emerging trends - international civil aviation...

1

Strategic Airport Management Programme9-13 April 2007

Emerging TrendsEmerging Trends

��

��

��


OutlineOutline�� Unprecedented Rapid GrowthUnprecedented Rapid Growth�� Aviation Security ThreatsAviation Security Threats�� Escalating Fuel PricesEscalating Fuel Prices�� Aircraft TechnologyAircraft Technology�� Low Cost CarriersLow Cost Carriers�� EnvironmentEnvironment�� Airport PrivatizationAirport Privatization

2


�� The global aviation landscape has The global aviation landscape has changedchanged

�� Air travel has become more Air travel has become more affordable, affordable, egeg. low cost carriers. low cost carriers

�� Volume of air travel has grown and Volume of air travel has grown and will continue to growwill continue to grow

�� New aircraft like the A380, ultra New aircraft like the A380, ultra long range A340long range A340--500500

�� More airports being developedMore airports being developed�� Aviation becoming a greater Aviation becoming a greater

catalyst of global economic catalyst of global economic developmentdevelopment

What has changed?What has changed?


��Changes to global international political landscapeChanges to global international political landscape��Rise of global terrorism by organized and highly Rise of global terrorism by organized and highly

effective transeffective trans--national groupsnational groups��Much greater access to information through global Much greater access to information through global

communications and media communications and media –– creates greater creates greater awareness, influence opinions, perceptions, fearawareness, influence opinions, perceptions, fear

What has changed?What has changed?

3


��Aviation is a critical industry for global and Aviation is a critical industry for global and international economic development and cointernational economic development and co--operationoperation

What has not changed?What has not changed?


Unprecedented Traffic GrowthUnprecedented Traffic Growth�� Despite the setDespite the set--back of 9/11 in 2001 aviation back of 9/11 in 2001 aviation

traffic level recovered in 2005:traffic level recovered in 2005:--�� April 2001: 2,225,000April 2001: 2,225,000�� April 2005: 2,270,000April 2005: 2,270,000

�� ICAO forecasted traffic to grow by an average ICAO forecasted traffic to grow by an average of almost 6% over the next 3 yearsof almost 6% over the next 3 years

�� PassengerPassenger--kilometreskilometres performed will reach 2.8 performed will reach 2.8 million by 2015 with an average growth of 4.4%million by 2015 with an average growth of 4.4%

�� Opportunities from upward trend in aviation Opportunities from upward trend in aviation growth can be enormous in terms of economic growth can be enormous in terms of economic contribution of civil aviationcontribution of civil aviation

4


Unprecedented Traffic GrowthUnprecedented Traffic Growth�� Every $100 output + every 100 jobs generated Every $100 output + every 100 jobs generated

by air transport = Demands of $325 + 600 jobs by air transport = Demands of $325 + 600 jobs in other industryin other industry

�� Increase demand for capacityIncrease demand for capacity�� Funds for development of infrastructureFunds for development of infrastructure�� New equipmentNew equipment�� Increased manpower requirementsIncreased manpower requirements

�� Increase opportunitiesIncrease opportunities�� Revenue generation from retail, food and beverage, Revenue generation from retail, food and beverage,

servicesservices�� Airport real estate, Airport real estate, MROsMROs, logistics, rentals etc, logistics, rentals etc


��Aircraft HijackAircraft Hijack�� First incident in 1931First incident in 1931�� Bomb attacks on Bomb attacks on

aircraft and airportsaircraft and airports�� Hostage, shooting, Hostage, shooting,

sabotagesabotage

Aviation Security ThreatsAviation Security Threats

5


Dawson’s Field,Jordan 1970

Lockerbie –Bombing of Pan Am 103, 1988




��Aircraft used as Aircraft used as weapons of mass weapons of mass destructiondestruction�� 9/119/11

6


Aviation Security ThreatsAviation Security Threats��Carriage and Screening of Liquids, Carriage and Screening of Liquids,

Aerosols and Gels (Aerosols and Gels (LAGsLAGs))�� ICAO State Letters dated 1 Dec 2006 and ICAO State Letters dated 1 Dec 2006 and

