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Activity Forecasts for the Period 2014-2015 to 2020-2021 AIRSERVICES AUSTRALIA Draft Final Report 25 February 2015

Activity Forecasts for the Period 2014-2015 to 2020-2021 DRAFT FINAL REPORT Airservices Australia

Preface Airservices Australia (ASA) commissioned the International Air Transport Association (IATA) to undertake this study.

This final report presents the primary assumptions considered by IATA Consulting and provides results for the main activity forecasts.

For more information about this report or IATA please contact:

Laurent Delarue [email protected] International Air Transport Association 800 square Victoria, PO Box 113 Montreal Canada H4Z1M1

Damien Zaru [email protected] International Air Transport Association 800 square Victoria, PO Box 113 Montreal Canada H4Z1M1

DISCLAIMER.

IATA Consulting has prepared this report for the sole purpose of advising Airservices Australia on Australia’s growth in aviation activity from the present to 2020-2021. IATA Consulting is not hereby making any binding recommendations regarding the pricing of Airservices Australia’s services. This report is not intended to serve as the only basis for any decisions that Airservices Australia may make with respect to the subjects covered in this report. Rather, this report should be considered in conjunction with all other information available to you, our valued customer. This report is based on information provided by Airservices Australia, its respective advisers and representatives, and selected third parties; it is limited in scope and content by the nature and quality of such information and the time available for the analysis. IATA Consulting has undertaken limited independent investigation of the factual or substantive accuracy or validity of such information. IATA Consulting makes no representations, warranties or other assurances, express or implied, about the accuracy of the information contained herein. The analysis and conclusions contained herein are based on many things, including certain assumptions and the analysis of Airservices Australia management of certain information available at the time this report was prepared. The estimates, assumptions and findings underlying the conclusions are inherently subject to significant economic and competitive uncertainties and contingencies, many of which are beyond the control of Airservices Australia. IATA Consulting makes no representations, warranties or other assurances, express or implied, that any of such conclusions will be realized. IATA Consulting has undertaken the preparation of this report and the analysis contained herein solely at the request of Airservices Australia pursuant to IATA Consulting’s agreement for consulting services dated January, 20th 2015 between IATA and Airservices Australia. This report is provided exclusively for the information of the senior management and key stakeholders of Airservices Australia and its representatives. Neither this report nor any information contained herein may be disclosed or furnished (in whole or in part) to any other person or entity, or quoted or referred to (in whole or in part) in any document or communication without IATA’s prior consent. Nothing may be inferred beyond the matters expressly stated in this report. This report is provided as of the date hereof and IATA Consulting undertakes no, and disclaims any, obligation to advise Airservices Australia of any change in any information set forth herein occurring after the date hereof.


Table of content Preface ................................................................................................................................................... 2 Table of content ..................................................................................................................................... 3 List of tables ........................................................................................................................................... 5 List of Figures ......................................................................................................................................... 7 1 Executive Summary .................................................................................................................... 8 1.1 Objectives and approach ............................................................................................................ 8 1.2 Markets ....................................................................................................................................... 8 1.3 Causal factors and analysis ......................................................................................................... 8 1.4 Data ............................................................................................................................................ 9 1.5 Recovery from the Global Financial Crisis and the further economic outlook .......................... 9 1.6 Fleet evolution ............................................................................................................................ 9 1.7 Airfare evolution ....................................................................................................................... 10 1.8 Forecasts ................................................................................................................................... 11 2 Introduction .............................................................................................................................. 12 2.1 Scope of the Study .................................................................................................................... 12 2.2 Key Forecast Factors ................................................................................................................. 12

2.2.1 En-Route Charges ........................................................................................................... 12 2.2.2 Terminal Charges............................................................................................................ 13

2.3 Approach .................................................................................................................................. 14 2.4 Data sources ............................................................................................................................. 15 2.5 Period of Historical Analysis, Base Year and Forecasting Horizon ........................................... 16 2.6 Study assumptions.................................................................................................................... 16 3 Aviation context ....................................................................................................................... 17 3.1 Global Aviation Environment – evolution since 2009 .............................................................. 17 3.2 Regional Aviation Environment ................................................................................................ 21 3.3 Changes in the Local Aviation Environment ............................................................................. 21 4 Economy Outlook ..................................................................................................................... 22 5 Major Domestic En-Route Forecast .......................................................................................... 24 5.1 Historical Traffic ........................................................................................................................ 24 5.2 Major Domestic Passenger Traffic Forecast ............................................................................. 25

5.2.1 Fare assumptions ........................................................................................................... 25 5.2.2 Future Projection ........................................................................................................... 27

5.3 Major Domestic Airline Fleet Perspectives and Assumptions .................................................. 29 5.3.1 Qantas Group ................................................................................................................. 29 5.3.2 Virgin Australia ............................................................................................................... 32 5.3.3 Tiger Airways Australia ................................................................................................... 33

5.4 Load Factors and Aircraft Size .................................................................................................. 34 5.5 Major Domestic En-route Forecast .......................................................................................... 35


6 Major International En-Route Forecast .................................................................................... 37 6.1 Historical Traffic ........................................................................................................................ 37 6.2 Adjustment Factors .................................................................................................................. 37

6.2.1 New Alliances on the Kangaroo Routes ......................................................................... 38 6.2.2 Air Service Agreements between Australia and Mainland China .................................. 38 6.2.3 Air Service Agreements between Australia and Hong Kong .......................................... 40 6.2.4 Air Service Agreements between Qatar and New Zealand ............................................ 40 6.2.5 Air Service Agreements between Mainland China and New Zealand............................ 40

6.3 Major International Passenger Traffic Forecast ....................................................................... 41 6.4 Major International Airline Fleet Perspectives ......................................................................... 42

6.4.1 Qantas Group ................................................................................................................. 42 6.4.2 Virgin Australia ............................................................................................................... 44 6.4.3 Emirates ......................................................................................................................... 45 6.4.4 Singapore Airlines........................................................................................................... 46 6.4.5 Air New Zealand ............................................................................................................. 47 6.4.6 Cathay Pacific ................................................................................................................. 48

6.5 Load Factors and Aircraft Size .................................................................................................. 49 6.6 Major International En-route forecast ..................................................................................... 50 7 Regional Domestic En-Route Forecast ..................................................................................... 52 7.1 Historical Traffic ........................................................................................................................ 52 7.2 Regional Passenger Traffic Forecast ......................................................................................... 54 7.3 Regional Airline Fleet Perspectives .......................................................................................... 55

7.3.1 Qantas Link ..................................................................................................................... 55 7.3.2 Virgin Australia Regional Airline ..................................................................................... 56

7.4 Regional load factor and aircraft size ....................................................................................... 56 7.5 Regional En-route Forecast ...................................................................................................... 57

7.5.1 Future Projection ........................................................................................................... 57 7.6 Regional International En-route Forecast ................................................................................ 60 8 Other En-route Forecasts ......................................................................................................... 61 8.1 Overflights ................................................................................................................................ 61 8.2 All-Cargo ................................................................................................................................... 63 8.3 General Aviation ....................................................................................................................... 65 9 Major Airports Forecasts .......................................................................................................... 67 9.1 Airport segmentation ............................................................................................................... 67 9.2 Historical Traffic ........................................................................................................................ 68 9.3 Forecasts for Passenger Traffic at the Major Airports ............................................................. 69 9.4 Forecasts for terminal MTOW landed at the Major airports ................................................... 71 10 Regional Airports Forecasts ...................................................................................................... 72 11 Secondary Capital City Forecasts .............................................................................................. 75 12 Appendices - Major Airports Individual Forecasts ................................................................... 77


List of tables Table 1 - Forecasts of Annual Growth in En-route Aviation Activity (in MTOW-Km) .......................... 11 Table 2 - Forecasts of Annual Growth in Terminal Activity (in MTOW Landed) .................................. 11 Table 3 - Relative Size of En-route Markets, Fiscal Year Ending June 2014 ......................................... 13 Table 4 - Average Real GDP Growth Rates during Previous Decades (% per annum) ......................... 23 Table 5 — Economic Growth Forecasts Used in Traffic Forecasts (%) ................................................ 23 Table 6 — Statistical Characteristics of the Major Domestic En-Route Traffic Regression ................. 24 Table 7 — Forecasts of Real GDP, Fares and Major Domestic Passenger-Km ..................................... 28 Table 8 — Fleet Size Forecast Qantas Group – Domestic Operations3 ................................................ 31 Table 9 — Fleet Size Forecast Virgin Australia – Domestic Operations1.............................................. 32 Table 10 — Fleet Size Forecast Tiger Airways Australia – Domestic Operations ................................ 33 Table 11 — Load Factors and Average Aircraft Size Forecast– Domestic Major Airlines Operations . 34 Table 12 - Forecast for Major Domestic Airline En-route Traffic ......................................................... 36 Table 13 — Statistical Characteristics of the Major international En-route Traffic Regression .......... 37 Table 14 — Opportunities for New Routes and Additional Frequencies Between Australia and

Mainland China ........................................................................................................................... 39 Table 15 - Forecast of Major International Passenger ......................................................................... 41 Table 16 — Fleet Size Forecast Qantas Group – International Operations ......................................... 43 Table 17 — Fleet Size Forecast Virgin Australia – International Operations ....................................... 44 Table 18 — Capacity and Aircraft Size Forecast for Emirates – International Operations to Australia45 Table 19 — Capacity and Aircraft Size Forecast for Singapore Airlines – International Operations to

Australia ...................................................................................................................................... 46 Table 20 — Capacity and Aircraft Size Forecast for Air New Zealand – International Operations to

Australia ...................................................................................................................................... 47 Table 21 — Capacity and Aircraft Size Forecast for Cathay Pacific – International Operations to

Australia ...................................................................................................................................... 48 Table 22 — Load Factors and Average Aircraft Size Forecast– Major International Airlines Operations

..................................................................................................................................................... 50 Table 23 - Forecast of Major International Airline En-route Traffic > 20 Tonnes ................................ 51 Table 24 — Statistical Characteristics of the Regional Traffic Regression ........................................... 53 Table 25- Forecast of Regional Domestic En-route Passenger Traffic – Below 20 Tonnes MTOW ..... 54 Table 26 — Fleet Size Forecast Qantas Link – Domestic operations ................................................... 55 Table 27 — Fleet Size Forecast Virgin Australia Regional Airline – Domestic operations ................... 56 Table 28 - Forecast of Regional Airline En-route Traffic for Aircraft Below 20 Tonnes MTOW .......... 59 Table 29 - Forecast of Regional International Airline En-route Traffic (Below 20 Tonnes) ................. 60 Table 30 — Statistical Characteristics of the Overflight MTOW-Km Regression ................................. 61 Table 31 – Growth in World GDP and Forecasted MTOW-Km for Overflights .................................... 62 Table 32 — Statistical Characteristics of the All-Cargo MTOW-Km Regression .................................. 63 Table 33 – Growth in World GDP and Projected MTOW-Km of All-Cargo Flights ............................... 64 Table 34 – Growth Rate in Regional vs. GA MTOW-Km - Past and Forecasted Data .......................... 66


Table 35 – Growth in Regional MTOW-Km and Projected MTOW-Km for General Aviation .............. 66 Table 36 - Airports of Interest to Airservices Australia ........................................................................ 67 Table 37 - Results of Regression Equations for Individual Major Airports .......................................... 68 Table 38 – Historic and Forecasted Traffic Growth Rates at the Major Airports – in Passengers ....... 70 Table 39 – Projection of Terminal Passenger Demand Using the En-Route Demand Forecasts ......... 70 Table 40 – Terminal MTOW Forecast for the 8 Major Airports (Aggregated) ..................................... 71 Table 41 — Statistical Characteristics of the Regional Airports Passenger Traffic Regression............ 73 Table 42 - Forecast of Inbound Passengers at 20 Regional Airports (Aggregated) ............................. 73 Table 43 - Forecast of MTOW for Regional Airports (Aggregated) ...................................................... 74 Table 44 — Statistical Characteristics of the Secondary Airports MTOW-Km Regression .................. 75 Table 45 - Forecast of MTOW for Secondary Capital City Airports (Aggregated) ................................ 76 Table 46 — Total Historic and Forecast Passengers and MTOW for Sydney Airport .......................... 77 Table 47 — Total Historic and Forecast Passengers and MTOW for Melbourne Airport .................... 77 Table 48 — Total Historic and Forecast Passengers and MTOW for Brisbane Airport ........................ 78 Table 49 — Total Historic and Forecast Passengers and MTOW for Perth Airport ............................. 78 Table 50 — Total Historic and Forecast Passengers and MTOW for Adelaide Airport ........................ 79 Table 51 — Total Historic and Forecast Passengers and MTOW for Canberra Airport ....................... 79 Table 52 — Total Historic and Forecast Passengers and MTOW for Cairns Airport ............................ 80 Table 53 — Total Historic and Forecast Passengers and MTOW for Gold Coast Airport .................... 80


List of Figures Figure 1 – Summary of approach followed by IATA............................................................................. 14 Figure 1 –Monthly Passenger and Freight Development (in RPK and FTK) – 2007 to 2014 ................ 20 Figure 2 – Comparison of the Actual and Predicted Passenger-km Major Domestic Airline Traffic ... 25 Figure 3 - Evolution of Real Best Discounted Fares over the Past 15 Years on Major Domestic Airline

