Airline industry outlook remains fragile

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Jessie Jacobs
5 years ago
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1 Airline industry outlook remains fragile June To represent, lead and serve the airline industry

2 Airline industry outlook remains fragile Green shoots starting to appear Recovery faces strong headwinds Financial sustainability varies across industry Airlines are taking many steps to raise cash Revenue collapse likely to sustain losses

3 Hit by a synchronized very deep recession Source: Haver Manufacturing production levels S. Korea -24% US -16% Germany -23% Japan -36% Index to equal 100 in January

4 Business confidence has now turned up 65 Business confidence survey results US companies US companies (left scale) EU27 companies (right scale) EU27 companies Source: Haver

5 Key airline markets may have bottomed 10% 5% 0% -5% -10% -15% -20% International premium passenger numbers % change over year Air freight international FTKs -25% Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Source: IATA

6 Green shoots appearing 58 Purchasing Managers confidence survey and Air Freight Demand May-09 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 PMI Value (50 = No-Change) Source: IATA 8 4 % Growth, International FTKs International FTKs JP Morgan Output PMI (+ 2 months)

7 Airline industry outlook remains fragile Green shoots starting to appear Recovery faces strong headwinds Financial sustainability varies across industry Airlines are taking many steps to raise cash Revenue collapse likely to sustain losses

8 Fuel prices now edging higher Jan06 Apr06 Source: Platts, Bloomberg Jet Fuel and Crude Oil Price ($/barrel) Jet fuel price Crude oil price Jul06 Oct06 Jan07 Apr07 Jul07 Oct07 Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09 Oct09 End-May futures curve

9 Manufacturers need to cut inventories Air freight volumes and manufacturers inventory-sales ratio International FTKs Source: IATA, Haver inventory-sales ratio (right scale) International FTKs (left scale) inventory-sales ratio...

10 Households need to reduce debt Average house price $ Source: Haver Household indebtedness and house prices in the US Debt as % income (right scale) Average house price (left scale) % 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% Household debt as % income

11 Airline industry outlook remains fragile Green shoots starting to appear Recovery faces strong headwinds Financial sustainability varies across industry Airlines are taking many steps to raise cash Revenue collapse likely to sustain losses

12 Airline losses still growing in 2009 Q1 # Airlines In US $ Million Q Q1 2009* Operating Net post-tax Operating Net post-tax 21 North America 1,433 (377) 1,184 (592) 10 European airlines 123 (943) (1,998) (1,892) 11 Asia-Pacific airlines 529 (176) (998) (850) 8 Other Sample total 2,209 (1,405) (1,694) (3,270) *Jazeera Airways, Royal Jordanian operating profit not included Emirates, half year results included Source: IATA

13 Cash higher than before 2001 recession Cash and equivalents as % revenues 25% 20% 15% 10% 5% 0% Source: Airline reports Cash and equivalent as a % of major airline revenues European airlines N America airlines Asia Pacific airlines

14 70 But only the major airlines are secure End-2008 cash % revenues Largest-7 7 airlines in region Potential cash squeeze US Source: Airline reports AP EU

15 Airline industry outlook remains fragile Green shoots starting to appear Recovery faces strong headwinds Financial sustainability varies across industry Airlines are taking many steps to raise cash Revenue collapse likely to sustain losses

16 Cash has been raised on capital markets Capital market fund raising by airlines, $ billion $5.5bn Other Europe $ billion raised Asia Pacific US $0.3bn $1bn $3.3bn 0.0 Source: Haver Equity Debt Equity Debt

17 Cash has been raised by selling assets Number of jets Source: Airclaims 12 $0.5bn Sale and leaseback activity by region Jan-May $1bn Other Asia Pacific Europe North America 41 $1.5bn 43 $1bn

18 Capacity is being resized and reshaped 15% Growth in published scheduled ASKs 10% 5% 0% -5% -10% Within Asia-Pacific Global capacity % change over year Transatlantic -15% Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Source: SRS Analyser Within US

19 Fares are being cut significantly Fares and passenger yields on international markets Economy fares % change over year Premium fares Transatlantic yields Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Source: PaxIS

20 But economic weakness will dominate 8 GDP growth forecasts Source: EIU % change over year US Japan Europe ASPAC ex Japan Middle East Latin America World

21 Airline industry outlook remains fragile Green shoots starting to appear Recovery faces strong headwinds Financial sustainability varies across industry Airlines are taking many steps to raise cash Revenue collapse likely to sustain losses

22 Revenues set to fall 15% or $80 billion 20.0 Passenger RPKs and global airline revenue growth % change over year Source: IATA E 2009F Passenger RPKs Global airline revenues

23 Keeping losses up at $9 billion in 2009 Global commercial airline profitability Return on invested capital (left scale) % sales Source: IATA Net losses (right scale) E 2009F US$ billion

September 2010 Brian Pearce To represent, lead and serve the airline industry

September 2010 Brian Pearce To represent, lead and serve the airline industry Cycle turns up but risks and structural challenges remain September 2010 Brian Pearce www.iata.org/economics To represent, lead and serve the airline industry Confidence was still high in July survey Airline