Outlook for air travel markets June 2016 Brian Pearce Chief Economist International Air Transport Association
Extended period of strong air travel market growth 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Growth in worldwide RPKs Source: IATA Monthly Statistics 7 years 1995 2000 2005 2010 2015 20 year average www.iata.org/economics 2
But a very mixed picture across travel markets today RPK growth by int'l route and dom. market (YTD, % year-on-year, up to March, segment-based) 28% 24% Domestic India 20% 16% 12% 8% 4% 0% -4% -8% Middle East - N America Africa - Middle East Africa - Asia Europe - Middle East Within Asia Asia - N America Africa - Europe Europe - N America Domestic Russia Europe - Asia Domestic Brazil Source: IATA Monthly Statistics by Route Within Europe Domestic China Domestic US 0% 2% 4% 6% 8% 10% 12% 14% 16% Share of total global RPKs (%, 2016 year-to-date) www.iata.org/economics 3
Biggest growth in Asian markets but also Europe 800 RPKs (billions) 700 600 500 400 300 Within Europe Domestic China Europe - North America Within Asia Europe - Asia Asia - North America 200 100 Middle East - North America Domestic Brazil 0 2010 2015 Source: IATA Monthly Statistics by Route www.iata.org/economics 4
% change over previous year World has been stuck in a low economic growth path 5 IMF forecasts of global economic growth 4 3 2 April 2013 April 2014 April 2015 January 2016 April 2016 1 0-1 -2 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: IATA using IMF World Economic Outlook data www.iata.org/economics 5
% change over previous year Yet we ve had to revise up successive RPK forecasts 10 IATA forecasts of global RPK growth 8 6 4 Dec 2015 Dec 2014 Dec 2013 Dec 2012 2 0-2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: IATA Economic Performance of the Airline Industry www.iata.org/economics 6
Sources: IATA using SRS Analyser data Price stimulation from LCC entry in significant markets LCC share of seats flown (% of total) 60% Within Southeast Asia 50% 40% Within Europe 30% Global Within Asia 20% Australasia - Asia Middle East - Asia 10% Europe - Asia North America - Europe 0% North America - Asia 2005 2015
Oil price, US$/ barrel Average return fare, US$ Significant price stimulation from fuel cost pass-through 140 Average return fare and Brent crude oil prices 550 120 100 80 60 Average return fare -20% 500 450 400 40 Brent oil price 20 2010 2011 2012 2013 2014 2015 2016 350 300 Source: IATA using PaxIS+ and Haver data www.iata.org/economics 8
% change over previous year The lackluster economic cycle now seems to be slowing Confidence index. 50 = no change Global economic cycle indicators 20% International trade growth 70 15% 65 10% Industrial production growth 60 5% 0% -5% -10% -15% Business confidence 55 50 45 40 35-20% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 30 Source: IATA using Netherlands CPB and Markit data www.iata.org/economics 9
PMI, 50 = no change Both developed and emerging economies now weaker Business confidence 60 Developed economies 55 50 Emerging economies 45 40 35 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: IATA Economics using Markit data www.iata.org/economics 10
But living standards are expected to rise over 20 years Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 11
Important living standard thresholds to be reached Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 12
Living standards make big difference to travel frequency 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Frequency of air travel and living standards Trip frequency Months before next trip Low income Middle income High income Above $20,000 350 300 250 200 150 100 50 0 Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 13
Diverse trip frequency shows the potential for growth Australia Spain United Kingdom Canada United States Italy France Germany Saudi Arabia Korea, Republic Of Japan Thailand Turkey Chile Colombia Russian Federation Mexico Brazil Indonesia South Africa China Egypt India Nigeria 0 0.5 1 1.5 2 2.5 3 3.5 4 Propensity to fly (total passengers/population) Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 14
