Perspectives on
Aviation Industry
Opportunities
National Civil Aviation Development Forum
Dublin
February 2017
Peter Morris
Chief Economist
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Agenda
• Global Industry Background and Trends
• Where is the industry going?
•
•
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Geographically
Technically
Economics/ Business models
• Where are the opportunities?
Business
Social /
Environmental
Macro economic
Trends to watch for the future
Change in Global Pattern of Economic Activity
Public Sector Challenges
Changing Consumer Landscape
Global Labour Market
Regulation and Scrutiny
Natural Resources
New Global Industry Structures
Changing Economics of Knowledge
A long term growth industry
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A Global Interrelated Business
Tourism and
Destination
Operators
Passenger and cargo CUSTOMERS
GOVTS &
REGULATORS
AGENTS &
INTERMEDIARIES
•Car Hire
•CC
•Hotel
•Ground Transport
AIRPORTS
AIR TRAFFIC
CONTROL
GDS
AIRLINE BUSINESSES
MANUFACTURERS
•Airframes
•Engines
•Components
•Spares
SUPPLIERS
•Fuel
•Insurance
•Handling
•MRO
•IT& IFE
•Airport
Systems
•Duty Free,
Car Parking
•Security
FINANCE
•Shareholders
•Leasing
•Debt
•M&A
•Fuel Hedging
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The Aviation Evolutionary Cycle
• GDP and population
• Price
• Product & Information
• Shock Events
• Changing tastes
• Aircraft performance
• Distribution options
• Information flow
• On board product
• Actual Performance
• Liberalisation
• Trade Blocs
• Competition
• Protectionism
Customer
Regulatory
Technology
Investment
Airline/
Airport
market
structure
• Ownership
• Alliances
• Route network growth
• Segmentation
• Consolidation
Changes in the world’s economic centre of gravity
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Source: PWC Feb 2017
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The noughties saw major changes in regional capacity
Factors impacting airline and airport markets
Dimension
Factor
Geopolitical
War, Terror, Health issues
Political/ Economic
Regulatory, Market Environment, Environmental
legislation
Macro Economic
GDP Growth, Exchange Rates, Finance Rates
Airline Business Models
Network, LCC, Regional on SH and LH
Supplier Costs
Fuel, Labour, Airport, ATC, booking, Security
Competitor Behaviour
Pricing, Products, Capacity, Alliances
Customer Behaviour
Premium Markets, Destination Choice, FFPs
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Creating a competitive airline business model
Reducing cost
Increasing revenue
Aircraft utilisation
Premium services
Distribution
Hubs/ networks
Staff utilisation/ cost
Targeting niche markets
Airport charges
Aircraft technology
Product unbundling
Overheads
Outsourcing
(Hubs/ networks)
CRITICAL MASS THEN NEEDED TO PROTECT
PROFITABILITY
Roadmap for ‘The Basic Hardware’
Source: Flight Fleet Forecast 2016, Passenger Jets
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Developing Markets set to grow faster than Established ones
Source: Flight Fleet Forecast 2016, Passenger Jets
The demographic downturn
Typical issue among developed
country workforces (US, DE, JP)
Potential losses of skills in critical
areas (e.g. pilots, engineers)
Productivity of different age groups
may vary significantly
Need to match future strategy with
demographic change in a proactive
manner
Similar factors may apply in high
growth environment with skills
shortages
10,000
50%
9,000
45%
8,000
40%
7,000
35%
6,000
30%
5,000
25%
4,000
20%
3,000
15%
2,000
10%
1,000
5%
0
0%
Single-Aisle
Twin-Aisle
Operating Lessor Fleet as Ratio of Total
Fleet
Passenger Fleet Managed by Operating
Lessors
Operating lessor share of fleet has stagnated since
peak in 2009
Share of Fleet
Source: Flight Fleets Analyzer (passenger aircraft in service / stored)
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Competition is always round the corner
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•
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The majority of the (8,000+) operating leased aircraft fleet is currently domiciled for
tax purposes in Ireland
This has created a successful cluster of aviation leasing and related businesses
and expertise
Other countries with proactive taxation regimes increasingly interested to compete
Singapore currently offers some advantages but the current financial benefit is
relatively marginal
From April 2017 Hong Kong proposes to offer a regime for aircraft leasing with an
Effective Tax Rate estimated below 4% (was 33%), compared with Ireland (12.5%)
and Singapore (10%). This could amount to a saving of nearly $1m per aircraft in PV
terms (@5%)
Would be extended to non-HK based aircraft, and further advantages could accrue
for Chinese airlines using a HKG lessor
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It can go wrong: Dubai Aerospace Enterprise
A Cautionary Tale
• Dubai Aerospace Enterprise was founded in 2006
• As a “global aerospace manufacturing and services corporation”, DAE was set up with
a capital base of USD15bn to establish “an integrated aerospace industry cluster”
• DAE Chairman in 2006: “Within 10 years, DAE will become an integral part of the
global aerospace industry and a leading player. We are putting down a marker for the
future.”