Market ......................................................................................................................................... 26 Figure 4 – Comparison of Domestic Airfares in Europe, US and Australia (in Euro Constant) ............ 27 Figure 5 – Annual Growth in GDP and Passenger-Km ......................................................................... 28 Figure 6– Qantas Group Fleet Simplification ....................................................................................... 30 Figure 7 – Load Factor and Aircraft Average Size Evolution of Major Domestic Airlines .................... 34 Figure 8 – Total Aircraft Distance Traveled According to BITRE and ASA – Major Domestic En-Route

Operations ................................................................................................................................... 35 Figure 9 – Aircraft Distance and MTOW-Km for Aircraft Above 20 tonnes – Major Domestic Airlines

..................................................................................................................................................... 36 Figure 10 – Network Change for QF Further to the Implementation of the Alliance with EK ............. 38 Figure 11 – Load Factor and Aircraft Average Size Evolution of Major International Airlines ............ 49 Figure 12 – Comparison of International En-route Distance and MTOW-Km ..................................... 51 Figure 13 – Historical Trend in Regional Domestic Passenger Traffic – 1998 to 2013 ........................ 52 Figure 14 – Total Aircraft Distance Traveled According to BITRE and ASA – Regional Domestic En-

Route Operations ........................................................................................................................ 58 Figure 15 – Trends in Total Aircraft Distance and MTOW-Km – ASA measures .................................. 59 Figure 16 – Comparison of Overflights Actual MTOW-Km and the Trend Predicted by the Equation 62 Figure 17 – Comparison of All-Cargo Actual MTOW-Km and the Trend Predicted by the Equation... 63 Figure 18 – Historical Evolution of General Aviation and Regional Traffic MTOW-Km ....................... 65 Figure 19 – Actual and Estimated Qantas Seat Offer to/from CBR Between 2012-13 and 2015-16 (in

One-Way Seats) ........................................................................................................................... 69 Figure 20 – Actual and Estimated Virgin Australia Seat Offer to/from CBR Between 2012-13 and

2015-16 (in One-Way Seats) ....................................................................................................... 69 Figure 21 - Passenger Trend at the 20 Regional Airports .................................................................... 72 Figure 22 – Evolution of MTOW-Km (ASA) of Secondary Capital City Airports and Commodity Metal

Prices ........................................................................................................................................... 75


1 Executive Summary

1.1 Objectives and approach

The purpose of the study is to advise Airservices Australia on Australia’s growth in aviation activity from the present to 2020-21. The study will serve as an input for the pricing of airlines services.

The approach undertaken is to analyze the interaction between the prospects for future demand by the customers of domestic and international air transport services on the one hand, and the supply of these services by the airlines on the other. The forecasts of aviation activity result from this analysis.

1.2 Markets

There are many air transport markets to consider, including major and regional domestic traffic, international traffic, overflights of Australian airspace by international services, all-cargo traffic and general aviation.

Both en-route and airport traffic of relevance to Airservices Australia were analyzed. The en-route markets are also categorized by aircraft of greater than or equal to 20 tonnes MTOW, and less than 20 tonnes MTOW.

1.3 Causal factors and analysis

Demand for air travel depends on such factors as income levels and airfares. At a global level, income is represented by Gross Domestic Product (GDP) — for Australia and for the world. Trends in these measures have a powerful effect on demand. Regression analysis of the impact of GDP and airfares on traffic demand was undertaken for most of the markets. The estimated relationships, together with assumptions about the future development of the causal factors, were used as a basis for forecasting passenger numbers.

Assumptions about airline pricing and aircraft deployment strategies to meet future demand were incorporated into the forecasts. This process took into account the aircraft types in the existing airline fleets, the numbers and types of aircraft on order and the flexibility of the airlines to adjust delivery schedules.

Passenger forecasts were translated into aircraft movement forecasts using assumptions about average load factors and aircraft size. These latter variables were influenced by airline response to developments in passenger demand.


1.4 Data

For the past trends and the regression analysis, GDP data were obtained primarily from IHS Global Insight, a world leader in socio-economic forecasts. This data is largely used within the Aviation Industry. Data for passenger-kilometers, passenger numbers, and airfare indices were obtained from the Bureau of Infrastructure, Transport and Regional Economics (BITRE).

Aggregated historic data for aircraft-km, airport movements, seats and seat-km for domestic and international passenger services were also obtained from BITRE and complemented by SRS Analyzer, a leading airline schedule database. Together with the passenger data, this helped to understand past trends in average load factors and aircraft size.

Detailed data on airline fleets, including aircraft numbers by aircraft type plus seating capacities for aircraft types, together with numbers of aircraft on order and estimates of delivery dates, were available from IATA databases and airline communications. This information was used to predict the airline response to address passenger demand forecasts.

Data for aviation activity related to the pricing of air services was available from Airservices Australia. This information was used to observe the historic relationships between aircraft distances traveled and en-route MTOW-Km, and between the numbers of flights and terminal MTOW. These relationships formed the links between the passenger and aircraft movement analyses using BITRE data and the final forecasts of ASA’s concepts of en-route MTOW-Km and terminal MTOW. The forecasts for the 2014-15 to 2020-21 period were built from the ASA database as at November 2014.

1.5 Recovery from the Global Financial Crisis and the further economic outlook

The economic outlook has been, and will continue to be, the major factor affecting the volume of air traffic.

Following the financial crisis, the Australian economic growth almost bounced back to pre-crisis levels (3.6% in 2012, back from 1.5% in 2009). At the same time, the total world economy grew by 2.5% in 2012, back from a downturn of 1.9% in 2009.

Since then, Australian economy has grown by 2.3% in 2013 and 3% in 2014, a range that it is expected to sustain over the coming 7 years (CAGR of 2.8%). A dynamic 3.6% annual growth is forecasted at the global level. The economic forecasts used as the basis for the traffic forecasts are those published in January 2015 by IHS Global Insight.

1.6 Fleet evolution

On all segments, it was established that demand would be growing steadily over the forecast period, fueled by economic growth. Airlines are anticipated to increase capacity at a slower pace in the first two years in particular in an attempt to rationalize their operations. This will trigger load factor upward.


Aircraft size is expected to slightly increase on domestic routes, while it should remain stable on international routes. On domestic routes, more of the largest narrow-body aircraft (A320 and B737-800) will be replaced by more efficient version (A320neo and B737-800MAX), while Qantas’B767 will be retired in FY 2015. On regional routes, a few larger aircraft (ATR72 (VARA) and Dash 8-Q400 (Qantas Link)) are planned for delivery, contributing to slightly increase the average size of aircraft International routes will mainly experience the roll-out of the 787s and the retirement of the 747s both by Qantas, while foreign competitors while contribute to some addition of A380, A350 and 787 as well.

1.7 Airfare evolution

After a steep decrease in 2008-09, 2009-10 and 2010-11, domestic airfare caught up in 2011-12. It however pursued its decrease over the following 2 years.

On the short term, despite the recent decrease in oil prices, domestic airfares are expected to stabilize (-3% in 2014-15, +0.1% in 2015-16), as a result of the on-going airline rationalization and hedging practices preventing airlines from taking immediately the benefit of the recent drop in Brent crude prices.

On the longer run, airfare is overall expected to turn downwards again, supported by the lower fuel costs and by the introduction of brand new - more efficient aircraft. It will however be partially offset by the duopoly situation on the domestic market that will limit the ability to further reduce domestic fares.


1.8 Forecasts

The tables below summarize the overall aviation activity forecasts produced in this study.

Table 1 - Forecasts of Annual Growth in En-route Aviation Activity (in MTOW-Km)

Fiscal Year ending June 30th

En-Route Traffic

Aircraft greater than 20 tonnes Aircraft less than 20 tonnes

MTOW-Km Growth MTOW-Km Growth

2014 123,535,572 6.4% 11,092,932 -7.3%

2015 124,479,871 0.8% 11,502,147 3.7%

2016 125,432,440 0.8% 11,135,590 -3.2%

2017 129,194,082 3.0% 11,072,951 -0.6%

2018 134,284,256 3.9% 11,263,610 1.7%

2019 139,617,303 4.0% 11,506,371 2.2%

2020 144,431,016 3.4% 11,747,952 2.1%

2021 147,133,868 1.9% 11,978,955 2.0%

Sources: Airservices Australia, IATA estimates

Table 2 - Forecasts of Annual Growth in Terminal Activity (in MTOW Landed)

Fiscal Year ending

June 30th Terminal Traffic

Major Airports Regional Airports Secondary Capital

City/Metro D MTOW-Km Growth MTOW-Km Growth MTOW-Km Growth

2014 50,914,378 2.4% 4,525,222 3.1% 304,440 -0.8%

2015 51,192,117 0.5% 4,690,096 3.6% 299,915 -1.5%

2016 52,857,335 3.3% 4,671,190 -0.4% 305,330 1.8%

2017 54,172,645 2.5% 4,666,939 -0.1% 310,980 1.9%

2018 55,256,824 2.0% 4,772,250 2.3% 315,525 1.5%

2019 56,899,875 3.0% 4,872,889 2.1% 317,950 0.8%

2020 58,266,534 2.4% 4,971,957 2.0% 321,490 1.1%

2021 59,502,129 2.1% 5,069,809 2.0% 324,560 1.0%



2 Introduction

2.1 Scope of the Study

Air Services Australia (ASA) requested that IATA prepare forecasts for en-route and airport activities for the following types of traffic for the period 2014-15 to 2020-21:

MTOW-Km flown in the Australia FIR for en-route services with a focus on :

Domestic passenger en-route traffic

International passenger en-route traffic for flights to and from Australia

International overflights en-route traffic

Cargo aircraft en-route

Non-commercial (general aviation) en-route

MTOW landed at Australian airports. Specific forecasts were requested for each of the 8 Australian major airports, for the group of Australian regional airports and for another group of secondary capital airports.

2.2 Key Forecast Factors

The relative importance of the various air transport markets depends on their traffic volumes.

2.2.1 En-Route Charges

En-route charges depend on MTOW-Km, which is determined by a formula specified by Air Services Australia.

The measure of MTOW-kilometers encapsulates two aspects – the MTOW of the aircraft and total aircraft-kilometers flown. It depends on the chargeable distance flown in Australian airspace (measured as aircraft-Km). Total measures for these variables for the air transport markets in 2014 are shown in Table 3.

The domestic passenger traffic of the major airlines (namely Qantas mainline, Jetstar, Virgin Australia and Tiger Australia) closely coincides with domestic passenger traffic on aircraft larger than 20 tonnes MTOW. The domestic passenger traffic of the regional airlines (including but not limited to Qantas Link and Virgin Australia Regional Airlines) closely coincides with the domestic traffic on aircraft smaller than 20 tonnes MTOW. Therefore IATA used the major and regional segments to split the domestic en-route traffic into above and below 20 tonnes.


Table 3 - Relative Size of En-route Markets, Fiscal Year Ending June 2014

Traffic type

MTOW tonne-Km

Below 20t Above 20t

(000) (% of total) (000) (% of total)

Domestic Pax 8,876 80.0% 45,741 37.0%

International Pax 314 2.8% 70,229 56.8%

Domestic and International Cargo 2,090 1.7%

Over-flights 5,475 4.4%

Non-commercial flights 1,904 17.2%

Total 11,093 100% 123,536 100%

Note: Domestic and International cargo flights have been allocated to above 20t as the large majority of the related traffic belongs to this category. Similarly non-commercial flights have been allocated to below 20t. Sources: Airservices Australia, IATA calculation

Domestic all-cargo flights are relatively minor in number. Some flights are on aircraft of sub-20 tonnes and some on aircraft of more than 20 tonnes. International all-cargo flights, which are predominantly flown by aircraft above 20 tonnes are also a small part of the total market.

2.2.2 Terminal Charges

Terminal charges depend on MTOW. In 2014, Major Airports accounted for 91% of the landed MTOW.


2.3 Approach

Figure 1 – Summary of approach followed by IATA

For the main Aviation Markets the approach has been to forecast passenger demand first, and then aircraft movements to satisfy this demand.

Passenger demand has been derived from regression analysis of historical traffic (measured in passenger-km for en-route markets and in passengers for terminal markets) against causal variables. Several models were tested (including linear and logarithmic regressions as well as trend-lines) and the ones returning the best results were selected. More details on the modelling approach and the associated variables are provided in the corresponding sections for each market).

Incorporated in the forecasts are ‘business-as-usual’ assumptions. In addition IATA studied the impact on traffic of anticipated changes that were believed not to be part of the ‘business-as-usual’ assumptions. Such changes include for instance new or enhanced air services agreements.

The forecast for aircraft movements (measured in aircraft-km for en-route markets and ATM for terminal markets) has been developed using data and information on current and future airline fleets and strategies. Detailed analysis and fleet modelling covered the major Australian carriers and the top foreign carriers serving Australia, namely Singapore Airlines group, Emirates, Air New Zealand and Cathay Pacific. These airlines account for 62% of the seat supply (measured in seat-km) in FY2015.

The final step was to derive the traffic measures of direct interest to Airservices Australia, which are the MTOW-Km and MTOW totals relating to the airspace and terminal demands on the air traffic management system.


For Overflights, All-Cargo and General Aviation, simplified approaches were used to forecast their associated MTOW-Km. More details are provided in the corresponding sections of this report.

