Asia Pacific Aviation

Industry Overview &

Regulatory Challenges
Andrew Herdman
Director General
Association of Asia Pacific Airlines
O er ie
Overview
Air travel
Global mobilityy
Future growth
Asia Pacific aviation
Regulatory 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,
Accidents earthquakes typhoons
typhoons,
floods, volcanic ash
Current Business Conditions
Global passenger and cargo traffic

Global international passenger and cargo traffic

Passenger traffic growth maintained,

b t very weak
but k cargo demand
d d
Source: IATA
Premium and economy traffic

Slower recovery in premium traffic

Source: IATA
Oil price volatility

Persistently high oil prices reflect

political risk factors
Global airline industry profitability

Margins squeezed by high oil prices

Global Economic Outlook
Global recovery moderates
World growth
2010 +5.2%
2011 +3
+3.8%
8%
2012E +3.3%
2013F +3.9%

Pattern of two
two-speed
speed growth maintained
Source: IMF
World output long term historical trends

Source: Maddison (2010) & Conference Board

Output measured on PPP basis
Asia Pacific

Diverse geographic region

H
Home tto more than
th 4 billion
billi people
l
62% of the worlds population
Generates 27% of global GDP
Wide range of income levels
Dynamic economies delivering global growth
Aviation widely recognised as a key contributor
p
to economic and social development
Political diversity remains challenging: need for
multilateral cooperation
Asia Pacific Aviation
Asia Pacific Aviation

US$163 billion revenue

652 million passengers
457 million domestic
195 million international
17 6 million tonnes of cargo
17.6
4,984 aircraft
Asia Pacific carriers overall market share:
27% of global passenger traffic
41% of global cargo traffic
Data: 2011 Estimates Source: Combined AAPA + non-AAPA airlines GMT+7 to GMT+12
Airline enterprise values by region
America

Delta Air Lines

Southwest
North A

United Continental
US Airways
Air Canada
Ryanair
L fth
Lufthansa
Europe

AF - KLM
BA - Iberia
Aeroflot
Air China
Asia Pacific

All Nippon
China Eastern
Cathay Pacific
Qantas
Q

- 5,000 10,000 15,000 20,000 25,000

US$ million

Market Capitalisation Long Term Debt

Market capitalisation as of 08 March 2012

Source: AAPA Estimates
Airline Strategies
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

fleets, airports and other
services infrastructure

Recruitment 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
Streamlining
S 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
Business model innovation in Asia
Growth: complementary business models

2010 Traffic = 4.8 trillion RPK 2030 Traffic = 12.3 trillion RPK

Global network carriers expected to thrive

despite competition
Future Growth
Asia Pacific traffic will grow significantly

Source: Airbus
GMF2011-2030
Asia Pacific fleet expansion

Source: Boeing
g
CMO 2011 - 2030
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
competitive, energy-intensive industry
industry, we
would prefer a globally harmonised, sector-specific
approach to international aviation emissions under ICAO
Dangers off a patchwork
D h k off overlapping
l i and
d iinconsistent
i
measures
EU 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
Regulatory Challenges
Global Regulatory Influences

Asia
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
pp to both aero-political
p and regulatory
g y issues
Oversight of foreign air carriers
Safety Assessment of Foreign Aircraft (SAFA)
EC operational
p ban focuses on weak regulatory
g y oversight
g but unfairlyy targets
g airlines
Third Country Operators (as proposed will have wide-ranging impact)

Insensitivity about extra-territorial impacts: unilateral actions

H
Harmonisation
i i efforts
ff f
focus on US-EU
US EU differences
diff
 Asia Pacific : regulatory perspectives
Highly diverse region: multiple governments and regulators
Inconsistencies remain in level of commitment to regulatory oversight
and effective implementation
Look to ICAO for leadership and guidance
Harmonisation more about sharing best practices before legislating,
nott about
b t resolving
l i diff
differences after
ft unilaterally
il t ll iimposed
d regulations
l ti
Increase of third country ramp inspections harmonization an issue
Current regional
g challenges
g include
Responding to growth and assuring skill and resource levels
SSP implementation including Just Culture
Runwayy safetyy development
p of Runway
y Safety
y Teams
CFIT Turboprop operations
Difficulties in reconciling contradictory US/EU regulations
Safety performance by operator region
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 safety
oversight system
Average
g compliance
p levels: Global 60% Some APAC States as low as
20 %
South Korea received highest assessment of 98%

Safety strategic objectives

Policy and Standardization - Safety Monitoring - Safety Analysis Safety
Implementation
Continuing Airworthiness Runway safety
Sharing of safety data and information Controlled Flight into Terrain
Regional safety and oversight Loss of Control
Safety Management Aircraft system failures
Improving regional safety management
Multilateral consultation and collaboration
ICAO FAA EC NAA Industry Stakeholders
Region
Regions
s regulators take joint action on regional shortcomings
Agree on a regional safety strategy to address mutual challenges
Regional Growth Runway safety
Limited
Li i d regulatory
l resources Data and information sharing
Skills & Training demands

Reinforce role of ICAO in setting

ggglobal standards and regulatory
g y
oversight
Challenge unilateral actions with over-bearing extra-territorial
impact
Increased recognition of the benefits of industry standards

AAPA will continue to actively support the regions

region s
regulators to address safety and security priorities
Security
Air travel is both highly safe and secure
Security 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 regimes
Cargo security must involve the entire supply
chain
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 prospects
Hi
Highly
hl regulated
l d industry,
i d covering
i both
b h technical,
h i l
economic and customer service dimensions
Strong collaboration between regulators and
industry stakeholders essential for success
Asia Pacific needs stronger engagement on key
international policy and regulatory issues

Shared confidence and optimism about the future

www aapairlines org
www.aapairlines.org
Association of Asia Pacific Airlines
9/F Kompleks Antarabangsag
Jalan Sultan Ismail
Kuala Lumpur 50250
MALAYSIA

Tel: +60 3 2145 5600

Fax: +60 3 2145 2500