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Airlines - International - June 2009

This report reviews recent developments in the airline industry and offers insight into future trends for the sector. The report begins with an overview of the current outlook for the economy and for the trend in spending on travel and tourism. As well as a discussion of the major international carriers, the impact of the worldwide economic and financial crisis on the sector is explored, including recent corporate results, bankruptcies and mergers, capacity cutbacks and cost-cutting initiatives. Other topics treated in depth include: the low-cost carrier (LCC) business model; the major airline alliances; distribution trends including frequent-flyer programmes; security and safety; airport relations including fees and capacity constraints, and environmental restrictions.

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Table of contents

  1. Introduction

      • Key findings
        • Abbreviations
          • Definitions
          • Data Sources

            • Overview

                • Outlook for GDP growth
                  • Private credit to contract
                    • Sharp downward revision in the forecast for world trade
                      • Some chance of a rebound in 2010
                        • Figure 1: Forecast GDP growth by region and major country, April 2009
                      • Air transport link to economic trends
                        • Exchange rate trends
                          • Commodity-based currencies have fallen
                            • Impact of currency moves on air travel
                              • Outlook for spending on travel and tourism
                                • Figure 2: Travel and tourism expenditure worldwide, 2009-19
                              • Spending to contract in 2009
                                • Figure 3: Real growth in worldwide travel and tourism expenditure (% per annum), 2009-14
                              • Trend in the price of jet fuel
                                • Trend in air traffic volumes (passengers and freight)
                                  • Market downturns usually last three years
                                    • Long-term growth rate declining
                                      • Figure 5: IATA forecasts for global air transport volumes, December 2007-13
                                    • Slumping demand hits European airlines
                                      • Passenger numbers drop 10.8% in Asia Pacific
                                        • Air cargo down 25%
                                          • Measures to combat the crisis
                                            • Figure 6: International scheduled services of AAPA* member airlines, 2008-09
                                          • Cost-cutting/capacity reductions
                                            • US carriers quick to cut capacity
                                              • Slump in premium passengers and freight to hit profits
                                                • Figure 7: Trend in air passenger volumes and capacity (includes passenger and cargo by weight), 2006-09
                                              • Premium travel normally 8% of passengers but 15-20% of total revenues
                                                • Figure 8: Premium traffic growth by route, YTD February 2009
                                              • Cutbacks in business travel
                                                • Business travel spending down 20-25% worldwide
                                                  • Sabre sees no rebound in 2010
                                                    • BCD notes a slight uptick
                                                      • Business class being reduced
                                                        • Air France/KLM launches ‘premium economy’
                                                          • Not originally intended for the corporate market
                                                            • Internal travel policies the focus of cost reductions
                                                              • Lowest-logical-fare policies
                                                              • Impact of the Worldwide Crisis on Airline Finances

