Global Airlines Group #6 - Brian Gabriel Purba - Zhen(Bruno) Liu - Fayassir Haqna AGENDA Industry Overview o Terminology o Characteristics of Airline Industry o History o Current Status/Trends o Outlook Singapore Airlines Southwest Airlines United Airlines TERMINOLOGY ATK: Available Tonne Kilometres • Measure available total capacity of passenger and cargo ASK: Available Seat Kilometers • [number of seats available] * [number of kilometers flown] RPK: Revenue Passenger Kilometers • [number of passengers] * [number of kilometers flown] FTK: Freight Tonne Kilometers • [Freight tonnes carried] * [kilometers flown] YIELD: • [Revenue] / [RPK] • Represents an aggregate of all the airfare and airline charges and measured on a per kilometer basis LOAD FACTOR: Capacity Utilization • [RPK] / [ASK] • [number of passengers] / [number of seats available] BREAK-EVEN LOAD FACTOR: • [Unit Cost] / [Yield] • Operating cost = operating revenue INDUSTRY CHARACTERISTICS • Very competitive industry • Powerful supplier (Boeing and Airbus) • Capital intensive industry • Sensitive to business cycle • High operating costs • Low profit Margin CATEGORY •International •National •Regional •Cargo COMPARISON HISTORY OF AIRLINE INDUSTRY Airline Industry began in early 1900s On December 17, 1903, Orville and Wilbur Wright built up the first powered flight The world’s first Airline was DELAG, it was found on November 16, 1909 The first fixed wing scheduled air service Commercial flight flew from St. Petersburg, Florida to Tampa, Florida (23 minutes,18 miles). KLM operated its first flight in 1919 making it the oldest carrier which is still operated today. In WW I, the military value of aircraft was quickly recognized o After WW I, a large number of military planes were became available for civilian use As a consequence of WW I, nearly 20 small passenger airlines were created using bomber planes, notably in Germany, France and Great Britain. REGULATIONS 1925, the Air Commerce Act (airways, certify aircraft, license pilots, and issue and enforce air traffic regulations) 1938, the Civil Aeronautics Act established the Civil Aeronautics Board (CAB) (routes and ticket prices) 1978, the Airline Deregulation Act (introducing a free market) In 2010 and 2011, the U.S. Department of Transportation (safety standards and other operating procedures) Internationally, the International Civil Aviation Organization (worldwide standards for safety and other vital concerns) CONDITIONS AFFECTING AIRLINE INDUSTRY Airport capacity Route structures Technology Costs to lease or buy physical aircraft Weather Fuel cost Labor Economy Regulations AIR TRANSPORT SYSTEM FLOW CHART ROUTE STRUCTURE Point-to-point Hub and Spoke Used by low cost (discount) carriers Used by legacy carriers Shorter routes, usually regional/domestic Allows more distant and international routes Decreased connection and travel times Utilize main airports as hubs Increased utilization leads to lower unit cost Lead to more efficient use of transportation resource Avoid domino effect Centralized model result in inflexible Require more routes, less flexibility in destination operation STAR ALLIANCE World’s largest global airline alliances Star Alliance's 27 member airlines operate a fleet of approximately 4,657 aircraft, serve more than 1,330 airports in 192 countries and carry 641.1 million passengers per year on more than 18,500 daily departures STAR ALLIANCE DESTINATIONS AIRLINE CAPACITY INDUSTRY REVENUE DRIVERS COMMERCIAL AIRLINE TREND COMMERCIAL AIRLINE TREND AIRLINE TRAFFIC AIRLINE REVENUE & GDP GLOBAL RPK RPK & WORLD GDP GLOBAL RPK PROJECTION OPERATING MARGINS (INDUSTRY) GLOBAL AIRLINE INDUSTRY PERFORMANCE PROFITABLE INDUSTRY INDUSTRY PERFORMANCE CONSUMER CONFIDENCE DECLINING COST DECLINING COST OF FUEL DECLINING COST OF FUEL STOCK INFORMATION 1 YEAR STOCK MOVEMENT 5 YEAR STOCK MOVEMENT 10 YEAR STOCK MOVEMENT MAX STOCK MOVEMENT 5 YEAR COMPARISON 10 YEAR COMPARISON DIVIDENDS STOCK INFORMATION (ADR) 1 YEAR STOCK MOVEMENT (ADR) 5 YEAR STOCK MOVEMENT (ADR) MAX STOCK MOVEMENT (ADR) 5 YEAR COMPARISON(ADR) 10 YEAR COMPARISON (ADR) HISTORY HISTORY COMPANY PROFILE • Based at Singapore Changi Airport • Incorporated in 1972 • State-owned company • The combined passenger network covers 133 destinations in 37 countries. • World’s most awarded airlines • Subsidiaries: SilkAir, Scoot, Tiger Airways (which operates as Tigerair) and SIA Cargo AWARDS KEY STRATEGY SUBSIDIARIES SUBSIDIARIES PORTFOLIO ROUTE MAP FLEET PROFILE OWNERSHIP MANAGEMENT TEAM Chairman - Peter Seah Lim Huat • Appointed as Chairman since 1 January 2017 • He was awarded the Distinguished Service Order in 2012 and the Public Service Star (Bintang Bakti Masyarakat) in 1999, and made a Justice of the Peace in 2003 • Chairman of DBS