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Part 1: Global Trends and Policies
UNDERSTANDING THE RELATIONSHIP BETWEEN AIR TRANSPORTATION AND TOURISM
11 September 2014, Ankara
Prepared for:
Standing Committee for Economic and Commercial Cooperation of the Organization of Islamic Cooperation
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Study Objectives
UNDERSTANDING THE RELATIONSHIP BETWEEN AIR TRANSPORTATION AND TOURISM – GLOBAL TRENDS AND POLICIES
To define the conceptual framework for the linkage between air transportation and tourism
To investigate the latest global trends in air transportation that might affect the development of tourism
To identify the current status of air transportation practices in the OIC Member States
To determine the implementation barriers (political, legal, institutional, fiscal, and physical infrastructure) for enhancing better air transportation and especially the interaction between air transportation and tourism in the OIC Member States
To propose recommendations for improving air linkages to foster tourism activities
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Contents
UNDERSTANDING THE RELATIONSHIP BETWEEN AIR TRANSPORTATION AND TOURISM – GLOBAL TRENDS AND POLICIES
1. Global and regional trends in aviation 3
2. Links between air transport and tourism 20
3. Situation overview in member countries 28
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GLOBAL AND REGIONAL TRENDS IN AVIATION
SECTION 1
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GLOBAL AND REGIONAL TRENDS IN AVIATION
Aviation has seen unprecedented change during the last 20 years, driven by emerging business models, new technology, and social change
Expansion of the global economy
Growth of the tourism industry
Technological advancement, which makes aircraft and flying
• Longer distances• More cost efficient
Growth in aviation has been fuelled by the following major factors:
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Due to its speed and affordability, air travel has become the preferred choice for long distance personal travel
GLOBAL AND REGIONAL TRENDS IN AVIATION
Evolution of World Traffic (RPKs) 1980-2013
Source: ICAO for 1980-2008 data, IATA Financial Monitor 2009-2013
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
'80'81'82'83'84'85'86'87'88'89'90'91'92'93'94'95'96'97'98'99'00'01'02'03'04'05'06'07'08'09'10'11'12'13
RTK
s (m
illion
s)
Africa
Latin America
Middle East
Asia Pacific
Europe
North America
Global CAGR=5.1%
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Aviation growth varies by region, depending on various characteristics
GLOBAL AND REGIONAL TRENDS IN AVIATION
Economic characteristics of the region • e.g., level of GDP, income distribution, and type of economic activities
Geographic characteristics • e.g., island nations and mountainous areas
Availability of alternative modes of transport • e.g., high speed rail
Characteristics of the population • e.g., density, distribution, and age
Political factors • e.g., existence of air traffic rights, and level of security
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The overall growth in global air traffic has been driven by regional growth in emerging markets as well as explosive growth in the Gulf and Middle East
GLOBAL AND REGIONAL TRENDS IN AVIATION
Historical Traffic Growth by Carrier Region 1980-2013RTK Growth Index (1980 = 100)
Source: ICAO for 1980-2008 data, IATA Financial Monitor 2009-2013
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
'80
'81
'82
'83
'84
'85
'86
'87
'88
'89
'90
'91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
North AmericaAsia PacificEuropeMiddle EastLatin AmericaAfrica
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The largest aviation markets of the world are Asia Pacific, Europe, and North America, which collectively represented 84% of Revenue Tonne Kilometres (RPKs) in 2013
GLOBAL AND REGIONAL TRENDS IN AVIATION
Current and Forecast Market Size by World RegionRPKS (Billions)
Source: Boeing Current Market Outlook 2012-2032
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,000
Asia Pacific Europe North America Latin America Middle East Africa
2012 2032
Asia Pacific
Europe North America
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Historically, North America and Europe have accounted for the bulk of global aircraft demand, but this market dominance is slowly eroding
GLOBAL AND REGIONAL TRENDS IN AVIATION
Current and Expected World Fleet by RegionNumber of Aircraft
Source: Boeing Current Market Outlook 2012-2032
20,310
41,240
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Fleet in 2012 Fleet in 2032
Africa CISLatin America Middle EastEurope North AmericaAsia Pacific
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Fuel price has had a significant effect on air transport growth, as fuel prices directly affect the cost base of airlines and therefore fares
GLOBAL AND REGIONAL TRENDS IN AVIATION
Evolution of Jet Fuel Price 2000-2014USD / Gallon
Source: US EIA, U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price FOB (Dollars per Gallon)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
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Volatility has resulted in decreasing financial results for the world’s airlines and the downturn had a dramatic impact on the already thin margins