                                                                  • Airlines to cut 14 million flights over next six months
                                                                    • Losses to be double the March forecast
                                                                      • Industry hit by economic meltdown
                                                                        • Consumers stand to benefit, however...
                                                                          • Current state of the industry
                                                                            • Fuel cost
                                                                              • Efficiency gains
                                                                                • Stronger cash reserves
                                                                                  • Declining load factors
                                                                                    • Profit outlook by region
                                                                                      • Airline results evidence financial distress
                                                                                        • Financial crisis narrowly averted due to the drop in fuel prices
                                                                                          • Air France/KLM records operating loss of ‘only’ €129 million
                                                                                            • Capital spending being reduced by €3.1 billion
                                                                                              • Business model remains intact
                                                                                                • AMR’s losses deepen in Q1/2009
                                                                                                  • AMR credit rating downgraded to ‘CCC’
                                                                                                    • Downgrade due to drop in demand
                                                                                                      • Cash losses projected to continue
                                                                                                        • Refinancing risk
                                                                                                          • Assets that could be liquidated
                                                                                                            • Declines in premium passenger traffic impacting RASM
                                                                                                              • Transatlantic business at risk
                                                                                                                • Higher non-fuel operating costs
                                                                                                                  • All 2010 aircraft deliveries have been financed
                                                                                                                    • AMR has breached original debt covenants
                                                                                                                      • Unsecured bond-holders could be at a disadvantage
                                                                                                                        • Air Canada on the brink of bankruptcy?
                                                                                                                          • BA has announced a record loss
                                                                                                                            • Premium traffic plummeting
                                                                                                                              • Easter holiday timing and snowfall impact
                                                                                                                                • The immediate concern is to conserve cash
                                                                                                                                  • BA predicts a loss for fiscal 2010
                                                                                                                                    • But a weak Pound offers some benefits
                                                                                                                                      • Cathay Pacific posts a record loss of US$1 billion in 2008
                                                                                                                                        • Cutting capacity
                                                                                                                                          • Chinese airlines seek government assistance
                                                                                                                                            • China Eastern Airlines has negative equity
                                                                                                                                              • Air China has also lost on hedging
                                                                                                                                                • China Southern Airlines also in line for a handout
                                                                                                                                                  • Delta results better than expected
                                                                                                                                                    • Combined passenger revenue down 18% year on year
                                                                                                                                                      • Figure 9: Comparison of combined Delta/Northwest operations, Q1/2009 compared with Q1/2008
                                                                                                                                                    • JAL to receive JPY200-billion rescue financing
                                                                                                                                                      • Lower landing fees and more slots
                                                                                                                                                        • JAL lost almost half a billion Dollars in fiscal year 2009
                                                                                                                                                          • Lufthansa lost €44 million in Q1/2009
                                                                                                                                                            • Lufthansa has a diversified business mix
                                                                                                                                                              • Figure 11: Breakdown of revenue and operating profits, by business segment Q1/2009
                                                                                                                                                            • Lufthansa has several passenger transport subsidiaries
                                                                                                                                                              • Still very much a European airline
                                                                                                                                                                • Figure 12: Lufthansa Group revenues breakdown, by region, Q1/2009
                                                                                                                                                              • Moderate capacity cuts
                                                                                                                                                                • Sharper cuts in cargo capacity
                                                                                                                                                                  • Still increasing the network in growth markets
                                                                                                                                                                    • Expansion in Eastern Europe going forward
                                                                                                                                                                      • Lufthansa Italia
                                                                                                                                                                        • Middle Eastern carriers still basking in the sun – at least for now
                                                                                                                                                                          • Over 100 aircraft deliveries in 2009 and 2010
                                                                                                                                                                            • Airbus increasingly dependent on the Middle East
                                                                                                                                                                              • Most carriers are 100% government-owned
                                                                                                                                                                                • Emirates Airline
                                                                                                                                                                                  • Not immune to the downturn
                                                                                                                                                                                    • Fleet set to more than double
                                                                                                                                                                                      • Figure 13: Emirates’ current fleet and orders, January 2009
                                                                                                                                                                                    • Etihad Airways
                                                                                                                                                                                      • Fleet set to more than treble
                                                                                                                                                                                        • Figure 14: Etihad current fleet and orders, January 2009
                                                                                                                                                                                      • Qantas slashes profit forecast, capacity and jobs
                                                                                                                                                                                        • Yields crashing
                                                                                                                                                                                          • Load factors also slump
                                                                                                                                                                                            • Capacity being reduced
                                                                                                                                                                                              • Staff reductions
                                                                                                                                                                                                • Jetstar vital to group health
                                                                                                                                                                                                  • Reaching its limits?
                                                                                                                                                                                                    • Figure 15: Qantas Group capacity (ASKs), by carrier: March 2008 vs March 2009
                                                                                                                                                                                                  • Singapore Airlines (SIA) still profitable but outlook deteriorating
                                                                                                                                                                                                    • Passenger traffic worsened in March
                                                                                                                                                                                                      • Cascading passenger volumes, cargo in a trough
                                                                                                                                                                                                        • Capacity cuts not sufficient
                                                                                                                                                                                                          • Figure 16: Singapore Airlines year-on-year percentage point change in passenger and cargo load factors, by region, March 2009
                                                                                                                                                                                                        • United Airlines has made deep capacity cuts
                                                                                                                                                                                                          • No major carrier has made steeper cuts
                                                                                                                                                                                                            • Operating loss halved
                                                                                                                                                                                                              • Major redundancies
                                                                                                                                                                                                                • Historically high operating costs
                                                                                                                                                                                                                  • A fighting chance to survive the downturn
                                                                                                                                                                                                                  • The Major Players

