Outlook for airline markets and industry performance June 2016 Brian Pearce Chief Economist International Air Transport Association
% change over previous year Confidence index. 50 = no change The already weak economic cycle is slowing Global economic cycle indicators 20% International trade growth 15% Industrial production growth 10% 5% 70 65 60 55 0% -5% -10% -15% Business confidence 50 45 40 35-20% 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 30 Source: Netherlands CPB, Markit www.iata.org/economics 2
PMI, 50 = no change Now both developed and emerging economies weaker Business confidence 60 Developed economies 55 50 Emerging economies 45 40 35 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: IATA Economics using Markit data www.iata.org/economics 3
Globalization is still paused 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 Sources: IATA, Netherlands CPB, OECD-WTO TiVA database www.iata.org/economics 4
Change over previous year International trade growth has slowed to a stop 20% Contributions to growth in international trade volumes 15% 10% 5% Emerging economies contribution Advanced economies contribution 0% -5% -10% -15% -20% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: IATA using Netherlands CPB data www.iata.org/economics 5
FTKs billion RPKs billion So cargo is weak but air travel is still booming Air travel and cargo volumes 280 230 180 130 Passenger RPKs Cargo FTKs 7,000 6,000 5,000 4,000 3,000 80 2,000 Source: ICAO, IATA 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 www.iata.org/economics 5
% change over previous year World is stuck in a low economic growth path 5 IMF forecasts of global economic growth 4 3 2 April 2013 April 2014 April 2015 January 2016 April 2016 1 0-1 -2 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: IMF World Economic Outlook www.iata.org/economics 7
% change over previous year Yet air travel growth has remained strong 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 8
US$ billion US$ billion Cargo revenues significantly lag passenger business Revenues from passengers and cargo 600 90 Passenger revenue 550 80 500 70 450 400 350 300 250 Cargo revenue 60 50 40 200 30 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: ICAO, IATA www.iata.org/economics 9
Fares, indexed to equal 100 in Jan 2011 Brent oil price, US$ per barrel Cash flows rising despite falling RASK 110 105 100 95 90 85 80 75 70 Worldwide average air fare and oil prices Air fare, constant exchange rates Brent oil price Air fare, unadjusted 65 2011 2012 2013 2014 2015 2016 140 120 100 80 60 40 20 Source: IATA, PaxIS+, Haver www.iata.org/economics 10
% ATKs Widening asset utilization gap driving returns 68 66 64 62 60 Breakeven and achieved weight load factor Achieved LF Breakeven LF Source: ICAO, IATA 58 2000 2002 2004 2006 2008 2010 2012 2014 2016 www.iata.org/economics 11
% operating revenue Revenues per $ of invested capital More productive assets as well as margin gains 10 8 6 4 2 0-2 -4 Capital productivity and operating margins Capital productivity Operating margins 1.4 1.3 1.2 1.1 1.0 0.9-6 0.8 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: McKinsey, ICAO, IATA www.iata.org/economics 12
% of invested capital Return on airline capital now rising in most regions 16% 14% 12% 10% 8% 6% 4% 2% Return on invested capital by region North America Europe Asia Pacific Latin America 0% 2010 2011 2012 2013 2014 2015 Source: IATA calculations from The Airline Analyst www.iata.org/economics 13
Better performance is spread more widely now 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% Source: IATA calculations from The Airline Analyst ROIC in 2015 by region and airline North America Europe Asia Pacific Average cost of capital Middle East Latin America Africa www.iata.org/economics 14
Adjusted net debt/ebitdar Balance sheets improved except in L America 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 Adjusted net debt/ebitdar by region 2.0 2011 2012 2013 2014 2015 Source: IATA calculations from The Airline Analyst Latin America Asia Pacific Europe North America www.iata.org/economics 15
% of invested capital We forecast a 2 nd year of above WACC returns 12.0 Return on capital invested in airlines 10.0 Cost of capital (WACC) 8.0 6.0 4.0 2.0 Return on capital (ROIC) 0.0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: McKinsey, IATA www.iata.org/economics 16
US$ billion Just two years of adding value for investors so far 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 Source: McKinsey, IATA www.iata.org/economics 17
% revenues US$ billion Net post-tax profits of $39.4 billion forecast this year 10.0 8.0 6.0 4.0 2.0 0.0-2.0-4.0-6.0-8.0-10.0 Global commercial airline profitability EBIT margin Net post-tax 2000 2002 2004 2006 2008 2010 2012 2014 2016 40 30 20 10 0-10 -20-30 -40 Source: ICAO, IATA www.iata.org/economics 18
US$ billion Driven largely by N America, but also Europe & Asia 50 Net post-tax profit by region 40 30 20 10 0-10 2010 2011 2012 2013 2014 2015 2016 Africa L America Middle East Asia Pacific Europe N America Source: ICAO, IATA www.iata.org/economics 19
US$ per passenger Per passenger profit shows wide regional variation 30 25 20 Net post-tax profit per departing passenger 2015 2016 15 10 5 0-5 -10-15 N America Middle East Europe Asia Pacific L America Africa www.iata.org/economics 20
Net profit margins show a rather narrower variation 15% Net post-tax profit margins 10% 2015 2016 5% 0% -5% -10% N America Europe Asia Pacific Midle East L America Africa www.iata.org/economics 21