30 March 200730 March 2007�� Ban on Ban on LAGsLAGs of more than 100ml in 1 of more than 100ml in 1 litrelitre

bagbag


Aviation Security ThreatsAviation Security Threats��Carriage and Carriage and

Screening of Liquids, Screening of Liquids, Aerosols and Gels Aerosols and Gels ((LAGsLAGs))�� Use of tamperUse of tamper--evident evident

bags for bags for LAGsLAGs purchased purchased at airportsat airports

�� Supply chain and Supply chain and validationvalidation

�� Impact on other industries Impact on other industries egeg vineyardsvineyards

7


Aviation Security ThreatsAviation Security Threats��Threats to aviation have Threats to aviation have

become more sophisticatedbecome more sophisticated�� MANPADSMANPADS�� Use of liquid and chemicals Use of liquid and chemicals

explosives that are difficult to explosives that are difficult to detectdetect


Airports��Air Traffic Control Air Traffic Control

FacilitiesFacilities��Terminal BuildingsTerminal Buildings��Key support facilitiesKey support facilities

Vulnerabilities of AviationVulnerabilities of Aviation

8


�� International Civil Aviation OrganizationInternational Civil Aviation Organization�� High level ministerial conference Feb 2002High level ministerial conference Feb 2002�� AVSEC Plan of ActionAVSEC Plan of Action�� Amendments to Annex 17 Amendments to Annex 17 –– new standardsnew standards�� ICAO Universal Aviation Security Audit ICAO Universal Aviation Security Audit

ProgrammeProgramme�� AvSecAvSec PanelPanel�� Secretariat Study Group on Carriage of Secretariat Study Group on Carriage of

liquids, gels and aerosolsliquids, gels and aerosols

��Other international aviation Other international aviation organizations: IATA, ACIorganizations: IATA, ACI

��Ultimately, States bear the responsibilityUltimately, States bear the responsibility

Addressing Addressing AvSecAvSec at different at different ForasForas


��Support Support ICAOICAO’’ss Plan of Action Plan of Action and Universal AVSEC Audit and Universal AVSEC Audit ProgrammeProgramme

��CoCo--operation with States on operation with States on AVSECAVSEC

�� Introduce new airport security Introduce new airport security systemssystems

��Enhance aviation security Enhance aviation security measuresmeasures

��Security vigilance, intelligenceSecurity vigilance, intelligence��Expeditious response to a threatExpeditious response to a threat

Efforts by all StatesEfforts by all States

9


��Aviation Security is everybodyAviation Security is everybody’’s s businessbusiness

��Everyone has a role and can Everyone has a role and can contribute to raising the level of contribute to raising the level of security (including passengers security (including passengers and operators and operators –– ieie. mindset). mindset)

��Local and international coLocal and international co--operation on aviation security is operation on aviation security is essentialessential

AvSecAvSec


Escalating Fuel PricesEscalating Fuel Prices�� Fuel prices has escalated over the past four Fuel prices has escalated over the past four

years to US$80 per barrelyears to US$80 per barrel�� Place substantial pressure on airlines in its Place substantial pressure on airlines in its

operations with the need to maintain high load operations with the need to maintain high load factors to remain financially viablefactors to remain financially viable

�� Numerous airlines in the US filed for Chapter 11 Numerous airlines in the US filed for Chapter 11 to restructure their cost base, while globally, to restructure their cost base, while globally, many airlines have foldedmany airlines have folded

�� Higher air tariff including fuel surcharge to Higher air tariff including fuel surcharge to overcome the high fuel costsovercome the high fuel costs

10


New Aircraft TechnologyNew Aircraft Technology�� New large aircraft, A380New large aircraft, A380

�� Increased capacity (at least 20% more)Increased capacity (at least 20% more)�� Overcome limited slot issuesOvercome limited slot issues�� Modification to infrastructure (runway, taxiway, Modification to infrastructure (runway, taxiway,

aerobridges, baggage system)aerobridges, baggage system)�� Ground facilitation of mass trafficGround facilitation of mass traffic�� Plagued by delaysPlagued by delays

in productionin productionaffecting airlineaffecting airlineroute developmentroute developmentplansplans

�� Aircraft separationAircraft separationissuesissues

��

��

��

��

� !�"�#� ��

�� ! �� !

