Airline industry outlook remains fragile June 2009 www.iata.org/economics To represent, lead and serve the airline industry
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
Hit by a synchronized very deep recession 110 100 90 80 70 60 50 40 30 20 10 Source: Haver Manufacturing production levels S. Korea -24% US -16% Germany -23% Japan -36% Index to equal 100 in January 2009 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Business confidence has now turned up 65 Business confidence survey results 10 60 5 0 US companies 55 50 45 40 US companies (left scale) EU27 companies (right scale) -5-10 -15-20 -25 EU27 companies 35-30 -35 30 1997 1999 2001 2003 2005 2007 2009-40 Source: Haver
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
Green shoots appearing 58 Purchasing Managers confidence survey and Air Freight Demand 54 50 46 42 38 34 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) 0-4 -8-12 -16-20 -24
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
Fuel prices now edging higher 200 180 160 140 120 100 80 60 40 20 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
Manufacturers need to cut inventories Air freight volumes and manufacturers inventory-sales ratio 18 1.6 International FTKs 16 14 12 10 8 6 1997 1998 Source: IATA, Haver 1999 2000 2001 2002 2003 2004 2005 2006 inventory-sales ratio (right scale) International FTKs (left scale) 2007 2008 2009 2010 1.5 1.4 1.3 1.2 1.1 1 0.9 0.8 inventory-sales ratio...
Households need to reduce debt Average house price $000 250 200 150 100 50 0 1960 1964 Source: Haver Household indebtedness and house prices in the US Debt as % income (right scale) Average house price (left scale) 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 140% 130% 120% 110% 100% 90% 80% 70% 60% 50% 40% Household debt as % income
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
Airline losses still growing in 2009 Q1 # Airlines In US $ Million Q1 2008 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 123 91 118 65 50 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
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 2000 2001 2002 2003 2004 2005 2006 2007 2008 European airlines N America airlines Asia Pacific airlines
70 But only the major airlines are secure 40 35 End-2008 cash % revenues Largest-7 7 airlines in region 30 25 20 15 Potential cash squeeze 10 5 0 US Source: Airline reports AP EU
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
Cash has been raised on capital markets 6.0 5.0 Capital market fund raising by airlines, $ billion $5.5bn Other Europe $ billion raised. 4.0 3.0 2.0 1.0 Asia Pacific US $0.3bn $1bn $3.3bn 0.0 Source: Haver Equity Debt Equity Debt 2008 2009
Cash has been raised by selling assets Number of jets 50 45 40 35 30 25 20 15 10 5 0 Source: Airclaims 12 $0.5bn Sale and leaseback activity by region Jan-May 2009 27 $1bn Other Asia Pacific Europe North America 41 $1.5bn 43 $1bn
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
Fares are being cut significantly Fares and passenger yields on international markets 20.0 15.0 Economy fares % change over year 10.0 5.0 0.0-5.0-10.0-15.0-20.0-25.0 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
But economic weakness will dominate 8 GDP growth forecasts Source: EIU % change over year 6 4 2 0-2 2008 2009-4 -6 US Japan Europe ASPAC ex Japan Middle East Latin America World
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
Revenues set to fall 15% or $80 billion 20.0 Passenger RPKs and global airline revenue growth % change over year 15.0 10.0 5.0 0.0-5.0-10.0-15.0-20.0 Source: IATA 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E 2009F Passenger RPKs Global airline revenues
Keeping losses up at $9 billion in 2009 Global commercial airline profitability 8.0 6.0 4.0 Return on invested capital (left scale) 15 10 % sales 2.0 0.0-2.0-4.0-6.0-8.0 Source: IATA 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Net losses (right scale) 2006 2007 2008E 2009F 5 0-5 -10-15 US$ billion