Cargo outlook 2019 Brian Pearce Chief Economist 13 December 2018
% total revenues % total revenues Cargo revenue contribution stabilizing 2 82% 80% 78% 76% 74% 72% 70% 68% 66% 64% 62% Share of airlines' total revenue Cargo Ancillaries Base fare (left scale) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: IATA Statistics, IdeaWorks, own forecasts 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
Number of unique city-pairs Air cargo revenue/ftk in 2018 US$ Economic contribution increasing 3 20,000 16,000 12,000 8,000 4,000 0 Real air cargo yields and unique city-pair connections Unique city-pairs (left scale) Inflation-adjusted air cargo yields 1995 1998 2001 2004 2007 2010 2013 2016 2019 Source: IATA Statistics, CargoIS, SRS Analyser, own forecasts 2.00 1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00
Doubling expected within next 20 years Index (2017 = 100) 20-year forecasts for freight tonne kilometres 240 200 Boeing: 3.7 to 4.7% CAGR Airbus: ~3.8% CAGR 160 120 4 80 2017 2020 2023 2026 2029 2032 2035 Sources: Airbus, Boeing
But a pause in globalization constrains the outlook Index (2008 = 100) 105 100 95 90 85 80 75 70 65 60 55 Ratio of world trade to economic activity (left scale) Foreign value added in exports i.e. production on-shoring Pre-GFC Post-GFC 1990 1995 2000 2005 2010 2015 % of total exports 31% 30% 29% 28% 27% 26% 25% 24% 23% 5 Source: Netherlands CPB, UNCTAD Eora database, Datastream
trillion, 2016 prices Brexit, if it happens, will weaken trade in 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 Size of UK economy, GDP 1.6 1.4 1.2 6 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 Tariff wars bigger issue but not a recession cause 5.0 4.0 3.0 Global GDP growth No escalation Escalation 25% tariffs 2.0 US-China trade war 1.0 0.0-1.0-2.0 7-3.0 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
But air cargo has outperformed sluggish world trade Indices (SA, 3m ended Jan 2012 =100) 140 130 120 110 100 90 80 70 60 Global FTKs World trade volumes 8 115 110 105 100 95 90 Ratio of FTKs to world trade volumes Increasing FTK share 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Statistics, Netherlands CPB
E-commerce is part of the story % yoy 20 US e-commerce sales growth 15 10 5 0-5 World trade growth -10-15 -20 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 9 Source: IATA Statistics, Datastream
And the recent business restocking cycle % year-on-year % year-on-year -15% 40% -10% -5% 0% 5% 10% Global FTKs (RHS) Inventory-to-sales ratio (LHS, inverted scale) 30% 20% 10% 0% -10% -20% 15% 2005 2007 2009 2011 2013 2015 2017 2019-30% 10 Source: IATA Statistics, Datastream
This year market growth has been very diverse International FTK growth by route (YTD, % year-on-year, up to Sep 2018) 35% 30% 25% 20% 15% Central - South America Within South America Europe - South America -10% 11 10% 5% 0% -5% Africa - Asia North - South America Within Europe Africa - Europe Africa - Middle East M.East - Asia Europe M.East Middle East - North America Europe - North America Within Asia Asia - North America Europe - Asia 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% Share of total international FTKs (%, Year-ended Sep 2018) Source: IATA Statistics
Million barrels a day US$ per barrel But are markets now signalling recession in 2019? 60 55 Business confidence (left scale) FTSE World Equity price index 700 600 12 50 45 40 Bloomberg commodity price index 35 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Datastream, Markit 500 400 300 200 100
% change year-on-year PMI index In fact, economic growth is expected to continue 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 13-3.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Markit, IMF World Economic Outlook October 2018 35
Million barrels a day US$ per barrel And fuel prices look considerably lower in 2019 12 11 10 9 8 7 6 US oil supply (left scale) Jet fuel price Brent crude oil futures price 4 Dec 140 120 100 80 60 40 20 14 5 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Datastream, Platts
Air cargo industry leaders remains confident Weighted Score (50 = No Change) 90 80 Volumes 70 60 50 40 Yields 30 20 10 0 Oct-08 Oct-10 Oct-12 Oct-14 Oct-16 Oct-18 15 Source: IATA Statistics quarterly survey of heads of cargo
Billion tonne kilometers flown US$ billion Revenues & FTKs slow, but grow further in 2019 slower Cargo revenue and tonne kilometers flown 300 140 250 200 150 100 Cargo tonne km flown (left scale) Cargo revenue 120 100 80 60 40 16 50 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Source: IATA Statistics, own forecasts 20