Global Airlines - PowerPoint PPT Presentation

Loading...

PPT – Global Airlines PowerPoint presentation | free to view - id: 7845f8-ZTlhN



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Global Airlines

Description:

Global Airlines James Bolegoh Mauro Horie Richard Konings Zhe Liu Robbie Lydon Agenda Introduction Southwest airlines Singapore airlines Airline Products Provides ... – PowerPoint PPT presentation

Number of Views:106
Avg rating:3.0/5.0
Slides: 83
Provided by: Richa577
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Global Airlines


1
Global Airlines
  • James Bolegoh
  • Mauro Horie
  • Richard Konings
  • Zhe Liu
  • Robbie Lydon

2
Agenda
  • Introduction
  • Southwest airlines
  • Singapore airlines

3
Airline Products
  • Provides fast passenger transportation, both
    nationally and internationally
  • Freight can also be transported quickly
  • Substitutes
  • Car or bus
  • Train
  • Boat

4
Industry Characteristics
  • Cyclical in nature, with over expansion during
    upturns, and large cutbacks during downturns
  • Only marginally profitable
  • A special case due to
  • Defense
  • Economic
  • Flag

5
Revenue Structure
  • The two main sources of revenue for Airlines are
    from
  • Passenger fares
  • Cargo

6
Cost Structure
DIRECT OPERATING COST (DOC)
Flight Crew 7.1
Fuel and Oil 12.1
Landing Fees and En-Route Charges 8.8 28.0
Maintenance 10.4
Depreciation/Rentals/Insurance 13.2
Total DOC 51.6

INDIRECT OPERATING COST (IOC)
Station and Ground 11.7
Passenger Services
Cabin Attendants 7.2
Other PAX Services 6.7 13.9
Ticketing, Sales and Promotion 16.6
General and Administrative 6.1
Total IOC 48.4
7
World Airline Profits 1992-2002
8
Adverse Industry Effects
  • 9/11, SARS, and Iraq war
  • The industry was already entering a down period
    prior to this catastrophic event
  • Increasing fuel costs began late 2000
  • Huge losses and layoffs were announced shortly
    afterwards
  • Large decline in the number of passengers

9
Industry Outlook
  • Recovery from industry shocks
  • Expansion into developing markets
  • Increased use of Alliances

10
Strategic Alliances
  • Sharing of resources
  • Seamless global network
  • Competitive advantage

11
International Air Transport Association Market
Share
12
Regulatory Environment
  • Two key organizations that affect the
    international airlines are
  • International Civil Aviation Organization
  • Composed of representatives from member countries
  • International Air Transport Association
  • Comprised of International Airlines

13
US Regulatory Impact
  • Airline Deregulation Act (1978)
  • To encourage a competitive air transportation
    system
  • International Air Transport Competition Act
    (1979)
  • 3 goals
  • Open Skies Agreements

14
Airline Risk Factors
  • Financial risk
  • Variability of revenue and costs
  • Strategic risk
  • Business design choices
  • Operational risk
  • Tactical aspects of running the business
  • Hazard risk
  • Safety of physical assets

15
(No Transcript)
16
What Risks are Hedged?
  • Fuel Costs
  • Foreign Exchange Risk
  • Interest Rates
  • Credit Card Guarantees

17
Southwest Airlines
18
Section Overview
  • Company background
  • Major risks and risk management
  • Stock options

19
Company Background
  • Founded in 1971 with flights between Dallas,
    Houston and San Antonio
  • Has become the forth largest major airline in the
    United States in terms of revenues as of Dec.2002
  • Has been the number one carrier in terms of
    domestic boardings in the U.S. since May 2003
  • Transports more than 64 million passengers per
    year to more than 58 cities in 30 states

