Presentation - IATA
Presentation - IATA
Presentation - IATA
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Back to profit in 2010 but<br />
not in all regions and major<br />
risks remain<br />
June 2010<br />
Brian Pearce<br />
www.iata.org/economics<br />
To represent, lead and serve the airline industry
Weighted Score (50 = No Change)<br />
Airline CFOs more confident (on average)<br />
100<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
10<br />
0<br />
Mar 2006<br />
Jun 2006<br />
Has/will profitability improve or deteriorate?<br />
Sep 2006<br />
Jan 2007<br />
Apr 2007<br />
Jul 2007<br />
Oct 2007<br />
Jan 2008<br />
Apr 2008<br />
Jul 2008<br />
Oct 2008<br />
Jan 2009<br />
Apr 2009<br />
Jul 2009<br />
Oct 2009<br />
Jan 2010<br />
Apr 2010<br />
Next 12<br />
months<br />
Past 3<br />
months<br />
Source: <strong>IATA</strong>
Strong market upturn hit by ash plume<br />
RPK, billions<br />
260<br />
240<br />
220<br />
200<br />
180<br />
160<br />
International air freight and passenger volumes<br />
seasonally adjusted<br />
RPK<br />
FTK<br />
2005 2006 2007 2008 2009 2010<br />
Ash<br />
impact<br />
14<br />
13<br />
12<br />
11<br />
10<br />
9<br />
FTK, billions<br />
Source: <strong>IATA</strong>
But pre-recession levels regained by May<br />
RPK, billions<br />
260<br />
240<br />
220<br />
200<br />
180<br />
160<br />
International air freight and passenger volumes<br />
seasonally adjusted<br />
May rebound<br />
RPK<br />
FTK<br />
2005 2006 2007 2008 2009 2010<br />
14<br />
13<br />
12<br />
11<br />
10<br />
9<br />
FTK, billions<br />
Source: <strong>IATA</strong>
Business inventory boost to cargo is over<br />
Inventory-sales ratio<br />
1.6<br />
1.5<br />
1.4<br />
1.3<br />
1.2<br />
1.1<br />
1<br />
Air freight FTKs and business inventory-sales ratio<br />
Business<br />
inventory-sales<br />
ratio<br />
FTKs<br />
0.9<br />
9<br />
2005 2006 2007 2008 2009 2010<br />
Sources: <strong>IATA</strong>, Haver<br />
17<br />
16<br />
15<br />
14<br />
13<br />
12<br />
11<br />
10<br />
FTK, billion
But business remains very confident<br />
Confidence indices<br />
110<br />
100<br />
90<br />
80<br />
70<br />
60<br />
Worldwide business and consumer confidence<br />
Business<br />
confidence<br />
Consumer<br />
confidence<br />
50<br />
2005 2006 2007 2008 2009 2010<br />
Source: Haver
Premium passenger cycle turning up<br />
% change over year<br />
15<br />
10<br />
5<br />
0<br />
-5<br />
-10<br />
-15<br />
-20<br />
-25<br />
-30<br />
Jan-06<br />
Apr-06<br />
Premium passengers and world trade growth<br />
Jul-06<br />
Oct-06<br />
Premium passenger<br />
numbers<br />
Jan-07<br />
Apr-07<br />
Jul-07<br />
Oct-07<br />
Jan-08<br />
Apr-08<br />
Jul-08<br />
World trade<br />
Oct-08<br />
Jan-09<br />
Apr-09<br />
Jul-09<br />
Oct-09<br />
Jan-10<br />
Sources: <strong>IATA</strong>, Netherlands CPB
But it’s a very 2-speed economic recovery<br />
Index, 2008=100<br />
115<br />
110<br />
105<br />
100<br />
95<br />
90<br />
85<br />
80<br />
75<br />
Industrial production levels<br />
Emerging<br />
economies<br />
Developed<br />
economies<br />
70<br />
2005 2006 2007 2008 2009 2010<br />
Source: Netherlands CPB
Causing very uneven travel markets<br />
Change over year<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
-5%<br />
-10%<br />
-15%<br />
-20%<br />
-25%<br />
Growth in passenger numbers by market<br />
2006 2007 2008 2009 2010<br />
Middle-East - Asia<br />
Within Asia<br />
North & Mid<br />
Pacific<br />
Within- Europe<br />
North Atlantic<br />
Source: <strong>IATA</strong>
