Summary Report Summary Report
Summary Report
Operating Economy of AEA Airlines
public version December 2006
2006 2006
Introduction >> Dear reader, This is the third edition of the ‘Operating Economy Summary Report’. As the title suggests, this report contains a summary of the Traffic and Financial performance of the European Airlines, members of the AEA. The report builds up on the four items: Traffic/Capacity, Cost, Revenue and Route Profitability. Generally the economic data covers year 2005 and compares with the previous year. It is based on an extensive survey amongst the AEA members (see table below). Regarding Traffic and Capacity we analyse the latest available data 2006.
20% of the operating cost in 2005, this figure will increase further in 2006. Some considerations on this particular topic can be found on page 13. The ’Operating Economy’ summary report has become a fundamental part of AEA Market Research activities. With this edition, we have decided to share the information with the public in order to give a transparent picture of the current state of the European airline industry. You will find this document, as many others, on the ‘Market Research’ portal of the AEA webpage: www.aea.be AEA Market Research
AEA airlines achieved an operating profit in 2005. Thanks to continued cost savings and good capacity and revenue management, the negative impact of rising oil prices was off-set.
Note: Unless otherwise specified, the financial results in this report reflect the performance of ‘airline operations’ only for the calendar year concerned. AEA results published in other reports may vary due to different methodology regarding scope, period and reporting currency.
Fuel cost will be on the agenda in the future too. Having reached almost
Included in Summary Report Yes Passenger Data AF - Air France AY - Finnair AZ - Alitalia BA - British Airways BD - bmi CV - Cargolux n.a. CY - Cyprus Airways EI - Aer Lingus FI - Icelandair IB - Iberia JK - Spanair JP - Adria Airways JU - JAT Airways KL - KLM KM - Air Malta LG - Luxair LH - Lufthansa LO - LOT Polish Airlines LX - SWISS MA - Malev OA - Olympic Airlines OK - CSA Czech Airlines OS - Austrian OU - Croatia Airlines RO - TAROM SK - SAS Scandinavian Airlines TK - Turkish Airlines TP - TAP Portugal VS - Virgin Atlantic Full Cargo Data AF - Air France BA - British Airways CV - Cargolux IB - Iberia KL - KLM LH - Lufthansa SK - SAS Scandinavian Airlines TK - Turkish Airlines
Association of European Airlines
No
RPK by Airline (Total European Services; 2005) 125
[billion]
100 75 50 25 0 LH AF IB BA SK AZ TK TP JK LX OS AY OA OK CY SN MA LO KM RO OU JU JP
RPK by Airline (Total Systemwide Services; 2005) 125
[billion]
100 75 50 25 0 AF BA LH IB AZ SK OS TK LX TP AY JK OK OA LO SN MA KM CY RO OU JU JP
(public version)
2
Summary >>
>> Traffic / Capacity !
2006 growth weakens on all regions
!
!
!
!
Total Scheduled Traffic Growth slows down from 9.3% (2004) to 6.7% (2005) Jan—Sept 2006 vs previous period is at 5.2% All major traffic regions saw a slowdown in traffic growth, but all growth rates are positive Loadfactors reach 81.1% (+1%pt), an historical high
ASK and RPK Growth (vs. l-y) Total Scheduled 25
[%] ASK RPK
20 15 10 5 0
Jan - Sep
-5 2000
2001
2002 2003 2004 2005
2006
-10 -15
>>
>> Yields !
Yields recover in Longhaul regions. Europe continues to be under levels of the past.
!
!
!
!
Currency adjusted Total Scheduled yields are almost back at 2001 levels North Atlantic reached 117 Index points (Base year: 2001 = 100) Longhaul yields are supported by the Fuel surcharges introduced in spring 2004 European yields are further declining (-2 index points)
Yield Index Total Scheduled Year 2001 = 100 125 Currency adjusted Current
120 115 110 105 100 95 90 85 80
Jan - Sep
75 2001
>> Cost !
>>
Ever higher fuel prices drive up the Unit Cost by 2.0 %
!
!
!
!
Overall unit cost increase by 2.0% Increase is mainly due to the strong increase (+40.1%) of fuel cost in 2005 Assuming constant fuel prices, the unit cost could be reduced by 3.0% Largest cost savings achieved in ‘Station and Ground’, ‘Ticket Sales and Promotion’ and ‘Administration’
2002
2003
2004
2005
2006
Total Operating Cost per ATK [EUR] 0.8
+2.0%
0.7 0.6
0.542
0.553
2004
2005
0.5 0.4 0.3 0.2 0.1 0.0
>> Operating Result !
Improvement by 872 million EUR
>> !
!
!
AEA airlines achieve a positive operating result in 2005
Operating Result (after Inte re st) Total Scheduled [current EUR mill]
Longhaul regions, especially North Atlantic, contribute to the profits
410.1 *
European and Domestic are still loss making 2004
2005
-461.9
Association of European Airlines
(public version)
3
Operating Statistics >> Fast Facts !
!
!
!
RPK growth is slowing down on all regions North Atlantic levels out at low levels European demand higher than capacity growth, resulting in higher load-factors Total Scheduled RPK growth for 2007 expected to reach 4—5 %.
>> Europe
ASK and RPK Growth (vs. l-y) Total Scheduled 25
>> North Atlantic Growth for a second year running is minimal. This together with strong demand environment results in full loads and increasing yields.
ASK RPK
15
10
10
5
5
0
0
-5
Nevertheless, Asia is still the region with the highest growth rates.
Jan - Sep
-10
2000 2001
2002 2003 2004
-15
ASK and RPK Growth (vs. l-y) North Atlantic
ASK and RPK Growth (vs. l-y) Far East /Australasia 25
[%] ASK RPK
20
[%]
ASK RPK
20
15
15
10
10
5
5
0
0 -5
-5 2000 2001
2002 2003 2004
2005 2006
Jan - Sep
-10
2000
2001
2002 2003
-10
-15
-15
ASK and RPK Growth (vs. l-y) Middle East
ASK and RPK Growth (vs. l-y) South Atlantic
[%]
25
ASK RPK
15
10
10
5
5
0
0
2004
2005 2006
Jan - Sep
[%] ASK RPK
20
15
-5
2005 2006 Jan - Sep
-10
-15
-5
2000 2001 2002
2000 2001 2002
2003 2004 2005 2006
Jan - Sep
-10
-10
2003 2004 2005 2006
Jan - Sep
-15
-15
>> Weight of Regions
ASK RPK
-5
2000 2001 2002 2003 2004 2005 2006
20
After the impact of SARS in 2003 and 2004, the region returns to undistorted growth levels above 10%. Growth is slowing down in 2006.
[%]
20
15
25
>> Far East/Australasia
25
[%]
20
25
Year-to-date (Jan—Sep 2006) demand growth 5.6%. Corresponding capacity +2.9%. Careful capacity management and strong demand increases loadfactors further.
ASK and RPK Growth (vs. l-y) Total Europe
Weight of Regions
Europe accounts for more than a third of the seat offer of AEA carriers in terms of ASK.
AEA Members' ASK 2005; [billion]
917
+15 bn ASK were produced on the Far East . With growth rates of above 10%, the region approaches the importance of the North Atlantic.
313 226
169
135 45
30
Total Europe North Far South Middle Other Atlantic East Atlantic East
Association of European Airlines
(public version)
4
Operating Statistics (2) !
!
!
!