20
Southwest Route Map
21
Fact Sheet
  • Daily Departures 2,800 flights per day
  • Employees 33,000 throughout the system
  • Common Stock Traded under the symbol LUV at NYSE
  • 2003 Financial Statistics
  • Net Income 442 million
  • Total Passengers Carried 65.7 million
  • Total RPMs 47.9 million
  • Total Operating Revenue 5.9 billion
  • Passenger Load Factor 66.8

22
Company Fleet Profile
  • Southwest operated 388 Boeing 737 Jets (as of
    Dec, 2003)
  • Company fleet has an average age of 9.5 years

Type Number Seats
737-200 23 122
737-300 194 137
737-500 25 122
737-700 146 137
23
LUV Financial Position
2003 2002 Change
Operating Revenues (in millions) 5,937 5,522 7.5
Operating Expenses (in millions) 5,454 5,104 6.9
Operating Income (in millions) 483 418 15.6
Operating Margin 8.1 7.6 0.5pts
Net Income (in millions) 442 241 83.4
Net Margin 7.4 4.4 3.0pts
Net Income per Share (basic) 0.56 0.31 80.6
Net Income per Share (diluted) 0.54 0.30 80.0
Stockholders Equity 5,052 4,422 14.2
Return on Equity 8.7 5.7 3.0pts
24
LUV Financial Position
2003 2002 Change
Revenue Passengers Carried 65,673,945 63,045,988 4.2
Revenue Passengers Miles (RPMs) (000s) 47,943,066 45,391,903 5.6
Available Seat Miles (ASMs) (000s) 71,790,425 68,886,546 4.2
Passenger Load Factor 66.8 65.9 0.9pts
Passenger Revenue Yield per RPM 11.97 11.77 1.7
Operating Revenue Yield per ASM 8.27 8.02 3.1
Operating Expenses per ASM 7.60 7.41 2.6
Size of Fleet at Yearend 388 375 3.5
Number of Employees at Yearend 32,847 33,705 (2.5)
25
5-Year Stock Price Evolution
9/11
SARS
26
Revenue Source
(In Millions) Years Ended December 31 Years Ended December 31 Years Ended December 31
2003 2002 2001
Passenger 5,741 5,341 5,379
Freight 94 85 91
Other 102 96 85
Total 5,937 5,522 5,555
27
Growth
  • For the five years ended 2001, the average annual
    capacity growth was 10
  • 2002 - over 5
  • After 2002, the estimated annualized growth rate
    over the next 10 years is roughly 8

28
Cost Structure
  • Interest expenses 1.7
    2.1 1.4

29
Major Types of Risk
  • Market risk
  • Fuel price risk
  • Financial market risk
  • Interest rate risk
  • Credit risk
  • Liquidity and financing risk

30
Fuel Price Risk
  • Fuel price risk
  • Estimated 1.2B gallons of jet fuel for 2004. A
    change of 0.01 in fuel prices would impact fuel
    expenses by 12M
  • Makes cash flow and earnings unpredictable
  • Southwest solution - fuel hedging
  • Not for trading purposes
  • Effective commodities - crude oil and heating oil
  • Short-term and long-term
  • Mixture of call options, collar structures, and
    fixed price swap agreements
  • Hedged 80 of 2004 fuel requirement, 60 of 2005,
    and portions of 2006-2007 as of Dec. 31, 2003

31
Fuel Price Risk
  • Fuel hedging results
  • Recognized gains of 171M in fuel expense (Table
    1) and unrealized gains of 123M, net of tax
  • A net asset of 251M at the end of 2003 (Table 2)
  • Sensitivity analysis 10 change in commodity
    prices would change fair value of derivative
    instruments by approximately 125M and more or
    less than 125M of changes in cash flows (as of
    Dec. 31, 2003)

32
Fuel Price Risk
  • Fuel hedging results - Table 1

In Millions 2003 2002 2001
Gains in fuel expense 171 44.5 79.9
Total fuel expense 830 762 771
33
Fuel Price Risk
  • Fuel hedging results - Table 2

