Airline Current Business Environment Alex Heiteraviation.itu.edu.tr/img/aviation/datafiles/Lecture...
Transcript of Airline Current Business Environment Alex Heiteraviation.itu.edu.tr/img/aviation/datafiles/Lecture...
Airline Current Business Environment Alex Heiter
Network, Fleet and Schedule
Strategic Planning
Module 2: 30 March 2015
Istanbul Technical University
Air Transportation Management
M.Sc. Program
2
The underlying dynamics of our industry
Economic growth
Traffic growth
Fleet Capacity Requirement
Fleet Capacity Growth
Airline Capacity Decisions
Capital intensity to adjust capacity
Utilization
Used Airplanes
New Airplanes
Parked Airplanes
High Low
Short term
Long term
Delayed
Retirement
Exogenous shocks
Airline Profitability
Liberalization
3
World Business Environment
Key Developments
Satisfactory G R Y Cautionary Major Concern
Indicator Key Metrics 2014 2015 2016 Updates
Economic environment
GDP Trade volumes Oil prices Exchange rates Financial markets
Economic growth accelerating into 2015
Brent oil price trading ~$60/bbl, mid-term outlook for price recovery
Heightened geopolitical tensions
Passenger demand
Traffic volumes Yields
Traffic +6.1% YoY in December, 5.9% for full year 2014
At/above long-term average 2015+
Significant variation between regions, business models
Passenger Capacity
Airline schedules Parked fleet Utilization rates Load factors
Global capacity growth stable at ~6%, regional variation
Load factors, utilization near/at record highs
Parked fleet showing typical seasonal trends
Air cargo demand
Traffic volumes Yields
Traffic +4.9% YoY in December, IATA: 4.5% growth for 2014
Demand growth returning to long-term average 2015+
Significant variation between regions, business models
Air cargo capacity
Parked fleet Utilization rates Load factors
Load factors, large freighter utilization recovering
Parked current-generation airplanes, but initial returns to service
Airline financials
Industry profitability Airline performance Airplane financing
Airlines managing uncertainty, volatile fuel prices
Airline industry net margins: 2.7% in 2014, 3.2+% in 2015
4
World Economic Outlook
$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000
Australia/NZ
Africa
Canada
India
Other Europe
Russia and CIS
Brazil
MidEast
LatAm ex. Brazil
Other Asia
Japan
China
United States
European Union
2013 GDP, Billions U.S. Dollars
1.3%
2.4%
7.2%
0.2%
3.9%
1.7%
2.8%
-0.1%
0.9%
2.1%
7.4%
2.4%
3.7%
2.7%
World Growth: 2014 2.6%
2015 2.7%
2016 3.2%
2014-2024 3.3%
Based on IHS Monthly Interim Forecast
(February 2015 Update — Annual Real GDP)
2014 2015 2014-24 CAGR
1.8%
3.0%
6.4%
1.0%
4.1%
1.8%
2.3% -0.5%
-3.3%
1.6%
7.9%
1.9%
4.3%
2.6%
1.8%
2.6%
6.5%
1.0%
4.2%
3.6%
4.0%
2.4%
2.1%
2.6%
7.9%
2.3%
4.8%
2.8%
Note: “China” includes Hong Kong and Macau. China’s stand alone growth rates: 2014 7.4%, 2015 6.5%.