Passenger load factors at record levels Highest increases on European routes Year-to-date: Europe: +1.7%pts Longhaul regions with increases in 2005 (+1.0%pt) but remain on same level in 2006
Passenger Load Factor [%] Geographical Europe and Longhaul
Passenger Load Factor [%] Total Scheduled
72.9
70.5
73.7
73.4
74.5
76.0
77.9
77.2
63.7
75.7 62.4
79.3 64.8
78.6 64.6
80.1 65.2
81.1 67.7
81.7 70.2
Europe Longhaul
>> Fast Facts
2000
2001
2002
2003
2004
2005
2000
2006
2001
2002
2003
2004
2005
2006
European Passenger Load Factor Sorted by height 2005
>> Comment AEA carriers have increased their European load factors considerably in recent years. With an average of 67.7 in 2005 the top carriers reached levels of 70% and continue to close the gap compared to the known high loads of certain low-cost carriers. The positive trend continued in 2006.
[%]
80 70 60 50 40 30 20 10 0
CY AF TK BA
IB
AZ SK KM TP
LX LH OS MA OK AY LO SN JP RO OU OA JU
European Passenger Loadfactor improvement Sorted by Increase 2005 vs. 2004 10
[%]
5
0 SK LX MA AF JP OA AY OS SN IB
TP AZ TK LH LO JU BA CY KM OK RO OU
-5
-10
-30
10
10
8
8
6
6
4
4
2 0
-10
-2
(public version)
10
30
-4 -6
-30
2 0
-10
-2
10
30
-4 -6
-8 -10
Association of European Airlines
ASK vs PLF (Geographical Europe, 2004 vs 2003)
PLF Growth [%pts]
The graphics show the capacity development in function of the load factor development. Most airlines have added less capacity in 2005, visible through the wider spread (left graphic). The load factor growth remained positive, with a few exceptions. The general growth situation that is fully absorbed by demand is still true, but less obvious than in 2004 (right graphic).
ASK vs PLF (Geographical Europe, 2005 vs 2004)
PLF Growth [%pts]
>> Growth vs. Load Factor
-8 ASK Growth [%]
-10
ASK Growth [%]
5
Operating Result >> Fast Facts !
!
!
After 4 years of negative results, AEA airlines post a minimal positive operating margin (after interest) in 2005 Spread amongst airlines is significant Operating result in EUR: +0.4 bn
Operating Ratio after Interest
Operating Ratio before Interest 107.0
104.4 102.4
102.3 101.1
100.2
100.3
100.9
100.9
100.6
98.7
97.7
97.8
98.6
99.1
95.4
1998 1999 2000 2001 2002 2003 2004 2005
1998 1999 2000 2001 2002 2003 2004 2005
Operating Ratio
>> Operating Ratio
2005
Spread of operating ratios among member airlines from 78.5 to 111.6. Spread is unchanged to previous year (79.0 to 109.9).
120
before interest after interest
115 110 105 100
AEA
95 90 85 80
Operating Results (after interest) 2005
>> In absolute terms The Average AEA carrier posted an operating profit of +18 Mill. EUR in 2005. Largest number of carriers achieve results of +/- 50 million EUR profit / loss.
800 600 400 200 0
Result before interest:
-200
+1 339 976 [EUR thousand] Result after interest:
-400
+410 081 [EUR thousand]
[current EUR thousand]
AEA Avg: EUR +18 Mill.
-600 -800
Note: Note this result is an ‘Airline Operational’ profit which may be different from company results (Group) published elsewhere. Differences also occur due to different considerations of Financial / Calendar year reporting and reporting currency.
Operating Result (after Interest) Total Scheduled [current EUR mill.] 1000 750
410.1
500 250 0
2004
2005
-250 -500
-461.9
-750 -1000
Association of European Airlines
(public version)
6
Revenues >> Fast Facts !
!
!
Europe continues to be the most important market North Atlantic revenues gain considerably in volume (+982.7 Mill. EUR), due to good yield development Longhaul revenues further increase their share (+0.7% pt) of Total Revenues
Revenue per Region 2005 [EUR million] Europe
17530
North Atlantic
9140
Domestic
8316
Far East
7016
Sub-Saharan Africa
3013 1948
South Atlantic
1794
Mid Atlantic
1585
Middle East Charter North Africa Other
>> Revenue Distribution Revenues from longhaul operations increase by 0.7%pt in 2005 and account for 49.2% of the Total Operating revenues. This trend could already be observed in the past. The comparable figure in 2003 was at 48.1%. It has to do with the positive yield development on certain longhaul regions in recent times and the comparable limited growth of the European traffic.
>> Revenue Development All traffic regions show a positive growth development, both in percentage and absolute terms. For the shorthaul (cross-boarder Europe and Domestic) revenue growth was achieved with capacity increases. Both regions developed in-line with the expansion. On the longhaul it is obvious that revenue increases exceed the capacity growth. Better yields, partly the result of fuel surcharges, are the reason. (see Yield Results on page 12).
Passenger Revenue
767 196
Revenue Distribution 2005 and Deviation vs 2004
Revenue Distribution in 2003
+0.7 %
- 0.7 %
Short/ Medium haul 50.2%
Longhaul 49.2%
-20
(public version)
-10
0
10
Short/ Medium haul 51.9%
Longhaul 48.1%
Passe nger Rev enue De velopment 2005 vs 2004 [in EUR Million]
Passenger Revenue Development 2005 vs 2004 [%] Capacity increase [%]
‘South Atlantic’ and ‘Middle East’ the regions with the largest % growth represent 7% of total revenue.
Association of European Airlines
839
20
-1200
-800
-400
South Atlantic
South Atlantic
Middle East
Middle East
North Atlantic
North Atlantic
Far East
Far East
North Africa
North Africa
Domestic
Domestic
Mid Atlantic
Mid Atlantic
Sub-Saharan Africa
Sub-Saharan Africa
Europe
Europe
0
400
800
1200
7
Cost >> Fast facts
8%
9% 24%
10%
Fuel cost increases have massively changed the airlines cost structure: direct operating cost now represent more than 58% of the Total Cost base. Ten years ago, ‘Direct’ and ‘Indirect’ cost shares were balanced. The trend is also accelerated through the continued cost savings in positions like ‘Administration’.
34%
12% 1%
Fuel cost represented 24% of the ‘Direct operating cost’ in 2003, 27% in 2004 and 34% in 2005.
18%
Cost Distribution 2003 % of Total Indirect Cost
0%
Cost Distribution 2005 % of Total Indirect Cost
11%
10% 27%
29%
Station & Ground Cabin Attendants Passenger Service
33%
31%
Load Insurance Ticket & Sales & Prom.
16% 1%
1%
12%
Share of Cost [%]
>> Selected cost items
Flight Deck Crew Fuel & Oil Flight Equipment Insurance Maintenance & Overhaul Depreciation Rentals Airport Charges Navigation Charges
8%
20%
>> Cost Distribution
13%
8%
General & Administration
17% 12%
Net Commissions [% of Passenger Revenue]
60
Passenger Service cost, which include for example ‘Catering’, are at their historic low too. However, it has to be taken into account that the Fuel cost has pushed up the whole cost base and therefore the share of the other cost items has become ‘naturally’ smaller.
