Global air transport: developments and issues Brian Pearce, Chief Economist, IATA www.iata.org/economics 5 th July 2017, Antwerp
Number of unique city-pairs US$/RTK in 2014US$ Airlines continue to connect more cities at ever lower real cost to users 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 Unique city-pairs and real transport costs Unique city pairs Real cost of air transport (inc. ancillaries) for users 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 3.50 3.00 2.50 2.00 1.50 1.00 0.50 Source: ICAO, SRS Analyser, IATA
Tourist spend, US$ billion Traded goods, US$ billion Facilitating economic flows: goods, people (capital, competition, ideas) 800 Value of trade carried by air and the spending of tourists 8000 700 Value of traded goods carried by air 7000 600 6000 500 400 Spending by tourists carried by air 5000 4000 3000 300 2000 200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1000 Source: UNWTO, Oxford Economics, IATA
But the research on the micro-economic benefits is mostly missing No literature (except trade economics) Borrowed from surface transport literature Assumed 10% of direct welfare benefit Source: UK Airports Commission, July 2015, Economy: wider economic impacts assessment
Globalization has moved into reverse now we have localization Source: Global Trade Alert
Causing structural change to world trade and Global Value Chains Index (Oct 2008=100) 120 110 100 90 80 70 60 World trade/ip ratio vs. measure of global supply chains Ratio of foreign value added to domestic value added in world gross exports World trade/ip ratio 50 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Share (%) 52 50 48 46 44 42 40 38 36 34 32 30 Source: UNCTAD, Netherlands CPB
There are increasing barriers to free movement of people as well Source: Various online media
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Air travel is resilient but some shocks have slowed trend growth Int'l RPKs flown by European airlines (natural logs, seasonally adjusted) 19.5 Actual 19.0 Trend (early 1990s-early 2000s) Trend (early 2000s - mid-2008) 18.5 Trend (early 2009-pre-Paris) 18.0 17.5 9/11 SARS GFC Icelandic ash cloud Paris and Brussels terrorist attacks 17.0 16.5 Source: IATA Statistics
Air travel has powerful economic drivers in emerging economies Source: IATA/Tourism Economics Air Passenger Forecasts, April 2017
Large further expansion highly likely infrastructure challenges ahead Global passengers (O-D basis, billion) 10 9 8 Policy stimulus and market liberalization Constant policies scenario A Pick-up in Protectionism 7 6 5 4 3 2 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Source: IATA/Tourism Economics Air Passenger Forecasts, April 2017
Cost/ATK indexed to equal 100 in 2000 Is the economic regulation of infrastructure working? 170 Unit cost of infrastructure & airline non-fuel expenses 160 150 140 Unit cost of airport and ATC infrastructure use 130 120 110 Airline non-fuel unit cost 100 90 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: ACI, IACO, FAA, IATA
Airport competition looks weak if you dig deeper into the data Isochrones? not reflective of actual consumer choice Footloose passengers? Transactions data show strong local airport preference Source: Wiltshire, J, November 2013 Airport Competition, SEO Economics, Frontier Economics Footloose airlines? (Slowing) route churn reflects airline not airport competition. Major switching costs
% of invested capital Airlines have seen above cost-of-capital returns but mostly in the US 12.0 Return on capital invested in airlines 10.0 Cost of capital (WACC) 8.0 6.0 4.0 Return on capital (ROIC) 2.0 0.0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: McKinsey and IATA
US$ billion The bigger puzzle is how decades of capital destruction persisted 20 Difference between investing in airlines and investing in similar assets elsewhere 10 0-10 -20-30 -40 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: McKinsey and IATA
Climate change is a potential constraint limited abatement options USD/tCO 2 1,200 1,000 Jet fuel price 135 US$/barrel 2030 Marginal Abatement Cost Curve 800 600 Carbon price 40 US$/tCO 2 200 0 0 10 20 30 40 50 60 MtCO2 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260 270 280 290-200 -400-600 -800 European ATM Improvements Gulf region Next Gen PRD Cabin weight reductions Biofuels Wingtips Airspace China redesign RVSM Russia Drag reduction Flexible tracks North Pacific Pilot Technique Use of ground power Flexible Usage of Military airspace Takeoff and Landing Procedures Optimizing cost index Fuel Management Taxiing with some engines shut down Early retirement Re-engining Engine retrofit/upgrades Reduced speed operation with current fleet No tankering Source: McKinsey for IATA
We need policy instruments to deliver low carbon aviation fuels 2500 CO 2 emissions from worldwide commercial airlines, million tonnes 2000 Airlines' CO 2 without additional abatement from technology, operations, infrastructure 1500 1000 Offsets CORSIA cap from 2020 500 2050 industry target 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: IATA Carbon Model