                                                                                                                                                                                                                      • Ranked by passengers carried
                                                                                                                                                                                                                        • Figure 17: Total passengers carried (international only), 2008
                                                                                                                                                                                                                        • Figure 18: Total passengers carried (domestic only), 2008
                                                                                                                                                                                                                        • Figure 19: Total passengers carried (international/domestic), 2008
                                                                                                                                                                                                                      • Ranked by passenger kilometres
                                                                                                                                                                                                                        • Figure 20: Scheduled passenger-kilometres flown (international only), 2008
                                                                                                                                                                                                                        • Figure 21: Scheduled passenger-kilometres flown (domestic only), 2008
                                                                                                                                                                                                                        • Figure 22: Scheduled passenger-kilometres flown (international/domestic), 2008
                                                                                                                                                                                                                      • Freight
                                                                                                                                                                                                                        • International
                                                                                                                                                                                                                          • Figure 23: Scheduled freight tonne-kilometres (international only), 2008
                                                                                                                                                                                                                          • Figure 24: Scheduled freight tonne-kilometres (domestic only), 2008
                                                                                                                                                                                                                          • Figure 25: Scheduled freight tonne-kilometres (international and domestic), 2008
                                                                                                                                                                                                                      • Bankruptcies/Mergers

                                                                                                                                                                                                                          • Figure 26: Major airline failures, by region, in December 2007-October 2008
                                                                                                                                                                                                                        • Delta and NWA join hands
                                                                                                                                                                                                                          • Figure 27: The value of expected annual synergies of the Delta/Northwest merger, 2009-12
                                                                                                                                                                                                                        • Complementary route networks
                                                                                                                                                                                                                          • Figure 28: Capacity breakdown of Delta/Northwest combined capacity, 2008
                                                                                                                                                                                                                        • Frequent flyers’ opinion of the merger
                                                                                                                                                                                                                          • Figure 29: Results of frequent flyer poll regarding the Delta/Northwest merger, December 2008
                                                                                                                                                                                                                        • Alitalia
                                                                                                                                                                                                                          • Lufthansa
                                                                                                                                                                                                                            • Lufthansa has finally captured BMI
                                                                                                                                                                                                                              • BA/Iberia combination still on hold
                                                                                                                                                                                                                                • Hurdles still to be overcome
                                                                                                                                                                                                                                • The Airline Business Model

                                                                                                                                                                                                                                    • Airline profitability
                                                                                                                                                                                                                                      • Airlines have not earned their cost of capital
                                                                                                                                                                                                                                        • Falling yields over the long term
                                                                                                                                                                                                                                          • Figure 30: Trend in passenger yields for US airlines, 1990-2008
                                                                                                                                                                                                                                        • A US$11.7-billion shortfall
                                                                                                                                                                                                                                          • Other segments of the aviation sector are doing better
                                                                                                                                                                                                                                            • Sources of airline revenue
                                                                                                                                                                                                                                              • Growth in ancillary revenues
                                                                                                                                                                                                                                                • EasyJet’s ancillary revenues up 115% in fiscal 2008
                                                                                                                                                                                                                                                  • A similar story at Ryanair
                                                                                                                                                                                                                                                    • Figure 31: Ryanair’s ancillary revenues as a proportion of the total, fiscal years 2007-08
                                                                                                                                                                                                                                                  • North American carriers slow to exploit ancillary revenue possibilities
                                                                                                                                                                                                                                                    • Air Canada sells Aeroplan interest
                                                                                                                                                                                                                                                      • Ancillary revenues 9-11% of total at big US carriers
                                                                                                                                                                                                                                                        • Increased baggage fees at Delta
                                                                                                                                                                                                                                                          • Other airlines following suit
                                                                                                                                                                                                                                                            • US budget carriers to increase ancillary revenues
                                                                                                                                                                                                                                                              • US budget carriers staying put on baggage charges
                                                                                                                                                                                                                                                                • Airline cost breakdown
                                                                                                                                                                                                                                                                  • Figure 32: US airline cost breakdown, by type, 2005*
                                                                                                                                                                                                                                                                • US airlines face higher labour costs
                                                                                                                                                                                                                                                                  • Falling energy prices to be offset by higher labour costs
                                                                                                                                                                                                                                                                    • Tentative agreement with Southwest pilots
                                                                                                                                                                                                                                                                      • Pilots could go on strike
                                                                                                                                                                                                                                                                        • Energy cost – a major concern
                                                                                                                                                                                                                                                                          • Currency helped European airlines
                                                                                                                                                                                                                                                                            • Energy hedges have backfired
                                                                                                                                                                                                                                                                              • Hedging losses have continued to impact 2009 results
                                                                                                                                                                                                                                                                                • Break-even load factors
                                                                                                                                                                                                                                                                                  • Seat configurations
                                                                                                                                                                                                                                                                                  • Low-cost Carriers