And very uneven cargo markets<br />
3.50<br />
3.00<br />
2.50<br />
2.00<br />
1.50<br />
1.00<br />
0.50<br />
0.00<br />
2005<br />
2006<br />
Cargo rates, $ per kilo<br />
2007<br />
2008<br />
SE Asia to Europe<br />
Europe to North America<br />
Europe to SE Asia<br />
2009<br />
Source: CASS
Uneven market growth to continue<br />
% change over year<br />
8<br />
6<br />
4<br />
2<br />
0<br />
-2<br />
-4<br />
-6<br />
2009 2010<br />
Forecasts for GDP growth<br />
source: EIU<br />
US Japan Europe ASPAC ex<br />
Japan<br />
Middle East Latin<br />
America<br />
World
Capacity is returning, but less than demand<br />
ASKs, billion<br />
340<br />
330<br />
320<br />
310<br />
300<br />
290<br />
280<br />
270<br />
260<br />
International passenger and freight capacity<br />
seasonally adjusted<br />
ASKs<br />
AFTKs<br />
250<br />
21<br />
2005 2006 2007 2008 2009 2010<br />
27<br />
26<br />
25<br />
24<br />
23<br />
22<br />
AFTKs, billion<br />
Source: <strong>IATA</strong>
So tighter markets helping to lift fares<br />
% ASKs<br />
81%<br />
80%<br />
79%<br />
78%<br />
77%<br />
76%<br />
75%<br />
74%<br />
73%<br />
Load factors and fares on international passenger markets,<br />
seasonally adjusted<br />
Passenger<br />
load factor<br />
Average one-way<br />
fare<br />
72%<br />
2006 2007 2008 2009 2010<br />
420<br />
400<br />
380<br />
360<br />
340<br />
320<br />
300<br />
Average one-way fare<br />
Source: <strong>IATA</strong>
But fuel costs are trending higher<br />
Average one-way international fare, US$<br />
420<br />
400<br />
380<br />
360<br />
340<br />
320<br />
300<br />
Jet fuel prices and average one-way fares<br />
Jet kerosene price<br />
Average one-way fare<br />
2006 2007 2008 2009 2010<br />
200<br />
180<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
Jet fuel prices, US$/b<br />
Sources: <strong>IATA</strong>, Platts
Fuel is still the key driver of cost changes<br />
105.0<br />
100.0<br />
95.0<br />
90.0<br />
85.0<br />
80.0<br />
75.0<br />
70.0<br />
65.0<br />
Global revenues/tkp, costs/tkp and fuel cost/tkp - source:ICAO<br />
Yield<br />
Fuel cost/TKP<br />
(right scale)<br />
1993<br />
1994<br />
1995<br />
1996<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
Cost per<br />
TKP<br />
2007<br />
2008<br />
2009<br />
2010<br />
35.0<br />
30.0<br />
25.0<br />
20.0<br />
15.0<br />
10.0<br />
5.0<br />
0.0
Wide body and freighters<br />
Long-haul aircraft utilization is weak<br />
11.7<br />
11.5<br />
11.3<br />
11.1<br />
10.9<br />
10.7<br />
Aircraft utilisation, average hours per day<br />
Narrow body<br />
(r. scale)<br />
10.5<br />
2005 2006 2007 2008 2009<br />
Wide body<br />
(l.scale)<br />
8.6<br />
8.5<br />
8.4<br />
8.3<br />
8.2<br />
8.1<br />
8.0<br />
7.9<br />
7.8<br />
7.7<br />
Narrow body<br />
Source: Boeing
Operational cash flows good but not great<br />
% revenues<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
-5%<br />
EBITDA as % revenues<br />
seasonally adjusted<br />
Asia-Pacific<br />
airlines<br />
US<br />
airlines<br />
European<br />
airlines<br />
2005 2006 2007 2008 2009 2010<br />
Source: Bloomberg
Cash positions healthy for major airlines<br />
Cash and equivalents as % revenues<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
Cash and equivalents as a % of revenues - major airlines<br />
Dec-04<br />
Apr-05<br />
Aug-05<br />
Dec-05<br />
Apr-06<br />
Aug-06<br />
Dec-06<br />
Apr-07<br />
Aug-07<br />
Dec-07<br />
Apr-08<br />
Aug-08<br />
Dec-08<br />
Apr-09<br />
Aug-09<br />
European<br />
airlines<br />
Asia Pacific<br />
airlines<br />
Dec-09<br />