2.4 Data sources

The following data sources were used to analyze traffic flows, the causal factors affecting traffic, and the outlook for the causal factors:

Bureau of Infrastructure, Transport and Regional Economics (BITRE)

For airline passenger numbers and passenger-km traveled

For airline passenger aircraft movements and aircraft-kilometers traveled

For airport passenger numbers and aircraft movements

For trends in airfares

Airservices Australia

For distances flown (aircraft-km), MTOW and MTOW-Km; for each air transport sector

IATA

For trends in fleet development

For historical data and projections about the Global and Regional Aviation Industry

For actual traffic and schedule data including O&D traffic and future schedules

IHS Global Insight

For economic forecasts for the world and regional economies as well as for Australia


2.5 Period of Historical Analysis, Base Year and Forecasting Horizon

2013-14 was used as the base year to establish the various regressions. For most regressions, the historical analysis was undertaken over a period of 20 years, from 1993-94 until 2013-14.

Some data for 2013-14 needed to be extrapolated because the information was incomplete. It was the case for the split of Domestic Traffic into Major and Regional airlines. While it used to produce detailed report for both segments in the past, BITRE stopped this particular detail at the end of FY2013. IATA therefore estimated the split for 2013-14.

In general the main traffic measures for 2014-15 were estimated using the most updated statistics at end of November and December 2014.

Traffic measures were forecasted from 2015-16 onward.

2.6 Study assumptions

The forecasts of aviation demand and traffic are based on various economic and industry assumptions. These are discussed at appropriate places in the report. The economic assumptions are expressed in terms of GDP growth which incorporates population growth and business cycle conditions, and are based on information published by official specialized agencies.


3 Aviation context

3.1 Global Aviation Environment – evolution since 2009

Since the recession that hit global air traffic in the end of the last decade, world economy and global traffic have now fully recovered.

In 2010, worldwide air travel rose by 7.5% (in RPK), following a 1.9% decline in 2009. International air travel grew 8.3% after a 2.5% fall the year before, while domestic air travel was up 6.1% following a 0.9% decline.

By the end of 2010, most passenger markets except the US and Japanese domestic markets had surpassed their pre-recession peaks. Asia-Pacific airlines grew 9% in RPKs but were held down by the relative weakness of the Japanese market.

Air freight also fully recovered its losses in 2010, as international freight markets grew by 20.8%, driven by the business inventory cycle (replenishment of the stocks). By the end of 2010, air freight volumes were level with their pre-recession peak of early 2008.

In terms of capacity, available seat kilometers rose by 4.2% on average in 2010 (vs. the 7.5% growth in traffic), and by 4.6% in international markets. It resulted in increased load factors.

While they increased by 6% in 2010, yields did not reached back prerecession levels, as airlines could only recover part of the ground lost in fares (both passenger and freight markets). Indeed, worldwide average passenger fares rose by 5% in 2010 (excluding surcharges), while they underwent a decline of about 13% in 2009. Same trend was observed in international markets, where fares grew up 17% from the lows of mid-2009, but still remaining 8% below prerecession levels.

Oil prices experienced a steep 30% increase between 2009 and 2010 (average price), causing an 11% rise in fuel costs for the entire airlines industry. Airlines were however unable to fully recoup the added fuel costs through fuel surcharges.

In cargo markets, fuel surcharges rose as airlines sought to recoup rising fuel costs. Underlying cargo rates, however, declined in many markets, therefore partly offsetting the positive impact of the higher surcharges.

Overall, airline profitability in 2010 saw its largest improvement in more than 60 years. The industry went from net post-tax losses of US$9.9 billion in 2009 to net post-tax profits of US$18 billion in 2010.

In 2011, worldwide international and domestic demand (RPK) grew 5.9%, pursuing the rebound from the recession of 2008/2009 despite slow economic growth in many regions.


Nevertheless, airlines struggled to make significant profits. Although revenues rose 9.4% to US$598 billion, profits fell by almost half compared with 2010, to US$7.9 billion. This was largely due to a sharp increase in the cost of fuel, driven by the political unrest in the Middle East and North Africa mainly. The average price of a barrel of oil consequently rose from US$79 in 2010 to US$111 in 2011.

After an exceptionally strong rebound in 2010, air freight metric ton kilometers flown fell 0.4% worldwide in 2011.

Worldwide passenger capacity accelerated in 2011, with ASKs growing 6.6%, against +4% in 2010. Domestic and international markets followed different patterns: in domestic markets, slightly less capacity was added than growth in the market: 4.0% versus 4.1%, while an opposite situation prevailed in international markets, where capacity increased at a greater pace (8.1%) than demand (6.9%). Considering the limited overcapacity that was brought to the market, load factors did not suffer the situation and remained close to historic highs in 2011, with a worldwide average of 78.3%. Domestic markets even saw load factors rise to a new high of 79.6%.

Passenger yields worldwide rose 4% in 2011, mostly as a result of airlines attempting to recover costs associated with the rise in the price of oil.

In 2012, passenger traffic (RPK) grew 5.3%, which is 2.5 times as fast as global GDP1 that grew at a low rate of 2.1%.

This robust performance lied in the strength of emerging markets, whose strong economic developments offset the weak economic and air travel growth in the developed economies. During 2012, 65% of the growth in passenger numbers in international markets took place in markets linked to emerging economies.

In contrast to passenger travel, air freight volumes were again weak relative to global economic conditions. While world trade expanded by 2.9% in 2012, air freight (FTK) shrank 1.5% as it lost share to other modes of transport.

2012 saw as well dramatic shifts in regional demand and supply balances on the oil market, in a context of continuous social and political changes in the Middle East and North Africa. The sharp but temporary dip in oil prices in mid-2012 followed a dispute within OPEC over whether US$100 a barrel was the “right” target price. The influence of OPEC and strong demand from the BRIC economies prevented a decline in price that new, non-OPEC supplies could have brought.

Eventually, the spot price of jet fuel in 2012 increased a couple of dollars above the previous year’s level to average just under US$130 a barrel, setting a new record high.

Partly in response to the sustained high cost of jet fuel, the delivery of new, fuel-efficient aircraft rose to a record level in 2012, bringing with them an additional 7%–8% to global capacity. This

1 Note” air traffic growth usually averages 1.8 times that of global GDP


increase was partly offset by the retirement of older, less efficient aircraft. The net capacity increase eventually reached close to 4% in 2012.

All in all, airline profits declined to US$7.6 billion in 2012 (vs. US$8.8 billion a year before). This however remained a positive achievement considering the global economic slowdown2 and the average price of jet fuel reaching a record high.

In 2013, airlines saw improved profitability, posting an industry-wide post-tax profit of US$10.6 billion. This was the fourth successive year of profitability. Profitability in 2013 was achieved largely on increased demand and slightly lower than expected fuel costs.

Air travel markets gained 5.2% compared to 2012, despite high fuel costs and relatively slow global economic growth. Growth in air travel was again driven by solid economic expansion in emerging regions, where less mature air travel markets continue to strongly increase.

Jet fuel averaged just under US$125 a barrel, about $5 less than in 2012. Demand for cargo and passenger services—expressed FTKs and in RPKs, respectively—showed signs of accelerated growth. This reflected the rebounding global economy (2% increase in global GDP) and an increase in world trade.

In emerging economies, GDP growth had an even greater impact, generating more air travel per point of GDP increase than in mature markets. This trend was supported by significant price drops in airline fares in some African and Asian markets because of increasing competition.

In terms of capacity, an overall 5% volume was added to the global market.

Passenger load factors reached 80% in 2013 (a record high), as the result of an increase in passenger volumes coupled with strong capacity management. Consequently, the breakeven load factor came down for the first time since 2009, settling at 64.2% in 2013, from 64.8% in 2012.

Passenger yields in 2013 remained unchanged from 2012.

Cargo markets remained challenging in 2013, as weak load factors (45.3%) faced an increased capacity growth, (2.6% versus 1.4% in 2012).

In 2014, global air travel expanded by a strong 5.9% compared to 2013, above its 10 year average growth rate of 5.6%. Economic conditions around the world showed considerable variation throughout the year, but the demand backdrop for air travel was supportive, particularly in emerging markets.

2 Note: over the past 20 years, whenever global economic growth has fallen to 2% the airline industry has gone from profit to loss; 2012 therefore proved to be a resilient year for the industry.


More than 50% of the growth in passenger travel arose from emerging markets, including Asia Pacific and the Middle East. Asia Pacific carriers saw strong growth in domestic air travel demand, particularly in China toward the end of 2014.

Although international RPKs grew by 6.1 % in 2014 compared to 2013, the growth rate is slightly below its long-run average (6.3%). Moreover, the level of traffic has broadly tracked sideway since August. The biggest downward influences over this period have been from African and Asian carriers, whereas notable offsets have come from Middle Eastern and European carriers, despite the latter region’s ongoing economic frailties. Although the Eurozone has fallen back toward very weak economic expansion, partly as a result of the Russia-Ukraine crisis, carriers in some nations, including Turkey, continue to expand strongly.

Industry load factors reached 79.7% overall in 2014, supported by stronger growth in demand than expansion in capacity. Nonetheless, international load factors have displayed a downward trend throughout 2014, particularly as a result of solid capacity expansion in Asia Pacific carriers.

The decline in oil prices over recent months should help support economic activity and passenger demand in the months to come.

Figure 2 illustrates the evolution of both passenger and cargo demand in the recent years, highlighting the recovery from the 2008-2009 recession.

Figure 2 –Monthly Passenger and Freight Development (in RPK and FTK) – 2007 to 2014

Source: IATA


3.2 Regional Aviation Environment

Since 2010, the Asia-Pacific market has experienced a strong growth, outperforming most of the time the global air market.

While the overall market grew by 7.5% in 2010, Asia-Pacific airlines grew 9% in the same year, although somewhat held down by the relative weakness of the Japanese market. In 2011, growth for the Asia-Pacific airlines was slightly slower than the global growth (5% vs. 5.9%), due mostly to the impact on travel of the tsunami and earthquake in Japan. In 2012, half of the growth arising from emerging markets came from Asia.

Growth in passenger travel reached 7% in 2014, outperforming the global industry (5.9%). International traffic growth for Asia Pacific carriers reached 5.8% in 2014 overall, but the seasonally-adjusted level of traffic has been broadly flat over the past four months or so. This has come amid signs of a slowdown in regional production activity, although trade volumes have remained strong.

With weakness in international air travel volumes during the latter parts of 2014, the upward trend in global travel was driven almost entirely by domestic traffic. Strong growth in the Chinese domestic market was one of the key contributors, with expansion reaching 11% in 2014 overall, in spite of ongoing signs of a slowdown in the Chinese economy and industrial activity.

Annual growth in domestic air travel in Australia slowed to just 1.8% in 2014 overall, as the economy keep struggling to rebalance away from mining investment-led growth.

For 2015, IATA foresees an increase in passenger travel (RPK) of 7.7% for Asia-Pacific

3.3 Changes in the Local Aviation Environment

IATA examined more than a dozen anticipated changes in the aviation environment that are known to influence air traffic demand and further determined whether these changes may have an impact on the future traffic above and beyond the baseline forecast.

These changes that have been studied are:

New alliances on the Kangaroo routes (e.g. QF/EK)

Air Service Agreements between Australia and Mainland China

Air Service Agreements between Australia and Hong Kong

Air Service Agreements between Qatar and New Zealand

Air Service Agreements between Mainland China and New Zealand

The results of our analysis are reflected in the relevant sections of the report.


4 Economy Outlook

Over the past 3 decades, average Australian economic growth over successive 10-year periods has been higher than 3% per annum, despite periodic recessions (see Table 4).

Australia has systematically outperformed the seven major OECD countries, as those countries were seriously affected the financial crisis of the end of the past decade (2008-2010)

The Australian economy also suffered from this crisis, seeing its growth rate drop from 3.7% in 2007-08 to 1.2% in 2008-09. It however caught up pretty well as from 2009-10, with a real 2.2%, followed by a 2.6% the year after and 3.8% in 2011-12. It has since then ranged between 2% and 3 % per annum.

The tables on the next page present a summary of the past and future economic growth rates for Australia and the World. It is to be noted that no forecast beyond 2015 could be found for Australian real GDP, both from IMF and ABS.

IATA therefore relied exclusively on data sourced from IHS Global Insight, a leading global socio-economic forecasting company, presented in Table 5 below.


Table 4 - Average Real GDP Growth Rates during Previous Decades (% per annum)

Sources: ABS and OECD web sites; “Real” refers to GDP measures which have been adjusted to remove the effect of inflation.

Table 5 — Economic Growth Forecasts Used in Traffic Forecasts (%)

Fiscal year 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Australian Real GDP 2.7% 2.9% 2.8% 2.9% 2.8% 2.8% 2.8% 2.8%

World Real GDP 2.6% 2.8% 3.3% 3.6% 3.6% 3.6% 3.7% 3.7%

Source for forecast of Australian GDP and World GDP growth was IHS Global Insight (January 2015);

1960s 1970s 1980s 1990s 2000s 2010s (until 2014)

Australia 5.1% 3.0% 3.3% 3.4% 3.1% 2.7%

7 Major OECD Countries 3.5% 3.1% 2.5% 1.5% 1.6%

Total World 3.2% 3.1% 3.9% 3.6%


5 Major Domestic En-Route Forecast

5.1 Historical Traffic

A regression analysis of the traffic (measured in RPK) of the major Domestic airlines was undertaken:

The period of the analysis was 1993-94 to 2012-13;

Australian GDP, the ‘Best discount fares’ (both measured in real terms) and a dummy variable introduced for the demise of Ansett in 2002 were the explanatory variables. Alternative causal variables, such as Full Economy Fares, were tested and discounted;

The statistical significances of the explanatory variables were strong (see table below);

Table 6 — Statistical Characteristics of the Major Domestic En-Route Traffic Regression

Type of regression: Multilinear Intercept value: 0

Causal Variable Coefficients t Stat Adj. R Sq.