Direct Operating Costs
56
7.8
54
7.7
7.6 6.4
52
6.4
50
4.6
4.5
48
4.5 3.3
46
1.9
44
Indirect Operating Costs
42
Distribution Cost in [%] of Total Operating Cost
Passenger Service Cost in [%] of Total Operating Cost
25
10
2005
2004
2003
2002
2001
2000
2005
2004
2003
2002
2001
2000
1999
1998
40 1997
Commissions reach a historic low of 1.9% of the passenger revenues. This figure came down from around 8% in the early 90s.
58
1996
Distribution cost (Ticket, Sales and Promotion) have been on a continued downward trend for the last 10 years and reached 12.3% in 2005. Leaner sales structures, sales via the internet and changes in the commission models are the reasons for the downward trend.
1999
!
9%
15%
1998
!
11%
1997
!
Fuel cost increases to 34% of ‘Direct Operating Cost’ Fuel cost represents 19.7% of ‘Total Operating cost’ Commissions fall to 1.9% of Revenue Further cost savings in ‘Passenger’ and ‘Distribution’ cost achieved
Cost Distribution 2005 % of Total Direct Cost
1996
!
Cost Distribution 2003 % of Total Direct Cost
9 8
20
7 15
6 5
10
4 3
5
2 1
Association of European Airlines
(public version)
2005
2004
2003
2002
2001
2000
1999
1998
1997
0 1996
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
8
Cost (2) >> Fast facts !
!
!
Reduction or constant cost in most positions Fuel cost increase by 40.1% (30.2% the year before) Indirect cost was reduced despite 6% more passengers transported
Cost Deviations 2005 vs. 2004 [%]
5.7
Flight Deck Crew
40.1
Fuel & Oil Flight Equip. Insurance -20.2
2.3
Maintenance & Overhaul
Direct Operating Cost [EUR]
7.1
Depreciation
2.1
Rentals
5.8
Airport Charges Navigation Charges
Fuel cost increased by 40.1% compared to 2004. Fuel expenses total 11.1bn EUR in 2005 and represent 19.7% of the Total Expenses of AEA Airlines.
Station & Ground
5.4
Cabin Attendants
3.9
Passenger Services
3.4
Considering a capacity increase of 5.3% savings amongst ‘Indirect Cost’ is impressive (-0.2%). This suggests that the airlines have managed to reduce cost where possible.
Load Insurance
General & Admin.
-7.1 -2.7
Traffic and Capacity volume increases have to be taken into account when looking at above Cost figures.
2004
23,541,011
2005
23,497,307
-0.2 %
2004
52,667,990
2005
56,564,126
7.4 %
Deviation:
Total Scheduled ATK [billion]
97
6.0%
350
5.3%
120 100
Total Scheduled Passengers [Million]
102
300
263
279
250
80
200
60
150
40
100
20
50 0
0 2004
Association of European Airlines
13.5 %
Total Operating Cost [EUR]
Insurance Cost 2005 was another safe year for commercial airlines which influenced the insurance premiums. The Insurance cost (Load and Aircraft) however represent less than 1% of the airlines’ total expenses.
Volume increase of 5.3% in terms of ATK and 6.0% in terms of passengers.
33,066,819
Deviation:
Flight Deck Crew and Cabin attendants are in-line with the capacity development
>> Volume increase
2005
Indirect Operating Cost [EUR]
-17.1
Ticket, Sales & Promotion
29,126,979
Deviation:
0.0
>> Cost items
2004
(public version)
2005
2004
2005
9
Unit Cost (Cost per ATK) >> Fast facts !
! ! !
!
Reduction of Unit cost on most cost items Overall cost increase +2.0% ‘Indirect Cost’ savings –5.2% General & Administration cost further reduced –7.6% Fuel cost turn the positive cost development into the red
Cost Deviations per Unit (ATK) 2005 vs. 2004 [%]
Flight Deck Crew
0.4
Fuel & Oil
33.0
Flight Equip. Insurance
-24.2 -2.9
Maintenance & Overhaul
1.7
Depreciation -3.1
Rentals
0.4
Airport Charges -5.1
Navigation Charges Station & Ground
0.1 -1.3
Cabin Attendants
-1.8
Passenger Services Load Insurance
-21.3
Ticket, Sales & Promotion-11.8 -7.6
General & Admin.
>> Comment Total Operating Cost per ATK (Unit cost) increase by 2.0% mainly due to the strong increase of fuel cost (unit cost increase by 33.0%) Fuel cost increase influences the +7.8% of ‘Direct Operating’ unit cost . Cost were at 0.293 (EUR) in 2003, 0.300 in 2004 and 0.323 in 2005. Further increase expected for 2006. A simulation with ‘constant fuel cost’ (2004 level) shows that direct operating cost would have increased by 3.0% instead of +7.8%.
Direct Operating Cost per ATK [EUR] 0.6
Total Operating Cost per ATK [EUR] 0.8
+2.0%
0.7 0.6
0.5 0.4
0.5
0.3
0.323
0.300
0.3
0.4
0.2
0.2 0.1
0.1
0.0
0.0 2004 Indirect Operating Cost per ATK [EUR] 0.6
0.6
[EUR]
0.5
3.0%
0.4 0.242
0.230
0.3
0.2
0.2
0.1
0.1
0.0
0.300
0.309
2004
2005
0.0 2004
(public version)
2005
Direct Operating Cost per ATK Constant Fuel Cost
- 5.2%
0.4 0.3
2004
2005
0.5
Association of European Airlines
+ 7.8%
0.553
0.542
2005
10
Profitability Operating Ratio, after Interest 2005 per Region
>> Fast facts
The analysis on the right shows that three of the largest traffic regions (Europe, Domestic, Far East) are not producing the expected results, whereas North Atlantic has sufficient profitability and contributes 665 Mill. EUR to the bottom line result.
Sub Saharan Africa
North Atlantic
-1.3 -3.2
Operating Ratio by Growth
Operating Ratio by Market size
20
25
18 16
20
14 12 10 8 6 4
South Atlantic
15
Domestic
North Africa
Far East Europe
10
2 90
100
110
North Atlantic Domestic
5
North Atlantic Middle East 80
Europe
Far East
Sub-Saharan Africa Mid Atlantic
0
>> In absolute figures
1.8
1.4
[billion USD Revenue
Far East/Australasia drops from profitablity in 2004 to a loss in 2005 of 221 Mill. EUR.
1.5
0.6
[ASK Growth 2005 vs 2004 in %]
Europe and Domestic continue to post negative operating margins, but both improved their performance significantly. Europe reaches an operating ratio of 97.7 (95.1 in 2004) and Domestic almost reaches profitablity with a rate of 99.2 (95.8 in 2004).
6.3 3.4
2.6
Sub-Saharan Africa performs best, although with a loss of 1.3%pts.
South Atlantic North Africa
0 80
120
90
Sub-Saharan Africa Mid Atlantic Middle East
100
110
120
Net Result, after Interest 2005 per Region 800
443
-80
-200 -400 -600
Geographical Europe
0
(public version)
4
16
39
86
North Atlantic
-85
Sub Saharan Africa
-221
Middle East
-457
Mid Atlantic
200
‘Other Route Areas’ include Routes that cannot be allocated to a specific Region.
Northern Africa
400
South Atlatntic
-843 Mil. EUR
600
Domestic
1253 Mill. EUR
665
Other Route Areas
Accumulated
[EUR million]
Far East / Australasia
Unbalanced regional results:
Association of European Airlines
Middle East
Deviation 2005 vs 2004 [%]
Operating Ratio for Total Scheduled Services is 102.3 (before interest) and 100.6 (after interest)
Negative results:
101.9
100.2
>> Operating Ratio
Positive results:
101.9
Mid Atlantic
99.2
Northern Africa
97.7
97.4
South Atlatntic
!
