Asia Pacific Aviation. Industry Overview & Regulatory Challenges. Andrew Herdman Director General Association of Asia Pacific Airlines

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Dustin McCormick
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1 Asia Pacific Aviation Industry Overview & Regulatory Challenges Andrew Herdman Director General Association of Asia Pacific Airlines Overview Air travel Global mobility Future growth Asia Pacific aviation Regulatory challenges 1

2 Aviation: moving the world Air travel delivers global mobility 2,500 million passengers Carries 35% by value of global trade Wider social and economic benefits Outstanding safety record Source: ATAG Asia Pacific Diverse geographic region Home to 4 billion people - 62% of the world s population Generates 30% of global GDP Aviation widely recognised as a key contributor to economic and social development Wide range of income levels Dynamic economies boosting global growth 2

3 Global economic recovery Source: IMF Led by dynamic Asia Pacific economies Global Aviation 3

4 Recovery in passenger and cargo demand Global international passenger and cargo traffic Source: IATA Overall traffic levels achieving new highs Slower recovery for premium traffic Global international passenger traffic by class Source: IATA 4

5 Airline EBITDA margins by region Source: IATA Global airline industry profitability Strong results in 2010, but caution over prospects for 2011 Source: ICAO, IATA 5

6 Oil price volatility Real oil prices Oil as % of World GDP Source: FT Macro economic impact of oil price spikes Fuel hedging of limited value Will capacity growth pressure profits? Source: Ascend 6

7 Asia Pacific Aviation Asia Pacific Aviation US$ 156 billion revenue 619 million passengers 433 million domestic 186 million international 18 million tonnes of cargo 4,390 aircraft Asia Pacific carriers overall market share: 28% of global passenger traffic 43% of global cargo traffic Data: 2010 Estimates Source: Combined AAPA + non-aapa airlines GMT+7 to GMT+12 7

8 Asia Pacific Europe North America Airline enterprise values by region Source: AAPA Estimates Refocusing on growth Competition demands constant focus on productivity improvements and reducing unit costs Ongoing capital investment in 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 8

9 Future Growth Asia Pacific traffic share will grow significantly Traffic by airline domicile Source: Airbus 9

10 Asia Pacific fleet expansion Growth: complementary business models FSC LCC FSC LCC Global network carriers expected to thrive despite competition 10

11 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 Strategic planning for the air transport industry must factor in likely increases in the cost of carbon-based fuels, inclusive of emissions charges, and the potential impact on projected growth rates As a globally competitive, energy-intensive industry, we would prefer a globally harmonised, sector-specific approach to international aviation emissions under ICAO Governments set the climate change policy framework but there is a collective failure of political leadership on this issue Regulatory Challenges 11

12 Global regulatory influences Asia Pacific Wider impact of US and EU regulations Asia Pacific has limited influence US and EU regulatory perspectives US mainly driven by domestic political concerns Safety, led by FAA Politicisation of issues 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 issues Safety Assessment of Foreign Aircraft (SAFA) EC operational ban focuses on weak regulatory oversight but unfairly targets airlines Third Country Operators (as proposed would have wide-ranging impact) Insensitivity about extra-territorial impacts: unilateral actions Harmonisation efforts focus on US-EU differences 12

13 Asia Pacific : regulatory perspectives Highly diverse region: multiple governments and regulators Inconsistencies in level of commitment to regulatory oversight and safety initiatives Look to ICAO for leadership and guidance Harmonisation more about sharing best practices before legislating, not about resolving differences after unilaterally imposed regulations Current regional challenges include Responding to growth and assuring skill and resource levels SSP and SMS implementation including Just Culture Runway safety Difficulties in reconciling contradictory US/EU regulations Koito seats Fuel tank inerting systems Disabling of oxygen generators Third Country Operators approval Safety performance by operator region Western-built Jet Aircraft Major Accident Rates by Operator Region year moving averages 1.80 Major Accident Rates (per mil sectors) World N. America Europe ASPAC 13

14 Safety oversight ICAO perspectives ICAO accident rates by region ( averages) World 0.39 NACC 0.06 EURNAT 0.46 APAC 0.41 Universal Safety Oversight Audit Program (USOAP) Transitioning to Continuous Monitoring Approach (CMA) CMA to be supported by State Safety Program (SSP) Lack of effective implementation of critical elements of a safety oversight system Average compliance levels: Global (165) 41% APAC (22) 39% South Korea received highest assessment Safety strategic objectives include: Safety management implementation Continuing Airworthiness Sharing of safety data and information Regional safety and oversight Runway safety Improving regional safety management Multilateral consultation and collaboration ICAO FAA EC NAA Industry Stakeholders Region s regulators take joint action on regional shortcomings Agree on a regional safety strategy to address mutual challenges Regional Growth Limited regulatory resources Skills & Training demands Runway safety Data and information sharing Reinforce role of ICAO in setting global standards and regulatory oversight Challenge unilateral actions with over-bearing extra-territorial impact AAPA will continue to actively support the region s regulators to address safety priorities 14

15 Closing Thoughts Aviation is at the heart of global economic development with bright growth prospects Intensely competitive industry continues to drive innovation Highly regulated industry, covering both technical, 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 Association of Asia Pacific Airlines 9/F Kompleks Antarabangsa Jalan Sultan Ismail Kuala Lumpur MALAYSIA Tel: Fax:

Future Growth of the Airline Industry

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