Bank Ltd, DBS Group Holdings Ltd, Singapore Health Services Ltd and LaSalle College of the Arts Limited. • He was with former Overseas Union Bank between 1977 and 2001, retiring as Vice Chairman and CEO. Prior to that, he was with Citibank N.A • Bachelor of Business Administration (Honours), University of Singapore MANAGEMENT TEAM Goh Choon Phong – CEO/Executive Director • He worked for SIA group for more than 20 years • Re-elected as director on 29 July 2016 • Appointed as CEO since 3 September 2010 • He joined the Company in 1990 and has held senior management positions in various divisions in Singapore and overseas. • Chairman of Budget Aviation Holdings Pte. Ltd., (Manages Scoot and Tigerair), • Director of SIA Engineering Company Limited, Education: • Master of Science in Electrical Engineering and Computer Science • Bachelor of Science in Computer Science & Engineering • Bachelor of Science in Management Science • Bachelor of Science in Cognitive Science • Massachusetts Institute of Technology MANAGEMENT TEAM Executive Vice President: Commercial - Mak Swee Wah • Member of SIA group since 2007 • He has been an Executive Vice President of Commercial at Singapore Airlines Ltd. since February 1, 2011 • Chairman of SilkAir • He graduated from the London School of Economics in 1982 with a Bachelor of Science (First Class Honours) degree in Accounting and Finance. Mr. Mak holds a Masters of Science degree in Operational Research from London School of Economics. MANAGEMENT TEAM Director - Gautam Banerjee • Re-elected as a director on 29 July 2016 • Senior Managing Director of Blackstone Group and the Chairman of Blackstone Singapore • Served as the Chief Operating Officer for the Asia Pacific region at PricewaterhouseCoopers Singapore since 2005 • He was a Nominated Member of Parliament in Singapore between 2007 and 2009. • He was awarded the Public Service Medal by the Singapore Government and an Honorary Doctor of Laws by the University of Warwick, England • Education: Bachelor of Science in Accounting and Financial Analysis, University of Warwick MANAGEMENT TEAM Director - Helmut Gunther William Panke • First appointment as director on 1 September 2009 • Served as the Chairman of Bayerische Motoren Werke Aktiengesellschaft (BMW) from May 16, 2002 until September 1, 2006 • Served as the CEO of BMW from 1993 to 1996 • Trained nuclear engineer, was with BMW AG from 1982 to 2006 • Graduated from the University of Munich in physics, having started his studies in 1968, and received his Ph.D in 1976 MANAGEMENT TEAM Senior Vice President: Finance/CFO - Stephen Barnes • Appointed as senior VP since 2014 • Member of SIA group since 2001 • Ex-Senior Director, Portfolio Management from October 2008 – January 2014 at Guggenheim Aviation Partners Ltd. • 30 Yeas of experiences in financial industry • Education: The Judd School, Tonbridge, UK MANAGEMENT TEAM Senior Vice President: Human Resources - Cheng Kian Hai • Serves as the Senior Vice President of Human Resources at Singapore Airlines Limited and served as its Acting Senior Vice President of Human Resources since February 1, 2009 OPERATING STATISTICS OPERATING PERFORMANCE OPERATING PERFORMANCE OPERATING PERFORMANCE REVENUE BY ROUTE REGION COST COMPOSITION FUEL EXPENDITURE FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS BALANCE SHEET (QUARTERLY) BALANCE SHEET (QUARTERLY) BALANCE SHEET (ANNUAL) BALANCE SHEET (ANNUAL) INCOME STATEMENT (ANNUAL) INCOME STATEMENT (ANNUAL) INCOME STATEMENT (QUARTERLY) INCOME STATEMENT (QUARTERLY) CASH FLOW STATEMENT (ANNUAL) CASH FLOW STATEMENT (ANNUAL) CASH FLOW STATEMENT (QUARTERLY) RECOMMENDATION HOLD STOCK INFORMATION 1-YEAR STOCK PRICE MOVEMENT 5-YEAR STOCK PRICE MOVEMENT 10-YEAR STOCK PRICE MOVEMENT MAX STOCK PRICE MOVEMENT COMPARISON OF 5- YEAR CUMULATIVE TOTAL RETURN AMONG SOUTHWEST AIRLINES CO., S&P 500 INDEX, AND NYSE ARCA AIRLINE INDEX LUV S&P 500 NYSE ARCA Airline DIVIDEND HISTORY SOUTHWEST AIRLINE Incorporated on March 9, 1967 Headquarters in Dallas, Texas The nation's largest carrier in terms of originating domestic passengers boarded (the U.S. Department of Transportation) 54,000+ employees and more than 100 million customers annually 101 destinations in the United States and nine additional countries with 3,900+ departures a day during peak travel season Operates the largest fleet of Boeing aircraft in the world, the majority of which are equipped with satellite-based Wi-Fi providing gate-to-gate connectivity. As of May 17, 2017, this year Southwest has returned $1.1 billion to Shareholders through the payment of $123 million in dividends and the repurchase of $950 million in common stock. HISTORY – 1960 TO 1980 1967 1971 1973 1975 1978 Air Airline Southwest Common First flight Southwest established reaches