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 World Equity price index (right scale) 700 600 2 50 45 40 Bloomberg commodity price index (right scale) 35 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Datastream, Markit 500 400 300 200 100
% change year-on-year Trade wars damaging but not expansion stoppers 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 No escalation Escalation 25% tariffs US-China trade war 3-3.0 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: IMF, Citi US-China Tariffs-Limbo on the Verge of Trade Wars 3 December 2018
trillion, 2016 prices Brexit chaotic but slows rather than stops long-term 2.6 2.4 2.2 No Brexit Deal + Backstop -2.8% Deal + FTA (proposal) -3.9% Orderly No Deal -5.5% 2.0 1.8 1.6 1.4 1.2 4 1.0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source: Oxford Economics, NIESR Brexit Impacts Report 26 th November 2018
% change year-on-year PMI index Forecasters still expect economic growth in 2019 6.0 5.0 Global GDP growth 60 4.0 3.0 55 2.0 1.0 0.0-1.0-2.0 Business confidence 50 45 40 5-3.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Markit, IMF World Economic Outlook October 2018 35
Air travel has certainly got a lot of momentum Mid East intl. Brazil dom. NA intl. US dom. Europe intl. Africa intl. Latam intl. A-P intl. Russia dom. China dom. India dom. RPK growth, Jan-Oct 2018 % contribution to global growth % change year-on-year 6 0% 5% 10% 15% 20% 25% Source: IATA Statistics
% change over previous year Expect slower travel growth, but still above trend 20 RPK and FTK growth versus trend 15 10 RPK growth 5 20-year trend FTK growth 0-5 7-10 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: IATA Statistics, IATAs own forecasts
Million barrels a day US$ per barrel Jet fuel price lower as market over-supplied 12 11 10 9 8 7 6 US oil supply (left scale) Jet fuel price (right scale) Brent crude oil futures price 4 Dec (right scale) 140 120 100 80 60 40 20 8 5 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Datastream, Platts
% revenues Relieving the downward pressure on margins 16% Airline industry operating margin 14% 12% 10% 8% Seasonally adjusted 6% 4% 2% 0% As reported -2% 9-4% 2011 2012 2013 2014 2015 2016 2017 2018 Source: IATA Economics using data from The Airline Analyst
% ATKs Breakeven stabilizing and asset utilization rising 72 Breakeven and achieved load factor 70 Achieved 68 66 64 62 60 Breakeven 10 58 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: ICAO, IATA Statistics, IATA forecasts
% of invested capital Airlines return on capital should stabilize in 2019 12.0 10.0 Return on capital invested in airlines and their cost of capital Return on capital (ROIC) 8.0 6.0 4.0 Cost of capital (WACC) 2.0 11 0.0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: McKinsey, The Airline Analyst, IATA forecasts
% revenues US$ billion Stable margins and 10 th consecutive year of profit 10.0 8.0 6.0 4.0 2.0 0.0-2.0-4.0-6.0-8.0-10.0 Global commercial airline profitability EBIT margin Net post-tax profit 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 40 30 20 10 0-10 -20-30 -40 12 Source: ICAO, IATA Statistics, IATA forecasts
Number of unique city-pairs US$/RTK in 2014US$ Increasing value for consumers and businesses 13 22000 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 Unique city-pairs and real transport costs Unique city-pairs Inflation-adjusted airline yield 1995 1998 2001 2004 2007 2010 2013 2016 2019 Source: SRS Analyser, ICAO, IATA Statistics, IATA forecasts 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50
Million $ billion More revenues for governments and more jobs 14 75 70 65 60 55 50 45 40 35 Tax revenues and global supply chain jobs supported Tax revenues Supply chain jobs supported 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: ATAG Benefits Beyond Borders 2018, Oxford Economics, IATA forecasts 140 130 120 110 100 90 80 70 60 50 40
% change over year earlier However, rising non-fuel costs are a challenge 20% Airline industry growth in unit costs and unit revenues 15% 10% Unit cost growth 5% 0% -5% -10% Unit revenue growth -15% 15-20% 2011 2012 2013 2014 2015 2016 2017 2018 Source: The Airline Analyst
GDP relative to full capacity,% % labour force It will take a recession to stop cost pressures rising 4 3 2 1 0-1 -2-3 -4 Spare capacity in the OECD economies and labour markets Unemployment rate (right scale) Spare capacity in the economy 9 8 7 6 5 4 3 2 16-5 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: OECD Economic Outlook October 2018 1
Interest rates will be pushed higher 10 year government bond yields, % 5.0 4.5 4.0 China 3.5 US 3.0 2.5 2.0 1.5 Eurozone 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 17 Source: Datastream
Index to equal 1 in 2008Q1 Problems from a strong US$ likely to continue 1.60 Exchange rates, US$ per unit of local currency 1.40 1.20 1.00 0.80 0.60 0.40 China Japan Eurozone Indonesia India Brazil 18 0.20 Turkey Argentina 0.00 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Datastream
Debt adjusted for operating leases/ebitdar Debt remains an issue for airlines in some regions 8 Adjusted net debt/ebitdar 7 6 5 4 3 2 1 Latin America Middle East Asia Pacific Europe North America Investment grade 19 0 2010 2011 2012 2013 2014 2015 2016 2017 Source: The Airline Analyst
% of revenues Performance will continue to diverge by region 12% Net profit margin by region 10% 8% 6% 4% 2% 0% -2% -4% -6% N America Asia Pacific Europe L America Middle East Africa 20-8% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: ICAO, IATA Statistics, The Airline Analyst, IATA forecasts
Thank you Brian Pearce pearceb@iata.org www.iata.org/economics