CARGO E-CHARTBOOK Q4 2010

Transcription

1 CARGO E-CHARTBOOK Q4 1 KEY POINTS Whilst concerns over a possible double dip continue to recede, there are marked differences in the rates of economic growth both between as well as within regions, which will continue. Although the pattern of air freight this year has been different from the past, growth beyond previous peak levels is now evident and cargo revenue for 1 is forecast to be at least equal to the previous peak in. Whilst there are inevitably regional variations, overall yields, for now, continue to show improvement and although the introduction of new capacity will inevitably impact on yields, volumes will be the key driver of revenue. HEADLINES BY SECTION Economic Outlook (page ) Traffic Growth (page 3) Significant differences in the rates of economic growth between and within regions are likely to remain; the focus in Europe is on who next after Ireland s bail out ; In Asia inflation is emerging as a problem. There is a need to guard against statistical illusion after any period where there is a severe dislocation like, rates will slow after an initial dramatic recovery volumes are now reaching new highs. Demand Environment (page 4) Demand Drivers (page 5) The demand environment remains mixed and given the ending of re-stocking final demand will be the main driver of freight traffic. Given the importance of final demand the trends in consumer confidence perhaps become a little more important; despite monthly variations, confidence in the US has moved sideways and up in Europe. Revenue and Yields (page ) Costs (page 7) Overall, cargo yields increased over the quarter although there were regional variations most visible in the SE Asia to Europe segment, in part reflecting the capacity increases by airlines addressing that market. The oil price has moved above $5 a barrel but remains within a band of $-1 which OPEC is comfortable with; near term there may be seasonal influences on the oil price but nothing structural. Capacity (page ) Competition (page 9) Capacity is returning at a modest rate and the benefits clearly evident on yields; the dedicated freighter fleet broadly constant at aircraft with only a modest increase in twin aisle aircraft. But load factors starting to slide Ocean cargo volumes remain strong and whilst the Baltic index remains volatile actual container rates are now higher than they were in the corresponding months of 7; similarly so are air freight yields. Profitability (page 1) US cargo airline margins in Q 1 close to those of Q ;elsewhere Q3 data for our sample of airlines shows a sharp rebound; although less optimism about the future still more optimists than pessimists. IATA Economics 1

2 Economic Outlook Key Issue: Significant differences in the rates of economic growth between and within regions are likely to remain; the focus in Europe is on who next after Ireland s bail out ; In Asia inflation is emerging as a problem. Different issues need diffferent solutions Interest Rates Jul-7 Oct-7 Jan- Central Bank Interest Rates Source: ECB, FT, Haver, Bloomberg Apr- Jul- Oct- Jan-9 Apr-9 Jul-9 US Fed Funds Rate European CB Repo Rate Australia interest Rate Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 The continuing exceptionally low interest rate regimes in the US and Europe reflect the need to resuscitate private sector demand against a background of continuing weak consumer confidence and an unwillingness to take on debt. In wider Asia, inflation appears to becoming a greater problem and although the steps have been progressive Australian rates have moved up from a low point of 3% to 4.75% - still someway below the 7.5% of early A difficult balance to strike % of GDP Government fiscal stimulus Source: IMF,EC Greece Ireland Spain Portugal France US UK Germany The public sector finance problems in Ireland have focused attention on who might be in need of a bail out next. The changed role of governments between 7-1 and the 1-15 period is clearly evident moving from support to one where they are starting to re-build their balance sheets. These actions will mean that it is the private sector that becomes ever more important in providing the catalyst for growth Wide variations between regions % change over year Forecasts for GDP growth source: EIU US Japan Europe ASPAC ex Japan Middle East North Africa Latin America World Whilst the focus tends to be on the rates of change, it is unsurprising that when displayed in this way growth rates in 11 will be lower than in 1; a more revealing way is to look at when the economies will be larger than they were before the downturn and this way it is easier to see the transition from recovery to new growth. For most economies in Europe the crossover is unlikely to be reached until 11 and 1 this compares with the experience in Asia where it is growth and not recovery that is evident. IATA Economics:

