Airline Industry Economics

Transcription

1 Airline Industry Economics AWG presentation 21 May 2015 Brian Pearce, Chief Economist To represent, lead and serve the airline industry

2 Brent crude oil price, $/b US dollar trade-weighted index Two big changes in the business environment US dollar trade-weighted index and the price of oil RDD5DDG25VHIYN85A2QCI 95 L US dollar tradeweighted index +25% Brent crude oil price -50% Source: Datastream IATA Economics 2

3 ROIC, % invested capital Operating costs/atk, US cents/atk Impact of lower fuel prices not unambiguous Return on invested capital and unit costs Return on invested capital Unit costs Source: IATA, McKinsey IATA Economics 3

4 US$ in 2013 prices to fly a tonne kilometer US$ in 2013 prices per tonne kilometer Costs typically passed through to prices Boeing 707 Unit cost and the price of air transport 1973 oil crisis US deregulation EU deregulation Unit cost (US$/ATK) 0.5 Price (US$/RTK) Source: IATA/Tourism Economics Air Passenger Forecasts IATA Economics 4

5 World GDP growth, % Airlines ROIC, % invested capital A strong economic cycle would help airline returns Airline industry ROIC and world GDP growth Airlines ROIC World GDP growth Source: IATA, McKinsey, IHS Global Insight -6.0 IATA Economics 5

6 % change over year Net balance, 50 = no change Economic cycle but positive not very strong 25% Measures of the global economic cycle 70 20% 15% 10% 5% World trade growth Global industrial production growth Business confidence % 50-5% 45-10% -15% 40-20% 35-25% Source: Datastream IATA Economics 6

7 % change over year But growth in demand for travel and cargo is solid 30% Global RPK and FTK growth 25% 20% 15% FTKs 10% RPKs 5% 20-year average 0% -5% -10% -15% -20% Source: IATA IATA Economics 7

8 Index, 2005=100 Adverse structural change in air cargo 1.2 International trade compared to global industrial production BEFORE: FTKs growth 6.4% p.a AFTER: FTKs growth 3.2% p.a Source: Netherlands CPB, IATA IATA Economics 8

9 Much of the airline industry still highly fragmented Market share of top-3 airlines/jvs 53% 75% 25% 35% 25% 20% 37% 50% Source: SRS Analyser IATA Economics 9

10 Ancillaries as % revenues Commoditized product starting to be addressed 2013 ancillaries and operating profits, % revenues 35% 30% Allegiant 25% Ryanair 20% Aer Lingus Easyjet Air Asia Flybe 15% United Alaska Qantas JetBlue 10% Korean Frontier Delta PIA 5% Hawaiian Spicejet SAA BA JAL 0% -20% -15% -10% -5% 0% 5% 10% 15% 20% Operating profits as % revenues Source: IdeaWorks, Airline Analyst, IATA IATA Economics 10

11 All of which is leading to this % ATKs 68 Breakeven and achieved load factor Achieved Breakeven Source: IATA IATA Economics 11

12 % of invested capital So airline industry ROIC is improving significantly 10.0 Return on capital invested in airlines Cost of capital (WACC) Return on capital (ROIC) Source: IATA, McKinsey IATA Economics 12

13 number of airlines Improvement driven by a subset of the industry Distribution of 2014 airline ROIC 14 Most frequent ROIC = 0% 12 Median ROIC = 3.2% airlines ROIC > WACC % return on invested capital Source: The Airline Analyst, IATA IATA Economics 13

14 Adjusted net debt, US$ billion Median airline not as well placed as leaders Free cash flow and adjusted net debt airlines could repay all debt in next 5 years Median airline $3 billion net debt -3% FCF/net debt 0-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% Free cash flow as a % of adjusted net debt Source: The Airline Analyst, IATA IATA Economics 14

15 Index, 2007=100 Financial markets recognized regional divergences 160 Airline share price indices, 2007 = US airlines European airlines Asian airlines Source: Thompson Reuters Datastream IATA Economics 15

16 ROIC as as % invested capital Performance gains mostly US and parts of Europe 2014 return on capital by region 30% 20% 10% 0% -10% -20% -30% N America Europe Asia Pacific LA ME AF Source: The Airline Analyst, IATA IATA Economics 16