Outlook for growth, traffic and airline profits

Transcription

1 Outlook for growth, traffic and airline profits Brian Pearce, Chief Economist, IATA Airline Industry Economics Advisory Workshop

2 50 = no change in output expected Widespread revival of business confidence 60 Business confidence in developed and emerging economies Developed economies Emerging economies Source: IATA Economics using data from Markit

3 Consumers have become more confident too Worldwide average consumer confidence Source: IATA Economics using data from Datastream

4 Perhaps surprisingly given political shocks Donald Trump Vows to Rip Up Trade Deals and Confront China The New York Times 28 June 2016

5 Will the IMF economic growth forecast be right at last? 5 IMF forecasts of global economic growth (using market exchange rates), % y-o-y April 2013 April 2014 April 2015 April 2016 January 2017 Latest data point Source: IMF World Economic Outlook databases

6 % interest rate Billion US$ Monetary policy effectiveness is exhausted US federal funds target rate and balance sheet assets US Federal Reserve Bank assets US fed funds Source: IATA Economics using data from Haver

7 But fiscal policies recently became a stimulus to growth Change in general government structural budget as % GDP Source: IATA Economics using data from the IMF World Economic Outlook US Euro area China Tighter/ deflationary fiscal policy Looser/ reflationary fiscal policy

8 Changes in trade competitiveness spread the recovery 140 Real effective exchange rates China US Germany Brazil Deteriorating competitiveness Improving competitiveness Source: IATA Economics using data from the World Bank

9 % change versus year ago Economic growth converging in key regions Source: IATA Economics using data from Oxford Economics Economic growth in key regions and countries China United States Brazil European Union

10 Strong start to the year, though Americas travel lagging YTD Feb 2017 Industry 7.0% Middle East 11.4% Asia Pacific 9.5% Europe 7.3% Africa 5.4% L. America 3.9% N. America 1.7% 0% 2% 4% 6% 8% 10% 12% 14% Revenue passenger kilometres (YTD, % year-on-year) Source: IATA Economics using data from IATA Statistics

11 Cargo also strong, but again Americas lagging Freight tonne kilometres (% year-on-year) February 2017 Industry 8.4% Asia Pacific Africa Europe N. America Middle East L. America -4.9% 3.4% 5.8% 10.6% 10.5% 11.8% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% Source: IATA Economics using data from IATA Statistics

12 US$ per barrel But profit margins are now being squeezed Indexed to equal l 100 in Jnauary Airline passenger yield and crude oil prices, indexed Passenger yield Oil price Source: IATA using data from PaxIS+ and Haver Airline Industry Economics Advisory Workshop

13 EBIT as % revenues Industry profitability peaked a year ago 16% 14% Quarterly profile for airline industry operating profits (EBIT) 12% 10% 8% 6% 4% Seasonally adjusted margins Unadjusted margins 2% 0% -2% Source: IATA Economic Performance of the Airline Industry end year 2016 report Airline Industry Economics Advisory Workshop

14 Return on capital lower this year but still good % of invested capital Return on capital invested in airlines Source: IATA Economic Performance of the Airline Industry, End-Year 2016 report Cost of capital (WACC) Return on capital (ROIC)

15 It s partly fuel prices ROIC, % of invested capital Jet fuel price, US$/barrel Airline industry ROIC and jet fuel prices 10.0 ROIC Jet fuel price Source: IATA Economics using data from Platts and IATA Airline Industry Economics Advisory Workshop

16 But also much better asset utilization % ATKs Breakeven and achieved weight load factor 68 Achieved LF Breakeven LF Source: IATA Economic Performance of the Airline Industry end year 2016 report Airline Industry Economics Advisory Workshop

17 Operating margin, % revenue And capital has become much more productive Capital productivity, revenue/invested capital, US$ Airlines' operating or EBIT margin and capital productivity Capital productivity Operating margin Source: IATA Economic Performance of the Airline Industry end year 2016 report Airline Industry Economics Advisory Workshop

18 EBIT adjusted for operating leases as % invested capital But performance is very different between regions 20% 18% Return on invested capital 16% North America 14% 12% 10% 8% 6% 4% 2% 0% Source: IATA Economics using data from The Airline Analyst Europe Industry average Asia Pacific Latin America Middle East Weighted Average Cost of Capital

19 Debt adjusted for operating leases/ebitdar Balance sheets show divergent degrees of resilience 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 The Airline Analyst

20 This year divergence narrows, but not by much 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Net post-tax profit margins N America Europe Asia Pacific Midle East L America Africa Source: IATA Economic Performance of the Airline Industry end year 2016 report

21 Airline Industry Economics Advisory Workshop