106.9
105.0
Domestic
!
114.5
Geographical Europe
!
Geographical Europe and Domestic are not profitable Far East/Australasia suffer a significant profitability loss North Atlantic is performing well and is the most successful traffic region Average Operating Ratio is not sufficient
Far East / Australasia
!
11
Yield >> Fast facts
Yield Index Total Scheduled Year 2001 = 100
!
125
!
!
!
Total Scheduled Yields approach 2001 levels European Yields again under pressure Longhaul yields are increasing, especially on North Atlantic Figures include ‘Fuel Surcharges’
Yield Index Geographical Europe Year 2001 = 100 125 Currency adjusted Current
120 115
115
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75
Currency adjusted Current
120
75 2001
2002
2003
2004
2005
2006
2001
2002
2003
>> Yields
Yield Index North Atlantic Year 2001 = 100
Yields (Passenger Revenues / RPK) shown in the charts are expressed in EUR terms. The currency adjustment curves are based on certain assumptions regarding share of revenue in foreign currencies according to the traffic regions (please refer to the ‘Appendix’ to this document).
Yield Index Middle East Year 2001 = 100
125
125
Total Scheduled yields are increasing slightly, but are still below the level of 2001. The increase can be explained by the yield gains on longhaul. The most important traffic region— Europe—posts continued yield decreases, explained by ongoing competition and low pricing power. Currency adjusted yield developments 2006/2005 (3 Quarters): >> Total Scheduled: >> Geographical Europe >> North Atlantic >> Middle East >> Far East
+3.9% - 0.6% +12.5% +7.3% +2.1%
>> Stage Length Average Yields (Revenue per Passenger kilometre) are determined by the average stage length of the flights of AEA carriers. Comparisons among individual carriers should therefore be made on an adjusted stage length basis.
Currency adjusted Current
120
115
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75 2001
2002
2003
2004
2005
2006
2005
2006
Currency adjusted Current
120
115
2004
75 2001
2002
2003
2004
2005
2006
Premium Passengers as a % of Total
Yield Index Far East Year 2001 = 100
20
125
Currency adjusted Current
120
18
115
16
110
14
105
12
100
10
95
8
90
6
85
4
80
2
Europe Beyond Europe
0
75 2001
2002
2003
2004
2005
2006
2001
2002
2003
2004
2005
2006
Passenger Yield comparison 2005 Europe [€ cents] 20
15
10
5
0 500
Association of European Airlines
(public version)
Stage Length [km] 1000
1500
2000
* Passenger revenues generally include Fuel Surcharges.
12
Focus: Fuel Europe Brent Spot Price
>> Fast facts !
!
!
!
Crude Oil price went up from 38.10 USD/barrel in 2004 to 54.42 USD/barrel in 2005 AEA carriers spent 3.2 bn EUR more on Fuel than the year before Crude Oil Assumption for 2007: 65 USD/barrel Fuel expenses represent 30% on Longhaul operations
80
Fuel Cost for AEA Airlines
[US$ per barrel]
25
64.73
Estimate 20
54.42
60 50
38.10
40
15
28.88
30
10
20
5
10 0 2003
2004
2005
0
2006
2001
Source: EIA
>> Fuel Cost Share
[USD billion]
70
2002
2003
2004
2005
2006
Fuel Cost in % of Total Operating Cost per Stage length
The linear regression line shows the fuel cost share of the AEA carriers with respect to the stage length. Each data point represents a carrier’s fuel cost share on a particular geographical region. It is obvious that with increasing stage length, the fuel cost weighs more. The share has moved up every year since 2003 from 15% to 20% in 2004 to 25-30% in 2005 for longhaul flights.
[%]
40 35 30 25 20
2005 2004 2003 Linear (2003) Linear (2004) Linear (2005)
15 10 5
Stage length
0 0
>> Efficiency gains
Fuel efficiency measured in ‘Fuel Consumption per ASK or RPK’ shows a slight decline for both measures. Whereas the ‘Fuel consumption per RPK’ is largely influenced by the increased load factor, the measure ‘Fuel consumption’ per ASK represents efficiency gains through ‘technological’ and ‘operational’ measures.
2000
4000
6000
8000
10000
12000
Fuel efficiency (consumption per ASK and RPK) 20
[Gallon per 1000 units]
18 16 14 12 10 8 6
Fuel consumption per RPK Fuel consumption per ASK Linear (Fuel consumption per RPK) Linear (Fuel consumption per ASK)
4 2 0 1997
>> Consumption Differences in fuel consumption per ASK occur through different networks, type of fleet (age of fleet) and operational measures.
1998
1999
2000
2001
2002
2003
2004
2005
Fuel consumption System wide Services 14
[Gallon per 1000 ASK]
12 10 8 6 4 2 0
Airline SN A BA B JK C ...LX LH MA AZ
Association of European Airlines
(public version)
IB
SK
AY OU OK AF
TK
JU LO OS TP
JP CY RO KM OA
13
Outlook >> Fast Facts !
!
!
Net Result after interest
Expected result 2006 (after interest) 0.8 bn USD based on continued strong economic environment and demand Crude oil price assumption: 65 USD/barrel
[USD billion] [USD billion] 3 2
Est.
1 0 90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
-1 -2
>> Growth perspectives Projected Total Scheduled Traffic/ Capacity Growth in terms of Revenue Passenger Kilometers (2006 over 2005): ASK
+ 3.0—3.5%
RPK
+ 4.0—4.5%
-3 -4
Passenger Loadfactor 78.0% (+1%pt)
Association of European Airlines
(public version)
14
Appendix >> Currency impact
Most of the data used in this report was submitted in local currency by the participating carrier. Most carriers reported in EUR. For the non EUR carriers, the Secretariat has converted them to EUR at the rate reported by the carrier. USD / EUR currency variations do not have an impact on cost comparisons since as of 2005 edition of this report, the base data is no longer converted into USD.
>> Currency adjustments
Assumptions were made of the potential revenue share in foreign currency, according to the table on the right. Adjusted Yields were calculated based on these assumptions.
>> Glossary
1.2 1.0
0.885 0.805
0.805
0.801
0.8 0.6 0.4 0.2 0.0
2003
2004
2005
2006
Assumptions: Share of USD as percentage of Total Revenues: for revenues generated on… Europe North Atlantic Middle East Far Est Total Scheduled
[%] 10 50 40 30 25
Assumptions: ASK ATK bn EUR Geographical Europe km Longhaul l-y Mediumhaul mill. mm Operating Ratio after interest Operation Ratio before interest Passenger Load Factor [%] PLF RTK Shorthaul Total Load Factor [%] Total Scheduled Total Systemwide Unit Cost USD vs Yield yr %pts
Association of European Airlines
USD in EUR
(public version)
Available Seat Kilometre Available Tonne Kilometre Billion Euro Europe excluding Domestic kilometre Includes the Americas, Africa, Asia last year Includes North Africa and Middle East Million month Operating profit after interest as % of Total Operating Revenues Operating profit before interest as % of Total Operating revenue RPK divided by ASK Passenger Load Factor Revenue Tonne Kilometre Includes Domestic, Europe RTK divided by ATK excluding Charter including Charter Operating Cost per ATK US Dollar versus Passenger Revenue per RPK year Percentage points
15
Operating Economy of AEA Airlines
public version December 2006
2006 2006
Introduction >> Dear reader, This is the third edition of the ‘Operating Economy Summary Report’. As the title suggests, this report contains a summary of the Traffic and Financial performance of the European Airlines, members of the AEA. The report builds up on the four items: Traffic/Capacity, Cost, Revenue and Route Profitability. Generally the economic data covers year 2005 and compares with the previous year. It is based on an extensive survey amongst the AEA members (see table below). Regarding Traffic and Capacity we analyse the latest available data 2006.