3 Traffic Growth There is a need to guard against statistical illusion after any period where there is a severe dislocation like, rates will slow after an initial dramatic recovery volumes are now reaching new highs. A need to look at volumes and not just rates of change % Change May-5 Aug-5 Freight Traffic Growth Source: IATA, ACI Domestic Freight Volumes (ACI) International Freight Volumes (ACI) International FTKs (IATA) Nov-5 Feb- May- Aug- Nov- Feb-7 May-7 Aug-7 Nov-7 Feb- May- Aug- Nov- Feb-9 May-9 Aug-9 Nov-9 Feb-1 May-1 Aug-1 After the recovery now trending to more normal rates YoY Growth % 5% 4% 3% % 1% % -1% -% -3% -4% International Freight growth by major routes Source: IATA ODS Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 Aug-9 Within Far East Europe - Far East Sep-9 Oct-9 Nov-9 Dec-9 North Atlantic Increasing share carried by freighters FTK Billion Air Freight Carried by freighter or Belly Hold (Airline Sample) Source: IATA Freighters (left scale) Belly Hold (right scale) North and Mid Pacific Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul Aug-1 Sep FTK Billion The first month where positive growth was reported was in October 9 and since then some dramatic growth rates have been reported. In absolute terms (Non-seasonally adjusted) FTKs in October 1 were the highest ever monthly total; Looking at the underlying data and based on a 3 starting point, the volumes reported for 1, so far lie with a growth corridor which suggests that pre-downturn rates of increase have been re-established. The multi-speed recovery in the international freight market is clearly evident and the trend to more normal underlying rates is inevitable. Traffic however is not back to predownturn levels in all areas though, for example across the North Atlantic; Intra Southeast Asian freight traffic in Q3 1 is some 4% above Q3 7 levels. Until the start of the last quarter the recovery in freight was more or less shared in proportion between freighters and in the belly holds of passenger aircraft. Over the last three months, whilst there are some seasonal factors in evidence, the relative share carried by freighters has increased. The future delivery schedules suggest that almost by definition this pattern will reverse and that we will see the relative importance of belly hold space as a source of capacity increase. IATA Economics: 3

4 Demand Environment The demand environment remains mixed and given the ending of re-stocking final demand will be the main driver of freight traffic. Purchasing managers appear more optimistic again PMI Value (5 = No-Change) Jul-5 Oct-5 Jan- Purchasing Managers confidence survey and Air Freight Demand Source: IATA, JP Morgan International FTKs Final demand now the key JP Morgan Output PMI (+ months) Apr- Jul- Oct- Jan-7 Apr-7 Jul-7 Oct-7 Jan- Apr- Jul- Oct- Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Total Business inventories to sales ratio and FTKs Source: US Census Bureau and IATA Inventories to sales ratio FTKs Apr-1 Jul-1 Oct-1 Jan- Jan-1 Jan- Jan-3 Jan-4 Jan-5 Jan- Jan-7 Jan- Jan-9 Jan-1 Semiconductor demand continues to mirror cargo trends % Growth, Semi-Conductor Shipments Jun-3 Oct-3 Feb-4 Semi-Conductor Shipments and Air Freight Source: IATA, SIA International FTKs Semi-Conductor Shipments Jun-4 Oct-4 Feb-5 Jun-5 Oct-5 Feb- Jun- Oct- Feb-7 Jun-7 Oct-7 Feb- Jun- Oct- Feb-9 Jun-9 Oct-9 Feb-1 Jun-1 Oct % Growth, International FTKs % growth - International FTKs Although there was a decline in the optimism of purchasing managers across the summer months, the latest data for October shows a meaningful increase whilst we will need to wait for more data to see if it marks the start of a new trend it should give further comfort that a double dip is considered unlikely. Historically the PMI survey has provided a short term leading indicator for freight trends and in this respect - other than the traditional seasonal strength of October and November - the key indicators remain positive. Although divergent trends in the inventory sales ratio (up) and FTKs (down) might suggest a reversal and the onset of a slowdown this is not the case and it appears to be more a reflection of a stabilisation in the inventory sales ratio. However it perhaps also acts to underline the fact that it will be final demand rather than inventory demand that will determine the rate of cargo growth into the future. The latest data provides yet more evidence that the demand for semiconductors mirrors the pattern of air freight, however rather than being a leading indicator it is, in a smoothed form, more of a coincident indicator. Notwithstanding this, demand forecasts for products that use semiconductors provide useful perspectives on the likely direction of air cargo and in the same way also act to underline the importance of final demand. IATA Economics: 4

