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Global Airlines

Global Airlines. Industry - Raymond and Leo British Airways - Billy Delta Airlines - Trevor Singapore Airlines - Herman. Presentation Agenda. Airline Industry Overview State of the Industry Traffic and Economics Regional Summaries Analysis of British Airways Delta Airlines

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Global Airlines

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  1. Global Airlines Industry - Raymond and Leo British Airways - Billy Delta Airlines - Trevor Singapore Airlines - Herman

  2. Presentation Agenda • Airline Industry Overview • State of the Industry • Traffic and Economics • Regional Summaries • Analysis of • British Airways • Delta Airlines • Singapore Airlines

  3. Airline Industry Overview • Economy grows, travel grows • Current short-term cycle is severe • RPKs negative growth • SARS virus • Long-term forecast remains healthy • Economies will grow 3.2% annually • Air travel will be 5.1% • Industry deregulation stimulates air travel • New routes and more frequencies • Economic and traffic growth rates vary by region

  4. State of Industry Air Traffic Cycles Long-term Trend

  5. Air Travel Cycles • Annual negative world traffic growth • In 1991 and in 2001-2002

  6. Air Travel Cycles Cont’… • Long-term trends remain healthy • Drivers for long-term air travel growth • Economic growth • Globalization of trade • Airline network service improvements • Declining fares • Deregulation and liberalization

  7. Air Travel Cycles Cont’… • In short term, air travel is more volatile • Consumer confidence • Business profits • Depressed income • High-technology stock market “bubble” • September 11 • Outbreak of SARS

  8. Long-term Trend

  9. Long-term Trend Cont’… • Keys: • Forecast shows 5% fewer world RPKs (Revenue per kilos) at the end of 20 years than without this unusual short-term cycle • Yet, air travel growth will continue the pace at 5.1% annually

  10. Traffic and Economics

  11. Economic and Traffic Forecast • World GDP is forecast to grow by 3.2% over the next 20 years • Mature economies, GDP growth will average between 2~3% • Emerging economies, GDP growth may average over 4%

  12. Forecast Cont’…

  13. Regional Summaries

  14. European Airline Industry

  15. Companies • Company in focus: British Airways • Others: • Air France • KLM • Lufthansa • Virgin Atlantic

  16. Source: Air Transport Association

  17. Industry Highlights – 2002/03 • Passengers • 13.8 millions reduction • Breakeven Load Factor • 69.4%; compared to a 69.2% load factor • Profit • USD$0.87 billions loss

  18. Factors influencing the industry • SARS phenomenon • Iraqi War • Post 9/11 recovery phrase • External Shocks • Currency Appreciation • Security & Insurance

  19. Source: Association of European Airlines

  20. Competition • External • The US Airlines in the North Atlantic market • Internal • Substantially increased of no-frills competition in Europe • Ryanair, Easyjet, Go, bmibaby, Virgin Exp, etc • Consolidation & Alliances • Star, Oneworld, KLM/Northwest, SkyTeam

  21. Regulatory Environment • Deregulation is a global trend • First stage of liberalization in European Airlines • European governments wants: • Low fares • Consequence • Increased demand • Increased demand for infrastructure growth

  22. Trends • Slow recovery • Mature economies with low growth rates • Continuation of liberalization • Growing international networks • Rise of “No-Frills” carriers

  23. Source: Association of European Airlines

  24. N. American Airline Industry

  25. Companies • Company in focus: Delta Airlines • Others: • United Airlines • American Airlines • Southwest Airlines • Northwest Airlines

  26. Industry Highlights – 2002/03 • Passengers • 17.4 millions reduction • Breakeven Load Factor • Increased from 76.7% to 81.4%; compared to 72.1% load factor • Profits (Loss) • USD$12.1 billions loss

  27. Factors influencing the industry • Post 9/11 recovery/syndrome • Customer avoidance of air travel • Government tax & Security policies • Insurance • Escalating fuel prices • Economic downturn • Iraq War and SARS phenomenon

  28. Source: Air Transport Association

  29. Competition • 85% of the passengers have more than 2 or more carriers • Growth of hub-and-spoke • Increased competition in small markets • Alliances • Star • SkyTeam • OneWorld

  30. Regulatory Environment • Deregulations • Mature liberalization • Post 9/11 Financial Effect • Increase financial burden for airlines • Additional insurance costs • Increased tax burden

  31. Source: Air Transport Association

  32. Source: Air Transport Association

  33. Trends • Slowly recovering • Mature economies with low growth rates • Low fares • Cost-cutting strategies • Efficient airline networks

  34. Asian Airline Industry

  35. Northeast Asia • Annual GDP growth is forecast at 2.1% • This low rate is driven by Japan • Korea will grow at a faster rate than Japan • Air travel will grow above world average • Globalization and liberalization • Fully deregulation • Air travel growth at 6.2%

  36. Northeast Asia Cont’… • Fragmentation will continue • North America will remain popular • Europe continues to grow

  37. Southeast Asia • A mixture of countries at varying stages of economic growth • GDP is forecast to grow at 4.7% annually over the next 20 years • The region is diverse • Economic and cultural interchange

  38. Southeast Asia Cont’… • Southeast Asia has strong cultural ties with both Europe and North America • VRF (visiting friends and relatives) • Region with its natural resources and cultural attractions is forecast to develop as a leisure destination for Asia

  39. Southwest Asia • GDP outlook is forecast to grow at 5.5% • Subject to: • Privatization • Globalization • Infrastructure • Tourism development • Overall traffic growth of the region will average 7.0%

  40. Southwest Asia Cont’… • Traffic within Southwest Asia will average 8.7%, one of the world’s highest • Encompasses several air travel markets • Middle class travels for business • Pilgrimage • Tourists and VFR

  41. China • GDP forecast of 5.9% per year is the highest in the world • China is the fastest growing region • Air travel expands at 7.6% • World Trade Organization • Globalization is a major driver

  42. China Cont’… • Airline industry is modernizing • Airline consolidation • Infrastructure investment • Network and fleet rationalization • Participation in major alliances

  43. Airlines Analysis

  44. Stock Price: £224 £1=1.68 US Dollar (Nov 7, 2003)

  45. British Airways Background • British Airways is a public limited company • BA, is the leading airline in Europe • One of the biggest in the world • It manages almost 330 planes, 550 destinations in 133 countries • BA has holdings in other airlines, such as the Australian, Quantas, and the Spanish Iberia. • Major destinations are Europe, America, Africa, Australia, South Pacific and Middle East

  46. British Airways • Strategies • Low-cost strategy • £650 m in cost saving by March 2003 • Reduced manpower by 4446 people • Corporate Mission • Low fare in UK domestic market • Greater use of e-technology for customers, staff and agents • Focus on business class passengers

  47. British Airways • Main Competitors • Europe Market • Lufthansa and Air France are dominating the market • North America Market • United Airlines & Delta are dominating the market

  48. British Airways • Alliance • Oneworld alliance • 8 airline members: • British Airways, Aer Lignus, American Airlines, Cathay Pacific, Finnair, lberia, LanChile and Qantas.

  49. Strengths Strong brand name Good reputation Reduce net debt Weaknesses Reduce boeing aircrafts Routes reduced Reduce service and flights Increase insurance cost Increase security cost Downturn in passenger demand cutting flights to the US and the Middle East SWOT Analysis

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