going on. And risks!

For ground handling providers there will continue to

be plenty of opportunities in Asia as the region’s

airlines and airports continue to pursue rapid

expansion


Challenges

Infrastructure: New runways, terminals and airports

are needed to keep up with the growth

Liberalization: It can’t happen fast enough

Intense competition and potential overcapacity

Global economic slowdown and rising fuel prices

BUT THE CHALLENGES CAN BE

OVERCOME AND ASIA OVERALL IS

POISED FOR MORE RAPID AND

PROFITABLE GROWTH!

Brendan Sobie

[email protected]

www.centreforaviation.com