5 Demand Drivers Given the importance of final demand the trends in consumer confidence perhaps become a little more important; despite monthly variations, confidence in the US has moved sideways and up in Europe. Whilst mixed there are signs of stability not getting worse where it matters Balance expecting improvement, index Consumer confidence Source: Haver Analytics Europe (right scale) China Jan-4 Jan-5 Jan- Jan-7 Jan- Jan-9 Jan-1 Mixed messages US Balance expecteting improvement, net % Although there has been a slight dip of late in consumer confidence in China, the underlying trend since the beginning of 9 has been upwards. The uncertainty amongst US consumers regarding the outlook is reflected in the volatility of the index; whilst the underlying trend remains upwards there are still more pessimists than optimists. Despite a dip in confidence in Europe this summer, this has been recovered and there is more stability. Attention will focus on what happens next re bail outs. Net balance intending to increase investment UK business (left scale) Capital spending intentions Source: Haver Analytics Japan business (right scale) Net balance intending to increase investment There has been a marked improvement in UK investment intentions the Bank of England survey with more than 5% of their survey respondents saying that they will invest at least 1% more in the next twelve months. Capital spending in Japan increased in Q3 but only by.% and is expected to be flat in Q4. -7 Q1-4 Q1-5 Q1- Q1-7 Q1- Q1-9 Q World trade recovery continues apace Billion FTKs International FTKs (left scale) World trade in goods and air FTKs Source: Netherlands CPB and IATA World goods trade volumes (right scale) index of world trade, =1 Whilst FTKs include a distance as well as a weight component, the total for October 1 was some 34% above the trough whereas over a similar period world trade volumes have increased by some 3%. Over the period since air freight growth became positive (October 9) the rate of increase in FTKs has exceeded that of World trade overall suggesting that the share of Air freight has continued to increase. IATA Economics: 5

6 Revenues and Yields Overall, cargo yields increased over the quarter although there were regional variations most visible in the SE Asia to Europe segment, in part reflecting the capacity increases by airlines addressing that market. Industry trend up but need to be aware of regional variation US$ per kilo Jan-7 Apr-7 SE Asia-Europe Air Freight Yields (US$ per kilo) Seasonally Adjusted Source: IATA CASS SE Asia-Europe (incl other charges) Global - LHS Global (incl other charges) - LHS Jul-7 Oct-7 Jan- Apr- Jul- Oct- Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Note: Other charges handling charges, dangerous good fees, special charges, fuel surcharges, security etc. Data prior to Jan 1 not available Revenues in 1 forecast to at least match the levels of Revenues (US$ billion) Cargo Revenues % Growth Global Airline Industry Cargo Revenues Source: ICAO, IATA 4% 3% % 1% % -1% -% % Growth US$ per kilo At a global level freight yields have continued to recover from the low point of 9 and seem to be stabilising slightly above previous peak levels. SE Asia Europe yields have fallen back from earlier highs and with the new data series we can isolate the movements in underlying yields from those in other charges; in the case of this route area the underlying rate per kilo fell by 45 cents and other charges by 5 cents. The latest forecast for cargo revenues for 1 has them recovering to the levels of the last peak in and in the order of $4bn. Looking ahead whilst yields might decline from current levels during 11, increased volumes will drive cargo revenues further ahead E 1F -3% Volatility and yet stability 3% 3% % 4% % 1% Value of Import and Export by Air as % of Total Source: US Census bureau Export Import Whilst the month to month trend continues to display considerable variation, it is perhaps more useful to look at the underlying trend. Over the last twelve months the value of imports carried by air has varied within a range between 5.% and.1% with an average of 3.5%; for exports the range has been between 3.7% and 9.7% with an average of 3.9%. Jan- Apr- Jul- Oct- Jan-7 Apr-7 Jul-7 Oct-7 Jan- Apr- Jul- Oct- Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 IATA Economics:

