Trends and Challenges for the Airline Industry Tim-Jasper Schaaf Director Marketing & Sales To represent, lead and serve the airline industry
The value proposition for air travel remains strong It s safer, it s greener and it s still a bargain Source: Constructed from worldwide data from ICAO and IATA IATA Economics www.iata.org/economics 2
The quality of air service has improved Even in the past 5 years the main facets of airline service have got better 2007 2008 2009 2010 2011 2012 2013 On-time arrival rate* European flights** 77.9% 78.3% 82.1% 75.8% 82.1% 83.4% 83.9% US domestic flights*** 73.4% 76.0% 79.5% 79.8% 79.6% 81.9% 78.8% Mishandled bags per 1000 passengers Worldwide^ 19 15 11 12 9 9 Cancelled flights European network airlines^^ 1.40% 1.38% 1.08% 3.43%^* 0.94% 1.00% 1.23% US domestic flights^^^ 2.16% 1.96% 1.39% 1.76% 1.91% 1.29% 1.42% * % flights arriving within 15 minutes scheduled time ** http://www.eurocontrol.int/articles/coda-publications *** http://airconsumer.ost.dot.gov/reports/; table 1A YTD December figures ^ SITA Baggage Report 2012 ^^ AEA ^^^ http://www.transtats.bts.gov/homedrillchart.asp; On time performance - Flight delays at a glance ^* Impacted by airspace closures due to Icelandic volcanic ash cloud IATA Economics www.iata.org/economics 3
Over $6 trillion of goods annually are now carried by air 35% of world trade is carried by air; a key enabler of globalization Source: ICAO, IATA, WTO. Value carried by air=world merchandize exports*35% (35% estimated by The Colography Group, 2005) IATA Economics www.iata.org/economics 4
Air connectivity has enabled global supply chains Dell, Apple, Amazon would look very different without rapid air freight Businesses can set up much more efficient global supply chains Dell manufacturing plant Austin, Texas Mexico Keyboards France Soundcards China Power supplies Japan RAM Chips CD-ROM Drives Taiwan Network Cards Monitors Cooling Fans Malaysia Floppy Drives Singapore SCSI Cards Disk Devices Hong Kong Video Cards Microprocessors Source: Dell, IATA IATA Economics www.iata.org/economics 5
Aviation plays a major role in most economies Footprint of aviation and tourism measured by the sector s GVA as % GDP Malta Lebanon Cyprus United Arab Emirates Iceland New Zealand Thailand Singapore Hong Kong Egypt Australia Greece Ireland Canada Jordan Spain United Kingdom United States Turkey Chile Finland Sweden France Kenya Malaysia Luxembourg WORLD AVERAGE Portugal Saudi Arabia South Africa Netherlands Belgium Israel Germany Taiwan Norway Switzerland Philippines Korea Latvia Mexico Peru Austria Ecuador Italy Colombia India Denmark Brazil Hungary Russian Federation China Romania Czech Republic Japan Poland Nigeria 0.0% 5.0% 10.0% 15.0% 20.0% Aviation and tourism GVA as a % GDP Source: Oxford Economics. http://www.benefitsofaviation.aero/pages/default.aspx Note: GVA = Gross Value Added which is mainly wages and profits. GDP = Gross Domestic Product IATA Economics www.iata.org/economics 6
Massive expansion ahead for emerging markets Expanding middle classes drive both travel and air cargo flows Serving this demand will require a big expansion of investment Global middle income class in 2009 and prediction for 2030 North America Europe Central & South America Middle East & North Africa Sub Saharan Africa Asia Pacific 100mn 500mn 1bn 2030 2009 Source: OECD, Standard Chartered Bank IATA Economics www.iata.org/economics 7
Periods of profit in the industry are typically short-lived Average 1990-2012 net profit margin for airlines worldwide was 0.0%! Source: ICAO, IATA IATA Economics www.iata.org/economics 8
Lack of profitability not due to business model or region Airlines generating average EBIT margins of more than 8% during the 2000s Average EBIT margins, 2000-09 INDUSTRY LAN Aegean Southwest Airlines Singapore Airlines Emirates Pinnacle Airlines Aeroflot Turkish Air Arabia GOL Allegiant COPA Republic Airways Ryanair LCC Full service long-haul Regional L America N America Mid East Asia-Pacific Europe 0% 5% 10% 15% 20% 25% EBIT margin %, 2000-2009 Source: IATA Vision2050 report http://www.iata.org/pressroom/facts_figures/documents/vision-2050.pdf IATA Economics www.iata.org/economics 9