                                                                                                                                                                                                                                                                                      • Deregulation came in stages in Europe
                                                                                                                                                                                                                                                                                        • The LCC business model
                                                                                                                                                                                                                                                                                          • Low marginal costs and aggressive yield management
                                                                                                                                                                                                                                                                                            • Savings on distribution
                                                                                                                                                                                                                                                                                              • Incentive-based compensation
                                                                                                                                                                                                                                                                                                • Figure 33: Summary of the low-cost carrier business model, 2009
                                                                                                                                                                                                                                                                                              • Growth has well outpaced the industry
                                                                                                                                                                                                                                                                                                • Fast growth in market share
                                                                                                                                                                                                                                                                                                  • Figure 34: Trend in the operating revenues of Southwest and JetBlue, 2004-08
                                                                                                                                                                                                                                                                                                • AirAsia – the leading LCC in Asia
                                                                                                                                                                                                                                                                                                  • GOL the leading South American LCC
                                                                                                                                                                                                                                                                                                  • Major Airline Alliances

                                                                                                                                                                                                                                                                                                      • Code-sharing a central feature
                                                                                                                                                                                                                                                                                                        • Alliances have over a 70% market share
                                                                                                                                                                                                                                                                                                          • Figure 35: Market share of the three alliances, 2008
                                                                                                                                                                                                                                                                                                        • Airline alliances relatively new
                                                                                                                                                                                                                                                                                                          • Figure 36: Airlines by alliance, 2008
                                                                                                                                                                                                                                                                                                        • Recent major developments
                                                                                                                                                                                                                                                                                                          • Continental switching to the Star Alliance
                                                                                                                                                                                                                                                                                                            • Other developments by alliances
                                                                                                                                                                                                                                                                                                              • Figure 37: Summary of the airlines in the three major alliances, September 2008
                                                                                                                                                                                                                                                                                                            • oneworld
                                                                                                                                                                                                                                                                                                              • Oneworld affiliates
                                                                                                                                                                                                                                                                                                                • Growth has picked up in recent years
                                                                                                                                                                                                                                                                                                                  • Former BA franchisees exit the alliance
                                                                                                                                                                                                                                                                                                                    • Aer Lingus restructured as an LCC
                                                                                                                                                                                                                                                                                                                      • Mexicana to join in late 2009
                                                                                                                                                                                                                                                                                                                        • SkyTeam
                                                                                                                                                                                                                                                                                                                          • SkyTeam’s associate programme
                                                                                                                                                                                                                                                                                                                              • Figure 38: Profile of SkyTeam Associate Airlines, 2008
                                                                                                                                                                                                                                                                                                                            • Star Alliance
                                                                                                                                                                                                                                                                                                                              • Varig leaves the Alliance
                                                                                                                                                                                                                                                                                                                                • Varig has become a premium affiliate of GOL
                                                                                                                                                                                                                                                                                                                                  • TAM – a replacement for Varig
                                                                                                                                                                                                                                                                                                                                    • 36 new destinations
                                                                                                                                                                                                                                                                                                                                      • Regional member airlines
                                                                                                                                                                                                                                                                                                                                        • Figure 39: Profile of Star Alliance regional members, 2008
                                                                                                                                                                                                                                                                                                                                      • All under one roof at Heathrow
                                                                                                                                                                                                                                                                                                                                        • Three alliance groups could control 80% of the North Atlantic market
                                                                                                                                                                                                                                                                                                                                          • Star Alliance antitrust immunity request delayed
                                                                                                                                                                                                                                                                                                                                            • Meanwhile SkyTeam integration is moving full steam ahead
                                                                                                                                                                                                                                                                                                                                              • Atlantic Plus-Plus approved
                                                                                                                                                                                                                                                                                                                                                • Oneworld tie-up still awaiting approval
                                                                                                                                                                                                                                                                                                                                                  • DOT details are sketchy
                                                                                                                                                                                                                                                                                                                                                    • Anti-alliance legislation in the works
                                                                                                                                                                                                                                                                                                                                                      • Congressman Oberstar wants tighter controls
                                                                                                                                                                                                                                                                                                                                                        • International reaction to the proposed US legislation
                                                                                                                                                                                                                                                                                                                                                          • Cartel investigations in Europe
                                                                                                                                                                                                                                                                                                                                                            • Star Alliance & oneworld members targeted
                                                                                                                                                                                                                                                                                                                                                              • TMCs and TAs sceptical about the value of the alliances
                                                                                                                                                                                                                                                                                                                                                                • Business Travel Coalition to organise opposition
                                                                                                                                                                                                                                                                                                                                                                  • Travel agents also express their doubts
                                                                                                                                                                                                                                                                                                                                                                    • The next two years will determine the value of the alliance tie-ups
                                                                                                                                                                                                                                                                                                                                                                    • Pricing