Also very different demographic futures % change 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% The UN's projected change in population (2015-2035, %) UN projections adjusted for demographic factors Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 15
Proportion of countries in each range (%) There is also still a lot of pent-up demand (and supply) 40% Distribution of countries by level of air market liberalization 35% 30% 25% 20% 15% 10% 5% Air markets are less liberal Air markets are more liberal Median WALI scores 2005: 9.9 2011: 10.2 0% 0-5 5-10 10-15 15-20 20-25 25-30 30-35 35-40 40-45 45-50 Weighted Air Liberalization Index (0 = completely regulated, 50 = completely liberalized) Source: World Trade Organization QASAR database 2005 2011 www.iata.org/economics 16
Wide range of growth expected over next 20 years % year-on-year 8% Drivers of passenger growth (2015-2035 % CAGR, selected countries) 7% 6% Travel cost Population & demographics 5% Living standards Total growth 4% 3% 2% 1% 0% -1% -2% Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 17
The largest growth will be in domestic travel markets China US India Vietnam Indonesia Brazil Turkey Philippines Colombia Australia Corresponding CAGR 5.3% 2.8% 6.1% 8.6% 3.2% 2.8% 5.2% 6.0% 6.1% 2.9% 0 100 200 300 400 500 600 700 800 Change indomestic O-D markets (millions, 2015-2035) Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 18
Top international travel markets for incremental growth Corresponding CAGR UAE - India 6.8% China - Taiwan 4.9% Mexico - US 2.7% Canada - US 2.5% Korea - China 3.3% Spain - UK 1.9% Malaysia - Indonesia 5.6% Hong Kong - China 4.0% Singapore - Indonesia 5.2% Thailand - China 3.3% 0 5 10 15 20 Change in international O-D markets (millions, 2015-2035) 25 Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 19
Significant change in the top-10 over the next 20 years US China UK Japan Spain Germany India Italy France Indonesia China US India UK Indonesia Japan Spain Germany Brazil Turkey 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 Source: IATA/Tourism Economics Air Passenger Forecasts, April 2016 www.iata.org/economics 20
% CAGR 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 600 500 400 Passenger flows 300 to and from (Millions) Rank (2014) 200 100 0 Country 3.2% Total passenger market growth 559 Total passenger absolute growth (millions) 0.8% 0.2% 0.8% 1.4% Main drivers 31.4% 68.6% Absolute growth by foreign and domestic 5 year 10 year 20 year 2014 2019 2024 2034 2014-2019 2014-2024 2014-2034 Passenger numbers ('000s) CAGR % 1 US Domestic 438,252 554,280 636,662 822,051 4.8% 3.8% 3.2% 2 Canada 23,733 27,166 30,809 39,084 2.7% 2.6% 2.5% 3 Mexico 21,011 24,531 28,762 41,011 3.1% 3.2% 3.4% 4 UK 13,946 18,283 20,628 26,145 5.6% 4.0% 3.2% 5 Japan 9,557 10,214 10,550 11,485 1.3% 1.0% 0.9% 6 Germany 8,369 9,726 10,997 13,975 3.1% 2.8% 2.6% 7 China 6,334 7,004 8,423 12,358 2.0% 2.9% 3.4% 8 France 6,026 7,166 8,284 11,005 3.5% 3.2% 3.1% 9 Dominican Republic 5,836 6,698 8,171 12,288 2.8% 3.4% 3.8% 10 Brazil 5,659 6,071 7,542 11,739 1.4% 2.9% 3.7% 11 India 4,516 6,035 8,070 13,565 6.0% 6.0% 5.7% 12 Korea 4,512 5,729 6,982 9,289 4.9% 4.5% 3.7% 13 Italy 4,344 4,865 5,537 7,103 2.3% 2.5% 2.5% 14 Colombia 3,195 3,769 4,785 7,539 3.4% 4.1% 4.4% 15 Jamaica 3,053 3,838 4,662 6,782 4.7% 4.3% 4.1% 16 Australia 2,813 3,125 3,423 4,106 2.1% 2.0% 1.9% 17 Spain 2,580 3,243 3,912 5,197 4.7% 4.2% 3.6% 18 Bahamas 2,536 3,265 3,930 5,513 5.2% 4.5% 4.0% 19 Ireland 2,298 2,678 3,315 4,350 3.1% 3.7% 3.2% 20 Switzerland 2,233 2,572 2,930 3,796 2.9% 2.8% 2.7% Air Passenger Forecasts October 2014 The United States air passenger market is forecast to grow at an average annual growth rate of 3.2% per annum over the next 20 years. This puts the United States in the 28th percentile of fastest growing markets in our forecast during the period 2014-2034. Improvements in livings standards contribute 1.4 percentage points to annual growth. Favourable population and demographic factors are forecast to contribute 0.8 percentage points to annual growth. Other factors, mainly future