20% of the operating cost in 2005, this figure will increase further in 2006. Some considerations on this particular topic can be found on page 13. The ’Operating Economy’ summary report has become a fundamental part of AEA Market Research activities. With this edition, we have decided to share the information with the public in order to give a transparent picture of the current state of the European airline industry. You will find this document, as many others, on the ‘Market Research’ portal of the AEA webpage: www.aea.be AEA Market Research
AEA airlines achieved an operating profit in 2005. Thanks to continued cost savings and good capacity and revenue management, the negative impact of rising oil prices was off-set.
Note: Unless otherwise specified, the financial results in this report reflect the performance of ‘airline operations’ only for the calendar year concerned. AEA results published in other reports may vary due to different methodology regarding scope, period and reporting currency.
Fuel cost will be on the agenda in the future too. Having reached almost
Included in Summary Report Yes Passenger Data AF - Air France AY - Finnair AZ - Alitalia BA - British Airways BD - bmi CV - Cargolux n.a. CY - Cyprus Airways EI - Aer Lingus FI - Icelandair IB - Iberia JK - Spanair JP - Adria Airways JU - JAT Airways KL - KLM KM - Air Malta LG - Luxair LH - Lufthansa LO - LOT Polish Airlines LX - SWISS MA - Malev OA - Olympic Airlines OK - CSA Czech Airlines OS - Austrian OU - Croatia Airlines RO - TAROM SK - SAS Scandinavian Airlines TK - Turkish Airlines TP - TAP Portugal VS - Virgin Atlantic Full Cargo Data AF - Air France BA - British Airways CV - Cargolux IB - Iberia KL - KLM LH - Lufthansa SK - SAS Scandinavian Airlines TK - Turkish Airlines
Association of European Airlines
No
RPK by Airline (Total European Services; 2005) 125
[billion]
100 75 50 25 0 LH AF IB BA SK AZ TK TP JK LX OS AY OA OK CY SN MA LO KM RO OU JU JP
RPK by Airline (Total Systemwide Services; 2005) 125
[billion]
100 75 50 25 0 AF BA LH IB AZ SK OS TK LX TP AY JK OK OA LO SN MA KM CY RO OU JU JP
(public version)
2
Summary >>
>> Traffic / Capacity !
2006 growth weakens on all regions
!
!
!
!
Total Scheduled Traffic Growth slows down from 9.3% (2004) to 6.7% (2005) Jan—Sept 2006 vs previous period is at 5.2% All major traffic regions saw a slowdown in traffic growth, but all growth rates are positive Loadfactors reach 81.1% (+1%pt), an historical high
ASK and RPK Growth (vs. l-y) Total Scheduled 25
[%] ASK RPK
20 15 10 5 0
Jan - Sep
-5 2000
2001
2002 2003 2004 2005
2006
-10 -15
>>
>> Yields !
Yields recover in Longhaul regions. Europe continues to be under levels of the past.
!
!
!
!
Currency adjusted Total Scheduled yields are almost back at 2001 levels North Atlantic reached 117 Index points (Base year: 2001 = 100) Longhaul yields are supported by the Fuel surcharges introduced in spring 2004 European yields are further declining (-2 index points)
Yield Index Total Scheduled Year 2001 = 100 125 Currency adjusted Current
120 115 110 105 100 95 90 85 80
Jan - Sep
75 2001
>> Cost !
>>
Ever higher fuel prices drive up the Unit Cost by 2.0 %
!
!
!
!
Overall unit cost increase by 2.0% Increase is mainly due to the strong increase (+40.1%) of fuel cost in 2005 Assuming constant fuel prices, the unit cost could be reduced by 3.0% Largest cost savings achieved in ‘Station and Ground’, ‘Ticket Sales and Promotion’ and ‘Administration’
2002
2003
2004
2005
2006
Total Operating Cost per ATK [EUR] 0.8
+2.0%
0.7 0.6
0.542
0.553
2004
2005
0.5 0.4 0.3 0.2 0.1 0.0
>> Operating Result !
Improvement by 872 million EUR
>> !
!
!
AEA airlines achieve a positive operating result in 2005
Operating Result (after Inte re st) Total Scheduled [current EUR mill]
Longhaul regions, especially North Atlantic, contribute to the profits
410.1 *
European and Domestic are still loss making 2004
2005
-461.9
Association of European Airlines
(public version)
3
Operating Statistics >> Fast Facts !
!
!
!
RPK growth is slowing down on all regions North Atlantic levels out at low levels European demand higher than capacity growth, resulting in higher load-factors Total Scheduled RPK growth for 2007 expected to reach 4—5 %.
>> Europe
ASK and RPK Growth (vs. l-y) Total Scheduled 25
>> North Atlantic Growth for a second year running is minimal. This together with strong demand environment results in full loads and increasing yields.
ASK RPK
15
10
10
5
5
0
0
-5
Nevertheless, Asia is still the region with the highest growth rates.
Jan - Sep
-10
2000 2001
2002 2003 2004
-15
ASK and RPK Growth (vs. l-y) North Atlantic
ASK and RPK Growth (vs. l-y) Far East /Australasia 25
[%] ASK RPK
20
[%]
ASK RPK
20
15
15
10
10
5
5
0
0 -5
-5 2000 2001
2002 2003 2004
2005 2006
Jan - Sep
-10
2000
2001
2002 2003
-10
-15
-15
ASK and RPK Growth (vs. l-y) Middle East
ASK and RPK Growth (vs. l-y) South Atlantic
[%]
25
ASK RPK
15
10
10
5
5
0
0
2004
2005 2006
Jan - Sep
[%] ASK RPK
20
15
-5
2005 2006 Jan - Sep
-10
-15
-5
2000 2001 2002
2000 2001 2002
2003 2004 2005 2006
Jan - Sep
-10
-10
2003 2004 2005 2006
Jan - Sep
-15
-15
>> Weight of Regions
ASK RPK
-5
2000 2001 2002 2003 2004 2005 2006
20
After the impact of SARS in 2003 and 2004, the region returns to undistorted growth levels above 10%. Growth is slowing down in 2006.
[%]
20
15
25
>> Far East/Australasia
25
[%]
20
25
Year-to-date (Jan—Sep 2006) demand growth 5.6%. Corresponding capacity +2.9%. Careful capacity management and strong demand increases loadfactors further.
ASK and RPK Growth (vs. l-y) Total Europe
Weight of Regions
Europe accounts for more than a third of the seat offer of AEA carriers in terms of ASK.
AEA Members' ASK 2005; [billion]
917
+15 bn ASK were produced on the Far East . With growth rates of above 10%, the region approaches the importance of the North Atlantic.
313 226
169
135 45
30
Total Europe North Far South Middle Other Atlantic East Atlantic East
Association of European Airlines
(public version)
4
Operating Statistics (2) !
!
!
!