Profitability is very unbalanced across the value chain Airlines sit in the middle of the value chain making the least returns ROIC excluding goodwill of sample, period 2004-2011, % 45 40 35 30 25 20 15 10 5 0 7 9 11 6 9 4 20 44 15 Cost of capital 9-11 9-11 7-9 6-8 6-8 7-10 10-11 8-11 7-8 Source: McKinsey IATA Economics www.iata.org/economics 10
Existing and proposed regulation risk significant cost A selection of regulations/policies illustrating industry and market-level costs % average ticket price 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Delhi LHR 2012-14 ACSA Airport regulation Budget deficits Policy risk impact Total cost for industry $1.5bn German tax Austrian tax Europe Passenger rights Climate change Climate fund levy EU ETS LHR congest -ion pricing CDG congest -ion pricing Congestion policy Source: IATA IATA Economics www.iata.org/economics 11
Demand for air travel and cargo diverge 480 460 Air travel and air freight volumes Seasonally adjusted Passenger RPKs 19 18 RPKs per month, billion 440 420 400 380 360 340 Freight FTKs 17 16 15 14 13 FTKs per month, billion 320 12 300 2007 2008 2009 2010 2011 2012 2013 Source: IATA 11 IATA Economics www.iata.org/economics 12
Revenue divergence greater than volumes 600 Passenger and cargo revenues 90 550 500 450 Passenger revenue 80 70 US$ billion 400 350 60 50 US$ billion 300 250 200 Cargo revenue 40 30 150 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013F Source: ICAO (history), IATA (forecast) 20 IATA Economics www.iata.org/economics 13
Cargo asset utilization under pressure Average daily hours flown 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 Freight load factor and freighter aircraft utilization (Seasonally adjusted) Freight aircraft utilization Freight Load Factor 53% 51% 49% 47% 45% 43% 41% 39% 37% % available freight tonne capacity Source: IATA, Boeing IATA Economics www.iata.org/economics 14
Asset utilization high in passenger business 11.8 Passenger aircraft utilization 81% 11.6 Passenger load factor 80% Average daily hours flown 11.4 11.2 11.0 10.8 10.6 Twin-aisle aircraft utilization 79% 78% 77% 76% 75% % of ASKs 10.4 74% 10.2 2007 2008 2009 2010 2011 2012 2013 73% IATA Economics www.iata.org/economics 15
Ancillary services increasingly important 190 180 170 160 150 140 Revenue per departing passenger Fare 40 30 20 10 Cargo + other Ancillaries 0 2000 2002 2004 2006 2008 2010 2012 2014 Source: Ancillaries derived from IdeaWorks 2013 report, IATA forecast IATA Economics www.iata.org/economics 16
World economy is finally turning up Year-on-year % change 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% 2007 2008 2009 2010 2011 2012 2013 Source: Netherlands CPB, Markit World trade growth Industrial production growth Business confidence (right scale) 70 65 60 55 50 45 40 35 30 Confidence index, 50 equal no change IATA Economics www.iata.org/economics 17
Jet fuel price to slide to low end of range Jet kerosene and crude oil price, $/barrel 200 180 160 140 120 100 Jet kerosene price $140/b $110/b 80 Brent crude oil price 60 40 20 0 2008 2009 2010 2011 2012 2013 2014 Source: RBS, Platts, IATA IATA Economics www.iata.org/economics 18
Industry profitability almost as good as 2010 6.0 Global commercial airline profitability 25 3.0 EBIT margin (left scale) 15 5 % revenues 0.0-3.0 Net post-tax profit (right scale) -5-15 US$ billion -6.0-25 -9.0-35 Source: ICAO, IATA IATA Economics www.iata.org/economics 19
Better but divergent regional performance Airline net post-tax profit margins 8% 6% 4% 2% 0% N America Asia- Pacific Europe -2% -4% -6% 2007 2008 2009 2010 2011 2012 2013F 2014F Source: ICAO, IATA IATA Economics www.iata.org/economics 20
IATA Business Intelligence data shows opportunities China-ATH has PDEW of 113. Currently there is no direct flight. People connect through SVO, IST, DXB, AUH,DOH, FRA 1,85% 1,79% 2,68% DOH 9,19% IST 2,79% SVO AUH 5,80% DXB 8,38% FRA CDG 6,66% PEK 8,08% MUC
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