7 Costs The oil price has moved above $5 a barrel but remains within a band of $-1 which OPEC is comfortable with; near term there may be seasonal influences on the oil price but nothing structural. Seasonal rather than structural influences Jan3 May3 Jet Fuel and Crude Oil Price ($/barrel) Jet fuel price Sep3 Jan4 May4 Sep4 Jan5 May5 Sep5 Jan May Source: Platts, RBS Crude oil price (Brent) Swings in $ exchange rate clearly evident Jan3 May3 Jet Fuel Price Currency Comparison Sep3 Jan4 May4 Sep4 Jan5 May5 Sep5 Jan May Source: Platts, RBS per barrel Sep Jan7 May7 Sep7 Jan May Sep Jan9 May9 Sep9 Jan1 May1 Sep1 $ per barrel Sep Jan7 May7 Sep7 Jan May Sep Jan9 May9 Sep9 Jan1 May1 Sep1 The rise in the price of oil to back to the top of the range of the past year has more to do with seasonal factors and the heating season rather than anything more fundamental. The oil price remains around $/b and the latest indications are that there are unlikely to be any changes to quotas announced by OPEC at their meeting in early December. The margin between oil and fuel has remained broadly constant Whilst in the early part of the year the weakened against the $ from 1: $1.4 to $1.19 it then recovered to $1.4 at the end of October before weakening again due to concerns over the in the light of the financial problems in Ireland and concerns over similar issues in Spain and Portugal. In terms of the impact on the cost of fuel, the strengthening of the against the $ offset the price increase from the middle of the year. Despite a jobless recovery in the west wage pressures likely to build up % Growth y-o-y in nominal wages Nominal Wage Growth Source: Haver Analytics USA European Union China (RHS) Q1-1 Q3-1 Q1- Q3- Q1-3 Q3-3 Q1-4 Q3-4 Q1-5 Q3-5 Q1- Q3- Q1-7 Q3-7 Q1- Q3- Q1-9 Q3-9 Q1-1 Q % Growth y-o-y in nominal wages (China) Whilist in theory the jobless recovery underway in the west should act to relieve upward pressure on wages this is unlikely to be the case. In Europe concerns over declining real wages either as a result of inflation or increased taxation/reduced benefits may result in an upsurge of militancy and labour unrest and test the resolve of both managements and some governments too. IATA Economics: 7