Passenger load factors at record levels Highest increases on European routes Year-to-date: Europe: +1.7%pts Longhaul regions with increases in 2005 (+1.0%pt) but remain on same level in 2006
Passenger Load Factor [%] Geographical Europe and Longhaul
Passenger Load Factor [%] Total Scheduled
72.9
70.5
73.7
73.4
74.5
76.0
77.9
77.2
63.7
75.7 62.4
79.3 64.8
78.6 64.6
80.1 65.2
81.1 67.7
81.7 70.2
Europe Longhaul
>> Fast Facts
2000
2001
2002
2003
2004
2005
2000
2006
2001
2002
2003
2004
2005
2006
European Passenger Load Factor Sorted by height 2005
>> Comment AEA carriers have increased their European load factors considerably in recent years. With an average of 67.7 in 2005 the top carriers reached levels of 70% and continue to close the gap compared to the known high loads of certain low-cost carriers. The positive trend continued in 2006.
[%]
80 70 60 50 40 30 20 10 0
CY AF TK BA
IB
AZ SK KM TP
LX LH OS MA OK AY LO SN JP RO OU OA JU
European Passenger Loadfactor improvement Sorted by Increase 2005 vs. 2004 10
[%]
5
0 SK LX MA AF JP OA AY OS SN IB
TP AZ TK LH LO JU BA CY KM OK RO OU
-5
-10
-30
10
10
8
8
6
6
4
4
2 0
-10
-2
(public version)
10
30
-4 -6
-30
2 0
-10
-2
10
30
-4 -6
-8 -10
Association of European Airlines
ASK vs PLF (Geographical Europe, 2004 vs 2003)
PLF Growth [%pts]
The graphics show the capacity development in function of the load factor development. Most airlines have added less capacity in 2005, visible through the wider spread (left graphic). The load factor growth remained positive, with a few exceptions. The general growth situation that is fully absorbed by demand is still true, but less obvious than in 2004 (right graphic).
ASK vs PLF (Geographical Europe, 2005 vs 2004)
PLF Growth [%pts]
>> Growth vs. Load Factor
-8 ASK Growth [%]
-10
ASK Growth [%]
5
Operating Result >> Fast Facts !
!
!
After 4 years of negative results, AEA airlines post a minimal positive operating margin (after interest) in 2005 Spread amongst airlines is significant Operating result in EUR: +0.4 bn
Operating Ratio after Interest
Operating Ratio before Interest 107.0
104.4 102.4
102.3 101.1
100.2
100.3
100.9
100.9
100.6
98.7
97.7
97.8
98.6
99.1
95.4
1998 1999 2000 2001 2002 2003 2004 2005
1998 1999 2000 2001 2002 2003 2004 2005
Operating Ratio
>> Operating Ratio
2005
Spread of operating ratios among member airlines from 78.5 to 111.6. Spread is unchanged to previous year (79.0 to 109.9).
120
before interest after interest
115 110 105 100
AEA
95 90 85 80
Operating Results (after interest) 2005
>> In absolute terms The Average AEA carrier posted an operating profit of +18 Mill. EUR in 2005. Largest number of carriers achieve results of +/- 50 million EUR profit / loss.
800 600 400 200 0
Result before interest:
-200
+1 339 976 [EUR thousand] Result after interest:
-400
+410 081 [EUR thousand]
[current EUR thousand]
AEA Avg: EUR +18 Mill.
-600 -800
Note: Note this result is an ‘Airline Operational’ profit which may be different from company results (Group) published elsewhere. Differences also occur due to different considerations of Financial / Calendar year reporting and reporting currency.
Operating Result (after Interest) Total Scheduled [current EUR mill.] 1000 750
410.1
500 250 0
2004
2005
-250 -500
-461.9
-750 -1000
Association of European Airlines
(public version)
6
Revenues >> Fast Facts !
!
!
Europe continues to be the most important market North Atlantic revenues gain considerably in volume (+982.7 Mill. EUR), due to good yield development Longhaul revenues further increase their share (+0.7% pt) of Total Revenues
Revenue per Region 2005 [EUR million] Europe
17530
North Atlantic
9140
Domestic
8316
Far East
7016
Sub-Saharan Africa
3013 1948
South Atlantic
1794
Mid Atlantic
1585
Middle East Charter North Africa Other
>> Revenue Distribution Revenues from longhaul operations increase by 0.7%pt in 2005 and account for 49.2% of the Total Operating revenues. This trend could already be observed in the past. The comparable figure in 2003 was at 48.1%. It has to do with the positive yield development on certain longhaul regions in recent times and the comparable limited growth of the European traffic.
>> Revenue Development All traffic regions show a positive growth development, both in percentage and absolute terms. For the shorthaul (cross-boarder Europe and Domestic) revenue growth was achieved with capacity increases. Both regions developed in-line with the expansion. On the longhaul it is obvious that revenue increases exceed the capacity growth. Better yields, partly the result of fuel surcharges, are the reason. (see Yield Results on page 12).
Passenger Revenue
767 196
Revenue Distribution 2005 and Deviation vs 2004
Revenue Distribution in 2003
+0.7 %
- 0.7 %
Short/ Medium haul 50.2%
Longhaul 49.2%
-20
(public version)
-10
0
10
Short/ Medium haul 51.9%
Longhaul 48.1%
Passe nger Rev enue De velopment 2005 vs 2004 [in EUR Million]
Passenger Revenue Development 2005 vs 2004 [%] Capacity increase [%]
‘South Atlantic’ and ‘Middle East’ the regions with the largest % growth represent 7% of total revenue.
Association of European Airlines
839
20
-1200
-800
-400
South Atlantic
South Atlantic
Middle East
Middle East
North Atlantic
North Atlantic
Far East
Far East
North Africa
North Africa
Domestic
Domestic
Mid Atlantic
Mid Atlantic
Sub-Saharan Africa
Sub-Saharan Africa
Europe
Europe
0
400
800
1200
7
Cost >> Fast facts
8%
9% 24%
10%
Fuel cost increases have massively changed the airlines cost structure: direct operating cost now represent more than 58% of the Total Cost base. Ten years ago, ‘Direct’ and ‘Indirect’ cost shares were balanced. The trend is also accelerated through the continued cost savings in positions like ‘Administration’.
34%
12% 1%
Fuel cost represented 24% of the ‘Direct operating cost’ in 2003, 27% in 2004 and 34% in 2005.
18%
Cost Distribution 2003 % of Total Indirect Cost
0%
Cost Distribution 2005 % of Total Indirect Cost
11%
10% 27%
29%
Station & Ground Cabin Attendants Passenger Service
33%
31%
Load Insurance Ticket & Sales & Prom.
16% 1%
1%
12%
Share of Cost [%]
>> Selected cost items
Flight Deck Crew Fuel & Oil Flight Equipment Insurance Maintenance & Overhaul Depreciation Rentals Airport Charges Navigation Charges
8%
20%
>> Cost Distribution
13%
8%
General & Administration
17% 12%
Net Commissions [% of Passenger Revenue]
60
Passenger Service cost, which include for example ‘Catering’, are at their historic low too. However, it has to be taken into account that the Fuel cost has pushed up the whole cost base and therefore the share of the other cost items has become ‘naturally’ smaller.