                                                                                                                                                                                                                                                                                                                                                                        • Revenue management
                                                                                                                                                                                                                                                                                                                                                                          • Building fences
                                                                                                                                                                                                                                                                                                                                                                            • Move to restrict business traveller fares
                                                                                                                                                                                                                                                                                                                                                                              • Business-class fares five times leisure
                                                                                                                                                                                                                                                                                                                                                                                • Marginal revenue important
                                                                                                                                                                                                                                                                                                                                                                                  • How elastic is the demand for air travel?
                                                                                                                                                                                                                                                                                                                                                                                    • Three different datasets
                                                                                                                                                                                                                                                                                                                                                                                      • Levels of aggregation
                                                                                                                                                                                                                                                                                                                                                                                        • Figure 40: Levels of aggregation for elasticity calculations, 2007
                                                                                                                                                                                                                                                                                                                                                                                      • Cross-price elasticities
                                                                                                                                                                                                                                                                                                                                                                                        • Base elasticities
                                                                                                                                                                                                                                                                                                                                                                                          • Figure 41: Demand elasticities relative to intra-North American flights, by route and geography, 2005-07
                                                                                                                                                                                                                                                                                                                                                                                        • Short-haul/long-haul adjustment
                                                                                                                                                                                                                                                                                                                                                                                          • Figure 42: Estimated elasticities* for short-haul and long-haul air travel at the route, national and pan-national levels, 2005-07
                                                                                                                                                                                                                                                                                                                                                                                        • Elasticity applications
                                                                                                                                                                                                                                                                                                                                                                                          • High operating leverage tends to favour revenue maximisation
                                                                                                                                                                                                                                                                                                                                                                                            • Income elasticity
                                                                                                                                                                                                                                                                                                                                                                                              • Figure 43: Income elasticities, by length of route and geographical region, 2005-07
                                                                                                                                                                                                                                                                                                                                                                                          • Distribution Trends