GDP Australia 1.8 46.0

0.94 Airfare -0.7 -12.3

Ansett airlines -25.5 -2.4 Source: IATA estimates

During the previous 5-year forecast study (‘Activity Forecasts for the Period 2010-2011 to 2015-2016’), BITRE advised caution on the published airfare statistics because of the complexity of airlines’ fare structures. However, the information is the best available and presumably gives a reasonable idea about the year-on-year movements. The Real Best Discount index is the best reflection of the market place and its effect on passenger demand. Furthermore, its statistical performance in the demand equation is relatively good.

Figure 3 compares actual passenger-km with that predicted by the equation given above. It highlights the relevance of the above equation to model major domestic traffic. A Summary of the forecast for the Real Best Discounted Fares can be seen in table 7.


Figure 3 – Comparison of the Actual and Predicted Passenger-Km - Major Domestic Airline Traffic

Source: BITRE, IATA estimates

5.2 Major Domestic Passenger Traffic Forecast

5.2.1 Fare assumptions

The historical evolution of the Best Discounted Fares was marked by continuous decrease that reflected the trend observed in the main markets such as the United States or Europe.

The emergence and development of Low Cost Carriers, along with the continuous introduction of increasingly more efficient aircraft has contributed to lower domestic airfare by 5% p.a. over the past 15 years, as illustrated in Figure 4.


Figure 4 - Evolution of Real Best Discounted Fares over the Past 15 Years on Domestic Airline Market

0

20

40

60

80

100

120

Real Best Discounted Fares - Domestic Airline Trafficin index (FY1999 = 100) - FY1999 - FY 2014

Source: BITRE

Based on the most recent data for FY 2015 (July 14 – February 15), airfare is expected to further decrease by -3% during 2014-15.

Following on the historical trend, airfare should keep decreasing over the next 6 years. However, IATA anticipates that the decrease will slow down for the following reasons:

In the short run, IATA expects airfare to remain stable. Both Qantas and Virgin Australia are implementing fleet and capacity rationalization programs. Additionally hedging practices will prevent airlines from taking full benefit of lower carburant price in the short term. By forward buying most of the fuel consumption they expect for the next 12 months of operation, airlines will very modestly benefit from the impact of the drop in Brent crude prices in 2015.

In the medium/long term, fares are overall expected to turn downwards again, supported by the lower fuel costs and by the introduction of some new - more efficient aircraft. It will however be partially offset by the rationalization that the domestic Australian market is and will keep undergoing, with both major players consolidating their position into a duopoly. Lower competition will therefore limit the ability to further reduce domestic fares.

As a result of the above, Real Best Discount Fares are assumed to decrease by -1.4% p.a. between FY2015 and FY2021, in comparison with the historical -5% trend.


IATA’s assumptions that fares will keep decreasing (although at a slower pace) is also supported by a benchmarking analysis performed between the domestic airfare in Europe, United States and Australia. This comparative analysis highlighted the maturity gap between Australia and the other two markets. It showed a potential for further decrease in the future, as illustrated in Figure 5 below.

Figure 5 – Comparison of Domestic Airfares in Europe, US and Australia (in Euro Constant)

Source: IATA AirportIS, IATA Calculation

5.2.2 Future Projection

The base forecast of Australian GDP (see Table 5) and the projection for real discount fares, together with the estimated relationship between these explanatory factors and traffic demand was used to produce the traffic forecast for the six years from 2015-16 to 2020-21 (see table 7).

The traffic for 2014-15 was estimated based on the latest actual statistics.

The most important relationship, between GDP and passenger numbers is illustrated in Figure 6, which highlights the sensitivity of traffic to GDP growth.


Figure 6 – Annual Growth in GDP and Passenger-Km

Source: IHS Global Insight, BITRE, IATA Calculation

Table 7 — Forecasts of Real GDP, Fares and Major Domestic Passenger-Km


GDP Growth Growth in the

Real Best Discount Fare

Passenger-Km Growth Level

20141 2.7% -4.2% 2.0% 64,549,609

20152 2.9% -3.0% 0.7% 64,990,874

2016 2.8% 0.1% 3.3% 67,149,315

2017 2.9% -0.6% 3.4% 69,425,534

2018 2.8% -2.5% 3.5% 71,880,102

2019 2.8% -1.4% 3.4% 74,308,325

2020 2.8% -1.3% 3.3% 76,796,939

2021 2.8% -1.2% 3.3% 79,323,347

(1) Passenger-km measure extrapolated (2) Passenger-km measure estimated Source: IHS Global Insight, BITRE and IATA estimates

The average rate of growth forecast for major domestic airline passenger traffic from the base year of 2013-14 to 2020-21 is 3.5% per annum.


5.3 Major Domestic Airline Fleet Perspectives and Assumptions

The following sections present the airline fleet and development strategies that have been considered to prepare Airservices Australia’s domestic activity forecast. These sections cover the four Major domestic airlines namely Qantas, Jetstar, Virgin Australia and Tiger Australia.

5.3.1 Qantas Group

The Qantas Group is going through a period of large restructuring impacting both the domestic and international operations. Fleet rationalization is part of this restructuring along with the 2010 strategic guidelines.

As illustrated in the chart below, four aircraft types have been or will be phased out shortly:

B737-400 were all retired in early 2014

B767-300 will be phased out by mid-2015

B747-400 with the old cabin configuration will be retired by end of 2016

A330-200 will be transferred from Jetstar to Qantas domestic lines as Jetstar is taking delivery of additional B787-8.


Figure 7– Qantas Group Fleet Simplification

Source: Qantas annual report FY2014

Qantas Domestic Operations

As the result of the fleet rationalization, the backbone of Qantas mainline’s domestic operations will be made of B737-800 (168 seats) and A330-200 (303 seats).

Qantas has recently announced that their B737-800 fleet would be upgraded with new interiors and an additional 6 seats per aircraft by the end of FY16. The B737 fleet size will reach 78 units after 5 additional B737-800 are received in FY15.

The contingent of A330-200 will see its number increase as the remaining ones in the Jetstar fleet are transferred to Qantas by end of FY16. Two aircraft will be returned to the lessor in FY2016 which will set at 18 the total number of A330-200 in Qantas fleet.


Jetstar Domestic Operations

Jetstar will continue to rely almost exclusively on the A320 family for their domestic operations. The confirmation in mid-2014 of the order of 99 A320neo will be main driver for change in the years to come. Deliveries will start in early 2016 to replace the oldest A320. Based on the most recent communication from the airline group, it was considered 78 of the A320neo will be delivered between 2016 and 2020 to serve on both domestic and international routes while the 21 remaining will join the fleet after 2020 further to 4-year postponement as part of the restructuring plan.

Qantas Group Domestic Operations

As a result of Qantas group’s fleet restructuring, the average size of Qantas airplanes will slightly increase from 190 in June 2014 to 192 in June 2021. The fleet modelling returns a seat capacity increase by an average 2.9% p.a. between June 2014 and June 2021.

Table 8 — Fleet Size Forecast Qantas Group – Domestic Operations3

Actual Forecasts

Seat number

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

B737-800 168 66 602 02 0 0 0 0 0

B737-800 new 174 0 5 65 71 71 71 71 71

A320-200 180 49 49 46 36 27 17 7 0

A320 Neo 180 0 0 5 18 32 46 60 72

A321-200 213 6 6 6 6 6 6 6 6

B767-300ER 254 41 0 0 0 0 0 0 0

A330-200 303 13 17 18 18 18 18 18 18

Fleet size (in aircraft) 138 137 140 149 154 158 162 167

Fleet size (in seats) 26,102 26,221 27,156 28,740 29,640 30,360 31,080 31,980

% evolution (in seats) 0.5% 3.6% 5.8% 3.1% 2.4% 2.4% 2.9%

Average number of seats 190 191 194 193 193 193 192 192

(1) 13 B767-300ER were registered in QF fleet however an equivalent of 4 airplanes was in operations (2)An equivalent of 5 B737-800 is in maintenance for cabin upgrade. Not included in the above table. (3) Major Airline operations – excludes QantasLink Source: IATA assumptions based on Qantas Group’s communication


5.3.2 Virgin Australia

In recent years and following a new strategic plan to be better positioned in the premium market, Virgin Australia (VA) revamped its brand, consolidated its domestic network with limited capacity growth, invested in a joint venture to create Tiger Australia and purchased Skywest to form Virgin Australia Regional Airlines (VARA).

It is believed that the primary focus of Virgin Australia will remain the domestic market in the coming 6 years. VA has ordered 23 new B737-800MAX that should be deployed exclusively on the domestic market from 2018 onward. No decision has been made about the possible replacement of the A330-200. It has been assumed the A330-200 fleet would remain stable and mostly deployed on the segments between PER and the East coast airports.

Virgin Australia posted losses in both FY13 and FY14, blaming overcapacity and low yield on the domestic market in particular. The group announced that it would consolidate the fleet and increase its utilization. As a result the domestic fleet capacity will remain stable until FY2017. Capacity is expected to peak up in FY18 when the airline receives their first B737MAX. A moderate growth of 2% p.a. is anticipated between June 2014 and June 2021.

The average size of Virgin Australia’s airplanes is expected to remain close to 165 seats.

Table 9 — Fleet Size Forecast Virgin Australia – Domestic Operations1

Actual Forecasts

Seat number

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

B737-700 144 3 2 1 0 0 0 0 0

ERJ-190 98 18 18 18 18 18 18 18 18

B737-800 174 57 61 61 61 58 54 53 51

B737-800 MAX

174 0 0 0 0 7 15 19 23

A330-200 279 7 6 6 6 6 6 6 6



% evolution (in seats) 1.9% -1.0% -1.0% 5.0% 4.7% 3.4% 2.2%

Average number of seat 164 165 165 165 166 166 166 166

(1) Major Airline operations – excludes VARA Source: IATA assumptions based on Virgin Australia’s communication


5.3.3 Tiger Airways Australia

Tiger Airways Australia (TT) is an all-domestic airline targeting the low price end of the market. Two major changes of ownership have occurred in the recent years as a result of the loss making operation on the domestic market:

In 2013, Virgin Australia acquired 60% of Tiger Australia

In late 2014, Virgin Australia bought the remaining 40% in an effort to move quicker in the restructuring of the loss making airline (AUD77 million in loss for FY14)

Tiger is currently flying 13 A320s. Plans to increase the fleet up to 23 by 2018 have not been confirmed by the management and seemed to have been postponed until a return to profitability. Considering the current market overcapacity and the fleet development plans already confirmed by Virgin Australia, IATA assumed that Tiger Australia would see its fleet remain stable throughout the forecasting period.

Table 10 — Fleet Size Forecast Tiger Airways Australia – Domestic Operations

Actual Forecasts

Seat number

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

A320-200 180 13 13 13 13 13 13 13 13



% evolution (in seats) 0% 0% 0% 0% 0% 0% 0%

Average seat number 180 180 180 180 180 180 180 180

Source: IATA assumptions based on Tiger Airways Group’s communication


5.4 Load Factors and Aircraft Size

Historical load factors increased from 76% in 1998-99 to 80.6% (highest point) in 2009-10. It has since then gradually decreased to settle at an estimated 76.9% in 2013-14.

Concurrently average aircraft size increased between 1998-99 and 2007-08 (from 134 to 173 seats), thereafter decreasing until 2011. It has since then turned to grow at a more contained pace to reach an estimated 175 seats per aircraft in 2013-14.

Figure 8 – Load Factor and Aircraft Average Size Evolution of Major Domestic Airlines

Source: BITRE, IATA calculation

As a result of the airlines strategies outlined in the previous sections, IATA expects the load factor to slightly increase overtime at an average rate of 0.7% p.a. This coincides with the effort of the Major airlines to rationalize their domestic operations. Average load factor on domestic routes should reach 80% by 2021.

As for the aircraft size, the fleet projections detailed in the previous sections will push the average size to 176 seats by 2016 and will keep it stable afterwards, as illustrated in table 11.


Table 11 — Load Factors and Average Aircraft Size Forecast– Domestic Major Airlines Operations

Actual Dom Major 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Load Factor 76.9% 77.0% 78.3% 78.4% 79.2% 79.2% 79.6% 80.3%

Aver. Aircraft Size 175.0 174.5 176.1 176.6 176.5 176.3 176.2 176.1

Source: IATA calculation

5.5 Major Domestic En-route Forecast

The historic trends in aircraft-km from the BITRE data for major domestic airline services and the ASA data for aircraft larger than 20 tonnes MTOW are reasonably well matched (see Figure 9).

Most of the gap between the BITRE and Airservices Australia statistics is explained by the fact that some regional airlines are operating aircraft in the above 20 tonnes MTOW category. The gap is nevertheless small and it is considered totally acceptable to substitute one by the other for the purpose of this forecast.

Figure 9 – Total Aircraft Distance Traveled According to BITRE and ASA – Major Domestic En-Route Operations

Source: Airservices Australia, BITRE

The relationship between the trends in total aircraft distance and MTOW-Km for domestic airline traffic equal to, or greater than, 20 tonnes MTOW, measured by both BITRE and Airservices Australia, is also close (see Figure 10).


The forecast of aircraft-km flown was derived from the passenger forecast and the assumptions for the evolution of load factors and average aircraft size over the forecast period. The forecast for MTOW-Km was then derived directly from the aircraft-Km forecast (see Table 12).