Direct Operating Costs
56
7.8
54
7.7
7.6 6.4
52
6.4
50
4.6
4.5
48
4.5 3.3
46
1.9
44
Indirect Operating Costs
42
Distribution Cost in [%] of Total Operating Cost
Passenger Service Cost in [%] of Total Operating Cost
25
10
2005
2004
2003
2002
2001
2000
2005
2004
2003
2002
2001
2000
1999
1998
40 1997
Commissions reach a historic low of 1.9% of the passenger revenues. This figure came down from around 8% in the early 90s.
58
1996
Distribution cost (Ticket, Sales and Promotion) have been on a continued downward trend for the last 10 years and reached 12.3% in 2005. Leaner sales structures, sales via the internet and changes in the commission models are the reasons for the downward trend.
1999
!
9%
15%
1998
!
11%
1997
!
Fuel cost increases to 34% of ‘Direct Operating Cost’ Fuel cost represents 19.7% of ‘Total Operating cost’ Commissions fall to 1.9% of Revenue Further cost savings in ‘Passenger’ and ‘Distribution’ cost achieved
Cost Distribution 2005 % of Total Direct Cost
1996
!
Cost Distribution 2003 % of Total Direct Cost
9 8
20
7 15
6 5
10
4 3
5
2 1
Association of European Airlines
(public version)
2005
2004
2003
2002
2001
2000
1999
1998
1997
0 1996
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
8
Cost (2) >> Fast facts !
!
!
Reduction or constant cost in most positions Fuel cost increase by 40.1% (30.2% the year before) Indirect cost was reduced despite 6% more passengers transported
Cost Deviations 2005 vs. 2004 [%]
5.7
Flight Deck Crew
40.1
Fuel & Oil Flight Equip. Insurance -20.2
2.3
Maintenance & Overhaul
Direct Operating Cost [EUR]
7.1
Depreciation
2.1
Rentals
5.8
Airport Charges Navigation Charges
Fuel cost increased by 40.1% compared to 2004. Fuel expenses total 11.1bn EUR in 2005 and represent 19.7% of the Total Expenses of AEA Airlines.
Station & Ground
5.4
Cabin Attendants
3.9
Passenger Services
3.4
Considering a capacity increase of 5.3% savings amongst ‘Indirect Cost’ is impressive (-0.2%). This suggests that the airlines have managed to reduce cost where possible.
Load Insurance
General & Admin.
-7.1 -2.7
Traffic and Capacity volume increases have to be taken into account when looking at above Cost figures.
2004
23,541,011
2005
23,497,307
-0.2 %
2004
52,667,990
2005
56,564,126
7.4 %
Deviation:
Total Scheduled ATK [billion]
97
6.0%
350
5.3%
120 100
Total Scheduled Passengers [Million]
102
300
263
279
250
80
200
60
150
40
100
20
50 0
0 2004
Association of European Airlines
13.5 %
Total Operating Cost [EUR]
Insurance Cost 2005 was another safe year for commercial airlines which influenced the insurance premiums. The Insurance cost (Load and Aircraft) however represent less than 1% of the airlines’ total expenses.
Volume increase of 5.3% in terms of ATK and 6.0% in terms of passengers.
33,066,819
Deviation:
Flight Deck Crew and Cabin attendants are in-line with the capacity development
>> Volume increase
2005
Indirect Operating Cost [EUR]
-17.1
Ticket, Sales & Promotion
29,126,979
Deviation:
0.0
>> Cost items
2004
(public version)
2005
2004
2005
9
Unit Cost (Cost per ATK) >> Fast facts !
! ! !
!
Reduction of Unit cost on most cost items Overall cost increase +2.0% ‘Indirect Cost’ savings –5.2% General & Administration cost further reduced –7.6% Fuel cost turn the positive cost development into the red
Cost Deviations per Unit (ATK) 2005 vs. 2004 [%]
Flight Deck Crew
0.4
Fuel & Oil
33.0
Flight Equip. Insurance
-24.2 -2.9
Maintenance & Overhaul
1.7
Depreciation -3.1
Rentals
0.4
Airport Charges -5.1
Navigation Charges Station & Ground
0.1 -1.3
Cabin Attendants
-1.8
Passenger Services Load Insurance
-21.3
Ticket, Sales & Promotion-11.8 -7.6
General & Admin.
>> Comment Total Operating Cost per ATK (Unit cost) increase by 2.0% mainly due to the strong increase of fuel cost (unit cost increase by 33.0%) Fuel cost increase influences the +7.8% of ‘Direct Operating’ unit cost . Cost were at 0.293 (EUR) in 2003, 0.300 in 2004 and 0.323 in 2005. Further increase expected for 2006. A simulation with ‘constant fuel cost’ (2004 level) shows that direct operating cost would have increased by 3.0% instead of +7.8%.
Direct Operating Cost per ATK [EUR] 0.6
Total Operating Cost per ATK [EUR] 0.8
+2.0%
0.7 0.6
0.5 0.4
0.5
0.3
0.323
0.300
0.3
0.4
0.2
0.2 0.1
0.1
0.0
0.0 2004 Indirect Operating Cost per ATK [EUR] 0.6
0.6
[EUR]
0.5
3.0%
0.4 0.242
0.230
0.3
0.2
0.2
0.1
0.1
0.0
0.300
0.309
2004
2005
0.0 2004
(public version)
2005
Direct Operating Cost per ATK Constant Fuel Cost
- 5.2%
0.4 0.3
2004
2005
0.5
Association of European Airlines
+ 7.8%
0.553
0.542
2005
10
Profitability Operating Ratio, after Interest 2005 per Region
>> Fast facts
The analysis on the right shows that three of the largest traffic regions (Europe, Domestic, Far East) are not producing the expected results, whereas North Atlantic has sufficient profitability and contributes 665 Mill. EUR to the bottom line result.
Sub Saharan Africa
North Atlantic
-1.3 -3.2
Operating Ratio by Growth
Operating Ratio by Market size
20
25
18 16
20
14 12 10 8 6 4
South Atlantic
15
Domestic
North Africa
Far East Europe
10
2 90
100
110
North Atlantic Domestic
5
North Atlantic Middle East 80
Europe
Far East
Sub-Saharan Africa Mid Atlantic
0
>> In absolute figures
1.8
1.4
[billion USD Revenue
Far East/Australasia drops from profitablity in 2004 to a loss in 2005 of 221 Mill. EUR.
1.5
0.6
[ASK Growth 2005 vs 2004 in %]
Europe and Domestic continue to post negative operating margins, but both improved their performance significantly. Europe reaches an operating ratio of 97.7 (95.1 in 2004) and Domestic almost reaches profitablity with a rate of 99.2 (95.8 in 2004).
6.3 3.4
2.6
Sub-Saharan Africa performs best, although with a loss of 1.3%pts.
South Atlantic North Africa
0 80
120
90
Sub-Saharan Africa Mid Atlantic Middle East
100
110
120
Net Result, after Interest 2005 per Region 800
443
-80
-200 -400 -600
Geographical Europe
0
(public version)
4
16
39
86
North Atlantic
-85
Sub Saharan Africa
-221
Middle East
-457
Mid Atlantic
200
‘Other Route Areas’ include Routes that cannot be allocated to a specific Region.
Northern Africa
400
South Atlatntic
-843 Mil. EUR
600
Domestic
1253 Mill. EUR
665
Other Route Areas
Accumulated
[EUR million]
Far East / Australasia
Unbalanced regional results:
Association of European Airlines
Middle East
Deviation 2005 vs 2004 [%]
Operating Ratio for Total Scheduled Services is 102.3 (before interest) and 100.6 (after interest)
Negative results:
101.9
100.2
>> Operating Ratio
Positive results:
101.9
Mid Atlantic
99.2
Northern Africa
97.7
97.4
South Atlatntic
!