�� $��%� & ��

'��"�#

��#� � �


New Aircraft TechnologyNew Aircraft Technology

11


New Aircraft TechnologyNew Aircraft Technology�� New long range aircraftNew long range aircraft

�� Increased opportunities with long stop flightsIncreased opportunities with long stop flights�� 1616--hour to 18hour to 18--hour flights are in demandhour flights are in demand�� Lead to changes in hub airports and activitiesLead to changes in hub airports and activities

�� A340A340--500500�� Launched in 2002, 8,665nmLaunched in 2002, 8,665nm

�� B777B777--200LR200LR�� Launched in 2006, 9,420nmLaunched in 2006, 9,420nm

�� B787B787�� TBC, 10,000nmTBC, 10,000nm


New Aircraft TechnologyNew Aircraft Technology�� Fuel efficient aircraftFuel efficient aircraft�� B787 B787 DreamlinerDreamliner

�� To be launched in 2008, up to 8,400 nmTo be launched in 2008, up to 8,400 nm

12


Low Cost CarriersLow Cost Carriers�� Low cost carriers are not Low cost carriers are not

new, beginning as early as new, beginning as early as 1949:1949:--�� Pacific Southwest Airlines Pacific Southwest Airlines

(1949)(1949)�� Southwest Airlines (1971)Southwest Airlines (1971)

�� Extended to Europe with Extended to Europe with notable success of:notable success of:--�� RyanairRyanair (Ireland and (Ireland and

rebrandedrebranded in 1991)in 1991)�� EasyjetEasyjet (UK, 1995)(UK, 1995)


Low Cost CarriersLow Cost Carriers

��

13


Success of Low Cost CarriersSuccess of Low Cost Carriers��Value PropositionValue Proposition

�� Get people to where they want to go onGet people to where they want to go on--time, time, reliably (some in a relax and fun manner)reliably (some in a relax and fun manner)

�� Keep fares low through high productivity of Keep fares low through high productivity of staff, multi tasking, minimal assets and staff, multi tasking, minimal assets and consumables, low cost structureconsumables, low cost structure

�� Use of technology and doing away with the Use of technology and doing away with the ““middlemanmiddleman”” or agentor agent

�� A A ““Bus in the SkyBus in the Sky”” conceptconcept


Low Cost Carriers CharacteristicsLow Cost Carriers Characteristics��Single aircraft type Single aircraft type –– minimise maintenance costsminimise maintenance costs��Unique cost effective pricing strategyUnique cost effective pricing strategy��ShortShort--haul flights with minimum turnaround time to haul flights with minimum turnaround time to

maximise aircraft usage; maximise aircraft usage; endend--toto--end traffic focusend traffic focus��NoNo--frills frills –– Single class seats, direct cost savings Single class seats, direct cost savings

and faster turnaroundand faster turnaround��Electronic ticketingElectronic ticketing��Financial productivity & other cost savingsFinancial productivity & other cost savings

�� uncongesteduncongested hubs, cash flows, aircraft layover, long hubs, cash flows, aircraft layover, long term contractsterm contracts

14


Comparison with legacy airlinesComparison with legacy airlines

�

�

��

��

�

��

��

��

��

��

��!��

�!��

"�� "��#

�

�

�

�

�

�

$�%��!��

"��

&��'��(�

)��

��*��

&�+��#

,�*��

"�� "��#


Low Cost CarriersLow Cost Carriers

-#��)��#.��

,��/��

��

15


Here to StayHere to Stay��Low cost carriers are here to stayLow cost carriers are here to stay��Need to account for their requirements which are Need to account for their requirements which are

different from the legacy airlinesdifferent from the legacy airlines��Simple, noSimple, no--frills airports with low fees and chargesfrills airports with low fees and charges��Different retail and food and beverage needs of Different retail and food and beverage needs of

passengers of different stratapassengers of different strata


EnvironmentEnvironment��Concerns over contribution of aviation gas Concerns over contribution of aviation gas

emissions to global warmingemissions to global warming��Measures on aviation gas emissions which is Measures on aviation gas emissions which is

exclude from the Kyoto Protocol to be taken up by exclude from the Kyoto Protocol to be taken up by ICAOICAO

