Infrastructure Constraints In Europe

Transcript

Rafał Milczarski:Ladies and gentlemen, apart from being CEO of LOT, I'm also the President of AIR, which is Airline International Presentation Europe, which is why perhaps my presentation will be slightly more regulatory-oriented than airline-oriented. I think what we find ourselves in is a fundamental infrastructure capacity constraint when it comes to airports in Europe. And, you know, the finest examples are, of course, Amsterdam and Heathrow. But I think overall you can say that if you, if you look at the top 10 European airports, their growth '17 over '16 was 5.2%, whereas for total Europe That growth would be 8.3%, and for other parts of Europe, it's actually much more significant than Western European growth in the top airports. That fundamentally means that the infrastructure doesn't catch up with the growth of capacity of aeroplanes, and that demand for airline services is actually growing faster than the capacity of available airports, which means there are constraints on growth. And in the existing capacity in Western Europe, the capacity increases are actually either very costly— for example, we can talk about the expansion of Heathrow 3rd runway, extremely costly project— Or, you know, inspire heated debate, the idea of administrative division of traffic in Amsterdam. Nobody really wants to leave the airport in Amsterdam and wants to go to another airport, but this is one of the proposed solutions. As a result, I think what's happening is that the European aviation will be faced with increasing challenges, and something has to be done about this. Now, I think overall capacity, and I'm focusing here on airport capacity, but of course similar things can be said about air traffic control, especially in Europe. but let's focus on airports. There are in the world in total 204 airports that have— that are slot coordinated, and over half of those coordinated airports are actually in Europe. So Europe does seem to be extremely capacity constrained in terms of airport capacity. And when we look at the future, at what's happening in Europe, We are expecting a 50% increase by Eurocontrol in 2013, a 50% increase of number of flights by 2035 relative to year 2012. But of course, we went through the economic crisis in 2008, and the number of airport expansions was actually dropped. So, so 20 airports will be running at capacity, resulting in increased delays and problems. And actually, Eurocontrol estimates that 12% of demand will be unaccommodated, which means that potentially 120 million passengers will be unable to fly, or 1.9 million flights will not be operated, which is a very, very big problem. For the future of aviation. So in fact, it's easier to procure airplanes, it's easier to train pilots and crew than actually to increase airport capacity. And that is a challenge that we'll have to deal with. So if we look at the map here, this is the map of the air traffic congestion, and you can see basically where it's— where it's concentrated. And of course, there's a high correlation between economic growth, the level of economic development, and presence and intensity of aviation. So from this map, we can obviously read that the GDP per capita is much higher in Western Europe than in Central and Eastern Europe, which is obvious, but also that means there is much less connections and much less connectivity in Central Europe and much more congestion in Western Europe. All of Europe's main hubs are actually located in the old 15 EU countries, and the sky over Western Europe is highly congested, whether the sky— Whereas the the sky over Central and Eastern Europe can accommodate significant additional growth in aviation. Central Europe actually represents countries with total population exceeding 180 million people, which is very, very significant. And actually, I believe, as the CEO of LOT, but also as a Central European, I believe this will be the source of major economic growth and major aviation industry growth over the years to come. And this inspires a conclusion that actually something must be done about this, something should be done about this, and greenfield projects could be the best idea to sort the situation out. Because currently there is not a single global hub that is situated in this part of Europe. So this is a little map. It's Central European-centric. I know this is not normally how the map of the world is seen. The country The country marked red is Poland, but Central and Eastern Europe, those 19 countries, are situated here. And on the left-hand side, you can see at what rates these countries are actually growing in terms of Eurocontrol forecast of aviation growth. So, what we can say about this, there is 15 cities of inhabitants of 1 million or more. The population of those countries is very well educated. A lot of these countries were behind the Iron Curtain, in fact, most of them were behind the Iron Curtain, and hence didn't enjoy the economic growth throughout the 1970s '80s until the fall of Iron Curtain, 1960s, as the rest of Europe. Aviation started developing on a very intensive level after the fall of communism, and the driver of aviation growth has actually been significantly overtaken by low-cost carriers. And the markets are pretty fragmented. In fact, LOT Polish Airlines is the largest network carrier in this, in this part of the world. We are the fastest-growing European airline at the moment for the 3rd consecutive year. This year we will grow by approximately 40%, grow our capacity by approximately 40%. But actually Warsaw is the only, the only hub that is situated in this part of the world. That has global outreach. And when we now look at the future and we set— and we make a comparison about growth data and about trends versus Western and Eastern Europe, comparing the slide that I showed at the beginning