Growth accelerating into 2015
5
World GDP Level Index
World
US
EU
Japan
Asia ex-Japan and ex-China
LatAm Middle East
China
90
110
130
150
170
190
210
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Annual Real GDP Level (Index, 2008 = 100)
Emerging markets contribute to global economic recovery
Source: IHS (February 2015 Interim Forecast, world = real GDP growth)
6
World Economic Outlook
Forecast
Global economic growth strengthening in 2015-6
Economic growth below trend since
2011
Accelerating growth and return to
trend in 2016 behind strong US
economy
Trade growth improving, cargo
showing signs of improvement
Real annual GDP Growth (%)
-2
-1
0
1
2
3
4
5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Long-term
average
Source: IHS (February 2015 Interim Forecast)
7
World Trade
Trade accelerates slightly in 2015
25
50
75
100
125
150
175
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Volume Index (s.a. 2005 = 100); indicator of world merchandise trade
Source: Netherlands Bureau for Economic Policy Analysis (http://www.cpb.nl/eng/research/sector2/data/trademonitor.html)
8
Consumer Confidence
Sources: Global Insight, European Commission Consumer confidence around decade-high in US, improving in EU
40
50
60
70
80
90
100
110
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
United States
40
50
60
70
80
90
100
110
120
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
-35
-30
-25
-20
-15
-10
-5
0
European Union
20
25
30
35
40
45
50
55
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Japan
70
80
90
100
110
120
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
China
Economic Sentiment Indicator
Consumer Component
9
Exchange Rates
119
0.88
0.60
0.70
0.80
0.90
1.00
1.10
75
85
95
105
115
125
135
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
¥/$ €/$
Monthly Average Exchange Rates
Source: Pacific Exchange Rate Service; Last data point: February 2015
▲ - USD strengthening
▼ - USD weakening
U.S. dollar strengthening significantly
10
Oil and jet fuel prices
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
0
20
40
60
80
100
120
140
160
180
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY
$/Barrel (Brent Crude Oil)
Brent Crude Oil
Jet Fuel
Oil price forecasts are nominal annual average prices for 2015-18
Historical data source: EIA
Avg Ann Prices
2007 $72
2008 $97
2009 $62
2010 $80
2011 $111
2012 $112
2013 $109
2014 $99
2015 $50
Oil prices down 50+% since June, mid-term price outlooks $80+/bbl
IHS
PIRA
Forecasts
EIU
$/gallon (US Gulf Coast Jet Fuel)
OxEcon
11
World Passenger Traffic and Capacity
-5%
0%
5%
10%
15%
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY
-5%
0%
5%
10%
15%
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
-5%
0%
5%
10%
15%
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
-5%
0%
5%
10%
15%
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY
YoY Growth
YoY Growth
Europe
YoY Growth
YoY Growth
Asia Pacific Int’l
Source: ATA, AEA, AAPA, IATA, ALTA, CAAC, airline reports, Boeing market analysis
ASK
RPK
Traffic growth continues to be above long-term 5% growth rate
World US Domestic
12
Emerging Market Traffic and Capacity
BOEING PROPRIETARY
-5%
0%
5%
10%
15%
20%
25%
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
-5%
0%
5%
10%
15%
20%
25%
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Dec-12 Jun-13 Dec-13 Jun-14 Dec-14
BOEING PROPRIETARY
YoY Growth
China
YoY Growth
Latin America
Source: CAAC
Middle East Int’l
Source: ALTA
YoY Growth (Pax)
India
Source: Airports Authority of India
Dom
Intl
Significant variation between regions, emerging markets leading
-5%
0%
5%
10%
15%
20%
25%
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14
YoY Growth
Source: IATA
ASK
RPK
13
0
50
100
150
200
250
300
-10%
-5%
0%
5%
10%
15%
20%
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4F
201
5F
0
1
2
3
4
5
6
7
-15%
-10%
-5%
0%
5%
10%
15%
20%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014F
