CAPA Aviation Outlook

Transcript

Peter Harbison:Peter Harbison, Executive Chairman, CAPA. As I say, I'm going to have a word about China and a couple of issues there. There are— when I was preparing this, there were about 30 different things I wanted to talk about, but I thought, well, I'll just focus on one which, as I say, doesn't step on the toes of anybody else. You probably saw this earlier this month. 50 million apartments empty in China. There's been a big issue about housing in China and the bubble there. I just put it up because that— not because I'm suggesting there is disaster around the corner, but because that is the way we're starting to look at China at the moment. Is the growth boom coming to an end? Now, to put that into perspective, 20% of Chinese homes are empty, apartments largely, built speculatively. To put that into perspective, China is about 20%, but the US is above 10%, Japan is above 10%, so it's not totally disastrous. The fact that it's 50 million is a very big number because everything about China is a very big number. But I think there is pretty much consensus that things are slowing, which is not that unnatural when you've been growing that fast for so long. But also there are some, some structural issues emerging in China. Talking specifically about the aviation sector, and of course I'm talking about high-speed rail here, the impact of high-speed rail on aviation in China has been quite marked and it will become increasingly marked. The impact because it's diverting a lot of traffic that would otherwise fly onto rail. Now today there are, I think, 27,000, 27,000 kilometers of high-speed rail, and we're talking about something like 300 kilometers an hour for that travel. It's about these, these distances you see on here are marked from Beijing, which is highlighted, so you can go from Beijing to Shenzhen just adjacent to Hong Kong, in 11 hours by fast rail, high-speed rail. Beijing to Shanghai now takes 6 hours. When I took it when it first started, it took about 8 and a half. So it's, it's really a very, very comprehensive system, and it's particularly hurt China Southern down in the south because a lot of the rail links went out from there, hurt them in terms of anything under about 700 kilometers. is very, very competitive. And of course, as the aviation system becomes more congested, both in terms of airport and air traffic control, the train becomes much more attractive. And that attraction grows as, of course, there are more rail links created. And by 2030, there's going to be something like 47,000— 45,000 to 47,000 kilometres of high-speed rail. The 4 by 4 to 8 by 8, this is a sort of rough gauge of the grid of the high-speed rail network, and it's been something like, like this: 4 verticals and 4 horizontals. Very, very crudely represented here, but that over the next 15, 20 years is going to go to 8 by 8. And you can see from that that it's going to have a massive impact on the prospect of traveling by, by air. It's really going to dilute what would be a natural sort of progression. If you compare with the US, for example, if we were at the same sort of stage, air travel would grow phenomenally fast. This is obviously going to dilute that projection for the future. And this is a sort of close-up because the high-speed rail just hit Hong Kong earlier this month. And there's a real concentration of both of people and of rail around that section. And it, it really has a major impact not only on China Southern, of course, but on Cathay. And if you add that to that, the link, the bridge link, between the various cities at the top of the Pearl River Delta, that whole system becomes really, really tightly connected with very, very good surface connections. Now, there are 2 aspects to this. One is traffic is obviously diverted away from going by air. The other one though is there is the potential, and it's evolving fairly quickly for multimodal connectivity, using feeding rail into the different hubs. And Shanghai is a very good example of that where you link in, although they do have a bit of an airport issue there too. So point made basically anyway. Looking internationally, the— my theme really is that If you are restricted in growth domestically, there's the prospect of growing internationally. And this is where the Chinese carriers have been looking to go out and grow internationally. China— this graph here is off our website. It's a breakdown. All of the different colours you can see there represent a separate airline. I know it's pretty blurry, but it's just a general concept. The growth rate there is going to be 10% right through to the end of the first quarter of calendar 2019, which represents about 10% year-on-year growth. 15 million seats a week in that region. Just remember that, 15 million. China to Europe has about 175,000 seats a week. Dramatically different. And my suggestion, my implication there, obviously, is that this is an underserved market. The distances are obviously greater than within Asia, but at the same time, the trade routes, the trade flows are starting to hasten and need to. In fact, we've got negative growth, largely due to capacity controls, but also to visa issues, a whole array of different things. China to North America, 127,000 seats a week. Negative growth again, flat to negative growth, and both Canada and the US have capacity caps, which slows that growth, along with some visa issues too. To put that in context, one context anyway, Australia has half as many seats as US and Canada combined from China, and about a third of Europe combined. We have 56,000 seats a week coming into Australia. We have an open skies regime, visa system is relaxed, and we received about 1.5 million tourists from China last year. I've made a comparison in the past with Australia and Canada, which has a restrictive regime, which is designed to protect the national carriers there. The impact on the national GDP is something like $3.5 billion lost to the Canadian economy by keeping out Chinese carriers. And finally, I'll rush through this fairly quickly. You've probably heard of the Belt and Road Initiative, BRI. China is, as a supportive thing, not just for aviation but generally, going out into the international markets, lending for infrastructure. It's quite controversial. There are a lot of things going on there. But from our point of view, from an aviation perspective, it is quite relevant and quite important. That's right. It doesn't just relate to aviation too. Just this month, 2 new navigation satellites were sent into space called the Beidou Navigation Satellite System. It was important because, as the official news outlets said, with the launch of those and of the new satellites coming up, China will complete the basic navigation system and start to provide complementary services for countries participating in the Belt and Road Initiative by the end of this year. So we're talking about a global navigation system that is being part of— becoming part of the Belt and Road Initiative. Another 11 satellites will be launched in the next 2 years, and by the end of the year after next, the whole navigation system will be comprehensive globally. Pretty amazing development, that. So in conclusion, trying to keep to my timing, domestic consumption is now strong in China. It's strong enough to support the economy effectively. and a strongly growing airline industry, but there's been little coordination between rail and air service growth, and that's gradually starting to change. Domestic air travel is going to be suppressed to some extent, it has been already, by high-speed rail, and the Chinese carriers will, and my purpose for showing the growth in the US and European markets, or non-growth, is that these are markets where things have got to change. Just so inevitably, regardless of short-term issues. The Chinese carriers are bound to be seeking further access into Europe and trying to change the balance in North America. And the, the BRI will progressively become more and more important, particularly in developing nations, but also on a more global basis. So thank you. That was just my sort of little contribution on China. Thank you.

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