Figure 10 – Aircraft Distance and MTOW-Km for Aircraft Above 20 tonnes – Major Domestic Airlines

Source: Airservices Australia

Table 12 - Forecast for Major Domestic Airline En-route Traffic

Fiscal Year ending June 30th En-Route Major Domestic Traffic

Passenger-Km Aircraft-Km (000) MTOW-Km

Level Growth Level Growth Level Growth

2014 64,549,609 2.0% 479,895 1.8% 45,741,434 2.7%

2015 64,990,874 0.7% 483,727 0.8% 46,106,624 0.8%

2016 67,149,315 3.3% 487,230 0.7% 46,440,544 0.7%

2017 69,425,534 3.4% 501,516 2.9% 47,802,187 2.9%

2018 71,880,102 3.5% 514,172 2.5% 49,008,480 2.5%

2019 74,308,325 3.4% 532,584 3.6% 50,763,449 3.6%

2020 76,796,939 3.4% 547,835 2.9% 52,217,148 2.9%

2021 79,323,347 3.3% 561,523 2.5% 53,521,835 2.5%

Sources: Airservices Australia, BITRE and IATA estimates


6 Major International En-Route Forecast


In contrast to the domestic market, BITRE does not produce revenue passenger-km data for major international traffic. In this study, IATA measured international demand by the number of international passengers, data which was available from BITRE.

The first step in the forecasting process was an analysis of the total number of international passengers (inbound plus outbound passengers). This passenger demand was examined using a regression of total passengers against a weighted average of Australia and World GDPs. Higher Australian GDP encourages more Australians to travel overseas, while higher World GDP drives more visitors to Australia. Although airfare is not an explicit variable in the regression equation for international traffic, its historical contribution to the traffic evolution is implicitly included in the equation.

Table 13 — Statistical Characteristics of the Major international En-route Traffic Regression

Type of regression: Multilinear Intercept value: -131

Causal Variable Coefficients t Stat R Sq.

MIX Australia and World GDP 2.3 29.8 0.98

09/11 Attacks -25.7 -2.7

Source: IATA estimates

Contribution of the Australian Dollar Exchange Rate as a Driver for International Traffic

Exchange rates are known to have an effect on international travel. An increase in the Australian dollar against another currency encourages Australians to visit that country but discourages travel to Australia by visitors from that country, and vice versa if the Australian dollar goes in the other direction.

Therefore IATA tested the role of the Australian Dollar exchange rate as a driver for International Traffic. Regression analysis showed that the Australia Dollar had not been a statistically significant driver of the historical international traffic.

6.2 Adjustment Factors

The outcome of the regression model was subsequently adjusted to factor in the potential impact on demand of anticipated changes in the aviation environment. IATA examined more than a dozen changes, further studied five of them in detail and concluded that one only, the recently signed enhancement of the air service agreement between Australia and China would have a material impact


on traffic. After careful review the other ones were deemed to have an insignificant impact or be already reflected in market numbers.

6.2.1 New Alliances on the Kangaroo Routes

The alliance between Qantas and Emirates on the Kangaroo routes consists of a strategic partnership based on code shares, network coordination as well as commercial agreements (ex. revenue sharing). The agreement was implemented in 2012 and since then its consequences had limited impact for operations into Australia:

Qantas’ transit hub for Europe has been changed from SIN to DXB and Qantas stopped flying FRA

As a result PER-SIN has also been stopped by Qantas and taken over by Jetstar with only one service daily

The future changes that may arise from the QF/EK alliance are not expected to impact the international traffic into Australia.

Figure 11 – Network Change for QF Further to the Implementation of the Alliance with EK

Source: Qantas investors reports

April 2012

April 2014

The set-up of the QF/EK joint-venture might force competitors to change their flying patterns to Australia and increase their capacity. For instance:

CX increased capacity to Australia as a potential feed for the 5 daily HKG-LHR

Etihad will be up-gauging their aircraft to SYD and MEL with the anticipated use of an A380 respectively in June 2015 and 2016.

Based on SRS Analyzer information, Etihad and Qatar currently operate five and two daily flights to Australia respectively. This compares with eleven flights for Emirates indicating that Etihad and Qatar might still have room for growth on Australian routes to counter the EK/QF alliance. Nevertheless we estimate that the resulting growth will be in line with the capacity increase that is already factored in the baseline forecasts.

6.2.2 Air Service Agreements between Australia and Mainland China

A new Air Service Agreement between China and Australia has been signed in January 2015 to boost Chinese tourism which is already the biggest export market for Australia.


Between SYD, MEL, PER and BNE and the Chinese airports, the following increases in airline capacity have been agreed upon:

with immediate effect: +53,000 seats each way each week equally split into PEK/PVG/CAN and the other Chinese airports

from October 2015: +61,000 seats each way each week equally split into PEK/PVG/CAN and the other Chinese airports

from October 2016: +67,000 seats each way each week equally split into PEK/PVG/CAN and the other Chinese airports

IATA carried out a simplified air service development analysis to identify the routes that could benefit from this relaxation of the traffic rights. Our conclusion is that about 37 new weekly services could be opened between Australia and Mainland China as a direct consequence of the new service agreement. They include two new routes.

Table 14 — Opportunities for New Routes and Additional Frequencies Between Australia and Mainland China

Route Development Year Additional capacity (in weekly flights)

SYD-PEK New frequency 2015 7

SYD-CKG New frequency 2015 2

MEL-PEK New route 2016 6

BNE-PVG New route 2018 3

MEL-CTU New frequency 2018 2

SYD-PVG New frequency 2019 7

MEL-CAN New frequency 2019 7

PER-CAN New frequency 2021 3

SYD-CAN New frequency After 2021 n.a.

MEL-PVG New frequency After 2021 n.a.

BNE-CAN New frequency After 2021 n.a.

SYD-NKG New frequency After 2021 n.a.

Source: IATA AirportIS, IATA analysis

IATA estimated that these additional flights will represent an additional 1 million seats and 750,000 passengers in FY2021. They have been added to the international traffic baseline representing a 1.9% traffic upside in FY2021.


6.2.3 Air Service Agreements between Australia and Hong Kong

Air services between Hong Kong and Australia are regulated by a bilateral agreement. Cathay Pacific can only operate 70 flights a week to Australia’s four major airports namely SYD, MEL, PER and BNE. Cathay already operates at the cap limit with a very high average load factor of 86% (June 2014).

Cathay Pacific is reportedly working with the Hong Kong government on lifting the cap or increasing the allowed capacity. According to Cathay Pacific, a change in the cap would lead to an immediate increase in flights to Australia’s major airports

In spite of the above, no agenda or indication for a cap lifting has been communicated by Australian or Hong Kong officials. Therefore no changes were factored in the forecasting model.

6.2.4 Air Service Agreements between Qatar and New Zealand

Qatar approached New Zealand in 2012 to negotiate a bilateral agreement on air traffic rights between the two countries. Qatar Airways does not serve the New Zealand market at the moment.

With traffic rights to New Zealand, Qatar Airways could choose to serve New Zealand via Australia using fifth freedom rights (like Emirates). This could lead to additional flights into Australia and more seat capacity at the Australian airports.

No timeline has been defined to conclude on these negotiations. The potential upside was not factored in the forecast. It is assumed it will be small anyway.

6.2.5 Air Service Agreements between Mainland China and New Zealand

In 2012, an enhanced bilateral agreement was signed between China and New Zealand. This agreement tripled the capacity allocation between the two countries to reach 42 return flights per week (6 daily return flights).

As a substantial part of the traffic between New Zealand and China goes through Australian airports, IATA analyzed whether this recent agreement could divert connecting traffic from the Australian hubs in the future.

An analysis of passenger routings showed that a substantial impact materialized during the first two years after the implementation of the enhanced bilateral agreement with a loss on connecting passengers of about 45% at the end in 2013. This loss is already taken into account in the historical traffic baseline hence reflected in the forecast. In 2014 connecting traffic bounced back to follow the market trend. It is estimated that no further impact is to be factored in for the years to come.


6.3 Major International Passenger Traffic Forecast

The forecast of Australian and World GDP, together with the estimated relationship between these explanatory factors and traffic demand was used to produce the international passenger forecast for the six years from 2015-16 to 2020-2021 (see Table 15). The traffic for 2014-15 was estimated based on the latest actual statistics.

The average rate of growth forecast for international airline passengers from the base year of 2013-2014 to 2020-2021 is 3.4% per annum.

Table 15 - Forecast of Major International Passenger


Australian

GDP Growth

World GDP

Growth

Inbound plus Outbound Passengers

Growth Level

2014 2.7% 2.6% 6.8% 32,377,814

2015 2.9% 2.8% 3.2% 33,399,553

2016 2.8% 3.3% 2.5% 34,241,537

2017 2.9% 3.6% 3.3% 35,387,056

2018 2.8% 3.6% 3.6% 36,655,753

2019 2.8% 3.6% 4.0% 38,118,822

2020 2.8% 3.7% 3.9% 39,587,260

2021 2.8% 3.7% 3.5% 40,976,568

Sources: IHS Global Insight, BITRE, IATA Calculation


6.4 Major International Airline Fleet Perspectives

The following paragraphs present the airline fleet and development strategies that have been considered to prepare Airservices Australia’s international activity forecast. These sections cover the six top international carriers in Australia namely Qantas group, Virgin Australia, Emirates, Singapore Airlines group, Air New Zealand and Cathay Pacific. Altogether these carriers accounted for 62% of the international seat offer to/from Australia in FY2015.

6.4.1 Qantas Group

The section on Major domestic airlines outlined the fleet rationalization program undertaken by Qantas group. For international operations, one consequence of this program deals with the retirement of the non-reconfigured B747-400 totaling 7 units in June 2014. Based on Qantas’ communication, it is expected that they will be phased out by the end of FY16. Similarly the entire fleet of B767-300ER (13 aircraft) is being withdrawn during FY15. Another consequence is the transfer of the Jetstar A330-200 to Qantas domestic operations. The fleet utilization is also expected to be raised while aircraft choice will be optimized to better match the market conditions (e.g. A380 down-gauge to A330 on regional routes).

Qantas ordered an important number of airplanes in the past few years but many of these orders were delayed or cancelled:

35 B787-900 have been cancelled

The delivery of 8 A380 has been postponed to 2016-2019

The first options on the B787-9 have been delayed by one year to FY17

Strong competition on the international passenger market justified these delays. As the increase in foreign carriers capacity into Australia seems to slow down in 2015, we anticipate that Qantas will intensify the modernization and growth of their fleet, in line with the strategic orientations announced in 2014:

Jetstar will take delivery of 10 additional B787-8 with most of them to be delivered in FY15 and FY16.

It is assumed 20 B787-9 options will be exercised between 2017 and 2019 (out of a total of 50 options)

Finally it is anticipated that the delivery of the remaining 8 A380 will be postponed again and converted into A380neo if/when Airbus confirms this program. Deliveries would intervene beyond 2021.

The above assumptions lead to an estimated seat capacity increase by an average 3.5% p.a. between June 2014 and June 2021. Overall the Qantas group fleet dedicated to international operations will see its average aircraft size decrease from 341 seats in June 2014 to 313 seats in June 2021. This mostly results from the phasing out of the B747-400 and replacement by smaller modules.


Table 16 — Fleet Size Forecast Qantas Group – International Operations

Actual Forecasts

Seat number

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

B737-800 168 4 4 0 0 0 0 0 0

B737-800 New 168 0 0 4 5 5 5 5 5

A320-200 180 4 5 5 4 3 2 1 0

A320 Neo 180 0 0 1 3 5 7 9 11

A330-300 297 10 10 10 10 10 10 10 10

A330-200 303 51 3 0 0 0 0 0 0

B787-9 313 0 0 0 5 10 16 20 20

B787-8 335 4 8 11 12 13 14 14 14

B747 364 13 11 9 7 6 0 0 0

A380 484 12 12 12 12 12 12 12 12


Fleet size (in seats) 17,757 17,980 17,515 19,041 19,665 20,966 22,398 22,578 % evolution (in seats) 1.3% -2.6% 8.7% 3.3% 6.6% 6.8% 0.8% Average seat number 341 338 336 328 324 317 315 313

(1) 7 A330-200 were registered in JQ fleet however an equivalent of 2 airplanes were not in operations Source: IATA assumptions based on Qantas Group’s communication


6.4.2 Virgin Australia

As a consequence of the financial difficulties faced by Virgin Australia in FY13 and FY14, the airline put their international development to a halt. On-going international development mostly consists of signing partnerships and code share agreements with foreign airlines (in particular with Etihad, Singapore Airline and Air New Zealand).

The fleet of 5 B777-300ER will remain stable and no plan has been decided to replace them by 2021. The B737-800 will remain in the fleet to serve the 16 international short haul destinations as all B737-800MAX will be deployed on the domestic market.

The fleet capacity and average aircraft size should therefore remain unchanged between 2016 and 2021.

