Airline industry outlook 2019 - iata.org · 12 December 2018 Airline industry outlook 2019 Brian...
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12 December 2018 Airline industry outlook 2019 Brian Pearce Chief Economist
Transcript of Airline industry outlook 2019 - iata.org · 12 December 2018 Airline industry outlook 2019 Brian...
12 December 2018
Airline industry outlook 2019
Brian Pearce
Chief Economist
Are the markets signalling recession ahead?
2
100
200
300
400
500
600
700
35
40
45
50
55
60
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
US
$ p
er
ba
rre
l
Mill
ion
ba
rre
ls a
da
y
FTSE World Equity price index (right scale)
Bloomberg commodity price index (right scale)
Business confidence (left scale)
Source: Datastream, Markit
Trade wars damaging but not expansion stoppers
3
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
% c
ha
ng
e y
ea
r-o
n-y
ea
r
US-China trade war
Escalation 25% tariffs
No escalation
Source: IMF, Citi ‘US-China Tariffs-Limbo on the Verge of Trade Wars’ 3 December 2018
Brexit chaotic but slows rather than stops long-term
4
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
1990 1995 2000 2005 2010 2015 2020 2025 2030
£ t
rilli
on
, 20
16
pri
ce
s
Deal + Backstop -2.8%
Orderly No Deal -5.5%
No Brexit
Source: Oxford Economics, NIESR Brexit Impacts Report 26th November 2018
Deal + FTA (proposal) -3.9%
Forecasters still expect economic growth in 2019
5
35
40
45
50
55
60
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
PM
I in
de
x
% c
ha
ng
e y
ea
r-o
n-y
ea
r
Business confidence
Global GDP growth
Source: Markit, IMF World Economic Outlook October 2018
Air travel has certainly got a lot of momentum
0% 5% 10% 15% 20% 25%
India dom.
China dom.
Russia dom.
A-P intl.
Latam intl.
Africa intl.
Europe intl.
US dom.
NA intl.
Brazil dom.
Mid East intl.
RPK growth, Jan-Oct 2018
% contribution to global growth % change year-on-year
Source: IATA Statistics6
Expect slower travel growth, but still above trend
-10
-5
0
5
10
15
20
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
% c
ha
ng
e o
ve
r p
rev
iou
s y
ea
r
RPK and FTK growth versus trend
RPK growth
FTK growth
20-year trend
7
Source: IATA Statistics, IATAs own forecasts
Jet fuel price lower as market over-supplied
8
0
20
40
60
80
100
120
140
5
6
7
8
9
10
11
12
2012 2013 2014 2015 2016 2017 2018 2019 2020
US
$ p
er
ba
rre
l
Mill
ion
ba
rre
ls a
da
y Jet fuel price (right scale)
Brent crude oil futures price 4 Dec (right scale)
US oil supply (left scale)
Source: Datastream, Platts
Relieving the downward pressure on margins
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2011 2012 2013 2014 2015 2016 2017 2018
% r
ev
en
ue
s
Airline industry operating margin
Seasonally adjusted
As reported
Source: IATA Economics using data from The Airline Analyst9
Breakeven stabilizing and asset utilization rising
58
60
62
64
66
68
70
72
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
% A
TK
sBreakeven and achieved load factor
Achieved
Breakeven
Source: ICAO, IATA Statistics, IATA forecasts10
Airlines’ return on capital should stabilize in 2019
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
% o
f in
ve
ste
d c
ap
ita
l
Return on capital invested in airlines and their cost of capital
Cost of capital (WACC)
Return on capital (ROIC)
Source: McKinsey, The Airline Analyst, IATA forecasts11
Stable margins and 10th consecutive year of profit
-40
-30
-20
-10
0
10
20
30
40
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
US
$ b
illio
n
% r
ev
en
ue
s
Global commercial airline profitability
Net post-tax profit
EBIT margin
Source: ICAO, IATA Statistics, IATA forecasts12
Increasing value for consumers and businesses
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
22000
1995 1998 2001 2004 2007 2010 2013 2016 2019
US
$/R
TK
in 2
01
4U
S$
Nu
mb
er
of
un
iqu
e c
ity
-pa
irs
Unique city-pairs and real transport costs
Unique city-pairs
Inflation-adjusted airline yield
Source: SRS Analyser, ICAO, IATA Statistics, IATA forecasts13
More revenues for governments and more jobs
40
50
60
70
80
90
100
110
120
130
140
35
40
45
50
55
60
65
70
75
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
$ b
illio
n
Mill
ion
Tax revenues and global supply chain jobs supported
Supply chain jobs supported
Tax revenues
Source: ATAG Benefits Beyond Borders 2018, Oxford Economics, IATA forecasts14
However, rising non-fuel costs are a challenge
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2011 2012 2013 2014 2015 2016 2017 2018
% c
ha
ng
e o
ve
r y
ea
r e
arl
ier
Airline industry growth in unit costs and unit revenues
Unit cost growth
Unit revenue growth
Source: The Airline Analyst15
It will take a recession to stop cost pressures rising
1
2
3
4
5
6
7
8
9
-5
-4
-3
-2
-1
0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
% la
bo
ur
forc
e
GD
P r
ela
tiv
e t
o f
ull
ca
pa
cit
y,%
Spare capacity in the OECD economies and labour markets
Unemployment rate (right scale)
Spare capacity in the economy
Source: OECD Economic Outlook October 201816
Interest rates will be pushed higher
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
10 year government bond yields, %
China
US
Eurozone
Source: Datastream17
Problems from a strong US$ likely to continue
Source: Datastream
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Ind
ex
to
eq
ua
l 1 in
20
08
Q1
Exchange rates, US$ per unit of local currency
China
Japan
Eurozone
Indonesia
Brazil
Turkey
Argentina
India
18
Debt remains an issue for airlines in some regions
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017
De
bt
ad
jus
ted
fo
r o
pe
rati
ng
lea
se
s/E
BIT
DA
RAdjusted net debt/EBITDAR
Latin America
Asia Pacific
Europe
North America
Middle East
Investment grade
Source: The Airline Analyst19
Performance will continue to diverge by region
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% o
f re
ve
nu
es
Net profit margin by region
N America
Africa
Asia Pacific
EuropeL America
Middle East
Source: ICAO, IATA Statistics, The Airline Analyst, IATA forecasts20