GLOBAL AND REGIONAL TRENDS IN AVIATION
-$13 -$11-$8 -$6 -$4
$5
$15
-$26
-$5
$17
$8 $6$11
$18
-$30
-$20
-$10
$0
$10
$20
$30
$40
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13E '14E
Net profit
Operating profit
Source: Industry Financial Forecast Table June 2014 (IATA Economics)
Global Airline Profit 2001-2014Profit (billion USD)
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Since the late 1970’s, there has been a trend towards liberalizing international aviation markets
GLOBAL AND REGIONAL TRENDS IN AVIATION
Often, this process has started with the loosening of regulatory controls applied to domestic air services and is then extended to international services
While air travel markets have expanded new, liberalized growth has posed greater challenges to old and new airlines alike
In almost every country where air transport liberalization has occurred, new airlines have been created• Focus on short-haul, point-to-point markets where• Dramatically lower fares can stimulate significant market growth
Incumbent carriers tend to respond:• First by lowering their own fares• Sometimes by establishing low-cost subsidiaries to compete head-to-head in
selected markets
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Bilateral air service agreements remain the primaryvehicle for liberalizing international air transport services
GLOBAL AND REGIONAL TRENDS IN AVIATION
The liberalization and expansion of these agreements have gained momentum in the past decade, with over one thousand bilateral air service agreements (including amendments) reportedly signed worldwide
However, many OIC member states maintain the traditional bilateral regime of international traffic regulations
Current bilateral ASAs are protective of national carriers and contain rigorous restrictions on freedoms of the air, as well as frequency and number of designated airlines
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One of the most prominent changes in the last 20 yearsin the aviation industry has been the emergence oflow-cost carriers (LCCs)
GLOBAL AND REGIONAL TRENDS IN AVIATION
Source: PaxIS, OAG, ICF Analysis
2004 2014
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The Maturing Trend of the LCC Market SegmentGLOBAL AND REGIONAL TRENDS IN AVIATION
Time
LCC
Mar
ket S
hare
7 years
US EU Asia Rest of the World
5 years10 years
4. Influx of followers and imitators
6. Move to secondary routes
1. Launch of first LCCs
2. Initial focus on dense routes
3. Big aircraft orders
5. Cost cutting response from legacies
8. LCCs consolidate/go bankrupt
9. LCCs move to longer routes
10. Search for new revenue streams and ancillary revenues
7. Reduction of profit margin due to competition
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The level of air traffic closely correlates with the level of economic activity
GLOBAL AND REGIONAL TRENDS IN AVIATION
Growth in Global GDP and Air Travel 1990-2013Index = 100
-1%
0%
1%
2%
3%
4%
5%
6%
0
50
100
150
200
250
300
350
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Global GDP
RPKs
RTKs
Note: RTK=Revenue Tonne Kilometre, RPK=Revenue Passenger KilometreSource: ICAO for 1980-2008 data, IATA Financial Monitor 2009-2012, International Monetary Fund, World Economic Outlook Database, April 2014
Index GDP Growth
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Aviation supports over 58 million jobs worldwide and is a critical driver of the global economy, contributing USD 2.4 trillion to global GDP
GLOBAL AND REGIONAL TRENDS IN AVIATION
Global Employment and GDP Generated by Air Travel
Source: Air Transport Action Group, "Aviation Benefits Beyond Borders, April 2014 Report"
Impact Areas of ImpactEmployment Generated (millions)
GDP Generated(USD billion)
Direct On-site airport (retail, car rental, customs and immigration, etc.), airlines, air navigation on-site airport work, airlines, air navigation
8.7 $606
Indirect Suppliers to the industry; examples: aviation fuel suppliers; construction companies that build airport facilities; suppliers of sub-components used in aircraft; manufacturers of goods sold in airport retail outlets
9.8 $796
Induced Activity supported through employees in the industry (whether direct or indirect) that use their income to buy goods and services for private consumption
4.6 $324
Tourism Hotels, Restaurants, Cultural Institutions, etc. 35.0 $807Total 58.1 2,533
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Each new flight at an airport contributes to a country’s economic development
GLOBAL AND REGIONAL TRENDS IN AVIATION
Direct economic effects are the changes that occur in the local economy as a direct consequence of the operation of the new air service. • Business activity for tenants at the airport, visitor spending at off-airport businesses in the
tourism sector (e.g. hotels and restaurants), and increased business sales by local exporters
Indirect economic effects• Economic activity that occurs when on-airport and off-airport businesses that benefit from
the new air service purchase goods and services from other businesses in the area
Induced economic effects• Workers that are the direct beneficiaries of new air services re-spend their incomes
New flights aid development by expanding business sales for local companies, supporting jobs and income for residents and contributing incremental tax revenues