The top 10 European airlines— the top 10 European airports grew by 5.2% between '16 and '17, whereas the CEE countries have grown by 16.1%. And that just shows the completely different level of magnitude of growth and the phenomenal potential. What we believe is that there is going to be a significant increase and this increase will continue. The good education of the region will lead, and also the new economies, the IT, the fintech, all of those will actually mean that a lot of the population will be enriching themselves in a very significant manner. and they will be using aviation more and more, and more and more intensively. The major airports in the region will keep the pace of growth with the smaller ones, and this is why what needs to be done in Central Europe is new airport capacity needs to be added. Thus far, in the last European Union perspective, a lot of regional airports were built, but not a single global hub. Currently, the Polish government has actually come up with a project that is now official and that will be taking place of building a new, completely brand new greenfield development project, airport development, between the city of Warsaw and the city of Łódź, which actually will have almost unlimited capacity because it will be taken out of the urban areas, so it will generate very little negative externalities. It will be intermodally connected, so it's actually an intermodal project. There will be not only aviation connectivity with Central and Eastern Europe and the rest of the world, But of course, there will also be great connectivity with other modes of transport, such as railways, including high-speed railway connecting the airport with the city of Łódź and Warsaw. And the development and the area that will be secured will be sufficient for this airport to serve Anything from the initial around 50 million passengers to over 100 million passengers if demand keeps growing. This particular project, this is where it's put on the map, between Warsaw and Łódź, about 44 kilometers from the very center of Warsaw. Very well connected in an area that is not urban, that is fundamentally rural. So it will be a round-the-clock airport, no night curfew, pretty much unlimited capacity. We believe that this is something that will help greatly unlock the growth potential of the European aviation industry. Because currently, it's extremely difficult when we're talking about additional growth within the congested projects, congested airports of Western Europe, hub airports of Western Europe. It is virtually impossible to have long-term growth planned there. I think what this will mean is a shift of of the balance of connectivity. At the moment, Central European region suffers from much less connectivity relative to Western Europe. When an airport like this is put in Central Europe, the connectivity of the whole region and of the countries of Central Eastern Europe will fundamentally improve. Just to sum up, The way we look at this right now, the capacity of current hub airports in Europe is insufficient and it will run out. The development of those airports will be much more costly and much more restricted than new airports in new regions, which are currently less congested, both in terms of air traffic control and in terms of in terms of just the general development, which means land is cheaper, there are smaller costs and everything else. The market conditions, I think they definitely support creating additional hub airport capacity in Europe, in Central Europe. The transport hub that will be created in Poland And actually, the law was just passed and signed by the Polish president, so this is now official. The government will start buying up the land and relocating people from the place where the construction will take place, and the construction will be completed until 2027. You know, this is actually a realistic project, and it will be, I believe, extremely important in relaxing a number of airport infrastructure constraints that will be imminent for Western Europe and Europe as a whole. Of course, the question is how we in the future, because this is actually a solution to the real problem because we have too little capacity, but we will have to still address the problem of how we allocate slots and airport capacity in the existing airports. And I think the issue here is there is lack of infrastructure and infrastructure needs to be created because if we operate in a capacity-constrained world when there are no slots, slots become of great value. Then the supply of services is insufficient and hence prices, of course, rise. It's good for the airlines that operate from such airports, but I doubt if it's good for the general public and if it's actually good for the development, economic development of Europe as a whole. I would say what Poland is doing and what Central Europe is doing, we are increasing airport capacity. But I think there is a growing expectation that there should be, wherever possible, also airport capacity increases and appropriate measures of allocation of airport capacity, because there is a lot of capacity that is actually either not used but held by operators, and of course, I think we will differ quite a lot about how capacity is allocated because the airlines from the emerging world don't like very much the idea of slot auctioning, for example. We believe that capacity should be freed up and the capacity should be created to actually allow connectivity of regions between regions because I think fundamentally what it all means is that the world will be developing in a much more equal and level way. And more capacity and more connectivity will be necessary. But aviation awaits great future, great growth, and I think this industry is great, and I'm very proud to be part of it. Thank you very much.

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