��COCO2 2 emissions contribute less than 1% of total emissions contribute less than 1% of total global gas emissionsglobal gas emissions

��Every minute in flight generates 160kg of COEvery minute in flight generates 160kg of CO2 2

16


EnvironmentEnvironment��Pressure to adopt new fuel efficient aircraft which Pressure to adopt new fuel efficient aircraft which

also benefits airlines from cost perspectivealso benefits airlines from cost perspective�� Aircraft today are 70% more energy efficient than in Aircraft today are 70% more energy efficient than in

1970s1970s

��Savings in improved CNS/ATM systemsSavings in improved CNS/ATM systems��Environmental issues addressed at ICAO Environmental issues addressed at ICAO

CouncilCouncil’’s Committee on Aviation Environmental s Committee on Aviation Environmental Protection (CAEP) and UN Framework Protection (CAEP) and UN Framework Convention on Climate Changes (UNFCCC)Convention on Climate Changes (UNFCCC)

��Some States have implemented charges and EU Some States have implemented charges and EU is looking at implementing emissions trading is looking at implementing emissions trading systemsystem


Airport PrivatizationAirport Privatization��Airports are dynamic and global entitiesAirports are dynamic and global entities��From: Independent, nonFrom: Independent, non--profit, governmentprofit, government--

owned entities owned entities TO: Global commercial enterprises under public TO: Global commercial enterprises under public and private ownershipsand private ownerships

��Driving Forces of ChangeDriving Forces of Change�� Deregulation allows airlines to set own prices, travel Deregulation allows airlines to set own prices, travel

times and destinationstimes and destinations�� Available competitionAvailable competition

�� Increase reliance on nonIncrease reliance on non--airline sourcesairline sources�� Tie up with hotels, dutyTie up with hotels, duty--free shops, catering, retailfree shops, catering, retail�� Consultancy services and management contractsConsultancy services and management contracts

17


Deregulation and LiberalizationDeregulation and Liberalization��Deregulation and liberalization of ownership Deregulation and liberalization of ownership

provides opportunity for privatizationprovides opportunity for privatization�� Increasing demand for major investments to meet Increasing demand for major investments to meet

growth and improvements in quality of services to growth and improvements in quality of services to compete with other airports, far exceeds available compete with other airports, far exceeds available public resourcespublic resources

��PublicPublic--private partnership = source of funding in private partnership = source of funding in exchange for longexchange for long--term leases, concessions and term leases, concessions and contracts for recovery of investmentscontracts for recovery of investments

��Public agencies seek to reduce costs of services, Public agencies seek to reduce costs of services, shifting responsibility to private sectorshifting responsibility to private sector

��Generating businessGenerating business--like performances out of like performances out of utilities and infrastructure under government utilities and infrastructure under government ownershipownership


�� Airport privatisation began in the UK in the Airport privatisation began in the UK in the midmid--19801980’’s, as part of a general air transport s, as part of a general air transport liberalisation trendliberalisation trend

�� Use of private finance and expertise within a Use of private finance and expertise within a corporate structure to provide more corporate structure to provide more management flexibility, and greater capacity management flexibility, and greater capacity to change in step with the emerging to change in step with the emerging deregulated airline industry. deregulated airline industry.

�� Rapid passenger and freight traffic growth Rapid passenger and freight traffic growth called for urgent capacity expansion, and called for urgent capacity expansion, and created public financing problems for many created public financing problems for many government airport owners.government airport owners.

Privatization HistoryPrivatization History

18


�� From Europe, the trend to introduce private From Europe, the trend to introduce private capital through some form of sale capital through some form of sale transaction spread rapidly, followed by the transaction spread rapidly, followed by the formation of global bidding entitiesformation of global bidding entities

�� There is no universal formula for successful There is no universal formula for successful privatisation. A wide variety of solutions have privatisation. A wide variety of solutions have been applied successfully. been applied successfully.

