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The Future for Australian Aviation : Policy, Market & Infrastructure Challenges

The Future for Australian Aviation : Policy, Market & Infrastructure Challenges Ian Thomas Senior Consultant Industry Affairs. Market Overview. Domestic market : - Return to stable duopoly - Further restructuring likely International market :

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The Future for Australian Aviation : Policy, Market & Infrastructure Challenges

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  1. The Future for Australian Aviation: Policy, Market & Infrastructure Challenges Ian ThomasSenior Consultant Industry Affairs

  2. Market Overview • Domestic market: - Return to stable duopoly - Further restructuring likely • International market: - Local/regional pressure for liberalisation (eg Pacific) - Foreign ownership, control rules under review - Competition intensifying BTRE Transport Colloquium ‘05

  3. The scorecard: 15 years into domestic deregulation Upside: • Strong traffic growth • Greater competitiveness • Product innovation • Cheaper fares • Encourages market entry, allows exit Downside: X High volatility X Depleted yields X 4 failures X Single dominant operator

  4. The highs and lows Domestic Deregulation Average annual traffic growth 2.3 times GDP AAGR Market re-growth Entry, exit Compass 2 Entry Impulse, Virgin Blue Compass 1 collapse Exit Impulse, Ansett fails Asian crisis Source: BTRE, CAPA Percentage change in CY Traffic, Capacity & Frequency v GDP

  5. Long-term growth trend despite crises Capacity, Traffic & Load Factor Trends RPKs: +15.7% ASKs:+17.6% CY2004 Trend lines Source: BTRE, IMF High passenger loads, traffic levels

  6. Record profits Major Airline Profits & Profit Per Passenger, Capacity Unit New peak Previous peak 2000 Source: CAPA, Airlines Aggregate earnings eclipse previous peak by 42% in 2004

  7. More competition = less profit Qantas Ansett Virgin Impulse Qantas/Virgin Qantas/Ansett Qantas/ Australian Ansett Compass 1&2 Source: CAPA, Airlines Combined Profits of Major Airlines Year-on-year, 1990-2004

  8. Commercial impact VIRGIN LIGHT VIRGIN HEAVIER From traditional LCC……to Ansett II?

  9. QANTAS 2000 QANTAS 2005 Qantas fragments….different brands for different markets

  10. International Policy: The greatest challenge • Where to next with “open skies” • Australian airlines losing market share to foreign operators • Ownership/control limits need addressing - capital mobility issues - consolidation constraints • Government response to regional liberalisation (ASEAN+3, other) • Greater engagement with Asia

  11. Asia growing rapidly, but Australia/NZ only small players Asia accounts for 83% of available airline capacity to/from region Source: Innovata APGdat Australia/NZ fifth to Asia, Europe, America and Middle East

  12. Capital access, rising debt threaten growth Fleet rebuilding, high growth Qantas Capex, Net Debt Trends, 1994-2007 Capex 2002-2007 = $13.6b $1.4b in equity raisings Debt curve Source: Qantas annual reports, Lehman Bros

  13. Regional fleet growth places pressure on labour pool Current Aircraft Orders by Region • High demand • impacts on • training • wage costs • expansion plans Orders for 1,056 aircraft in next 3-5 years, 80 in Australia/NZ Source: Centre for Asia Pacific Aviation, Airlines

  14. Skills shortfall looms large Est. Annual Airline Employee Requirements by Type by Region, 2005-2009 7780 6023 4718 4472 2515 2100 1422 390 146,000 jobs required over 5 years; 29,000+ per year Source: Centre for Asia Pacific Aviation

  15. Australia & New Zealand7,109 jobs over 5 years 14.5% increase in employees to 2009 Source: Centre for Asia Pacific Aviation

  16. Surplus pilot supply may disappear quickly 4,303 commercial pilots (non-airline) 6,025 licensed airline pilots Also available: 300 ex-Ansett pilots, 200 foreign pilots Source: CASA Annual Reports

  17. Offshore competition for pilots increasing Retirement Overseas exodus to high demand centres China India SE Asia Middle East Qantas, Virgin, Air NZ Aust/NZ Pilot Pool

  18. Conclusions: The Challenges Ahead • Build on industry globalisation, regional liberalisation • Accelerate air service deregulation programme, focus on Asia • First stop is Singapore “open skies” agreement; 5th freedom access to Pacific • Remove road-blocks to consolidation (starting with New Zealand)

  19. Conclusions • Failure to facilitate capital, alliance development will impede growth and may threaten viability

  20. Only the brave.....

  21. Thank You!

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