Table 17 — Fleet Size Forecast Virgin Australia – International Operations

Actual Forecasts

Seat number

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

B737-800 174 15 15 15 15 15 15 15 15

B777-300 328 5 5 5 5 5 5 5 5


Fleet size (in seats) 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 % evolution (in seats) 0% 0% 0% 0% 0% 0% 0% Average seat number 212 212 212 212 212 212 212 212

Source: IATA assumptions based on Virgin Australia’s communication


6.4.3 Emirates

Emirates operated 1.2 million seats in the fourth quarter of 2014 and is the largest foreign airline serving Australia using a fleet of A380 and B777-300ER. Emirates fly to and from Australia using several fifth freedom rights:

Australia is operated directly from DXB or via stops in South East Asia with SIN, BKK or KUL

New-Zealand is also served by Emirates from SYD, MEL and BNE

Emirates currently have about 200 aircraft on order: 50 A380 and 150 B777-X. These deliveries are scheduled for 2018 and beyond. It is believed that most of them will replace existing aircraft.

Given the current extensive network to Australia, the relatively small OD demand between Australia and Dubai and the two connecting waves in DXB, we believe the opportunities for new route and/or service are limited. Hence we anticipate the growth of Emirates will mostly rely on aircraft up-gauge:

Some frequencies will be up-gauged from 777-300ER to A380

One service will be added between DXB and ADL or between SIN and DRW

As a result of the above assumptions, Emirates’ capacity to Australia is forecast to increase by an average 2.5% p.a. between June 2014 and June 2021. The average size of Emirates fleet serving Australia should increase by 5% from 397 to 416 seats.

Table 18 — Capacity and Aircraft Size Forecast for Emirates – International Operations to Australia

Forecast per year

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

Fleet size (in seats) 3.0% 1.1% 6.1% 7.3% 0.0% 0.0% 0.2%


Source: IATA assumptions based on Emirates Group’s communication


6.4.4 Singapore Airlines

Singapore Airlines group (SIA, composed of Singapore Airlines and its subsidiaries Scoot and Silk Air) is the second largest foreign airline serving Australia.

In early 2014, Singapore Airlines reduced their capacity to Australia with a down-gauge of two frequencies (SYD and MEL) from A380 (471 seats) to B777-300 (278 seats). The downsize will be partially offset by Scoot which will increase their services to BNE and SYD.

Singapore Airlines is believed not to add any new routes or frequencies in the coming years given the extensive network that it currently operates into Australia. The operations will however be slightly impacted by the arrival of the A350-900 (285 seats) from 2017 to replace the B777-200 (271 seats). So far, there has not been any indication from Singapore Airlines about the possible use of the ordered B787-10X on Australian routes.

We anticipate that Scoot will increase its capacity to Australia with the addition of new frequencies and to a smaller extent of new routes thanks to the deliveries of the 10 B787-9.

The operations of Silk Air into Australia are marginal and no sizeable development is foreseen.

Table 19 — Capacity and Aircraft Size Forecast for Singapore Airlines – International Operations to Australia

Forecast per year

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

Seat capacity growth -6.5% -0.8% 6.4% 0.2% 6.0% 0.0% 0.0%


Source: IATA assumptions based on Singapore Airlines’ communication

Over the forecasting period, Singapore Airlines’ seat capacity into Australia will slightly increase by an average 0.7% p.a. The average number of seats per aircraft will moderately decrease from 321 to 314 seats in 2021.


6.4.5 Air New Zealand

Air New Zealand (NZ) currently serves Australia mainly through A320-200s and to a lesser extent through B767-300 and B777 aircraft. In 2015, NZ is the third largest foreign carrier serving Australia in terms of seat capacity. It is also the largest operator on the Tasman market and benefits from a high cabin factor around 80%.

We believe that Air New Zealand will moderately increase capacity on the Tasman market given the high cabin factor in an effort to remain the dominant player on the Tasman market. The capacity increase will be mostly achieved through the use of larger aircraft:

The B767 will be progressively replaced by the B787-900 and should be out of the fleet in 2017

A321neo should be used instead of A320 from 2019 (part of the 13 A320/321neo ordered with the first deliveries in 2017)

B777-300 should replace the B777-200 on selected routes

Overall Air New Zealand’s seat capacity into Australia will slightly increase by an average 1.1% p.a. The average aircraft size of Air New Zealand should increase from 210 to 217 seats between 2014 and 2021.

Table 20 — Capacity and Aircraft Size Forecast for Air New Zealand – International Operations to Australia

Forecast per year

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

Seat capacity -0.7% 5.6% 2.9% 0.0% 0.3% 0.0% 0.0%


Source: IATA assumptions based on Air New Zealand’s communication


6.4.6 Cathay Pacific

After reducing its capacity to Australia in 2013 through removing some of the triangular routings (to strengthen the direct services to Adelaide, Brisbane, Cairns and Melbourne), Cathay Pacific (CX) increased its capacity in 2014 by changing the configurations of the A330 operating to Australia (increase by 9 seats per aircraft).

The up-gauge of aircraft will be the main driver for Cathay Pacific in the years to come since the limit of flights between Hong Kong and the main cities in Australia has been reached (bilateral air-rights agreement allowing 70 flights per week to Cathay Pacific). Additionally Hong Kong International Airport is operating close to its runway capacity with full saturation expected to occur in FY2018. A third runway is planned but won’t be operational before 2023.

Given the above constraints, CX will increase its capacity only through the use of larger aircraft:

The A350 will start replacing the A330-300 on Australian routes: A350-900 (255 seats) from 2016 and A350-1000 (298 seats) from 2018 to be compared with a capacity of 251 seats on-board the A330-300

One new frequency with a B777-300ER (340 seats) instead of A330-300

Over the forecasting period, Cathay Pacific’s seat capacity into Australia will increase by an average 2.4% p.a. The average size of the aircraft serving the Australian market should therefore increase sizably from 242 seats in 2014 to 278 seats in 2021.

Table 21 — Capacity and Aircraft Size Forecast for Cathay Pacific – International Operations to Australia

Forecast per year

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

Seat capacity 8.9% 2.9% 0.4% 0.0% 1.6% 1.6% 1.5%


Source: IATA assumptions based on Cathay Pacific’s communication


6.5 Load Factors and Aircraft Size

Historical load factors increased from 68.1% in 1999-00 to 76% (highest point) in 2006-07. The global events that occurred early in the decade (09/11 attacks, SARS) contributed to bring the 2003 load factor down to its 2000 level. The subsequent two years were marked by exceptional (catching up) traffic growth (12% p.a.). The end of decade’s financial crisis contributed to lower the load factor again. It has since then experienced an overall slight increase, settling at 74.1% in 2013-14.

The successive demand shocks that occurred during the past decade contributed to a gradual decrease in average aircraft size, from 264 seats in 1999-00 to 243 in 2009-10. It has since then turned to grow and reached 252 seats per aircraft in 2013-14.

Figure 12 – Load Factor and Aircraft Average Size Evolution of Major International Airlines

Source: BITRE, IATA calculation

Based on the airline strategies detailed in the previous sections, IATA expects the load factor to slightly increase overtime at an average rate of 0.5% p.a. It should reach 77% by 2021.

As for the aircraft size, it is expected to keep increasing in the short run and reach 254 seats/aircraft in 2016. It will subsequently decrease in line with the considerations presented above, and settle at 251.5 seats in 2021, as illustrated in table 22..


Table 22 — Load Factors and Average Aircraft Size Forecast– Major International Airlines Operations

Actual Int’l Major 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Load Factor 74.1% 74.8% 76.0% 76.4% 75.4% 75.3% 75.4% 77.1%

Aver. Aircraft Size 251.6 252.3 253.5 252.8 252.7 252.2 251.8 251.5

Source: IATA calculation

6.6 Major International En-route forecast

The forecast for aircraft-km flown on international routes was subsequently derived from the passenger forecast considering the following parameters:

Load factor; related assumptions were based on the compared evolution of passenger demand and airline seat capacity.

Aircraft size (as outlined in the previous section)

Airservices Australia data was the source for distance (aircraft-Km). On the international routes, most of the distance and MTOW-Km flown in Australian airspace are by aircraft greater than 20 tonnes MTOW. The international MTOW-Km generated by aircraft below 20 tonnes MTOW is negligible.

Growth in distance traveled would be higher; the higher is passenger growth, given constant average aircraft size and constant average load factor. However if load factors grow and/or if aircraft sizes grow, then the growth in aircraft distance traveled will be reduced (for any given passenger volume). The final forecast for each year includes the effects of changes in all three factors (passengers, load factors and aircraft size) in that year.

Figure 13 illustrates the close relationship between distance traveled in the Australian airspace and MTOW-Km. The pattern and growth rates of the forecast for distance traveled were used to derive the forecast of MTOW-Km (see Table 23).


Figure 13 – Comparison of International En-route Distance and MTOW-Km


Table 23 - Forecast of Major International Airline En-route Traffic > 20 Tonnes

Fiscal Year ending June 30th En-Route International Traffic (> 20 tonnes)

Passenger number Aircraft-Km(000) MTOW-Km


2014 32,377,814 6.8% 460,141 10.1% 70,229,058 9.4%

2015 33,399,553 3.2% 462,474 0.5% 70,585,122 0.5%

2016 34,241,537 2.5% 465,124 0.6% 70,989,560 0.6%

2017 35,387,056 3.3% 479,455 3.1% 73,176,903 3.1%

2018 36,655,753 3.6% 503,407 5.0% 76,832,476 5.0%

2019 38,118,822 4.0% 525,290 4.3% 80,172,432 4.3%

2020 39,587,260 3.9% 545,736 3.9% 83,292,985 3.9%

2021 40,976,568 3.5% 553,338 1.4% 84,453,237 1.4%



7 Regional Domestic En-Route Forecast

The following sections address the fleet and development strategies of the largest regional carriers, namely Qantas Link and Virgin Australia Regional Airlines.

Regional air traffic (as defined by BITRE) is carried by regional airlines flying between the major cities and regional centers or between different regional centers. Many of these services use much smaller aircraft than the major domestic services, although important regional services are provided with aircraft with a MTOW of more than 20 tonnes.


The past trend in passenger-km for regional services is illustrated in the Figure 14 below.

Figure 14 – Historical Trend in Regional Domestic Passenger Traffic – 1998 to 2013

Source: BITRE

This sector experienced very high growth throughout the 1990s until 2000-01. In 2001-02, there was a severe collapse in traffic, followed by a recovery in subsequent years.

In some centers, mining and tourism have expanded and contributed to growth in regional air transport. On the other hand, some rural areas have stagnated or declined. However, there have been other very important factors affecting the industry and its organization. In the 1990s, a major carrier, Ansett, had


progressively transferred some of its services to regional airline affiliates such as Hazelton Airlines and Kendall Airlines. This was important on certain routes, for example Canberra-Sydney. It had a modest effect on the total major domestic traffic but a substantial effect on the much smaller regional sector. With the collapse of Ansett in 2001, and the subsequent demise of Hazelton and Kendall, regional traffic declined sharply, although there was government support for some of the services.

In more recent years, Qantas Link expanded its regional operations and purchased some B717-200 aircraft from Impulse (taken over by Qantas) and Bombardier Dash 8-Q400 aircraft, both of which are greater than 20 tonnes MTOW. These replaced aircraft such as DHC8-100 and DHC8-200 which are below 20 tonnes MTOW. Regional carriers operate on routes such as Sydney–Canberra, Sydney–Coffs Harbour and Brisbane–Canberra, where they may face the competition from Major Domestic carriers such as Virgin Blue whose recent fleet development (ERJ170 and ERJ190) enables it to service routes that used to be dedicated to regional carriers. Therefore, part of the regional market has been progressively “transferred” to the major domestic market.

Given the above finding a very good regression to explain the past evolution of the regional passenger traffic was challenging. The regression model for regional passengers was undertaken over the 1997-98 to 2012-13 period:

Table 24 — Statistical Characteristics of the Regional Traffic Regression

Type of regression: Multilinear Intercept value: 0


GDP Australia 0.99 33.61 0.92

Source : IATA estimates

When a fare variable was included, the statistical performance of the equation deteriorated.


7.2 Regional Passenger Traffic Forecast

Using the above equation, the forecast for Regional Domestic En-route passenger traffic is presented in Table 25.

Table 25- Forecast of Regional Domestic En-route Passenger Traffic – Below 20 Tonnes MTOW


Australian GDP

Growth

Passenger-Km

Growth Level

2014 2.7% 2.1% 3,102,675

2015 2.9% 0.6% 3,121,810

2016 2.8% 0.9% 3,150,442

2017 2.9% 2.9% 3,240,438

2018 2.8% 2.8% 3,331,530

2019 2.8% 2.8% 3,425,172

2020 2.8% 2.8% 3,521,550

2021 2.8% 2.8% 3,619,710

Sources: IHS Global Insight, BITRE and IATA estimates


7.3 Regional Airline Fleet Perspectives

7.3.1 Qantas Link

Qantas Link, the regional branch of the Qantas group, operates a fleet of aircraft above 20 tonnes (B717 and Q400) as well as below 20 tonnes (Q300 and 200).

In a move to modernize and upsize the regional fleet, 5 B717 and 3 new Q400 were received in FY2014. In a pursuit of this modernization, the following aircraft movements are expected:

One additional Q400 will be received in FY15 and IATA assumed four others will be added throughout the forecasting period.

Four Q300 (50 seats) will be returned in 2015 while the smaller Q200 (36 seats) will be phased out.

Table 26 — Fleet Size Forecast Qantas Link – Domestic operations

Actual Forecast

Seats June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

B717 125 18 18 18 18 18 18 18 18

Q400 72 30 31 31 31 32 33 34 35

Q300 50 16 14 12 12 12 12 12 12

Q200 36 3 2 0 0 0 0 0 0



% evolution (in seats) -1.2% -3.3% 0.0% 1.4% 1.4% 1.4% 1.4%


Source: IATA assumptions based on Qantas Group’s communication

Over the forecasting period, Qantas Link’s seat capacity will remain stable. The average size of the aircraft serving the Australian market will slightly increase from 79 seats in 2014 to 83 seats in 2021.


