industry outlook presentation march 2014
TRANSCRIPT
To represent, lead and serve the airline industry
Cyclical gains but structural challenges Brian Pearce Chief Economist www.iata.org/economics
Economic conditions are improving
IATA Economics www.iata.org/economics 2
30
35
40
45
50
55
60
65
70
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
PM
I in
dex level, 5
0=
no c
hange
% c
hange o
ver
year
Global industrial production, trade and business confidence
International trade
Businessconfidence
Industrial output
Source: Datastream
Though volatility and risk remains
IATA Economics www.iata.org/economics 3
105
106
107
108
109
110
111
112
0.027
0.028
0.029
0.03
0.031
Jan Feb Mar
US
$ p
er
barr
el
US
$ p
er
Ruble
Russian ruble exchange rate and the Brent crude oil price
Russian Ruble exchange rate
Brent crude oil price
Source: Datastream
Fuel prices stuck in (high) range
IATA Economics www.iata.org/economics 4
0
20
40
60
80
100
120
140
160
180
200
2008 2009 2010 2011 2012 2013 2014
Jet kerosene and crude oil price, $/barrel
$140/b
$110/b
Jet kerosene price
Brent crude oil price
Source: IATA, Platts
Growth in air travel accelerating
IATA Economics www.iata.org/economics 5
-15%
-10%
-5%
0%
5%
10%
15%
-10%
-5%
0%
5%
10%
15%
2007 2008 2009 2010 2011 2012 2013
% c
ha
ng
e o
ve
r ye
ar
% c
ha
ng
e o
ve
r ye
ar
Global industrial production and RPK growth
Industrial production growth
RPK growth
Source: IATA, Datastream
Cyclical upturn in demand for air cargo
IATA Economics www.iata.org/economics 6
Source: IATA, Markit
11
12
13
14
15
16
17
18
30
35
40
45
50
55
60
2008 2009 2010 2011 2012 2013 2014
FT
Ks b
illio
n
Bu
sin
ess c
on
fid
en
ce
in
de
x
FTKs and business confidence
Business confidence
FTKs
Even Asia is now seeing some growth
IATA Economics www.iata.org/economics 7
80
90
100
110
120
130
140
150
160
2010 2011 2012 2013 2014
Ind
exe
d t
o 1
00
in
Ma
y 2
01
0
FTKs by region of airline registration
Middle East(+45%)
Africa
Latin AmericaEurope
North America
Asia-Pacific(-12%)
Cycle peak for market total
Source: IATA
But trade growth much weaker than normal
IATA Economics www.iata.org/economics 8
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
% c
han
ge y
ear-
on
-yea
r
World trade and industrial production growth
World trade growth (avg. 5.6% pa)
Industrial production growth(avg. 2.8% pa)
Source: Datastream
On-shoring?
IATA Economics www.iata.org/economics 9
0.8
1.0
1.2
1.4
1.6
1.8
2.0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
International trade volumes relative to domestic industrial output (WT/IP)
Globalization / off-shoring
On-shoring / protectionism?
Source: IATA, Datastream
Resist protectionism/ implement Bali
Almost 500 protectionist measures taken in 2012
IATA Economics www.iata.org/economics 10
Source: Global Trade Alert
Number of
measures
But some on-shoring permanent
IATA Economics www.iata.org/economics 11
2
3
4
5
6
7
8
9
10
11
12
0
50
100
150
200
250
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
He
nry
hu
b g
as p
rice
s,
US
$/m
mb
tu
Un
it la
bo
ur
co
st,
20
00
=1
00
China's labour costs and US gas prices
China's unit labour costs
US gas prices
Source: Haver
Asset utilization bottoming out
IATA Economics www.iata.org/economics 12
Source: IATA, Boeing, all data seasonally adjusted by IATA
7.50
8.00
8.50
9.00
9.50
10.00
10.50
37%
39%
41%
43%
45%
47%
49%
51%
53%
2008 2009 2010 2011 2012 2013 2014
Fre
ighte
r air
cra
ft u
tiliz
ation, avera
ge d
aily
hours
Weig
ht lo
ad facto
r, %
AF
TK
Air cargo asset utilization
Freight load factor
Freighter aircraft utilization
Pressure on cargo yields may not be over
IATA Economics www.iata.org/economics 13
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Tonnes of new cargo capacity from aircraft deliveries
Pax fleet new belly capacity
Freighter fleet new capacity
Source: IATA, Ascend
Structural improvements helping
IATA Economics www.iata.org/economics 14
Source: IATA, ICAO
Improving net profits and EBIT margins
IATA Economics www.iata.org/economics 15
-35
-25
-15
-5
5
15
25
-9.0
-6.0
-3.0
0.0
3.0
6.0
US
$ b
illio
n
% r
even
ue
s
Global commercial airline profitability
Net post-tax profit(right scale)
EBIT margin(left scale)
Source: IATA (forecast), ICAO (history)
Average airline margins remain fragile
IATA Economics www.iata.org/economics 16
Forecast 2014 worldwide airline results per departing passenger
$219.93$225.58
Net profitCostsRevenues
$5.65
Costs
$219.93Air fare
$180.96
Ancillary $13.93
0
20
40
60
80
100
120
140
160
180
200
220
240
Cargo & other
$30.69
Source: IATA
Returns on capital still too low
IATA Economics www.iata.org/economics 17
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2000 2002 2004 2006 2008 2010 2012 2014F
% o
f in
ve
ste
d c
ap
ita
lReturn on capital invested in airlines and their cost of capital
Inadequate returns
Cost of capital (WACC)
Return on capital (ROIC)
Source: IATASource: IATA, McKinsey
Regional divergence persists
IATA Economics www.iata.org/economics 18
-6%
-4%
-2%
0%
2%
4%
6%
8%
2007 2008 2009 2010 2011 2012 2013F 2014F
Net
post-
tax p
rofit a
s %
revenu
e
Airline net post-tax profit margins
Asia-Pacific
N America
Europe
Source: IATA (forecast), ICAO (history)