Cyclical gains but structural challenges

Transcription

1 Cyclical gains but structural challenges Brian Pearce Chief Economist To represent, lead and serve the airline industry

2 % change over year PMI index level, 50=no change Economic conditions are improving Global industrial production, trade and business confidence 25% 20% % 10% 5% International trade Industrial output % 50-5% Business confidence 45-10% -15% 40-20% 35-25% Source: Datastream IATA Economics 2

3 Though volatility and risk remains US$ per Ruble US$ per barrel Russian ruble exchange rate and the Brent crude oil price Brent crude oil price Russian Ruble exchange rate Jan Feb Mar 105 Source: Datastream IATA Economics 3

4 Fuel prices stuck in (high) range Jet kerosene and crude oil price, $/barrel Jet kerosene price $140/b $110/b 80 Brent crude oil price Source: IATA, Platts IATA Economics 4

5 % change over year % change over year Growth in air travel accelerating 15% 10% Global industrial production and RPK growth Industrial production growth RPK growth 15% 10% 5% 0% 5% 0% -5% -5% -10% -10% Source: IATA, Datastream -15% IATA Economics 5

6 Cyclical upturn in demand for air cargo Business confidence index FTKs billion 60 FTKs and business confidence Business confidence FTKs Source: IATA, Markit 11 IATA Economics 6

7 Indexed to 100 in May 2010 Even Asia is now seeing some growth 160 FTKs by region of airline registration Middle East (+45%) Cycle peak for market total Africa Latin America Europe North America 90 Asia-Pacific (-12%) Source: IATA IATA Economics 7

8 But trade growth much weaker than normal % change year-on-year 20% 15% 10% World trade and industrial production growth World trade growth (avg. 5.6% pa) 5% 0% -5% -10% Industrial production growth (avg. 2.8% pa) -15% -20% Source: Datastream IATA Economics 8

9 On-shoring? International trade volumes relative to domestic industrial output (WT/IP) 2.0 Globalization / off-shoring On-shoring / protectionism? Source: IATA, Datastream IATA Economics 9

10 Resist protectionism/ implement Bali Almost 500 protectionist measures taken in 2012 Number of measures Source: Global Trade Alert IATA Economics 10

11 Unit labour cost, 2000=100 Henry hub gas prices, US$/mmbtu But some on-shoring permanent 250 China's labour costs and US gas prices China's unit labour costs US gas prices Source: Haver 2 IATA Economics 11

12 Weight load factor, % AFTK Freighter aircraft utilization, average daily hours Asset utilization bottoming out 53% Air cargo asset utilization % % 47% Freight load factor % % 41% 39% Freighter aircraft utilization % Source: IATA, Boeing, all data seasonally adjusted by IATA IATA Economics 12

13 Pressure on cargo yields may not be over 14,000 Tonnes of new cargo capacity from aircraft deliveries 12,000 10,000 Pax fleet new belly capacity Freighter fleet new capacity 8,000 6,000 4,000 2, Source: IATA, Ascend IATA Economics 13

14 Structural improvements helping Source: IATA, ICAO IATA Economics 14

15 Improving net profits and EBIT margins % revenues US$ billion 6.0 Global commercial airline profitability EBIT margin (left scale) Net post-tax profit (right scale) Source: IATA (forecast), ICAO (history) IATA Economics 15

16 Average airline margins remain fragile Forecast 2014 worldwide airline results per departing passenger Source: IATA $ Ancillary $13.93 Air fare $ Cargo & other $30.69 Revenues $ Costs $ Costs $5.65 Net profit IATA Economics 16

17 % of invested capital Returns on capital still too low Return on capital invested in airlines and their cost of capital Cost of capital (WACC) Inadequate returns Return on capital (ROIC) F Source: IATA Source: IATA, McKinsey IATA Economics 17

18 Net post-tax profit as % revenue Regional divergence persists Airline net post-tax profit margins 8% 6% 4% 2% 0% N America Asia-Pacific Europe -2% -4% -6% F 2014F Source: IATA (forecast), ICAO (history) IATA Economics 18