Economic performance of the airline industry end-2017 update

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1 Economic performance of the airline industry end-2017 update December 2017 Brian Pearce, Chief Economist, IATA Airline Industry Economics Advisory Workshop

2 City-pair connections exceed 20,000 this year Number of unique city-pairs US$/RTK in 2014US$ Unique city-pairs and real transport costs Unique city pairs Real cost of air transport Source: IATA Economics using data from SRS Analyser, ICAO, HIS. IATA forecasts

3 Tourist spend, US$ billion Traded goods, US$ trillion Boosting trade and tourism 800 Value of trade carried by air and the spending of tourists Spending by tourists carried by air Value of traded goods carried by air Source: IATA Economics using data from UNWTO, IHS, IATA forecasts 1

4 Airline jobs exceed 2.7 million in 2018 Jobs, million GVA/employee, US$/year Airline industry jobs and vaue added (GVA) per employee Airline jobs Value added per employee , , ,000 90,000 80,000 70,000 60,000 50,000 40,000 Source: IATA Economics using data from ICAO, ATAG, IATA foreasts

5 Million Average months before next trip Increasing accessibility of air travel Passenger numbers and months before next trip for world population 4,500 Airline passengers 4,000 3,500 3,000 2,500 2, ,500 1,000 Number of months before average member of world population takes a flight Source: IATA Economics using data from IATA Statistics, UN, IATA forecasts

6 Air travel cycles have typically ended after 8 years Worldwide RPK cycles, indexed to low point 180 WE ARE HERE IN Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Source: IATA Economics using data from ICAO, IATA Statistics, IATA forecasts

7 % change over previous year % change over previous year Strong GDP growth extends this air travel cycle further Worldwide RPK growth and GDP growth Source: IATA Economics using data from ICAO, IMF World Economic Outlook, IATA forecasts Worldwide RPK growth World GDP growth

8 A strong re-stocking cycle has boosted air cargo Year-on-year change in level Fall in inventory to sales ratio, increase in FTK growth US Inventory-to-sales ratio (LHS, inverted scale) Global FTKs (RHS) % year-on-year 40% 30% 20% 10% 0% -10% % -30% Source: IATA Economics using data from IATA Statistics and Datastream

9 US cents per tonne kilometer Fares and yields rising in 2018, but flat in real terms Yields including ancillaries & cargo revenues, nominal and inflation-adjusted 90 Yield Inflation-adjusted yield Source: IATA Economics using data from ICAO, PaxIS+, Datastream, IATA forecasts

10 % of revenue Industry profitability still high and now stabilizing 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Airline industry operating margin Source: IATA Economics using data from The Airline Analyst and airline releases Unadjusted margin Margin adjusted to remove seasonality

11 US$ per barrel % change over previous year Rising costs are the biggest challenge Jet fuel price and growth in unit costs Unit cost growth Jet fuel price Source: IATA Economics using data from The Airline Analyst, Platts, IATA forecasts

12 % change over previous year % ASKs Announced capacity growth slowing in Growth of RPKs and ASKs, passenger load factor Source: IATA Economics using data from IATA statistics, IATA forecasts Passenger load factor RPK growth ASK growth (dashed line)

13 Load factor gap above breakeven being sustained % ATKs Breakeven and achieved weight load factors Load factor achieved Breakeven load factor Source: IATA Economics using data from ICAO, IATA Statistics, IATA forecasts

14 A further year of solid profits forecast for 2018 % revenues US$ billion Global commercial airline profitability EBIT margin Net post-tax profits Source: IATA Economics using data from ICAO, IATA estimates and forecasts

15 Airlines sweating assets as well as improving margins EBIT margin, % revenue Capital productivity, revenue/invested capital, US$ 10 Components of return on capital EBIT margin Capital productivity Source: IATA Economics using data from ICAO, McKinsey, The Airline Analyst, IATA forecasts

16 Producing good returns for investors for a 4 th year % of invested capital Return on capital invested in airlines and their cost of capital Return on capital (ROIC) Cost of capital (WACC) Source: IATA Economics using data from McKinsey, The Airlines Analyst, IATA forecasts

17 Debt adjusted for operating leases/ebitdar Further improvements in balance sheets forecast 8 Adjusted net debt/ebitdar Middle East Latin America Asia Pacific Industry average Europe North America Investment grade credits Source: IATA Economics using data from IATA and The Airline Analyst

18 % revenues Regional performance still differs but some convergence 16% EBIT margin by airline region of registration 14% % 10% 8% 6% 4% 2% 0% N America Asia Pacific Europe L America Middle East Africa Source: IATA Economics using data from ICAO, The Airline Analyst, IATA forecasts

19 Airline Industry Economics Advisory Workshop

Airline industry outlook 2019

Airline industry outlook 2019 Brian Pearce Chief Economist 12 December 2018 Million barrels a day US$ per barrel Are the markets signalling recession ahead? 60 55 Business confidence (left scale) FTSE