• The company originally had six divisions - DAE Capital, DAE Services, DAE
Manufacturing, DAE Airports, DAE Engineering and DAE University. It has since shut all
units except for leasing division DAE Capital and DAE Manufacturing. These are minor
players.
Our conclusion: The enterprise did not properly research its markets,
and failed to create the right business infrastructure, financial infrastructure or human
capital to support its ambitions. It clearly underestimated the intense global and
established competition in these aeronautical business areas
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Some Areas of Opportunity
Airline/ Airport
Global
Fleet &
Services
Education and
Training
Network
Travel
Distribution
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A New Generation of opportunity
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New Long Haul Potential from Ireland?
• ‘Low Cost Long Haul’ wide body
operations show marginal profitability
• New generation narrowbodies offer 68h flight capability
• Lower trip cost reduces financial risk
and improves profitability
• Dublin has good connectivity and
Transatlantic hub location - potential for
incumbents and new entrants
• Potential from Shannon?
Source: Barclays Analysis
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A new information, education and training world beckons for Global
Travel
Source: Brown/ Costello Dublin City Uni Aug 16
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On Line Academies
• 200 courses in 15 Languages
• Both promotional and qualification levels
• Content controlled by suppliers
• Suppliers communicate with closed user
groups
• Micro learning
https://onlinetraveltraining.com
Universities form an essential part of the education, training and talent
ecosystem for aviation and travel, which can be lucrative
Source: THEdS
Pilot training is evolving too
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Assessing opportunities
 Identify Context
 Industry trends
 Trend scenarios
 Understanding the players
 Benchmark the competition
 Quantify the outcome, scenarios
and reaction
 Step off the pier
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Summary
• Aviation has proved a robust global business, but has evolved
considerably since the 80s
• Growth has moved eastwards, challenging a W. Europe location
• Competition is a given in most areas of aviation goods and services
• Opportunities exist for developing:
• Advantageous regulatory framework (tax, facilitating market entry, COE)
• Proactive business encouragement (e.g. LCLH)
• Encourage co-operative physical ecosystems (Education, training, linked
businesses e.g. ‘Airport City’, MRO, manufacture)
• Develop new technology for products/ services to improve efficiency, flexibility
• Virtual products (training, distribution) for AsPac growth markets
Some questions for the panel
• What are the long term strengths Ireland can exploit?
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Regulatory
Business Framework
Geography
EU Regional Bloc
Education/ Training
‘Aviation ecosystems’
Global Relationships
• What/ who are the enablers in Ireland and elsewhere to target?
• How can government best facilitate the opportunities?
• What opportunities will UK aviation chaos throw up?
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Thank you!
Peter Morris
Chief Economist
+44 (0)20 8564 6790
+44 (0)7725 496758
[email protected]
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