106.9
105.0
Domestic
!
114.5
Geographical Europe
!
Geographical Europe and Domestic are not profitable Far East/Australasia suffer a significant profitability loss North Atlantic is performing well and is the most successful traffic region Average Operating Ratio is not sufficient
Far East / Australasia
!
11
Yield >> Fast facts
Yield Index Total Scheduled Year 2001 = 100
!
125
!
!
!
Total Scheduled Yields approach 2001 levels European Yields again under pressure Longhaul yields are increasing, especially on North Atlantic Figures include ‘Fuel Surcharges’
Yield Index Geographical Europe Year 2001 = 100 125 Currency adjusted Current
120 115
115
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75
Currency adjusted Current
120
75 2001
2002
2003
2004
2005
2006
2001
2002
2003
>> Yields
Yield Index North Atlantic Year 2001 = 100
Yields (Passenger Revenues / RPK) shown in the charts are expressed in EUR terms. The currency adjustment curves are based on certain assumptions regarding share of revenue in foreign currencies according to the traffic regions (please refer to the ‘Appendix’ to this document).
Yield Index Middle East Year 2001 = 100
125
125
Total Scheduled yields are increasing slightly, but are still below the level of 2001. The increase can be explained by the yield gains on longhaul. The most important traffic region— Europe—posts continued yield decreases, explained by ongoing competition and low pricing power. Currency adjusted yield developments 2006/2005 (3 Quarters): >> Total Scheduled: >> Geographical Europe >> North Atlantic >> Middle East >> Far East
+3.9% - 0.6% +12.5% +7.3% +2.1%
>> Stage Length Average Yields (Revenue per Passenger kilometre) are determined by the average stage length of the flights of AEA carriers. Comparisons among individual carriers should therefore be made on an adjusted stage length basis.
Currency adjusted Current
120
115
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75 2001
2002
2003
2004
2005
2006
2005
2006
Currency adjusted Current
120
115
2004
75 2001
2002
2003
2004
2005
2006
Premium Passengers as a % of Total
Yield Index Far East Year 2001 = 100
20
125
Currency adjusted Current
120
18
115
16
110
14
105
12
100
10
95
8
90
6
85
4
80
2
Europe Beyond Europe
0
75 2001
2002
2003
2004
2005
2006
2001
2002
2003
2004
2005
2006
Passenger Yield comparison 2005 Europe [€ cents] 20
15
10
5
0 500
Association of European Airlines
(public version)
Stage Length [km] 1000
1500
2000
* Passenger revenues generally include Fuel Surcharges.
12
Focus: Fuel Europe Brent Spot Price
>> Fast facts !
!
!
!
Crude Oil price went up from 38.10 USD/barrel in 2004 to 54.42 USD/barrel in 2005 AEA carriers spent 3.2 bn EUR more on Fuel than the year before Crude Oil Assumption for 2007: 65 USD/barrel Fuel expenses represent 30% on Longhaul operations
80
Fuel Cost for AEA Airlines
[US$ per barrel]
25
64.73
Estimate 20
54.42
60 50
38.10
40
15
28.88
30
10
20
5
10 0 2003
2004
2005
0
2006
2001
Source: EIA
>> Fuel Cost Share
[USD billion]
70
2002
2003
2004
2005
2006
Fuel Cost in % of Total Operating Cost per Stage length
The linear regression line shows the fuel cost share of the AEA carriers with respect to the stage length. Each data point represents a carrier’s fuel cost share on a particular geographical region. It is obvious that with increasing stage length, the fuel cost weighs more. The share has moved up every year since 2003 from 15% to 20% in 2004 to 25-30% in 2005 for longhaul flights.
[%]
40 35 30 25 20
2005 2004 2003 Linear (2003) Linear (2004) Linear (2005)
15 10 5
Stage length
0 0
>> Efficiency gains
Fuel efficiency measured in ‘Fuel Consumption per ASK or RPK’ shows a slight decline for both measures. Whereas the ‘Fuel consumption per RPK’ is largely influenced by the increased load factor, the measure ‘Fuel consumption’ per ASK represents efficiency gains through ‘technological’ and ‘operational’ measures.
2000
4000
6000
8000
10000
12000
Fuel efficiency (consumption per ASK and RPK) 20
[Gallon per 1000 units]
18 16 14 12 10 8 6
Fuel consumption per RPK Fuel consumption per ASK Linear (Fuel consumption per RPK) Linear (Fuel consumption per ASK)
4 2 0 1997
>> Consumption Differences in fuel consumption per ASK occur through different networks, type of fleet (age of fleet) and operational measures.
1998
1999
2000
2001
2002
2003
2004
2005
Fuel consumption System wide Services 14
[Gallon per 1000 ASK]
12 10 8 6 4 2 0
Airline SN A BA B JK C ...LX LH MA AZ
Association of European Airlines
(public version)
IB
SK
AY OU OK AF
TK
JU LO OS TP
JP CY RO KM OA
13
Outlook >> Fast Facts !
!
!
Net Result after interest
Expected result 2006 (after interest) 0.8 bn USD based on continued strong economic environment and demand Crude oil price assumption: 65 USD/barrel
[USD billion] [USD billion] 3 2
Est.
1 0 90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
-1 -2
>> Growth perspectives Projected Total Scheduled Traffic/ Capacity Growth in terms of Revenue Passenger Kilometers (2006 over 2005): ASK
+ 3.0—3.5%
RPK
+ 4.0—4.5%
-3 -4
Passenger Loadfactor 78.0% (+1%pt)
Association of European Airlines
(public version)
14
Appendix >> Currency impact
Most of the data used in this report was submitted in local currency by the participating carrier. Most carriers reported in EUR. For the non EUR carriers, the Secretariat has converted them to EUR at the rate reported by the carrier. USD / EUR currency variations do not have an impact on cost comparisons since as of 2005 edition of this report, the base data is no longer converted into USD.
>> Currency adjustments
Assumptions were made of the potential revenue share in foreign currency, according to the table on the right. Adjusted Yields were calculated based on these assumptions.
>> Glossary
1.2 1.0
0.885 0.805
0.805
0.801
0.8 0.6 0.4 0.2 0.0
2003
2004
2005
2006
Assumptions: Share of USD as percentage of Total Revenues: for revenues generated on… Europe North Atlantic Middle East Far Est Total Scheduled
[%] 10 50 40 30 25
Assumptions: ASK ATK bn EUR Geographical Europe km Longhaul l-y Mediumhaul mill. mm Operating Ratio after interest Operation Ratio before interest Passenger Load Factor [%] PLF RTK Shorthaul Total Load Factor [%] Total Scheduled Total Systemwide Unit Cost USD vs Yield yr %pts
Association of European Airlines
USD in EUR
(public version)
Available Seat Kilometre Available Tonne Kilometre Billion Euro Europe excluding Domestic kilometre Includes the Americas, Africa, Asia last year Includes North Africa and Middle East Million month Operating profit after interest as % of Total Operating Revenues Operating profit before interest as % of Total Operating revenue RPK divided by ASK Passenger Load Factor Revenue Tonne Kilometre Includes Domestic, Europe RTK divided by ATK excluding Charter including Charter Operating Cost per ATK US Dollar versus Passenger Revenue per RPK year Percentage points
15