2015F
Near-term Traffic Outlook Passenger and Cargo
Annual Growth Annual RPKs (trillions)
Passenger traffic Air cargo traffic
Annual Growth Annual RTKs (billions)
Passenger traffic resilient, cargo market recovering
14
Passenger Capacity
Global passenger capacity growing broadly in balance with traffic
Airlines adjusting capacity in response
to demand, route profitability
Load factors are at or near record
highs throughout the year; March
should just be an anomaly due to
Easter timing
Parked fleet - typical seasonal trends
Utilization near peaks, single aisle
more seasonal
60%
65%
70%
75%
80%
85%
90%
J F M A M J J A S O N D
World Load Factor
2000
2010
2011 2012 2013 2014
15
0
1
2
3
4
5
6
7
-15%
-10%
-5%
0%
5%
10%
15%
20%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014F
2015F
Passenger demand
Passenger traffic resilient due to multiple factors
Emerging markets – GDP, middle
class growth
New airline business models
Demographics support leisure travel
Air travel relative affordability
Business travel – revenue focus, travel
intensive sectors outperforming
Annual Growth Annual RPKs (trillions)
Passenger Traffic
Source: ICAO, BCA
16
Passenger Load Factors
60%
65%
70%
75%
80%
85%
90%
J F M A M J J A S O N D
60%
65%
70%
75%
80%
85%
90%
J F M A M J J A S O N D
60%
65%
70%
75%
80%
85%
90%
J F M A M J J A S O N D
60%
65%
70%
75%
80%
85%
90%
J F M A M J J A S O N D
World
Europe
US Domestic
Asia Pacific Int’l
Load Factor
Load Factor
Load Factor
Load Factor
2008
Record high load factors from traffic growth, capacity discipline
2011
2012
2013 2014
17
Commercial parked fleet trends
January 2015
0%
3%
6%
9%
12%
15%
0
500
1,000
1,500
2,000
2,500
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
# of Aircraft % of Fleet
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
0
50
100
150
200
250
300
350
400
450
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
# of Aircraft % of Fleet
AC Types Included: All Western-built Jets > 90 seats
Total Parked Fleet
9.9% of total fleet parked and 2.9% of in-production fleet parked
In-Production Parked Fleet
AC Types Included: 737NG, 747-8, 767, 777, 787, A320,
A330, A380
18
Airplane Utilization Trends
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Large Freighters include 777Fs and 747 Fs (all models) Source: BCA RM&T Fleet Reliability Statistics (subject to reporting revisions)
Flight Hours Per Day (12-month moving average)
Passenger at record levels, large freighters continue to rebound
Single Aisle Twin Aisle
Passenger
Large Freighter
7.0
7.5
8.0
8.5
9.0
9.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
19
0
50
100
150
200
250
300
-10%
-5%
0%
5%
10%
15%
20%
199
0
199
1
199
2
199
3
199
4
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4F
201
5F
Air cargo demand
Near-term cargo market challenges, long-term growth market
Air cargo traffic
Annual Growth Annual RTKs (billions) No volume growth 1Q11 through 1Q13
– Shocks, slow economic growth
– Weak consumer markets – Europe, US
– High fuel prices
– Containership competition
Growth resumed in 2Q2013
4.5% YTD growth in 2014 through
December according to IATA & A4A
20
-30%
-20%
-10%
0%
10%
20%
30%
40%Mo. % Change - History
12-Mo. Avg. History
World air cargo traffic recovering since
2Q2013 M
on
thly
Pe
rce
nta
ge
Cha
ng
e o
ve
r P
rio
r Y
ea
r
Sources: IATA Carrier Tracker (industry international scheduled freight) and A4A US domestic cargo traffic.
21
The strength of the air cargo recovery varies by
region of airline domicile and/or business model
Sources: IATA Carrier Tracker (Industry international scheduled freight), A4A US domestic cargo traffic, and Boeing analysis
* Fedex and UPS freighter flown statistics only per A4A
World air cargo grew 0.9% in 2013
Air cargo traffic up 4.5% YTD
through December 2014 per IATA
and A4A statistics.
Growth was likely 5% or better in
2014; complete statistics will be
available in the coming months.