                                                                                                                                                                                                                                                                                                                                                                                              • E-ticketing now universal
                                                                                                                                                                                                                                                                                                                                                                                                • The GDS continue to be a dominant force
                                                                                                                                                                                                                                                                                                                                                                                                  • The four major GDSs (Sabre, Amadeus, Galileo and Worldspan) continue to be a central force for the electronic distribution of air tickets and other travel products. Today all GDSs are owned by private equity funds and this has made analysis of their operations more difficult due to a lack of disclosure. Galileo and Worldspan are affiliates of Travelport, one of the largest travel distribution conglomerates in the world, which, in turn, is owned by the Blackstone Group, One Equity Partners, Technology Crossover Ventures and Travelport Management. Since March 2007, Sabre Holdings has been owned by Silver Lake and Texas Pacific Group (TPG), two private equity funds and Amadeus, the market leader, is majority owned by WAM Acquisition, whose shareholders include BC Partners, Cinven, Air France, Iberia and Lufthansa, the latter three of which were part of the original group of founders.
                                                                                                                                                                                                                                                                                                                                                                                                    • Figure 44: GDS ownership breakdown, 2009
                                                                                                                                                                                                                                                                                                                                                                                                  • Sabre withdraws NWA lawsuit
                                                                                                                                                                                                                                                                                                                                                                                                    • Travelport deal with Air France/KLM
                                                                                                                                                                                                                                                                                                                                                                                                      • Amadeus still at odds with Lufthansa
                                                                                                                                                                                                                                                                                                                                                                                                        • As of late April 2009, Amadeus had yet to come to terms with Lufthansa to shield its subscribers from the Preferred Fares Program surcharge, and consequently stands to lose ‘significant’ market share in Germany. Lufthansa’s Preferred Fares Program imposes a €4.90 per-way surcharge, in addition to value-added tax, on fares booked through the GDSs in Germany, Austria and Switzerland, though Amadeus competitors Sabre and Travelport have come to separate agreements to shield customers from the fees. Amadeus market share in Germany – where it is the dominant provider of global distribution services – could decline to 20%, although that depends on what deals are being made with the competition, according to statements by Amadeus country manager, Holger Taubmann, at an April 2009 conference of the German travel buyer association (VDR) in Cologne.
                                                                                                                                                                                                                                                                                                                                                                                                          • Accommodating unbundled fares
                                                                                                                                                                                                                                                                                                                                                                                                            • Companies obliged to re-evaluate their travel policies
                                                                                                                                                                                                                                                                                                                                                                                                              • Lockheed Martin
                                                                                                                                                                                                                                                                                                                                                                                                                • 90-95% of air expenses still included
                                                                                                                                                                                                                                                                                                                                                                                                                  • ‘Sabre Branded Fares’ debut in Australia
                                                                                                                                                                                                                                                                                                                                                                                                                    • For online retail and agents
                                                                                                                                                                                                                                                                                                                                                                                                                      • Multiple price points for clear market segmentation
                                                                                                                                                                                                                                                                                                                                                                                                                        • Allows for product differentiation
                                                                                                                                                                                                                                                                                                                                                                                                                          • Travelport/Air Canada breakthrough
                                                                                                                                                                                                                                                                                                                                                                                                                            • United and Sabre enable travel agent upselling
                                                                                                                                                                                                                                                                                                                                                                                                                              • Other carriers to follow
                                                                                                                                                                                                                                                                                                                                                                                                                                • Sabre competitors also working on solutions
                                                                                                                                                                                                                                                                                                                                                                                                                                  • Travelport’s Universal Desktop
                                                                                                                                                                                                                                                                                                                                                                                                                                    • Amadeus’ ‘Airline Retailing Platform’
                                                                                                                                                                                                                                                                                                                                                                                                                                      • ‘Amadeus Airline Service Fees’
                                                                                                                                                                                                                                                                                                                                                                                                                                        • Conflicting trends regarding commissions
                                                                                                                                                                                                                                                                                                                                                                                                                                          • Airline CEOs reveal ‘distribution dreams’
                                                                                                                                                                                                                                                                                                                                                                                                                                            • American Airlines
                                                                                                                                                                                                                                                                                                                                                                                                                                              • Delta Air Lines
                                                                                                                                                                                                                                                                                                                                                                                                                                                • United
                                                                                                                                                                                                                                                                                                                                                                                                                                                  • Not a good time to reduce distribution costs
                                                                                                                                                                                                                                                                                                                                                                                                                                                    • Continental more conciliatory
                                                                                                                                                                                                                                                                                                                                                                                                                                                      • Travelport sees no change
                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Agency commissions eliminated in Japan
                                                                                                                                                                                                                                                                                                                                                                                                                                                          • American, NWA and Air France/KLM already at 0% commissions
                                                                                                                                                                                                                                                                                                                                                                                                                                                            • A major consolidation in the offing
                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Meanwhile some carriers are willing to raise commissions
                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Emirates doubles commissions on incremental sales
                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • BCD sees commissions making a comeback
                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • BA offering agents incentives once again
                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • Frequent Flyer Programmes