technological gains, will contribute 0.8 percentage points per year. Explanation of the main drivers of growth (for more details, see the Global Report) Living standards: We proxy a country s standard of living by its level of Gross Domestic Product per capita (ie, the total amount of output produced in an economy each year divided by its population). The living standards channel captures the clear relationship between the number of trips taken on average by inhabitants of a country each year and that country s standard of living. Population and demographics: Forecasting air passenger markets requires a further understanding of how many people there will be to demand air travel in the future. This will depend on changes in total population sizes over time as well as changes in demographic structures ; given that older people tend to fly less often than people in working-age groups, air market growth in countries whose populations are projected to age considerably over the coming 20 years is likely to face headwinds. Trade flows: A high correlation is observed between a country s trade openness measured by exports and imports as a proportion o an economy s total output and its propensity to travel. We therefore include Oxford Economics forecasts of trade intensity over time into our modelling. Price and liberalisation: The decline in the price of air travel that is the cost of air travel in both monetary terms and the time saved by more direct routes has been a notable feature of the industry over the past 60 years or so. We expect the downward trend in the unit cost of air travel to resume in the future, mainly reflecting new technologies and efficiencies being realized The introduction of new longer-range mid-size aircraft will connect many more city and country pairs too and lead to considerable time savings for passengers. Future potential for reductions in travel times will also be driven by changes in regulatory regimes. The United States is forecast to gain an additional 559 million passengers by 2034, compared to 2014. Whilst the United States is in the 28th percentile in terms of fastest growing markets over the next 20 years, it is forecast to be ranked as the 2nd largest markest based on the total number of passengers in 2034. Domestic passengers will represent 68.6% of total growth over this period, accounting for 384 million addittional passengers. Foreign passengers will contribute less to overall growth, representing 31.4% of total growth, equal to 175 million addittional passengers. US Domestic The United States domestic market is ranked 1st in 2014, and is forecast to remain as the largest market in 2034; taking 70.6% of the total market in 2034, down from 76.5% in 2014. Whilst the United States domestic market is the largest market in 2014; the 2nd largest market is Canada, accounting for 3% of total passengers which is forecast to rise marginally to 3.4% by 2034. The biggest three markets in 2014 are the US Domestic, Canada and Mexico, while in 2034 they are forecast to become the US Domestic, Mexico and Canada respectively. The largest riser in the 20 year period is forecast to be India rising 5 places to be ranked 6th largest market in 2034. Whilst the biggest faller in the period 2014-2034 is forecast to be Australia falling 6 places to be ranked 22nd largest market in 2034. Canada Mexico UK Japan Germany China France Dominican Republic Brazil India Korea Italy Colombia Jamaica Australia Spain Bahamas Ireland Switzerland 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Air Passenger Forecasts US Domestic Mexico Canada UK Germany India China Dominican Republic Brazil Japan France Korea Colombia Italy Jamaica Bahamas Spain Costa Rica Netherlands Ireland Global Report Country Reports Online database/webtool United States - Passenger Market Overview Decomposition of growth, 2014-2034 Living standards Population & Demographics Trade Price & Liberalisation Change in passenger numbers, 2014-2034 Domestic Foreign United States - Top Country Pairs October 2014 Top US country pairs ranked by passenger numbers, 2014-2034 www.iata.org/pax-forecast