8 Capacity Capacity is returning at a moderate pace and the benefits clearly evident on yields; the dedicated freighter fleet broadly constant at aircraft with only a modest increase in twin aisle aircraft. Cargo fleet stability - for now Number of aircraft Cargo fleet composition Source: IATA, Ascend Freighter fleet in service Widebody pax fleet in service Seasonally adjusted load factor Dec- Dec-1 Dec- Dec-3 Dec-4 Dec-5 Dec- Dec-7 Dec- Dec-9 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 End of year totals End of month New deliveries remain the major influence on the in-service fleet Aircraft per month Monthly Average 7 Aircraft Retirements and Deliveries Source: Ascend Deliveries Retirements Storage 9 Jun-9 Jul-9 Aug-9 Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 % 5% 5% 54% 5% 5% 4% 4% 44% 4% 4% Freight load factor Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Actual outcomes dependent on Boeing 77 deliveries Number of Aircraft Other Middle East Twin Aisle Aircraft Deliveries by Airline Region Source: Ascend North America Europe Asia Pacific For 1 the number of pure freighter aircraft in the fleet has remained in the order of ; over the same period the number of wide body passenger aircraft has increased by just 95 a reflection to a greater extent of the further delays of the Boeing 77 programme. Notwithstanding the increase in the wide body passenger fleet, as the data on page 3 shows, the volume of cargo carried in the belly holds has declined although we would expect this trend to reverse in 11. Load factors have started to slide since May peak. After a period where aircraft coming out of storage added almost as much capacity as new deliveries, the balance has swung in favour of new deliveries as a source of capacity. In October the in service fleet increased by a net 7 aircraft. A number of airlines have announced that they are planning to bring aircraft back out of storage although we think that we will not see the clearest evidence of this until Q1 11 On the current forecasts shown in the table there is expected to be a significant step up in delivery rates of twin aisle aircraft in 11; this however is somewhat dependent on the timing of the deliveries of the Boeing 77 which appears to have been delayed further. The biggest increase in deliveries for 11 is currently forecast for Asia Pacific, up from 1 to 135 in 11 and 13 in 1 and for Europe, up from 4 to 77 in 11 and 5 in 1. IATA Economics:

9 Competition Ocean cargo volumes remain strong and whilst the Baltic index remains volatile actual container rates are now higher than they were in the corresponding months of 7; similarly so are air freight yields. Volatility remains a key feature of the Baltic index Index Jan 195 = Baltic Dry Index Source: Bloomberg The sharp fall in the index in June raised concerns that growth might be slowing this was not the case, rather it was due to the effect of increasing capacity. Indeed the index has recovered almost half of the fall in June. The index which gives an indication of ship chartering costs is likely to remain volatile and indeed a better indication of the trends may be from the container rates and changes in volumes. Container rates now ahead of the corresponding months in 7 % change over year 1% % % 4% % % -% -4% Ocean container and air freight rate growth Source: Drewry, CASS -% Ocean container Air freight In this case it is probably more informative to look at the underlying data rather than the rates of change. In particular the main message is that container rates are now higher than in the corresponding months of 7 with the rate (calculated in the same way as air freight rates) for a 4 foot container in September is quoted as $3 compared with $77 in September 7 an increase of some.5%; air freight rates are some 3.3% up compared with September 7. Shipping volumes remain strongly up % Growth, Year-on-Year Container Shipping Volume Growth by Region Source: Drewry Aug-9 Jul-1 Aug-1 North America North Europe Far East Middle East Latin America The strength of the recovery in North America and the Far East is not only plain to see but dramatic too; The rate of growth evident since the start of the year remains more or less unchanged in the region of % Whilst the rate of growth in the key markets also appears to be relatively even this tends to disguise what is recovery and what is growth as the falls in North America and North Europe were greater than in other regions. IATA Economics: 9

10 Profitability US cargo airline margins in Q 1 close to those of Q ;elsewhere Q3 data for our sample of airlines shows a sharp rebound; although less optimism about the future still more optimists than pessimists. Cargo airline margins close to pre-downturn levels % of Revenues 1% 1% % % 4% % % -% -4% Q1 1 Q1 Q1 Profitability of US Cargo Only Airlines Source: US BTS Operating Profit Margin Net Profit Margin 3 Q1 4 Q1 5 Q1 Q1 7 Q1 Q1 9Q1 1Q1 The Q results for the US cargo airlines with an operating margin of 7.1% vs..5% show that in margin terms they have almost bounced back to pre-downturn levels. Whilst we await the Q3 results all of the evidence suggests that we should expect that they will show a continuation of the trends seen so far in 1. Fewer value destroyers in Q3 % of Airline Industry Revenues 5% % 15% 1% 5% % Less than %.% % to %.% % to 4% Airline Operating Profit Margin - Q3 1 (Passenger and Cargo) Source: Ascend Returns below the Cost of Capital.% 4% to % 9.1% 1.9% % to % % to 1% 1.% 1% to 1%.% 1% to 14% 5.5% 14% to 1% 1.4% Returns above the Cost of Capital 1% to 1% 4.3% More than % 9.7% The latest data for our sample of 5 airlines shows that % of them generated an operating margin in excess of % - the threshold at which an airline is considered to move from destroying to creating value. This is up from a third in Q It is however important to keep a sense of perspective; a quarter in isolation does not tell the whole story and the need is not only to replicate such results over a year but indeed across the cycle. Less optimistic but still more optimists than pessimists Weighted Score Mar Yields - next 1 months Jun Sep IATA survey of heads of cargo Volumes - next 1 months Jan 7 Apr 7 Jul 7 Oct 7 Jan Apr Jul Oct Jan 9 Apr 9 Jul 9 Oct 9 Jan 1 Apr 1 Jul 1 Oct 1 IATA s latest quarterly survey of heads of cargo showed a reduction in optimism compared with the last survey in July. Despite this there are still significantly more expecting both volumes and yields to increase than those who consider that volumes and yields will not increase. IATA Economics: 1