Express carriers (FDX, UPS only)
volumes down slightly, possibly due
to competition with DHL
Middle East, PRC, and European
carriers adding capacity to capture
emerging opportunities (200,000)
300,000
800,000
1,300,000
1,800,000
2,300,000
2,800,000
Africa AsiaPacific
PRCCarriers
Europe ExpressCarriers*
LatinAmerica
MiddleEast
NorthAmerica
December 2014 year-to-date
16.9%
0.9%
-1.4%
7.7%
11.2%
0.6%
3.0% 20.2%
22
Airline revenues and costs
0
100
200
300
400
500
600
700
800
Fuel Exp
Non-Fuel Exp
Revenues
$ (billions) $/ATK
$0.30
$0.35
$0.40
$0.45
$0.50
$0.55
$0.60
$0.65
$0.70Unit Revenue
Unit Cost
Unit Cost ex Fuel
Source: IATA, December 2014 Financial Forecast & BCA Market Analysis
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F
Improving financial outlook – rising economic outlook, lower fuel prices
23
International Fare Development
BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY
$600
$650
$700
$750
$800
$850
$900
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2011 2012 2013 2014 2015
Data source: ARC Settlements and Operations statistics http://www.arccorp.com/news/sales-document-statistics-archive.jsp
International Fare Per Transaction ($)
Average international fares at lowest level in 4 years
2013 $3.09
2014 $2.92
2015 $1.80
USGC Jan Jet Fuel Price
24
($20)
($15)
($10)
($5)
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015F
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
..
Airline industry operating profitability
Net Profit (Loss) Billions Operating Margin
Airlines managing economic uncertainty, volatile fuel prices
Source: ICAO (1980 – 2013) and IATA December 2014 (2014-15)
25
Regional profitability outlook
13.2
4.0
5.0
1.61.0 0.2
-2
0
2
4
6
8
10
12
14
N. Amer Europe Asia MidEast LatinAm Africa
2013 2014E 2015F
Net Profit (billions $)
Source: IATA, December 2014
North America leading industry profitability
26
Regional margin performance
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
N. Amer Europe Asia MidEast LatinAm Africa
2013 2014E 2015F
Net Margin, % revenues
Americas leading industry profit margins
Source: IATA, December 2014
27
Airline Operating Profitability
Company Name 2013 2014Q1 2014Q2 2014Q3 2014Q4 2015 2016
DELTA 10.07 6.98 15.15 12.57 12.60 17.07 18.34
AMERICAN 7.32 5.97 14.55 13.30 13.05 19.64 18.45
UNITED 4.62 (3.42) 10.41 11.68 8.63 14.14 13.73
JETBLUE 7.87 3.04 9.44 10.73 11.69 17.47 17.14
SOUTHWEST 7.71 5.59 16.22 13.27 14.43 20.37 19.86
ALASKA 16.25 11.54 19.13 21.57 16.23 23.60 22.02
HAWAIIAN 6.20 1.91 8.96 16.60 13.45 15.44 15.31
REPUBLIC 15.76 16.03 18.37 17.39 17.67 16.57 16.31
SPIRIT 17.11 13.72 21.20 19.43 19.25 26.55 24.85
ALLEGIANT 15.53 18.93 19.42 10.89 5.30 28.01 25.38
WESTJET 10.91 12.63 8.43 12.46 14.04 15.84 14.75
AIR CANADA 5.00 (2.02) 7.41 13.85 3.41 9.74 8.89
AEROMEXICO 6.39 0.20 1.99 4.40 8.00 6.26 7.12
AVIANCA TACA 8.37 4.55 4.35 5.77 9.43 11.91
