The outlook for commercial air transport Brian Pearce Chief Economist www.iata.org/economics To represent, lead and serve the airline industry
RPKs per month, billion Demand for air travel and cargo diverge FTKs per month, billion 480 460 Air travel and air freight volumes Seasonally adjusted Passenger RPKs 19 18 440 420 17 16 400 380 360 340 320 Freight FTKs 15 14 13 12 300 2007 2008 2009 2010 2011 2012 2013 Source: IATA 11 IATA Economics www.iata.org/economics 2
Index of business confidence % change over year Air travel growth has risen with confidence 65 Worldwide growth in air travel and business confidence 15% 60 55 50 10% 5% 45 0% 40 35 30 Business Confidence Growth in RPKs -5% -10% 25 2007 2008 2009 2010 2011 2012 2013 Source: IATA -15% IATA Economics www.iata.org/economics 3
But business/first seat demand shifted down 10.0% Premium passengers as a % of total (seasonally adjusted) 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% Source: IATA IATA Economics www.iata.org/economics 4
% change over year Because of weak international trade growth 25 20 15 10 5 0-5 -10-15 -20-25 -30 Premium passengers and world trade growth Premium Travel Growth World Trade in Goods Growth IATA Economics www.iata.org/economics 5
Air cargo is seeing a switch to other modes Index to equal 100 in 1970 150 140 Ratio of air cargo tonnes and FTKs to world trade volumes 130 FTK share of world trade 120 110 100 90 Cargo tonnes share of world trade 80 70 60 50 1970 1975 1980 1985 1990 1995 2000 2005 2010 Source: World trade IHS Global Insight, Netherlands CPB Air cargo history ICAO IATA Economics www.iata.org/economics 6
But a bigger problem is world trade weakness 1.20 Ratio of world trade to domestic industrial production 1.10 1.00 0.90 0.80 0.70 0.60 0.50 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Source: Netherlands CPB, IATA IATA Economics www.iata.org/economics 7
Partly due to rise in protectionism Almost 500 protectionist measures taken in 2012 Number of measures Source: Global Trade Alert IATA Economics www.iata.org/economics 8
Bali trade deal positive but more needed Trade facilitation welcome Doha-lite but endorses multilateral system Ratification of MC99 legal framework required Regional deals e.g. Trans-Pacific Partnership Bilateral deals e.g. US-EU IATA Economics www.iata.org/economics 9
US$ billion US$ billion Revenue divergence greater than volumes 600 Passenger and cargo revenues 90 550 500 450 400 Passenger revenue 80 70 60 350 300 250 200 Cargo revenue 50 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 10
Average daily hours flown % available freight tonne capacity Cargo asset utilization under pressure 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% Source: IATA, Boeing IATA Economics www.iata.org/economics 11
Asset utilization high in passenger business Average daily hours flown % of ASKs 11.8 Passenger aircraft utilization 81% 11.6 Passenger load factor 80% 11.4 79% 11.2 11.0 10.8 Twin-aisle aircraft utilization 78% 77% 76% 10.6 75% 10.4 74% 10.2 2007 2008 2009 2010 2011 2012 2013 73% IATA Economics www.iata.org/economics 12
Ancillary services increasingly important 190 180 170 160 150 140 40 30 20 10 Revenue per departing passenger 0 2000 2002 2004 2006 2008 2010 2012 2014 Source: Ancillaries derived from IdeaWorks 2013 report, IATA forecast Fare Cargo + other Ancillaries IATA Economics www.iata.org/economics 13
Cash flows are better than expected 20% Largest 8 airlines, EBITDA as % revenues, seasonally adjusted 15% 10% US Asia- Pacific Europe 5% 0% Jet $82/b GDP 4% Jet $127/b GDP 2.1% -5% 2006 2007 2008 2009 2010 2011 2012 2013 Source: Bloomberg IATA Economics www.iata.org/economics 14
Year-on-year % change Confidence index, 50 equal no change World economy is finally turning up 25% 70 20% 15% 10% 5% World trade growth Industrial production growth 65 60 55 0% 50-5% -10% -15% -20% Business confidence (right scale) 45 40 35-25% 2007 2008 2009 2010 2011 2012 2013 Source: Netherlands CPB, Markit 30 IATA Economics www.iata.org/economics 15
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 $110/b 80 Brent crude oil price 60 40 20 0 2008 2009 2010 2011 2012 2013 2014 Source: RBS, Platts, IATA IATA Economics www.iata.org/economics 16
Better but divergent regional performance Airline net post-tax profit margins 8% 6% 4% 2% 0% N America Asia- Pacific Europe -2% -4% -6% 2007 2008 2009 2010 2011 2012 2013F 2014F Source: ICAO, IATA IATA Economics www.iata.org/economics 17
% revenues Industry profitability almost as good as 2010 US$ billion 6.0 Global commercial airline profitability 25 3.0 EBIT margin (left scale) 15 5 0.0-3.0 Net post-tax profit (right scale) -5-15 -6.0-25 -9.0-35 Source: ICAO, IATA IATA Economics www.iata.org/economics 18
% of invested capital Returns up but still inadequate for investors 10.0 Return on capital invested in airlines and their cost of capital 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 Cost of capital (WACC) Inadequate returns Return on capital (ROIC) 0.0 1998 2000 2002 2004 2006 2008 2010 2012 2014F Source: McKinsey, IATA IATA Economics www.iata.org/economics 19
Margins will remain thin and fragile 2014 worldwide results per departing passenger 240 220 200 180 160 140 120 100 80 60 40 20 0 $224.40 Ancillary $13.66 Air fare $180.10 Cargo & other $30.64 Revenues $218.46 Costs $218.46 Costs $5.94 Net profit Source: IATA IATA Economics www.iata.org/economics 20