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The link between GDP growth and air transport can also be seen in the eastward shift of the World’s economic and aviation centres of gravity
GLOBAL AND REGIONAL TRENDS IN AVIATION
Source: Air Transport Action Group, "Aviation Benefits Beyond Borders, April 2014 Report"
Economic activityAir traffic
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LINKS BETWEEN AIR TRANSPORT AND TOURISM
SECTION 2
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Air transport and tourism are inextricably linkedLINKS BETWEEN AIR TRANSPORT AND TOURISM
An increase in one often accompanies an increase in the other
Increased air links allow tourists to more readily access a destination
Demand by tourists to arrive at a destination leads to enhanced air service
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A tourist must make many decisions that can be swayed by the offerings of a particular destination or country
LINKS BETWEEN AIR TRANSPORT AND TOURISM
Office vs. Vacation Vacation Type Vacation Destination
Carrier/HotelTravel Mode
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Previous studies have examined the relationship between air transport and tourism
LINKS BETWEEN AIR TRANSPORT AND TOURISM
Links between aviation and tourism are tangible, but countries often pay greater attention to promoting tourism, due to its direct and highly visible impact upon the local economy
Limitations upon air transport (regulatory or otherwise) often create a negative externality: A limitation on tourism growth
Countries can effectively increase tourism levels by making changes within the local air transport industry
The drivers of airline profitability may not align with optimal tourism economics
As a country develops, environmental impacts of air transport become more visible and must be considered when making policy
This study aims to expand previous
research to OIC countries
and make practical recommendations
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The growth of global tourism continued its momentum in 2013, achieving a new record of 1.1 billion international tourist arrivals
LINKS BETWEEN AIR TRANSPORT AND TOURISM
Source: United Nations World Tourism Organization
0
200
400
600
800
1,000
1,200
95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Millions
Worldwide International Tourist Arrivals1995-2013
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Annual Tourist Arrivals and Weekly Seats, 2012LINKS BETWEEN AIR TRANSPORT AND TOURISM
Source: SESRIC, OAG Schedules
200
400
600
800
1,000
1,200
10,000
20,000
30,000
40,000
Turk
ey
Mal
aysi
a
Uni
ted
Ara
b Em
irate
s
Saud
i Ara
bia
Egyp
t
Mor
occo
Indo
nesi
a
Tuni
sia
Kuw
ait
Kaz
akhs
tan
Nig
eria
Jord
an Iran
Alb
ania
Alg
eria
Aze
rbai
jan
Qat
ar
Kyr
gyzs
tan
Moz
ambi
que
Transit Hub
Transit HubLCC Effect
Annual Tourist Arrivals and Weekly Seats, 2012Weekly Seats
(000s)Tourist Arrivals
(000s)
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Evolution of a Tourist DestinationLINKS BETWEEN AIR TRANSPORT AND TOURISM
Source: Richard W Butler (1980), ‘The Concept of a Tourism Area Cycle of Evolution: Implications for the Management of Resources’.Canadian Geographer
Decline
Rejuvenation
Stagnation
Consolidation
Development
Involvement
Exploration
Critical Range ofElements of Capacity
Decline
Rejuvenation
Stagnation
Consolidation
Development
Involvement
Exploration
Critical Range ofElements of Capacity
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Location of Typical Tourist Destinations on the Lifecycle Curve
LINKS BETWEEN AIR TRANSPORT AND TOURISM
Note: Prepared for illustrative purposes onlySource: ICAO, ACI
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SITUATION OVERVIEW IN MEMBER COUNTRIES
SECTION 3
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OIC member countries have been grouped into three groups based on the offering of the tourism sector
SITUATION OVERVIEW IN MEMBER COUNTRIES
Countries with ‘established’ tourism sectors have significant tourism infrastructure and active marketing campaigns
Countries with ‘emergent’ tourism sectors have begun to develop tourism as an industry, but it is currently less than 10% of GDP
Countries with ‘future’ tourism sectors are those with underdeveloped tourism markets often due to political transition
Established Emergent Future
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These countries can also be categorized in terms of the type of tourism on offer
SITUATION OVERVIEW IN MEMBER COUNTRIES
Beach
Rest & Relaxation (R&R)
Ecotourism
Religious
Business
Medical
Cultural
Visiting Friends and Relatives (VFR)
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The OIC’s combined traffic is in excess of 600m psgrs.SITUATION OVERVIEW IN MEMBER COUNTRIES
The Established group has increased significantly over the past 20 years as the number of airlines increase as barriers to entry are lowered
The Emergent and Future groups have seen growth with a significant increase in 2007 in the emergent countries led primarily by the resuming of services in Iraq
It is far more difficult to track the growth of Future and to a lesser point Emergent tourism markets as many do not report annual passenger figures
Source: ACI
Evolution of Passenger Traffic
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In terms of aviation capacity the best used metric is departing/arriving seats from a country.