34
Financial Market Risk
  • Financial market risk
  • Interest Rate Risk
  • Credit Risk
  • Liquidity and Financing Risk
  • Southwest strategy
  • Capitalize conservatively
  • Grow capacity steadily and profitably
  • Strong B/S and modest financial leverage
  • High credit rating - A with SPs rating
    Baa1 with Moodys rating on senior unsecured
    fixed-rate debt

35
Interest Rate Risk
  • Debt
  • Short-term investment
  • Leasing

36
Interest Rate Risk
  • Interest rate risk (debt)
  • Changes in interest rate affect I/S and cash
    flow may result in insolvency and bankruptcy
  • Southwest solution
  • Low debt strategy
  • Total debt - 1.55B low D/E ratio0.30
    (AMR12.86, DAL16.33, JBLU1.65)
  • Market sensitive instruments
  • Fixed rates and modest financial leverage (475M)
  • Interest rate swaps (760M)
  • Prepayment, redemption or termination for
    floating-rate debt (222M)

37
Interest Rate Risk
  • Interest rate swap agreements (2003)
  • Agreement 1 pay LIBOR a margin every 6 month
    and receive 6.5 every 6 month on 385M senior
    unsecured notes due Mar-2012
  • Agreement 2 pay LIBOR a margin every 6 month
    and receive 5.496 every 6 month on 375M, 5.496
    pass-through certificates due Nov-2006

38
Interest Rate Risk
  • Interest rate risk (short-term investment)
  • Total cash and cash equivalents of 1.87B as of
    Dec. 31, 2003
  • Parallel closely with floating interest rates
  • Affects earnings and cash flow
  • Southwest solution
  • Invests in certificates of deposit, highly rated
    money markets, and investment grade commercial
    paper
  • No additional actions to cover interest rate
    market risk and other material market interest
    rate risk management activities

39
Interest Rate Risk
  • Interest rate risk (leasing)
  • Total PV of leasing payments (2004 after)
  • Capital leasing - 91M
  • Operating leasing - 2.5B
  • Aircraft leases can be renewed at the end of the
    lease term for one to five years
  • However, leases are not considered market
    sensitive financial instruments and not included
    in the interest rate sensitivity analysis

40
Interest Rate Risk
  • Results
  • No significant exposure to changing interest
    rates on fixed-rate debt
  • A liability of 18M - interest rate swap
  • Sensitivity analysis 10 percent change would
    affect net earnings and cash flows by less than
    1M (floating-rate debt, invested cash, and
    short-term investments)
  • An increase in rates has a net positive effect

41
Credit Risk
  • Credit risk
  • Nonperfomance by the counterparties associated
    with outstanding financial derivative instruments
  • Results in credit loss
  • Southwest solution
  • Selects and periodically reviews counterparties
    based on credit ratings
  • Limits the exposure to a single counterparty
  • Monitors the market position
  • Agreements with seven counterparties (early
    termination rights, bilateral collateral
    provisions, security requirements)
  • Results
  • No counterparties fail to meet their obligations

42
Liquidity and Financing Risk
  • Liquidity and financing risk
  • Agreements with financial institutions (credit
    card transactions)
  • Credit facility
  • Outstanding debt agreements
  • May reduce the availability of cash or increase
    the costs to keep the agreements
  • Southwest responsibility
  • Maintaining minimum credit ratings
  • Maintaining minimum assets fair values
  • Achieving minimum covenant ratios for available
    or outstanding debt agreements
  • Results
  • The company met or exceeded the minimum standards
    set forth in the agreements

43
Risk Management Governance
  • No specific committee or RMO for Southwests risk
    management.

44
Other Potential Risks and Uncertainties
  • War risk
  • Competitive factors
  • General economic conditions
  • Factors to control costs
  • Operational disruptions

45
Stock Options
  • Stock-Based Employee Compensation covers
  • Majority of employee groups
  • Board of directors
  • Plans related to certain contracts with certain
    executive officers of the company