7.3.2 Virgin Australia Regional Airline

In April 2013, Virgin Australia purchased Skywest and created Virgin Australia Regional Airline (VARA). The fleet is composed of four aircraft types: F50, F100, AT72 and A320 (operating charter routes).

4 AT72 have been ordered and will be deployed in the fleet from 2016. It is also believed that 2 additional will join the fleet in 2020 and 2021.

Overall VARA’s seat capacity will increase by an average 2% p.a. over the forecasting period The average aircraft size of VARA will remain stable around 77/78 seats.

Table 27 — Fleet Size Forecast Virgin Australia Regional Airline – Domestic operations

Actual Forecast

Seats

June 2014

June 2015

June 2016

June 2017

June 2018

June 2019

June 2020

June 2021

ATR72 68 14 14 15 16 17 18 19 20

F100 100 11 11 11 11 11 11 11 11

F50 46 8 8 8 8 8 8 8 8

A320 162 2 2 2 2 2 2 2 2



% evolution (in seats) 0.0% 2.5% 2.4% 2.4% 2.3% 2.3% 2.2%


Source: IATA assumptions based on Virgin Australia’s communication

7.4 Regional load factor and aircraft size

Load factors have been quite stable since 2003-2004, varying between 62% and 67% with an average of 64.3%. In 2014, the regional load factor was estimated to be at 62.7%, slightly behind the average. The relative evolutions of demand and airline capacity described in the above sections will make the regional load factor catch up with the historical average in 2016 and even above to reach 70% in 2021. Although this estimate is quite high for regional routes, we believed that it is reasonable as demand grows and the airline offer gets rationalized by the two largest players.

The aircraft size of the regional airlines has been increasing continuously since 2003-04, from 35 seats to almost 53 seats in 2012-2013 (+4.7% p.a. derived from BITRE seat-km and aircraft-km and including both below and above 20 tonnes MTOW aircraft). QantasLink fleet strategy to expand their fleet with


higher capacity and heavier models (B717 and Dash 8-Q400) and the entrance of VARA contributed to this increase. IATA estimates that the 2014 aircraft size further increased to 54.

For future years, it is assumed that aircraft size will remain quite stable until 2021.

7.5 Regional En-route Forecast

The trend in regional MTOW-Km is influenced by the following factors:

Growth in regional airline passengers;

Trends in load factors and aircraft size, both of which affect the trend in regional aircraft-km;

Growth in aircraft size which increases aircraft weight; and,

Replacement of ‘below 20 tonnes MTOW’ aircraft’ with ‘above 20 tonnes’ aircraft, the latter therefore being removed from ASA’s ‘below 20 tonnes MTOW’ category.

The Forecast of regional aircraft traffic for both the above and below 20 tonnes MTOW categories will be driven by the passenger forecast given above.

7.5.1 Future Projection

The historic trends in aircraft-km from the BITRE data for Regional domestic airline services and the ASA data for aircraft smaller than 20 tonnes MTOW are reasonably well matched (Figure 15).

Most of the gap between the BITRE and Airservices Australia statistics is explained by the fact that some regional airlines are operating aircraft in the above 20 tonnes MTOW category. The gap is however considered acceptable to substitute one by the other for the purpose of this forecast.


Figure 15 – Total Aircraft Distance Traveled According to BITRE and ASA – Regional Domestic En-Route Operations

Sources: Airservices Australia and BITRE

The relationship between the trends in total aircraft distance and MTOW-Km for regional domestic airline (both measured by ASA) is also close (see Figure 16).


Figure 16 – Trends in Total Aircraft Distance and MTOW-Km – ASA measures


The forecast of aircraft-km flown was derived from the passenger forecast and from the assumptions for the evolution of load factors and average aircraft size over the forecast period. The forecast for MTOW-Km was then derived directly from the aircraft-Km forecast, as presented in Table 28 below.

Table 28 - Forecast of Regional Airline En-route Traffic for Aircraft Below 20 Tonnes MTOW

Fiscal Year ending June

30th

En-Route Regional Domestic Traffic

Passenger-Km

Aircraft-Km(000) - ASA

MTOW-Km


2014 3,102,675 2.1% 75,662 -9.0% 8,875,812 -8.2%

2015 3,121,810 0.6% 78,481 3.7% 9,206,481 3.7%

2016 3,150,442 0.9% 75,646 -3.6% 8,873,967 -3.6%

2017 3,240,438 2.9% 75,043 -0.8% 8,803,156 -0.8%

2018 3,331,530 2.8% 76,127 1.4% 8,930,299 1.4%

2019 3,425,172 2.8% 77,604 1.9% 9,103,585 1.9%

2020 3,521,550 2.8% 79,081 1.9% 9,276,818 1.9%

2021 3,619,710 2.8% 80,558 1.9% 9,450,082 1.9%



7.6 Regional International En-route Forecast

The international traffic using aircraft less than 20 tonnes MTOW is the smallest category of traffic, representing about 0.5% of total MTOW-Km. It is about 1% of the total MTOW-Km of all international traffic.

The forecast of this traffic assumes the same rate of passenger growth as for major international traffic and also a similar pattern of development of the average load factor. The forecast of regional international MTOW-Km is presented below in Table 29

Table 29 - Forecast of Regional International Airline En-route Traffic (Below 20 Tonnes)


En-Route International Traffic (< 20 tonnes)

MTOW-Km

Level Growth

2014 313,576 0.0%

2015 311,201 -0.8%

2016 314,442 1.0%

2017 323,274 2.8%

2018 339,328 5.0%

2019 353,303 4.1%

2020 366,464 3.7%

2021 371,078 1.3%



8 Other En-route Forecasts

The Overflight, All-cargo and General Aviation forecasts represent a small portion of the en-route activity. Findings for each are summarized below.

8.1 Overflights

Overflights, which are international flights overflying but not landing in Australia, are all in the above 20 tonnes MTOW category, and currently represent about 4.1% of the total MTOW-Km for all categories of traffic.

IATA couldn’t characterize the individual factors underlying the historical evolution of the overflight MTOW-Km. Most of these factors deal with airline routing strategies. There appears to be a long term trend effect of GDP growth on overflights, albeit with other factors causing significant ups and downs in the process. Given New Zealand is the main origin / destination market for these overflights, a regression of overflight MTOW-Km was carried out against New Zealand Real GDP. Results are presented in the below table.

Table 30 — Statistical Characteristics of the Overflight MTOW-Km Regression

Type of regression: Logarithmic (log-log)

Intercept value: 0


New Zealand GDP 1.2 60.6

0.92 SARS -18.5 -1.9

2008/2009 Financial crisis -12.5 -1.5


Figure 17 compares the actual development of MTOW-Km with the predicted trend feeding New Zealand GDP in the above equation.


Figure 17 – Comparison of Overflights Actual MTOW-Km and the Trend Predicted by the Equation


The forecast of growth in the MTOW-Km of overflights is presented in the below table.

Table 31 – Growth in World GDP and Forecasted MTOW-Km for Overflights


New Zealand GDP Growth

MTOW-Km

Growth Level

2014 3.1% 1.8% 5,474,743

2015 2.9% 3.0% 5,640,210

2016 2.6% 2.7% 5,791,284

2017 2.4% 2.5% 5,935,237

2018 2.6% 2.7% 6,092,750

2019 2.6% 2.7% 6,257,444

2020 2.5% 2.6% 6,420,207

2021 2.4% 2.5% 6,579,036



8.2 All-Cargo

The All-Cargo flights are registered as above (or equal to) 20 tonnes MTOW. They include both domestic and international flights and account for about 1.6% of total en-route MTOW-Km.

A regression of MTOW-Km against a weighted average index of real Australian GDP and World GDP indicated an elasticity of 1. This estimate makes logical sense and is statistically significant. As with overflights, there are other factors which have episodic impacts on demand. Statistical characteristics of the undertaken regression are presented in the below table.

Table 32 — Statistical Characteristics of the All-Cargo MTOW-Km Regression Type of regression: Multilinear Intercept value: 0


Mix Australian-World GDP 1.02 93.3 0.92

2008/2009 Financial crisis -36.1 -9.2


The below figure compares the actual development of MTOW-Km with the predicted trend using the above equation.

Figure 18 – Comparison of All-Cargo Actual MTOW-Km and the Trend Predicted by the Equation



The forecast of growth in the MTOW-Km of all-cargo is developed from the estimated elasticity and the forecast for the growth in Australian GDP (see table 33). Table 33 – Growth in World GDP and Projected MTOW-Km of All-Cargo Flights


Australian GDP

Growth

World GDP

Growth

MTOW-Km

Growth Level

2014 2.7% 2.6% 6.0% 2,090,336

2015 2.9% 2.8% 2.8% 2,147,916

2016 2.8% 3.3% 2.9% 2,211,052

2017 2.9% 3.6% 3.1% 2,279,755

2018 2.8% 3.6% 3.1% 2,350,550

2019 2.8% 3.6% 3.1% 2,423,977

2020 2.8% 3.7% 3.2% 2,500,676

2021 2.8% 3.7% 3.2% 2,579,760

Sources: IHS Global Insight, Airservices Australia and IATA estimates


8.3 General Aviation

The major categories of general aviation are private and business aviation, training aviation, aerial agriculture, charter and aerial work.

IATA investigated possible correlations of the General Aviation MTOW-Km flown against the Australian economy (GDP) and the General Aviation hours flown (data supplied by BITRE). No solid correlation could be found.

However, IATA found out that the recent trend-lines for General Aviation and Regional MTOW-Km flown were very close (see Figure 19).

Figure 19 – Historical Evolution of General Aviation and Regional Traffic MTOW-Km



The MTOW-Km for General Aviation was therefore forecasted as a function of the Regional traffic evolution, as their growth proved to be quite proportional overtime, as shown in Table 34 :

Table 34 – Growth Rate in Regional vs. GA MTOW-Km - Past and Forecasted Data

Sources: Airservices Australia, IATA calculation

Table 35 – Growth in Regional MTOW-Km and Projected MTOW-Km for General Aviation


Regional Traffic

MTOW-KM Growth

MTOW-Km GA Growth Level

2014 -8.0% -3.6% 1,903,543

2015 3.6% 4.3% 1,984,465

2016 -2.8% -1.9% 1,947,181

2017 -0.9% 0.0% 1,946,521

2018 1.7% 2.4% 1,993,982

2019 2.1% 2.8% 2,049,483

2020 2.0% 2.7% 2,104,670

2021 1.9% 2.5% 2,157,794



9 Major Airports Forecasts

9.1 Airport segmentation

Three groups of airports are forecasted under this study - the major airports, the regional airports and the Secondary Capital City airports. Table 36 provides the list of airports included in each group. A specific forecast has been carried out for each group and each of the major airports.

Table 36 - Airports of Interest to Airservices Australia

Major airports Regional airports3 Secondary Capital City/Metro D

Adelaide Albury Archerfield Brisbane Alice Springs Bankstown

Cairns Avalon Camden Canberra Ayers Rock Essendon

Gold Coast Ballina Jandakot Melbourne, Broome Moorabbin

Perth Coffs Harbour Parafield Sydney Darwin

Gladstone Hamilton Island Hobart Karratha Launceston Mackay Newman Port Hedland Rockhampton Sunshine Coast Tamworth Townsville

Sources: Airservices Australia

3 In line with the data file received from ASA, IATA has considered 20 airports instead of 15 initially contractually agreed.



Regressions of traffic demand were carried out as a function of Australian GDP and Best Discount Fares for each of the major airports (Table 37). These results were used to generate the passenger demand forecast for these airports. The GDP elasticities were mostly strongly significant. The Real Best Discount Fare elasticities were also statistically significant.

The responsiveness of passenger demand to economic growth varied somewhat among the airports with Brisbane, Perth and Gold Coast having the highest elasticities to Australian GDP. This reflects the generally faster rate of development and higher population growth in these cities and their catchment area, at least for much of the period of the analysis.

Table 37 - Results of Regression Equations for Individual Major Airports

Airport

Passenger growth 2004-

2014 Type of

regression GDP

coefficient “t” statistic

Real Best Disc, Fare coefficient

“t” statistic

(% pa)

Adelaide 4.48% Multilinear 1.32 47.3 -0.28 -6.75

Brisbane 4.72% Multilinear 1.70 65.7 -0.54 -14.13

Cairns 2.85% Log-Log 1.00 474.5 - -

Canberra 2.21% Log-Log 0.92 7.6 -0.30 -3.45

Gold Coast 8.74% Multilinear 2.20 25.6 -1.20 -9.48

Melbourne 5.20% Multilinear 1.58 62.7 -0.48 -12.94

Perth 8.16% Multilinear 2.13 24.3 -1.02 -7.89

Sydney 4.04% Multilinear 1.25 62.5 -0.17 -5.88

All majors altogether 4.25% 1.48 -0.39


The airport passenger demand analysis was quite separate from the en-route demand analysis. However, the relationships among the GDP coefficients were consistent with expectations. In particular, the GDP coefficient for major domestic en-route passenger-km of 1.79 was larger than most of the above airport GDP ones and larger than the coefficient estimated for the eight major airports altogether (1.48). This reflects the fact that people make longer trips as well as more trips as incomes increase.