SITUATION OVERVIEW IN MEMBER COUNTRIES
The importance of home carrier growth is best highlighted by the Established group’s strong growth driven by the Middle East carriers in 2006
For Emergent and Future markets, growth has been limited by foreign carriers who drive the majority of traffic outbound into their home markets
Source: OAG
Evolution of COMCEC Air Transport Capacity
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Prior to 2008, fares were increasingly in tandem with rising demand – When the Recession hit, fares fell by 11% in an effort to maintain demand
SITUATION OVERVIEW IN MEMBER COUNTRIES
Source: ICF SH&E Analysis, IATA
Future markets saw significant cost cuts in average fares post 2008 largely due to the withdrawal of the more expensive long haul routes operated by foreign carriers
Average fares in future countries have historically been around $100 more than those in the Established and Emergent groups
Airfares vs. Passengers
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Ten country-pairs accounted for 11.7% of the OIC’stotal passengers as of 602.6m, including both tourism and non-tourism travel
SITUATION OVERVIEW IN MEMBER COUNTRIES
Source: ICF SH&E Analysis, IATA
Passenger traffic between Indonesia & Malaysia has grown swiftly in recent years due to the emergence of several LCCs, which have stimulated traffic
Top COMCEC Country Pairs by Passenger Traffic
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Historical growth of passenger traffic between OIC member states and non-OIC member states.
SITUATION OVERVIEW IN MEMBER COUNTRIES
Note: ‘Extra-COMCEC’ refers to travel between COMCEC and non-COMCEC countries.Source: ICF SH&E Analysis, IATA
Passenger traffic in Established markets has increased two-fold since 2006 and was the least affected group by the 2008 global recession
Passenger traffic in Emergent markets has grown 150% since 2006
Future tourism states have more than doubled passenger traffic since 2006
Evolution of Extra-COMCEC Passenger Traffic
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Strong linkages exist between seat capacity within a country and the number of inbound tourists
SITUATION OVERVIEW IN MEMBER COUNTRIES
Source: ICF SH&E Analysis, OAG, UNWTO
The trend line indicates whether a country is attracting the expected level of tourists based on its aviation sector
Countries which are above the line are underperforming in the level of tourists they are attracting
Those who are beneath the line are showing a strong tourism sector reliant on an adequate aviation industry
Seat Capacity vs. Inbound Tourism
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Tourism Arrivals – InternationalSITUATION OVERVIEW IN MEMBER COUNTRIES
Source: ICF SH&E Analysis, SESRIC
Since the late 1990s the established market has greatly increased its global market share
Emergent markets have seen slightly faster growth than Established markets, but albeit from a much lower baseline
The Future markets should begin to recover as national carriers start to increase capacity
Evolution of International Tourist Arrivals in OIC Member States (2012)
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Tourism InfrastructureSITUATION OVERVIEW IN MEMBER COUNTRIES
Source: UNTWO
There is generally a close correlation between the growth in hotel stocks and the growth in tourist arrivals
Over the past five years the number of hotel beds per 1000 people has increased with jumps in 2009 and 2011
As hotel infrastructure takes a period of years to complete it is very rare to witness a smooth and gradual increase over time
Hotel Beds per 1000 people for OIC Member States
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For OIC member states the vast majority of inbound visitors come from three key markets; Europe, East Asia and the Americas
SITUATION OVERVIEW IN MEMBER COUNTRIES
Source: UNWTO, ICF SH&E
The European market is by far the largest for international tourism throughout OIC member states
East Asia, in particular China and Singapore, is the fastest growing market
Tourist Arrivals to COMCEC by World Region
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For Established markets, the vast majority of international tourists arrive via air transport with land transport, road or rail, providing less than 20% of the total arriving tourists
SITUATION OVERVIEW IN MEMBER COUNTRIES
The disadvantage of land travel is that a nation limits its catchment to the surrounding nations who could share a very similar climate and geography which obviously limits the appeal to local tourists
Air transport provides a truly global catchment zone for a nation’s tourism sector as aircraft are able to pass over all types of terrain and into major hub airports which multiply the demand for a particular route as individual demand is combined
Methods of Transportation – Established Tourism Group
Source: UNTWO
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Future tourism nations attract far fewer tourists via air than their Established and Emergent counterparts which leaves them missing the previously discussed benefits.
SITUATION OVERVIEW IN MEMBER COUNTRIES
As a country develops and markets air services it increases its ability to attract higher yielding foreign passengers who will spend more while they are visiting a country
While land is chosen by 45% of arrivals in Future tourism countries it does not indicate a strong preference for land travel but rather indicates a lack of variety and selection from the air transport sector
Methods of Transportation – Future Tourism Group
Source: UNTWO
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