46
Stock Options
  • Two classes of employee stock plans
  • Collective bargaining plans
  • Subjective to collective bargaining agreements
  • Granted at or above pair value
  • Normally have terms ranging from 6 to 12 years
  • No executive nor member of the Board of Directors
    are eligible to participate in this plan
  • Not required to be approved by Shareholders

47
Stock Options
  • Other employee plans
  • Not subjective to collective bargaining
    agreements
  • Granted at fair market value
  • Have 10-year terms and become fully exercisable
    after three, five or ten years
  • Need to be approved by shareholders

48
Stock Options
Options Outstanding Options Outstanding Options Exercisable Options Exercisable
Range of Exercise Prices Options outstanding at 12/31/02 (000s) Weighted average exercise price Options exercisable at 12/31/02 9000s) Weighted average exercise price
3.30 to 4.99 50,811 4.05 38,717 4.01
5.11 to 7.41 3,341 5.85 2,586 5.91
7.86 to 11.73 14,247 9.84 6,548 9.94
12.11 to 18.07 61,369 13.85 14,738 14.01
18.26 to 23.94 8,404 19.65 3,068 19.91
3.30 to 23.94 138,172 9.99 65,657 7.67
49
Stock Options
Options Outstanding Options Outstanding Options Exercisable Options Exercisable
Option Plan Options outstanding at 12/31/02 (000s) Weighted average exercise price Options exercisable at 12/31/02 (000s) Weighted average exercise price
Collective Bargaining Plans 104,020 9.51 52,733 6.77
Other Employee Plans 34,152 11.47 12,924 11.33
3.30 to 23.94 138,172 9.99 65,657 7.67
Shares Outstanding 790 million Stock Price
14.33
50
Singapore Airlines
51
Section Overview
  • Background
  • Financials
  • Risks
  • Stock options

52
SIA Facts
  • Founded in 1972
  • SIAs passenger network covers 60 cities in 33
    countries
  • Singapore Airlines Cargo offers a network linking
    68 cities in 36 countries, making it the 2nd
    largest international cargo airline
  • Average number of employees 14,418
  • Passengers carried 15,326,000

53
The Group
  • Subsidiaries and Associated Companies
  • Singapore Airlines Cargo
  • SIA Engineering Company (SIAEC)
  • Singapore Airport Terminal Services (SATS)
  • SilkAir
  • Singapore Flying College
  • Singapore Aircraft Leasing Enterprise (SALE)

54
Awards and Accolades
  • Forbes
  • Made the worlds best companies ranking
  • Top 10 travel and transport companies
  • Fortune
  • Ranked 21st in worlds most admired companies
  • Most admired airline