9.3 Forecasts for Passenger Traffic at the Major Airports

The forecast for traffic demand was derived based on assumptions and equations mentioned earlier. GDP assumptions are presented in Table 5. The Real Best Discounted Fares assumptions are presented in table 7.

Specific case of Canberra Airport

The only exception to this approach was made for Canberra airport that saw a steep decrease in its traffic for five years in a row since 2010-11. IATA reviewed the historical and future airline offer to/from CBR and concluded that annual traffic would keep decreasing in 2014-15 but would most likely bounce back in 2015-16.

Figure 20 – Actual and Estimated Qantas Seat Offer to/from CBR Between 2012-13 and 2015-16 (in One-Way Seats)

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

QF-2012/13

QF-2013/14

QF-2014/15

QF-2015/16

Source: SRS Analyzer and IATA estimates

Figure 21 – Actual and Estimated Virgin Australia Seat Offer to/from CBR Between 2012-13 and 2015-16 (in One-Way Seats)

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

VA-2012/13

VA-2013/14

VA-2014/15

VA-2015/16

Source: SRS Analyzer and IATA estimates


Table 38 presents the forecasts for each airport’s passenger traffic.

Table 38 – Historic and Forecasted Traffic Growth Rates at the Major Airports – in Passengers

Airport Passenger growth 2004-2014 Passenger growth 2014-2021

(% pa) (% pa)

Adelaide 4.48% 3.12%

Brisbane 4.72% 3.26%

Cairns 2.85% 2.82%

Canberra 2.21% 2.91%

Gold Coast 8.74% 3.54%

Melbourne 5.20% 3.12%

Perth 8.16% 3.25%

Sydney 4.04% 2.98%

All majors average 4.25% 3.12%

Sources: BITRE and IATA estimates

The average rate of growth for the total passengers for all eight major airports is forecast to be 3.12% p.a. over the FY2014 to FY2021 period. The consistency of the forecasts for terminal and en-route demand was checked, as outlined in Table 39.

Table 39 – Projection of Terminal Passenger Demand Using the En-Route Demand Forecasts

Period FY2014 – FY2021

Weight in Airport Terminal traffic

En-route forecast in passenger-km

Increase in sector length

Resulting increase in passenger demand

(in pax)

Domestic 70% 3.5% 2.3% 2.9%

Regional 5% 2.2% 0.9% 1.8%

International 25% N/A N/A 3.4%

Total (weighted average)

2.96%

Sources: BITRE and IATA estimates


9.4 Forecasts for terminal MTOW landed at the Major airports

Assumptions about future load factors and aircraft size, with differentiation for domestic and international operations, were then used to generate trends in aircraft movements at each airport. Forecasts of changes in MTOW at each airport were based on changes in the number of movements and in average aircraft size, both of which affect total MTOW.

The terminal MTOW forecast for the eight major airports is presented in Table 40.

Table 40 – Terminal MTOW Forecast for the 8 Major Airports (Aggregated)

Fiscal Year ending 30 June

Inbound Passengers

Terminal MTOW

Level Growth (%) Level Growth (%)

2014 62,518,192 2.9% 50,914,378 2.4%

2015 63,033,501 0.8% 51,192,117 0.5%

2016 66,416,491 5.4% 52,857,335 3.3%

2017 68,504,552 3.1% 54,172,645 2.5%

2018 70,720,223 3.2% 55,256,824 2.0%

2019 72,936,708 3.1% 56,899,875 3.0%

2020 75,212,728 3.1% 58,266,534 2.4%

2021 77,527,393 3.1% 59,502,129 2.1%


The derivation of forecasts of aircraft movements and MTOW at the major airports from the passenger forecasts involves assumptions on the evolution of load factors and aircraft size which are consistent with those used for the en-route aircraft-km and MTOW-Km forecasting processes.

The individual airport forecasts are presented in the appendices.


10 Regional Airports Forecasts

In 2013-14 the terminal activity at all regional airports represented about 8% of the total major plus regional and secondary capital city terminal MTOW, excluding GA and military.

The 20 regional airports listed previously were analyzed as a group using BITRE data on passengers and aircraft movements. A chart of the trend in annual passengers using the 20 regional airports is shown in Figure 22.

Figure 22 - Passenger Trend at the 20 Regional Airports

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

Total Passenger number- Total Regional Airportsin passenger- FY1994 - FY 2014


Similarly to the major airports, a regression of the passenger traffic at the regional airports was carried out against the Australian GDP and the Best Discounted Airfare over the 20-year period between 1993-94 and 2013-14. The characteristics of this regression are presented in the below table.


Table 41 — Statistical Characteristics of the Regional Airports Passenger Traffic Regression Type of regression: Logarithmic (log-log) Intercept value: 3.1


GDP Australia (Ln) 0.88 3.92

0.94 Airfare (Ln) -0.54 -3.29

Ansett Airlines -0.25 -2.66


The forecast of total inbound passengers for the 20 regional airports was derived from the equation above and the forecasts for GDP and fares. The results are shown in Table 42.

Table 42 - Forecast of Inbound Passengers at 20 Regional Airports (Aggregated)


Australian GDP

Growth

Inbound Passengers

Growth Level

2014 2.7% 1.8% 7,325,945

2015 2.9% 4.2% 7,633,366

2016 2.8% 2.4% 7,817,321

2017 2.9% 2.9% 8,042,255

2018 2.8% 3.9% 8,353,273

2019 2.8% 3.3% 8,625,806

2020 2.8% 3.2% 8,903,275

2021 2.8% 3.2% 9,183,768

Sources: BITRE, IHS Global Insight and IATA estimates

Assumptions about load factors and aircraft size were used to translate passenger forecasts into aircraft movement and then MTOW forecasts as presented in the table below.


Table 43 - Forecast of MTOW for Regional Airports (Aggregated)


MTOW (ASA data)

Level Growth

2014 4,525,222 3.1%

2015 4,690,096 3.6%

2016 4,671,190 -0.4%

2017 4,666,939 -0.1%

2018 4,772,250 2.3%

2019 4,872,889 2.1%

2020 4,971,957 2.0%

2021 5,069,809 2.0%



11 Secondary Capital City Forecasts

The terminal activity at all secondary capital city airports (7 in total) represents about 0.5% of the total major plus regional terminal MTOW, excluding GA and military.

This group of airports happened to be well correlated with the prices of the commodity metals (Gold, Iron Ore, etc…) as illustrated in Figure 23. This correlation reflects the high share of mining related flights (mostly charter flights) at the largest of the secondary airports.

Figure 23 – Evolution of MTOW-Km (ASA) of Secondary Capital City Airports and Commodity Metal Prices

90

100

110

120

130

140

150

160

0

50

100

150

200

250

300

350

Evolution of MTOW-Km and Commodity metal pricesin index (100 =FY 2004) - FY2004 - FY 2014

Commodity Metals Price Index (left Scale) MTOW-Km (ASA) (right scale)

Sources: Airservices Australia, EIU Economic and Commodity Forecast and IATA estimates

A regression of the MTOW-Km against the commodity metals prices and the Real Australian GDP confirmed this correlation and returned the following equation for the period 2003-04 to 2013-14.

Table 44 — Statistical Characteristics of the Secondary Airports MTOW-Km Regression Type of regression: Multilinear Intercept value: 72.9


GDP Australia 0.19 1.59 0.95

Commodity Metals Price Index 0.12 6.40

Source: IATA estimates


The forecasts results using this equation are shown in Table 45.

Table 45 - Forecast of MTOW for Secondary Capital City Airports (Aggregated)


MTOW-Km

Level Growth

2014 304,440 -0.8%

2015 299,915 -1.5%

2016 305,330 1.8%

2017 310,980 1.9%

2018 315,525 1.5%

2019 317,950 0.8%

2020 321,490 1.1%

2021 324,560 1.0%



12 Appendices - Major Airports Individual Forecasts

Table 46 — Total Historic and Forecast Passengers and MTOW for Sydney Airport

Fiscal Year ending June 30th Sydney Airport

Passenger

MTOW-Km

Level Growth Level Growth

2014 19,340,568 2.7% 16,806,928 -0.3%

2015 19,379,943 0.2% 16,806,555 0.0%

2016 20,523,141 5.9% 17,425,258 3.7%

2017 21,138,505 3.0% 17,835,365 2.4%

2018 21,774,450 3.0% 18,154,498 1.8%

2019 22,420,356 3.0% 18,665,753 2.8%

2020 23,084,467 3.0% 19,086,578 2.3%

2021 23,760,359 2.9% 19,464,917 2.0%

Sources: Airservices Australia, BITRE, IATA estimates

Table 47 — Total Historic and Forecast Passengers and MTOW for Melbourne Airport

Fiscal Year ending June 30th Melbourne Airport

Passenger

MTOW-Km


2014 15,482,411 4.7% 12,155,327 3.1%

2015 15,918,812 2.8% 12,472,278 2.6%

2016 16,479,470 3.5% 12,641,179 1.4%

2017 16,990,679 3.1% 12,951,719 2.5%

2018 17,534,404 3.2% 13,207,998 2.0%

2019 18,076,860 3.1% 13,596,745 2.9%

2020 18,633,385 3.1% 13,919,028 2.4%

2021 19,198,817 3.0% 14,209,636 2.1%



Table 48 — Total Historic and Forecast Passengers and MTOW for Brisbane Airport

Fiscal Year ending June 30th Brisbane Airport

Passenger

MTOW-Km


2014 10,967,057 3.3% 8,396,105 5.7%

2015 10,988,086 0.2% 8,394,926 0.0%

2016 11,708,612 6.6% 8,758,091 4.3%

2017 12,088,378 3.2% 8,985,545 2.6%

2018 12,493,206 3.3% 9,176,553 2.1%

2019 12,896,531 3.2% 9,458,985 3.1%

2020 13,310,244 3.2% 9,695,336 2.5%

2021 13,730,524 3.2% 9,909,581 2.2%


Table 49 — Total Historic and Forecast Passengers and MTOW for Perth Airport

Fiscal Year ending June 30th Perth Airport

Passenger

MTOW-Km


2014 6,478,684 0.6% 6,692,332 6.0%

2015 6,418,663 -0.9% 6,616,714 -1.1%

2016 6,915,683 7.7% 6,979,785 5.5%

2017 7,136,392 3.2% 7,157,445 2.5%

2018 7,378,013 3.4% 7,312,200 2.2%

2019 7,614,832 3.2% 7,535,897 3.1%

2020 7,857,254 3.2% 7,722,370 2.5%

2021 8,103,130 3.1% 7,890,853 2.2%



Table 50 — Total Historic and Forecast Passengers and MTOW for Adelaide Airport

Fiscal Year ending June 30th Adelaide Airport

Passenger

MTOW-Km


2014 3,794,124 5.6% 2,640,419 4.0%

2015 3,899,315 2.8% 2,708,050 2.6%

2016 4,038,001 3.6% 2,745,643 1.4%

2017 4,164,083 3.1% 2,813,646 2.5%

2018 4,296,044 3.2% 2,868,455 1.9%

2019 4,429,017 3.1% 2,952,927 2.9%

2020 4,565,607 3.1% 3,023,076 2.4%

2021 4,704,516 3.0% 3,086,432 2.1%


Table 51 — Total Historic and Forecast Passengers and MTOW for Canberra Airport

Fiscal Year ending June 30th Canberra Airport

Passenger

MTOW-Km


2014 1,432,812 -5.2% 994,546 -4.2%

2015 1,341,137 -6.4% 929,000 -6.6%

2016 1,391,932 3.8% 943,995 1.6%

2017 1,454,521 4.5% 980,266 3.8%

2018 1,527,794 5.0% 1,017,462 3.8%

2019 1,599,545 4.7% 1,063,692 4.5%

2020 1,674,283 4.7% 1,105,741 4.0%

2021 1,751,698 4.6% 1,146,239 3.7%



Table 52 — Total Historic and Forecast Passengers and MTOW for Cairns Airport

Fiscal Year ending June 30th Cairns Airport

Passenger

MTOW-Km


2014 2,134,877 3.1% 1,551,785 1.3%

2015 2,168,003 1.6% 1,572,626 1.3%

2016 2,257,355 4.1% 1,603,152 1.9%

2017 2,321,903 2.9% 1,638,669 2.2%

2018 2,386,940 2.8% 1,664,631 1.6%

2019 2,454,047 2.8% 1,708,935 2.7%

2020 2,523,172 2.8% 1,744,997 2.1%

2021 2,593,622 2.8% 1,777,239 1.8%


Table 53 — Total Historic and Forecast Passengers and MTOW for Gold Coast Airport

Fiscal Year ending June 30th Gold Coast Airport

Passenger

MTOW-Km


2014 2,887,659 -0.2% 1,676,935 -0.9%

2015 2,919,542 1.1% 1,691,969 0.9%

2016 3,102,298 6.3% 1,760,233 4.0%

2017 3,210,091 3.5% 1,809,991 2.8%

2018 3,329,372 3.7% 1,855,029 2.5%

2019 3,445,519 3.5% 1,916,942 3.3%

2020 3,564,315 3.4% 1,969,408 2.7%

2021 3,684,726 3.4% 2,017,233 2.4%


IATA CONSULTING THE GLOBAL AIR TRANSPORT EXPERTS

For more information, please contact us.

Laurent DELARUE

Head of Airport Consulting Tel: +1 (514) 8740202 x 3041

Fax: +1 (514) 390 6707 [email protected]

International Air Transport Association

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Montreal, Quebec Canada H4Z 1M1

www.iata.org/consulting

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