11 Air Freight Routes and Direction International Freight Volume Growth by Route Area (Source: IATA ODS statistics) Route Area % Growth in Freight Tonnes, year-on-year Apr 1 May 1 Jun 1 Jul 1 Aug 1 Sep 1 Africa - Middle East 1.7% 4.3% 1.3% 11.1% 7.5%.% Europe - Far East 15.% 3.3% 1.% 17.1% 1.9% 13.7% Europe - Middle East 3.5%.% 1.% 14.9% 14.% 14.% Within Far East 3.% 3.7% 5.3% 19.3% 1.7% 5.1% Within Middle East 1.% 1.% 3.5% 4.5%.5% 5.% Within South America 3.% 3.7% 3.1% 3.7% 4.% 14.% Mid Atlantic 15.% 4.% 43.4% 3.5% 35.1% 3.% Middle East - Far East 1.% 37.7%.4% 5.% 1.% 19.4% North Atlantic 1.% 7.% 1.%.% 1.1% 13.9% North America-Central America.9%.5% -1.% 14.% 41.3% 44.% Europe - Africa -.7% 4.7% -5.9% -.4% 4.4% -.% North America South America.% 7.4% 5.9% 11.% 15.%.% Far East - Southwest Pacific 1.1%.% 1.5% 3.3% 7.%.1% North and Mid Pacific 41.7% 3.4% 9.7% 3.%.4% 11.4% South Atlantic 37.% 4.5% 3.% 1.3% 15.% 11.% Within Europe -1.7%.% -1.1% -.3%.% 1.9% Outbound CASS Market Re venues (excl. fuel surcharges) Origin Region US$m % Growth in Air Freight Revenues, Year-on- Year Q3 1 Q 9 Q3 9 Q4 9 Q1 1 Q 1 Q3 1 Africa Caribbean Central America Europe Japan & Korea Middle East North America South America South East Asia South West Pacific Inbound CASS Market Revenues (excl. fuel surcharges) Destination Region US$m % Growth in Air Freight Revenues, year-on-year Q3 1 Q 9 Q3 9 Q4 9 Q1 1 Q 1 Q3 1 Africa Caribbean Central America Europe Japan & Korea Middle East North America South America South Asia South East Asia South West Pacific IATA Economics: 11

12 Glossary ACI: Airport Council International AFTK: Available Freight Tonne Kilometers European CB: European Central Bank EIU: Economist Intelligence Unit CASS: Cargo Accounts Settlement System FT: Financial Times FTK: Freight Tonne Kilometers PMI: Purchasing Managers Index Netherlands CPB: Netherlands Bureau for Economic Policy Analysis ODS: Origin-Destination Statistics SIA: Semiconductors Industry Association US BTS: US Bureau of Transportation Statistics M-o-m Month over month percentage change Y-o-y Year over year percentage change IATA Economics 13 December 1 IATA Economics: 1