US<br />
airlines<br />
Source: Bloomberg
But not all airlines have a cash cushion<br />
% last four quarter revenues<br />
50<br />
45<br />
40<br />
35<br />
30<br />
25<br />
20<br />
15<br />
10<br />
5<br />
0<br />
Cash as a percentage of sales, Q4 2009 or Q1 2010<br />
FR<br />
IB<br />
U2<br />
AY<br />
BA<br />
AF<br />
LH<br />
AB<br />
SK<br />
B6<br />
W<br />
CO<br />
AA<br />
UA<br />
DL<br />
US<br />
9E<br />
SQ<br />
QF<br />
AK<br />
CX<br />
M<br />
NH<br />
JL<br />
KE<br />
European airlines US airlines Asia-Pacific airlines<br />
Source: Bloomberg
And balance sheets are stretched<br />
Debt as a % of total capital<br />
110<br />
100<br />
90<br />
80<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
Balance sheet gearing, median airline<br />
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009<br />
US<br />
airlines<br />
Asia-Pacific<br />
airlines<br />
European<br />
airlines<br />
Source: Bloomberg
It is still difficult to raise new equity<br />
% of invested capital<br />
14.0<br />
12.0<br />
10.0<br />
8.0<br />
6.0<br />
4.0<br />
2.0<br />
0.0<br />
1993<br />
1994<br />
Return on invested capital in the airline industry<br />
vs the cost of capital<br />
1995<br />
1996<br />
Cost of capital<br />
(WACC)<br />
Return on capital<br />
(ROIC)<br />
Forecast<br />
1997<br />
1998<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
2010F<br />
2011F<br />
2012F<br />
Source: <strong>IATA</strong>
asis points<br />
Potential shocks are not hard to find<br />
1000<br />
900<br />
800<br />
700<br />
600<br />
500<br />
400<br />
300<br />
200<br />
100<br />
Credit Default Swap Spreads<br />
0<br />
May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10<br />
Greece<br />
Portugal<br />
Spain<br />
UK<br />
Germany<br />
US<br />
Source: Haver
Even stable economies will hike taxes<br />
US$ billion<br />
500<br />
0<br />
-500<br />
-1000<br />
-1500<br />
-2000<br />
Source: US CBO<br />
US federal budget position, $ billion<br />
Bank bailout &<br />
fiscal stimulus<br />
1956<br />
1959<br />
1962<br />
1965<br />
1968<br />
1971<br />
1974<br />
1977<br />
1980<br />
1983<br />
1986<br />
1989<br />
1992<br />
1995<br />
1998<br />
2001<br />
2004<br />
2007<br />
2010
Western consumers also in bad shape<br />
Unemployment rate<br />
11<br />
10<br />
9<br />
8<br />
7<br />
6<br />
5<br />
4<br />
Consumer debt-income and unemployment in the US<br />
Consumer debt<br />
Unemployment<br />
3<br />
1997 1999 2001 2003 2005 2007 2009<br />
1.4<br />
1.3<br />
1.2<br />
1.1<br />
1.0<br />
0.9<br />
0.8<br />
Household debt-income ratio<br />
Source: Haver
Back to profit in 2010 but risks for 2011<br />
% revenues<br />
8.0<br />
6.0<br />
4.0<br />
2.0<br />
0.0<br />
-2.0<br />
-4.0<br />
-6.0<br />
-8.0<br />
1995<br />
Source: <strong>IATA</strong><br />
1996<br />
1997<br />
1998<br />
Global commercial airline profitability<br />
1999<br />
EBIT margin<br />
(left scale)<br />
2000<br />
2001<br />
2002<br />
2003<br />
2004<br />
Net losses<br />
(right scale)<br />
2005<br />
2006<br />
2007<br />
2008<br />
2009<br />
2010F<br />
20<br />
15<br />
10<br />
5<br />
0<br />
-5<br />
-10<br />
-15<br />
-20<br />
US$ billion
And big differences in regional performance<br />
3<br />
2<br />
1<br />
0<br />
-1<br />
-2<br />
-3<br />
-4<br />
-5<br />
Europe North<br />
America<br />
Net profits by region, US$ billion<br />
Asia<br />
Pacific<br />
Latin<br />
America<br />
2009 2010<br />
Middle<br />
East<br />
Africa<br />
Source: <strong>IATA</strong>
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