Economic performance of the airline industry end-2017 update December 2017 Brian Pearce, Chief Economist, IATA www.iata.org/economics Airline Industry Economics Advisory Workshop 2016 1
City-pair connections exceed 20,000 this year Number of unique city-pairs US$/RTK in 2014US$ 22000 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 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: IATA Economics using data from SRS Analyser, ICAO, HIS. IATA forecasts
Tourist spend, US$ billion Traded goods, US$ trillion Boosting trade and tourism 800 Value of trade carried by air and the spending of tourists 8 700 Spending by tourists carried by air 7 600 500 400 300 Value of traded goods carried by air 6 5 4 3 2 200 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from UNWTO, IHS, IATA forecasts 1
Airline jobs exceed 2.7 million in 2018 Jobs, million GVA/employee, US$/year 2.8 2.7 2.6 2.5 2.4 2.3 2.2 2.1 2.0 1.9 Airline industry jobs and vaue added (GVA) per employee Airline jobs Value added per employee 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 40,000 Source: IATA Economics using data from ICAO, ATAG, IATA foreasts
Million Average months before next trip Increasing accessibility of air travel Passenger numbers and months before next trip for world population 4,500 Airline passengers 4,000 3,500 3,000 2,500 2,000 50 45 40 35 30 25 1,500 1,000 Number of months before average member of world population takes a flight 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 20 15 Source: IATA Economics using data from IATA Statistics, UN, IATA forecasts
Air travel cycles have typically ended after 8 years Worldwide RPK cycles, indexed to low point 180 WE ARE HERE IN 2017 170 160 150 140 130 120 110 100 90 80 1982-91 1991-01 2001-09 2009- Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Source: IATA Economics using data from ICAO, IATA Statistics, IATA forecasts
% change over previous year % change over previous year Strong GDP growth extends this air travel cycle further 9 8 7 6 5 4 3 2 1 0-1 -2-3 Worldwide RPK growth and GDP growth 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: IATA Economics using data from ICAO, IMF World Economic Outlook, IATA forecasts Worldwide RPK growth World GDP growth 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0-1 -2-3 -4-5
A strong re-stocking cycle has boosted air cargo Year-on-year change in level -0.15 Fall in inventory to sales -0.10 ratio, increase in FTK growth -0.05 0.00 0.05 US Inventory-to-sales ratio (LHS, inverted scale) Global FTKs (RHS) % year-on-year 40% 30% 20% 10% 0% -10% 0.10 0.15 2005 2007 2009 2011 2013 2015 2017-20% -30% Source: IATA Economics using data from IATA Statistics and Datastream
US cents per tonne kilometer Fares and yields rising in 2018, but flat in real terms 150 140 130 120 110 100 Yields including ancillaries & cargo revenues, nominal and inflation-adjusted 90 Yield 80 70 Inflation-adjusted yield 60 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from ICAO, PaxIS+, Datastream, IATA forecasts
% of revenue Industry profitability still high and now stabilizing 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Airline industry operating margin 2011 2012 2013 2014 2015 2016 2017 Source: IATA Economics using data from The Airline Analyst and airline releases Unadjusted margin Margin adjusted to remove seasonality
US$ per barrel % change over previous year Rising costs are the biggest challenge 140.0 Jet fuel price and growth in unit costs 15.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 Unit cost growth Jet fuel price 2010 2011 2012 2013 2014 2015 2016 2017 2018 10.0 5.0 0.0-5.0-10.0-15.0-20.0 Source: IATA Economics using data from The Airline Analyst, Platts, IATA forecasts
% change over previous year % ASKs Announced capacity growth slowing in 2018 16 14 12 10 8 6 4 2 0-2 -4 Growth of RPKs and ASKs, passenger load factor 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from IATA statistics, IATA forecasts Passenger load factor RPK growth ASK growth (dashed line) 84 82 80 78 76 74 72 70 68
Load factor gap above breakeven being sustained % ATKs 71 69 67 65 Breakeven and achieved weight load factors Load factor achieved 63 61 59 Breakeven load factor 57 55 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from ICAO, IATA Statistics, IATA forecasts
A further year of solid profits forecast for 2018 % revenues US$ billion 12.0 9.0 6.0 3.0 0.0-3.0-6.0 Global commercial airline profitability EBIT margin Net post-tax profits 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from ICAO, IATA estimates and forecasts 60 50 40 30 20 10 0-10 -20-30
Airlines sweating assets as well as improving margins EBIT margin, % revenue Capital productivity, revenue/invested capital, US$ 10 Components of return on capital EBIT margin 1.5 8 1.4 6 4 2 0 Capital productivity 1.3 1.2 1.1-2 1.0-4 0.9-6 0.8 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from ICAO, McKinsey, The Airline Analyst, IATA forecasts
Producing good returns for investors for a 4 th year % of invested capital 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 0.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from McKinsey, The Airlines Analyst, IATA forecasts
Debt adjusted for operating leases/ebitdar Further improvements in balance sheets forecast 8 Adjusted net debt/ebitdar 7 6 5 4 3 2 1 0 Middle East 2010 2011 2012 2013 2014 2015 2016 Latin America Asia Pacific Industry average Europe North America Investment grade credits Source: IATA Economics using data from IATA and The Airline Analyst
% revenues Regional performance still differs but some convergence 16% EBIT margin by airline region of registration 14% 2016 2017 2018 12% 10% 8% 6% 4% 2% 0% N America Asia Pacific Europe L America Middle East Africa Source: IATA Economics using data from ICAO, The Airline Analyst, IATA forecasts
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