COPA 21.07 24.80 19.48 16.73 18.29 18.68
GOL 2.97 5.79 1.59 6.17 8.21 8.32
LATAM 4.53 1.02 0.07 3.63 6.69 7.58
CEBU 5.86 4.36 16.38 (0.92) 12.20 11.00
THAI 0.28 (4.13) (14.07) (8.13) 3.16 4.28
MALAYSIAN (3.87) (9.56) (7.68) (11.67)
ASIANA AIRLINES (0.20) (0.15) 0.21 4.31 6.94 6.57
GARUDA INDONESIA 1.52 (23.86) (4.40) (1.55) 5.51 5.59
KOREAN (0.17) 0.73 (0.68) 7.60 7.21 7.17
SINGAPORE 1.93 (1.47) 1.07 3.37 3.57 6.42 7.00
PHILIPPINE AIRLINES (10.25) (4.00) 6.52 (0.50)
ANA 4.05 (0.79) 0.09 12.31 7.09 6.55 7.03
JAPAN AIRLINES 13.57 9.17 6.06 19.71 13.41 14.90 14.84
QANTAS* (0.46) 9.73 9.53
VIRGIN AUSTRALIA* (5.14) 5.04 5.74
AIR NEW ZEALAND* 7.86 11.99 10.27
JET AIRWAYS** (4.57) (18.01) (1.33) (0.48) 4.84 5.09
SPICEJET-B (13.11) (20.02) (5.43) (0.40) 3.08
(8.71)
(11.15) (0.07)
7.84 9.78
No
rth
Am
eri
ca
LA
TA
MA
sia
Pa
cif
ic
< 0% Profit > 0 - < 3% Prof > 3% Prof Excluding unusual items
* 6-month results
28
Airline Operating Profitability
< 0% Profit > 0 - < 3% Prof > 3% Prof Excluding unusual items
* 6-month results
AIR CHINA 4.51 (0.31) (0.95) 12.10 9.46 8.52
CHINA SOUTHERN 2.08 (1.86) (6.88) 9.27 7.14 7.06
HAINAN 7.64 2.01 (0.15) 18.19 13.56
SHANDONG 3.18 4.51 (2.38) 11.32
CHINA AIR (0.54) (2.48) (0.54) 4.21 8.33 5.62
EVA 2.79 (0.56) 3.46 6.01 7.98 7.19
CHINA EASTERN* 1.79 (1.32) 5.26 7.49 7.03
CATHAY PACIFIC* 3.74 7.56 8.47
AIR FRANCE / KLM 0.51 (8.00) 2.25 7.04 (2.72) 2.18 3.72
IAG 3.58 (3.57) 7.47 13.94 9.38 10.77
LUFTHANSA 3.93 (3.02) 5.02 8.00 5.23 5.97
TURKISH 6.60 (3.53) 8.10 16.13 8.01 6.66
NORWEGIAN 6.22 (21.80) (1.69) 8.40 (23.51) 6.27 7.44
AIR BERLIN (5.59) (24.04) (0.79) 5.62 (1.55) 1.05
ICELANDAIR 7.14 (16.00) 8.68 24.48 (9.13)
AEROFLOT 6.80 15.61 4.24 6.25
TRANSAERO 1.45 0.81 0.41 0.06 8.13
Utair* 8.71
RYANAIR 13.23 (4.35) 15.50 34.36 6.32 18.88 21.51
SAS 4.43 (7.78) 8.74 4.62 5.31
EASYJET* 11.67 (3.11) 14.07 15.19
AER LINGUS* 4.29 (19.00) 9.00 5.88 7.87
JAZEERA AIRWAYS 3.58 21.40 24.38 40.34 29.69 28.55
EL AL 1.66 (12.50) 4.31 4.83
ROYAL JORDANIAN (6.46) (12.87) 3.86
COMAIR* 8.23
KENYA AIRWAYS* (0.88) (86.32) 7.37
FEDEX 7.53 5.67 9.99 8.45 8.48 9.98 10.82
DHL 5.63 5.51 5.90 5.31 5.48 5.93
UPS 12.69 10.98 5.24 13.67 4.74 12.61 13.14
ATLAS AIR 12.42 8.96 9.70 13.11 13.45 12.29 12.19
22.22
5.45
(8.89)
3.10
ME
/Afr
/
Ca
rgo
Eu
rop
eC
hin
a
29
Baseline outlook for improving global economic 2015+
High oil price volatility returns, price outlook for recovery into mid-
term
Global passenger traffic growing at/above long-term average rate;
emerging markets leading
Airlines adding capacity in response to traffic growth; adjusting
networks with focus on profitability
Air cargo traffic recovering, market capacity metrics improving
Airline profit outlook rising, North American airlines leading
Airlines restructuring networks, fleets, partnerships, and driving
down controllable costs
Business Environment – Summary
Industry is healthy despite ever-present challenges