The outlook: what we know, the known unknowns and the unknown unknowns 24 April 2017 Seoul Brian Pearce, Chief Economist, IATA www.iata.org/economics Airline Industry Economics Advisory Workshop 2016 1
World stuck on low-growth path (IMF consistently wrong) 5 IMF forecasts of global economic growth (using market exchange rates), % y-o-y 4 3 2 1 April 2013 April 2014 April 2015 April 2016 January 2017 Latest data point 0-1 -2-3 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: IMF World Economic Outlook databases
Partly because of the debt overhang % of GDP % of GDP 280 270 Developed economies 260 250 240 230 220 Developing economies 210 200 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Bank for International Settlement database Outstanding debt of non-financial sector, % of GDP 190 180 170 160 150 140 130 120 110 100
% change over previous year But also the retreat from globalization 15 World GDP and cross-border trade growth 10 5 World trade growth World GDP growth 0-5 -10-15 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: IMF World Economic Outlook and the World Trade Organization
% change over previous year Poor demographics in some major economies 4.0 Labour force growth 3.0 2.0 1.0 0.0-1.0 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Note: Only +0.1% pa without net immigration US China Japan Germany Source: Oxford Economics
% interest rate Billion US$ The exhaustion of monetary policies 10 9 8 7 6 5 4 3 2 1 US federal funds target rate and balance sheet assets US Federal Reserve Bank assets US fed funds 0 1985 1990 1995 2000 2005 2010 2015 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Source: Haver
% change over previous year We got air travel wrong but under not over-estimated 10 IATA forecasts of global RPK growth 8 6 4 Dec 2015 Dec 2014 Dec 2013 Dec 2012 2 0-2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: IATA Economic Performance of the Airline Industry www.iata.org/economics 7
Sources: IATA using SRS Analyser data Partly because of price-stimulation from LCC entry LCC share of seats flown (% of total) 60% Within Southeast Asia 50% 40% Within Europe 30% Global Within Asia 20% Australasia - Asia Middle East - Asia 10% Europe - Asia North America - Europe 0% North America - Asia 2005 2015
Oil price, US$/ barrel Average return fare, US$ And then because oil prices collapsed 140 Average return fare and Brent crude oil prices 550 120 100 80 60 Average return fare -20% 500 450 400 40 Brent oil price 20 2010 2011 2012 2013 2014 2015 2016 350 300 Source: IATA using PaxIS+ and Haver data www.iata.org/economics 9
Still plenty of potential for growth in air travel Australia Spain United Kingdom Canada United States Italy France Germany Saudi Arabia Korea, Republic Of Japan Thailand Turkey Chile Colombia Russian Federation Mexico Brazil Indonesia South Africa China Egypt India Nigeria 0 0.5 1 1.5 2 2.5 3 3.5 4 Propensity to fly (total passengers/population) Source: IATA/Tourism Economics Air Passenger Forecasts, September 2016 Airline Industry Economics Advisory Workshop 2016 10
Expect large rises in trip frequency in some key markets Source: IATA Economics using data from PaxIS+ and Oxford Economics
Of course demographics will also make a big difference % change 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% The UN's projected change in population (2015-2035,%) UN projections adjusted for demographic factors Airline Industry Economics Advisory Workshop 2016 12 Source: IATA/Tourism Economics Air Passenger Forecasts, September 2016
Biggest incremental growth on domestic markets China United States India Indonesia Vietnam Turkey Brazil Philippines Australia Mexico Corresponding CAGR 5.2% 2.6% 6.7% 3.5% 8.2% 5.2% 2.6% 6.0% 3.0% 4.2% 0 100 200 300 400 500 600 700 800 Change in domestic O-D markets (millions, 2015-2035) Airline Industry Economics Advisory Workshop 2016 13 Source: IATA/Tourism Economics Air Passenger Forecasts, September 2016
Significant change in top-10 in air travel in next 20 years US China UK Japan Spain Germany India Italy France Indonesia China US India UK Indonesia Japan Spain Germany Brazil Turkey 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 Source: IATA/Tourism Economics Air Passenger Forecasts, September 2016 Airline Industry Economics Advisory Workshop 2016 14
But world could follow quite different paths Global O-D passenger journeys (billion) 9 8 7 6 Reflation/open borders scenario Constant policies scenario 5 4 3 Pick-up in Protectionism scenario 2 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Airline Industry Economics Advisory Workshop 2016 15 Source: IATA/Tourism Economics Air Passenger Forecasts, September 2016
What could go wrong protectionism? Donald Trump Vows to Rip Up Trade Deals and Confront China The New York Times 28 June 2016
What could go wrong Brexit and EU instability? Source: Schroders www.iata.org/economics 17
What could go wrong US economic policies?
What could go wrong Chinese property prices
% of GDP % of GDP What could go wrong debt crisis? Outstanding debt of non-financial sector, % of GDP 280 190 270 180 260 Developed economies 170 250 160 240 150 140 230 130 220 Developing economies 120 210 110 200 100 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: IATA using data from BIS www.iata.org/economics 20
What could go wrong rising interest rates? 18 US 10-year Treasury Bond Yield 16 14 12 % 10 8 6 4 2 0 1980 1985 1990 1995 2000 2005 2010 2015 Source: IATA using data from Haver Airline Industry Economics Advisory Workshop 2016 21
Million barrels production per day Days of supply What could go wrong oil prices? 3.5 3 2.5 2 1.5 OPEC spare capacity and OECD crude oil inventories OECD crude oil inventories (right scale) OPEC spare capacity (left scale) 1 2011 2012 2013 2014 2015 2016 Source: Haver Airline Industry Economics Advisory Workshop 2016 22 68 66 64 62 60 58 56 54 52 50
What could go wrong inflation? US$ trillion Yen trillion 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 Central bank assets US Federal Reserve Bank of Japan 0 1975 1980 1985 1990 1995 2000 2005 2010 2015 500 450 400 350 300 250 200 150 100 50 0 Source: IATA using data from Haver www.iata.org/economics 23
What we were forecasting 20-30 years ago!
Radical uncertainty The importance of things we do not know we do not know - LCCs in Europe 20 years ago? - 9/11 15 years ago? - Dubai No 1 10 years ago? - Brexit 5 years ago? - Commercial drones? - Virtual reality? - Data aggregators?
What to do in the face of radical uncertainty? Create options Create flexibility Airline Industry Economics Advisory Workshop 2016 26
Airline Industry Economics Advisory Workshop 2016 27