1. Living with change
Peter Harbison Executive Chairman CAPA- Centre for Aviation
Perth, 4-Jul- 2018

2. The global environment
Perth and Australia domestic
Distribution and NDC

3. Oil prices change the market
Jun-2018 to Jul-2018
Jul-2017 to Jul-2018x

4. How oil prices changed the market
145
140
135
130
125
120
115
How oil prices changed the market
10% 8% 6% 4%
Airline operating profit (EBIT)
140
120
100 80 60 40 20
110
105
100 95 90 85 80
Passenger yield / Load Factor / Passenger growth $
Passenger growth
Profit
Load factor
Average ticket price
Oil barrel price
Barrel price ($) $
January 2011 = Index 100
Globally, 2017 was a fairytale year
It was not a normal year
Source: CAPA – Centre for Aviation; IATA

5. Global influences
Trade War
Middle East turmoil

6. The lowest fares are trending upwards.
Discount fares rising
The lowest fares are trending upwards.
This is the most price sensitive market
Source: BITRE

7. Business class fares have been stable over the past couple of years
Business class fares steady
Business class fares have been stable over the past couple of years
Source: BITRE

8. And who pays these fares?
Restricted (non-flexible) economy
But look at this…..
And who pays these fares?
Source: BITRE

9. Most fares trending upwards - higher fuel costs - less domestic competition - lower AUD Demand remains fairly strong - what impact of the end of the housing boom, higher interest rates? Domestic growth slowing

10. https://www. youtube. com/watch

11. Selling tickets - 1950s style

12. Selling tickets – moving along
Agent
Agent
Agent

13. Selling tickets – CRSs arrive: 1970s-1990s
The big airlines created their own CRSs (and paid agents to distort their inventory in favour of their flights)
Agent
CRS
CRS
Then the dopes sold them off!
And GDSs evolved….
Agent
CRS
CRS
Agent

14. What’s NDC and why is it important?
Airline objections to GDS:
1) Only 26 buckets - Limits offer flexibility
2) GDS fees/segment + airlines locked in for 5 years (GDSs share fees with agents)
GDS
ATPCo
OAG
Fares
Availability
Schedules
Agent
Agent
$$$

15. What’s NDC and why is it important?
The New Distribution Capability seeks to allow added “richness” to the old legacy systems that limit them in how they can sell:
1) Allows more ancillary sales
2) Regains control of the selling process
3) Allows data collection
GDS
ATPCo
OAG N D C
Fares
Schedules
Agent
Agent
Availability
Fares
Schedules
Availability
$$$

16. What happens next? Change!
But nobody knows what. Migrating to NDC is complex:
Legacy airlines mostly have very complex, “legacy” systems, so it’s hard to deliver directly to agents or to customers
Most airlines think it’s an IT issue. 90% of the business is dedicated to buying and flying metal (which doesn’t make money); managements don’t know the nature of this revolution, so they can’t tackle it
There’s a lot of other stuff going on:
Payments and back office solutions (and disrupters)
Data collection and analytics. Chatbots. AI
Blockchain. Winding Tree.
40,000 smart tech startups trying to disrupt the system

17. What happens next? Change!
Most intermediaries should be worried, if they’re not prepared
Agents have been shielded from being bypassed because GDSs locked airlines into using them and paid agents to support the old system by sharing the GDS segment fees with them
It’s going to be very messy
It will take years for the picture to become clearer, so there will be many opportunities for the ones who understand the big picture
And (smart) airlines are worried too. There are lots of 3rd party lurkers who know the airlines’ customers much better than they do:
Amazon, Facebook, Google, Tencent, Alibaba, WeChat, Twitter, Uber, Didi…..

18. Thankyou!

20. Profile of corporate and business travel decision makers
Source:: Roy Morgan Single Source (Australia) 12 months ended Mar-2018

21. Annual Passenger Growth at Australian Airports
10.12%
10%
8.38% 5%
MEL
SYD
ADL
BNE
PER
Annual Passenger Growth
1.92% 0%
-0.35%
-0.93%
-1.88%
-1.71%
-5%
All Airports
Average Annual
Growth = 3.14%
2011
2012
2013
2014
2015
2016
2017
2018
Source: BITRE (Year Period = May-April)

22. Annual Passenger Growth at Perth Airport
9.09M
8.95M 9M
8.35M
8.61M
8.32M
DOM
7.51M
8.05M
8.06M 7M
Annual Passenger Growth 5M
4.40M
4.18M
4.25M
4.35M
4.08M
INT
3.69M
3.44M
3.20M 3M
2011
2012
2013
2014
2015
2016
2017
2018
Source: BITRE (Year Period = May-April)

23. Domestic Airfare Index
100
SYD
MEL
ADL
PER
BNE
Index Value 75 50
2013
2014
2015
2016
2017
Source: Forward Keys (Year Period = January-December) [Index 100 = 2012]

24. International Airfare Index
100
ADL
SYD
PER
MEL
BNE
Index Value 75 50
2013
2014
2015
2016
2017
Source: Forward Keys (Year Period = January-December) [Index 100 = 2012]