                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Total membership approaching half a billion
                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Figure 45: Airline loyalty programme membership figures, 2006-09*
                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Many travellers belong to more than one programme
                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Figure 46: Travel programme snapshot, February 2009
                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Similar structure with some differences
                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Figure 47: A comparison of airline frequent flyer programmes, 2008
                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Original loyalty programmes were straightforward
                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Credit card companies as intermediaries
                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • Awards far outpacing capacity growth
                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Declining value of air miles
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Customers want more options
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • But the downturn has produced a counter trend
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • FFPs have been lucrative assets for the airlines
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • Decreasing value of miles puts business model at risk
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Airlines considering spin-offs of FFP
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Airline options to maintain their FFPs
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • Flight rewards
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Non-flight rewards
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Security and Safety

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • ‘Secure’ flights causing headaches
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • All airlines to be in compliance by the end of 2010
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • Airlines will depend on travel agents
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • GDSs are under time pressure to comply
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Travel agencies to follow GDS structure
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • Four airlines already handed over to the TSA
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Airlines will have to transmit passenger data within 72 hours
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Whole-body scans to be implemented in US airports
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • Contracts to be awarded in summer of 2009
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • A positive side – limits on liquids could be removed
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • Disagreement about efficiency
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • IATA’s safety programme
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • The IATA Operational Safety Audit
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • Now compulsory for IATA member carriers
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • ISAGO for ground operations
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Air travel’s safety record improves
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • Figure 49: Worldwide airline accidents of IATA and non-IATA airlines, 2004-09*
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • Figure 50: Hull loss rate*, 1999-2008
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Some major regional differences
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • Figure 51: Western-built jet hull losses per million flights, 2005-08
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Most accidents involve little-known carriers
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • Figure 52: Western-built jet hull losses, 2008
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • EU bans Thai, Ukraine, Kazakhstan, Benin Airlines
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Environmental Issues

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • Emissions control and energy conservation
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • High-altitude NOx emissions
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Carbon monoxide emissions reduced by 50%
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • A 70% increase in fuel efficiency
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • Global aviation environmental standards
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • CAEP structure and functioning
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Few concrete results
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • No stricter standards before 2015-20
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • Airport standards regulated locally
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • EU emissions trading scheme
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Timetable for 2009
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Rapid growth in Eastern Europe
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • Carbon allowances
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Still higher prices needed
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Airlines may be faced with high prices by 2012
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • What Next?

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • Outlook for the present crisis’ impact on the industry
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • Load factors drop as passenger demand falls – freight stabilises
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Passenger transport
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Cargo
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Figure 53: Trend in supply and demand growth in the air transport industry, by region, March 2009
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Figure 54: Trend in supply and demand growth in the air transport industry, by region, YTD* March 2009
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • More mergers needed
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Governmental authorities stepping in
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Impact of further environmental restrictions
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • Long haul reserved for an elite?
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • Optimism that a solution may be found
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • Continuous descent
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Why are all airports not doing it?
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • New fuels – the way forward?
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • Seaweed?
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Airlines getting on board
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Other biofuels
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • LCCs go long haul?
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • Southwest dipping its toe in the water
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • Overseas not on the agenda yet...
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • AirAsia X flying long haul since 2007
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          • Kuala Lumpur to London
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            • 25 A330-300s on order
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              • Ryanair to the US?
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                • Dublin to Long Island?
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  • Plans delayed by the recession
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    • Waiting to pick up a cheap fleet
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      • Can it succeed where others have failed?
                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        • Zoom to be revived?

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Companies Covered

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        To learn more about the companies covered in this report please contact us.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        Airlines - International - June 2009

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        £1,495.00 (Excl.Tax)