Privatization HistoryPrivatization History


�� Traditional approaches to private sector Traditional approaches to private sector airport participation:airport participation:��outout--sourcingsourcing��Service concessionsService concessions��shortshort--term management contracts term management contracts

�� CorporatisationCorporatisation as first step, introducing as first step, introducing profitprofit--centredcentred management and creating management and creating corporate balance sheet for raising private corporate balance sheet for raising private financing financing

Evolution of StructureEvolution of Structure

19


�� Models with varying degree of privateModels with varying degree of private--public public governance relative to ownership and governance relative to ownership and managementmanagement�� hybrids or hybrids or Public Private Partnerships (PPP) Public Private Partnerships (PPP) �� need to develop partnership between public and need to develop partnership between public and

private sectorprivate sector

Evolution of StructureEvolution of Structure

Management

Ownership

Public

Private

Public Private

Trade sale/SEPTrade sale/SEPIPOIPO

Public UtilityPublic Utility ConcessionConcession

BOTBOT

PFIPFI


� Public Utility. � Public ownership and management� Separation of public versus some private (or

commercial) activities in the management of the airport

� PFI’s (Private Finance Initiatives) � early form of privatisation in the UK� Management of facilities remains public� Provision of facilities is privately managed and

financed based on a guaranteed purchase provision with the public sector

� Common in pure public services sectors iehospitals, defence but not airports.

PublicPublic--Private Management StructurePrivate Management Structure

20


� A concession�Private management services contract for fixed

term�When not politically feasible for government to

relinquish ownership of airport assets� Build-Operate-Transfer (BOT) model

�Project specific�Private sector finance, build and operate airport/

facility for fixed term after which ownership of airport/facility transferred back to government

�Shifts commercial, financing and construction risk from governments to private sector

�Governments retain some control via predefined contract scope, pricing, service quality, schedule



Government / Owner

Airport Operating Company

(Concessionaire)Operations Contract

Airport

Airport Management

Airport Revenues

Existing and NewAsset Ownership

ConcessionAgreement

ConcessionPayment

Bank Loan

Concession Agreement•Landing Charges•Staffing•Development Plan•Step in Rights•Airport Competition

Engineering, Procurement and Construction Contract

ConstructionCompany

Shareholders Equity

Generic BuildGeneric Build--OperateOperate--TransferTransfer

21


��Trade SalesTrade Sales�� triggered by a government desire to either pay triggered by a government desire to either pay

back or reback or re--deploy debt in other areas, besides deploy debt in other areas, besides improving commercial management at airportimproving commercial management at airport

��Majority or minority ownership in a Majority or minority ownership in a Strategic Strategic Equity PartnerEquity Partner (SEP)(SEP)..

��Governments may retain some control through Governments may retain some control through shareholding while still introducing added value shareholding while still introducing added value and technical expertise in an airport operations and technical expertise in an airport operations



�� Initial Public Offering (IPO)Initial Public Offering (IPO)��Alternative to a trade saleAlternative to a trade sale�� Involves full or partial sale of the airport through a Involves full or partial sale of the airport through a

stock quotationstock quotation��Method of raising cash but maintain management Method of raising cash but maintain management

controlcontrol��UnderUnder--performing current management practices performing current management practices

are retained and SEP are retained and SEP ‘‘investor controlinvestor control’’ premium premium in the equity sale price is lost.in the equity sale price is lost.


22


Means to Achieve the GoalsMeans to Achieve the Goals

Private SaleFlotation &Divestiture

Private SaleFlotation &Divestiture

BOOBOO

BOT / BTOBOT / BTO

ConcessionConcession

LeaseContracts

LeaseContracts

ManagementContracts

ManagementContracts

TechnicalAssistance& ServiceContracts

TechnicalAssistance& ServiceContracts

Supply &Civil WorksContracts

Supply &Civil WorksContracts

PUBLIC

PRIVATE

emerging trends - international civil aviation...

Documents