Economic performance of the airline industry Mid-year 2017 update Brian Pearce, Chief Economist, IATA www.iata.org/economics
% change over previous year Index, 50 = no change in output Performance drivers are now diverging Airlines unit cost growth and global business confidence 10% 5% Global business confidence 54 52 0% 50-5% -10% Airlines' unit cost growth 48 46 44-15% 42-20% 2012 2013 2014 2015 2016 2017 Source: IATA Economics using data from The Airline Analyst and Markit 40
EBIT adjusted for operating leases as % invested capital Return on capital performance good in 2016 20% 18% 16% 14% 12% Return on invested capital North America Europe 10% Industry average 8% Asia Pacific Latin America 6% Middle East 4% Weighted 2% Average Cost 0% 2010 2011 2012 2013 2014 2015 2016 Source: IATA Economics using data from The Airline Analyst
2016 free cash flow good but more divergent FCF as % invested capital 8% 6% Free cash flow yield (% invested capital) 4% 2% 0% -2% -4% -6% -8% North America Industry average Latin America Asia Pacific Europe Middle East -10% 2010 2011 2012 2013 2014 2015 2016 Source: IATA Economics using data from The Airline Analyst
Debt adjusted for operating leases/ebitdar Debt still ranges from investment grade to weak 8 Adjusted net debt/ebitdar 7 6 5 4 3 Middle East Latin America Asia Pacific Industry average Europe 2 1 0 2010 2011 2012 2013 2014 2015 2016 Source: IATA Economics using data from The Airline Analyst North America Investment grade
% revenues Operating margins still high but declining 18% 16% Airline industry operating margin, % revenues 14% 12% 10% 8% 6% 4% Margins adjusted for seasonality Unadjusted margins 2% 0% -2% 2011 2012 2013 2014 2015 2016 2017 Source: IATA Economics using data from The Airline Analyst and airline releases
% change over previous year As margins squeezed by accelerating costs 20% Unit revenues and unit costs, % change over previous year 15% 10% 5% 0% -5% -10% Unit cost growth Unit revenue growth -15% -20% 2011 2012 2013 2014 2015 2016 2017 Source: IATA Economics using data from The Airline Analyst
US cents/asm Cost acceleration driven by fuel, MRO, labour 8.4 CASM 2016Q1 to 2017Q1 8.2 8 7.8 7.6 7.4 7.2 7 CASM 2016Q1 Source: IATA Economics using data from The Airline Analyst Fuel MRO Labour Infrastructure Other CASM 2017Q1
Business confidence 50 = neutral Index of fares, constant FX Signs of a stabilization of yields Worldwide average fares (constant FX) and business confidence 54 53 Business confidence 52 51 50 49 Average return fare index, constant FX 48 2014 2015 2016 2017 Source: IATA Economics using data from The Airline Analyst and Markit 100 98 96 94 92 90 88 86 84 82 80
Global airline share price index CFO expectations of airline profits in 12 months, 50 = no change Financial markets and airline CFOs are confident 1,350 1,250 1,150 1,050 950 850 750 650 550 450 350 Airline share prices and CFO expectations of airline profitability Airline share prices CFO expectations for change in profits in next 12 months 2012 2013 2014 2015 2016 2017 Source: IATA Economics using data from IATA Business Confidence survey and Thompson Reuters Datastream 100 90 80 70 60 50 40 30 20 10 0
Percentage change or % revenues We ve upgraded our forecasts for 2017 10 8 6 Forecast revisions for 2017 Previous forecast Current forecast 7.4 7.3 7 5.6 5.1 6.6 7.7 4 2 2.5 2.9 3.3 0 0-2 -4-2 GDP Pax yields RPKs Freight tonnes ASKs Operating margins Source: IATA Economic Performance of the Airline Industry, Mid-year 2017 and End-year 2016 reports
Air travel has started the year strongly % year-on-year Diffusion indices 16% 65 12% 8% Growth in industry RPKs (LHS) Global services PMI index (adv. 2 months, RHS) 60 55 4% 0% -4% -8% Global manufacturing PMI index (adv. 2 months, RHS) 50 45 40 35-12% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 30 Source: IATA Economics using data from IATA Statistics and Markit
Strong growth in domestic markets Apr 2017 Mar 2017 Industry 7.7% 7.4% Domestic Russia Domestic India 14.8% 15.3% 14.9% 16.7% Domestic China 12.7% 15.3% Domestic Japan 6.6% 8.1% Domestic USA 3.4% 4.7% Domestic Brazil 3.0% 6.0% Dom. Australia -2.1% -0.7% -5% 0% 5% 10% 15% 20% Domestic revenue passenger kilometres (% year-on-year) Source: IATA Economics using data from IATA Statistics
Load factors (mostly) at all-time highs Industry All-time low All-time high Apr 2017 Apr 2016 81.7% 80.4% Europe N. America L. America Asia Pacific Middle East Africa 84.3% 84.2% 81.7% 80.9% 74.7% 72.3% 82.1% 83.4% 79.6% 79.6% 75.4% 67.8% 50% 60% 70% 80% 90% Passenger load factors (% of available seat kms, seasonally adjusted) Source: IATA Economics using data from IATA Statistics
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Air freight rebound driven by re-stocking % year-on-year Year-on-year change 40% -15% 30% Fall in inventory to sales ratio, increase in FTK growth -10% 20% -5% 10% 0% -10% Global FTKs (LHS) Inventory to sales ratio (RHS, inverted scale) 0% 5% -20% 10% -30% 15% Source: IATA Economics using data from IATA Statistics and Thompson Reuters Datastream *Rolling 3 month periods
% ATKs Breakeven point rising but so are load factors Breakeven and achieved weight load factors 69 67 65 63 Achieved 61 59 Breakeven 57 55 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: IATA Economic Performance of the Airline Industry, Mid-year 2017 report
% of invested capital Return on capital lower but still good in 2017 12.0 Return on capital invested in airlines 10.0 8.0 Cost of capital (WACC) 6.0 4.0 2.0 Return on capital (ROIC) 0.0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: IATA Economic Performance of the Airline Industry, Mid-year 2017 report
US$ billion % revenues 2017 profits down but upgraded Net profits and operating margins 40 35 30 25 20 15 10 5 0-5 -10 Net profits - current Net profits - previous Operating margin - current Operating margin - previous 2009 2010 2011 2012 2013 2014 2015 2016 2017 10 8 6 4 2 0 Source: IATA Economic Performance of the Airline Industry, Mid-year 2017 report
% revenues US$ billion Regional divergence in profitability remains 9% 7% 5% 3% 1% -1% Net profits by region in 2017 Net profits % revenues N America Europe Asia Pacific L America Middle East Africa Source: IATA Economic Performance of the Airline Industry, Mid-year 2017 report 18 16 14 12 10 8 6 4 2 0-2