55
(No Transcript)
56
Group Fleet Profile
Group Fleet Profile Owned Leased Total in use On order On option
Aircraft operated by SIA 78 18 96 31 51
Aircraft operated by SIA Cargo 9 3 12 5 9
Aircraft operated by SilkAir 8 1 9 7 2
Group Total 95 22 117 43 62
57
Average Fleet Age
58
Revenue Composition
59
Cost Structure
The Group The Group
2002-03 2001-02
EXPENDITURE
Staff costs 22.9 21.0
Fuel costs 19.0 20.9
Depreciation 11.1 11.5
Provision for impairment of fixed assets 0.4 0.0
Aircraft maintenance and overhaul costs 8.0 6.6
Commission and incentives 6.9 6.9
Landing, parking and overflying charges 5.9 6.3
Handling charges 5.3 6.5
Rentals on lease of aircraft 3.7 3.7
Material costs 3.2 3.7
Inflight meals 2.2 2.6
Advertising and sales costs 2.1 2.3
Insurance expenses 1.8 1.2
Company accommodation and utilities 1.4 1.7
Other passenger costs 1.3 1.4
Crew expenses 1.0 1.2
Other operating expenses 3.7 2.6
60
Passenger and Cargo Carried
61
Company Revenue and Expenditure
62
5-Year Stock Price Evolution
SIAL.SI
SARS
9/11
63
Major Shareholders
  Major Shareholders Number of shares
1) Temasek Holdings (Private) Limited 691,451,172 56.76
2) Raffles Nominees Pte Ltd 138,233,298 11.35
3) DBS Nominees Pte Ltd 103,163,701 8.47
4) HSBC (Singapore) Nominees Pte Ltd 44,419,799 3.65
5) Citibank Nominees Singapore Pte Ltd 41,961,826 3.44
6) DB Nominees (S) Pte Ltd 24,130,937 1.98
7) United Overseas Bank Nominees Pte Ltd 21,890,687 1.8
8) Oversea-Chinese Bank Nominees Pte Ltd 6,917,092 0.57
9) Morgan Stanley Asia (Singapore) Securities Pte Ltd 6,661,881 0.55
10) Chang Shyh Jin 3,929,000 0.32
  Total 1,082,759,393 88.89
64
Financial Risk Management Objectives and Policies
  • Financial and commodity risk
  • Market risk
  • Jet fuel price risk
  • Foreign currency risk
  • Interest rate risk
  • Market price risk
  • Counterparty risk
  • Liquidity risk
  • Other possible risk

65
Market Risk
  • Jet fuel price risk
  • A change in price of US0.01 per American gallon
    of jet fuel affects the Groups annual fuel costs
    by US13.1 million
  • Jet fuel price risk management
  • Swaps and options contracts hedged up to 24
    months forward

66
Market Risk cont.
  • Foreign currency risk
  • Foreign currency 78.4 of total revenue
  • Largest exposures are from USD, UK Sterling
    Pound, Japanese Yen, Euro, Swiss Franc,
    Australian Dollar, New Zealand Dollar, Indian
    Rupee, Hong Kong Dollar, Taiwan Dollar, Chinese
    Yuan, Korean Won, Thai Baht and Malaysian Ringgit
    (surplus)
  • Exposure from USD (deficit) due to capital
    expenditure, leasing costs and fuel costs

67
Market Risk cont.
  • Foreign currency risk management
  • Matching policy, as far as possible, receipts and
    payments in each individual currency
  • Surpluses of convertible currencies are sold, as
    soon as practicable, for USD and SGD
  • Forward foreign currency contracts to hedge

68
Market Risk cont.
 Derivative Financial Instruments 2003 2002
Foreign currency contracts    
6 months or less 524.4 268.6
Over 6 months to 24 months 363.0 314.4
  887.4 583.0
Jet fuel swap/option contracts    
6 months or less 399.5 304.3
Over 6 months to 24 months 233.9 176.8
  633.4 481.1
(Losses)/gains not in FSs (33.4) 14.4
69
Market Risk cont.
  • Interest rate risk
  • Changes in interest rates impact interest income
    and expense from short-term deposits and other
    interest-bearing financial assets and liabilities

70
Market Risk cont.
  • Interest rate risk management
  • Interest-bearing financial liabilities with
    maturities above one year have predominantly
    fixed rates of interest
  • If this is not the case they are hedged by
    matching interest-bearing financial assets in
    which case interest rate swaps are used to
    convert interest income into the same floating
    interest rate basis as interest expense
  • Interest swap agreements are in place with
    notional amounts ranging from 50.8 million to
    70.2 million whereby SIA pays a fixed rate of
    interest and receives a variable rate linked to
    LIBOR

71
Market Risk cont.
  • Market price risk
  • Potential loss resulting from a decrease in
    market prices
  • The Group owned 454.6 million (down 1.5 from
    2002) in quoted equity and non-equity investments
  • Estimated market value of these investments was
    522.9 million

72
Counterparty Risk
  • Surplus funds invested in interest-bearing bank
    deposits and other high quality short-term liquid
    investments
  • Counterparty risks are managed by limiting
    aggregated exposure on all outstanding financial
    instruments to any individual counterparty,
    taking into account its credit rating
  • These exposures are regularly reviewed, and
    adjusted as necessary

73
Liquidity Risk
  • The Group had cash and short-term deposits of
    819.9 million (down 25 from 2002)
  • Available short-term credit facilities of 1,550
    million (down 8.8 from 2002)
  • These are expected to be sufficient to cover the
    cost of all firm aircraft deliveries due in the
    next financial year
  • Additional financing through structured leases,
    bank borrowings, or public market funding

74
Financial and Commodity Risk cont.
Derivative Financial Instruments Total carrying amount on Balance Sheet Total carrying amount on Balance Sheet Aggregate net fair value Aggregate net fair value
2003 2002 2003 2002
Financial assets        
Long-term investments 569.6 590.4 637.8 631.1
Short-term investments 148.3 34.2 148.4 37.4
Financial liabilities        
Notes payable 1,100.0 1,100.0 1,197.8 1,086.2
Derivative financial instruments        
Foreign currency contracts (31.1) (3.4)
Jet fuel swap contracts 9.2 17.6
Jet fuel options contracts (11.5) 0.2
No balance sheet carrying amounts are shown as
these are commitments as at year end.
75
Other Possible Risk
  • Risk management committees of the different
    subsidiaries and associated companies create the
    ability to react to unforeseen events such as
  • 9-11
  • SARS
  • Iraq war
  • Bali bombing

76
Risk Management Governance
SIA Board of Directors SIA Board of Directors SIA Board of Directors SIA Board of Directors SIA Board of Directors SIA Board of Directors
   
Board Audit and Risk Committee Board Audit and Risk Committee Board Audit and Risk Committee Board Audit and Risk Committee Board Audit and Risk Committee Board Audit and Risk Committee
   
SIA Group SIA Group SIA Group SIA Group SIA Group SIA Group
Risk Management Committee Risk Management Committee Risk Management Committee Risk Management Committee Risk Management Committee Risk Management Committee
                               
             
SIA SIA SIAEC SIAEC SATS Group SATS Group SATS Group SilkAir SilkAir SIA Cargo SIA Cargo Other Subsidiary Other Subsidiary
RMC RMC RMC RMC RMC RMC RMC RMC RMC RMC RMC RMC RMC
77
Stock Options
  • SIA Share Option Plan
  • Employee Share Option Scheme
  • 99.1 of options offered in 2002
  • Senior Executive Share Option Scheme
  • 0.9 of options offered in 2002

78
Stock Options cont.
  • All Stock Options
  • Terms no longer than 10 years
  • Price is determined by average 5 days prior to
    date of grant
  • Timing
  • Employee must wait 2 years to exercise
  • Senior Executive 1 year wait for access to 25,
    and an additional 25 per year thereafter

79
Stock Options cont.
Date of Grant Exercisable Period Balance (Dec 31. 03) Exercisable Price
March 28, 2000 March 28, 2001 March 27, 2010 13,126,430 15.34
July 3, 2000 July 3, 2001 July 2, 2010 11,868,350 16.65
July 2, 2001 July 2, 2002 July 1, 2011 13,173,990 11.96
July 1, 2002 July 1, 2003 June 30, 2012 13,658,152 12.82
Total Outstanding Average Price Total Outstanding Average Price 51,826,922 14.17
? 609,072,000 shares in the market
80
Stock Options cont.
  • SIA Subsidiaries Share Option Plan
  • SATS
  • 61,799,200 outstanding
  • ? 100,588,000 shares in the market
  • SIAEC
  • 60,301,000 outstanding
  • ? 100,444,000 shares in the market

81
Summary
  • Industry overview
  • Firm specific examples
  • Southwest Airlines
  • Singapore Airlines

82

?
?
?
?
?
?
?
?
?
?
?
?
?
?
  • Questions

?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
About PowerShow.com