To represent, lead and serve the airline industry
Trends and Challenges for the Airline Industry Tim-Jasper Schaaf Director Marketing & Sales
The value proposition for air travel remains strong It’s safer, it’s greener and it’s still a bargain
IATA Economics www.iata.org/economics 2
Source: Constructed from worldwide data from ICAO and IATA
The quality of air service has improved Even in the past 5 years the main facets of airline service have got better
IATA Economics www.iata.org/economics 3
2007 2008 2009 2010 2011 2012 2013On-time arrival rate* European flights** 77.9% 78.3% 82.1% 75.8% 82.1% 83.4% 83.9% US domestic flights*** 73.4% 76.0% 79.5% 79.8% 79.6% 81.9% 78.8%Mishandled bags per 1000 passengers Worldwide^ 19 15 11 12 9 9 Cancelled flights European network airlines^^ 1.40% 1.38% 1.08% 3.43%^* 0.94% 1.00% 1.23% US domestic flights^^^ 2.16% 1.96% 1.39% 1.76% 1.91% 1.29% 1.42%* % flights arriving within 15 minutes scheduled time** http://www.eurocontrol.int/articles/coda-publications*** http://airconsumer.ost.dot.gov/reports/; table 1A YTD December figures^ SITA Baggage Report 2012^^ AEA ^^^ http://www.transtats.bts.gov/HomeDrillChart.asp; On time performance - Flight delays at a glance^* Impacted by airspace closures due to Icelandic volcanic ash cloud
Over $6 trillion of goods annually are now carried by air 35% of world trade is carried by air; a key enabler of globalization
IATA Economics www.iata.org/economics 4
Source: ICAO, IATA, WTO. Value carried by air=world merchandize exports*35% (35% estimated by The Colography Group, 2005)
Air connectivity has enabled global supply chains Dell, Apple, Amazon would look very different without rapid air freight
IATA Economics www.iata.org/economics 5
Businesses can set up much more efficient global supply chains
Dell manufacturing plantAustin, Texas
MexicoKeyboards
FranceSoundcards
ChinaPower supplies
Hong KongVideo Cards
Microprocessors
SingaporeSCSI CardsDisk Devices
JapanRAM Chips
CD-ROM Drives
TaiwanNetwork Cards
MonitorsCooling Fans
MalaysiaFloppy Drives
Source: Dell, IATA
0.0% 5.0% 10.0% 15.0% 20.0%NigeriaPoland
JapanCzech Republic
RomaniaChina
Russian FederationHungary
BrazilDenmark
IndiaColombia
ItalyEcuadorAustria
PeruMexico
LatviaKorea
PhilippinesSwitzerland
NorwayTaiwan
GermanyIsrael
BelgiumNetherlandsSouth AfricaSaudi Arabia
PortugalWORLD AVERAGE
LuxembourgMalaysia
KenyaFrance
SwedenFinland
ChileTurkey
United StatesUnited Kingdom
SpainJordan
CanadaIrelandGreece
AustraliaEgypt
Hong KongSingapore
ThailandNew Zealand
IcelandUnited Arab Emirates
CyprusLebanon
Malta
Aviation and tourism GVA as a % GDP
Aviation plays a major role in most economies Footprint of aviation and tourism measured by the sector’s GVA as % GDP
IATA Economics www.iata.org/economics 6
Source: Oxford Economics. http://www.benefitsofaviation.aero/Pages/default.aspx Note: GVA = Gross Value Added which is mainly wages and profits. GDP = Gross Domestic Product
Massive expansion ahead for emerging markets Expanding middle classes drive both travel and air cargo flows Serving this demand will require a big expansion of investment
IATA Economics www.iata.org/economics 7
Global middle income class in 2009 and prediction for 2030
North America
Central & South America
Europe
Middle East &North Africa
Sub Saharan Africa
Asia Pacific
100mn500mn
1bn20092030
Source: OECD, Standard Chartered Bank
Periods of profit in the industry are typically short-lived Average 1990-2012 net profit margin for airlines worldwide was 0.0%!
IATA Economics www.iata.org/economics 8
Source: ICAO, IATA
Lack of profitability not due to business model or region Airlines generating average EBIT margins of more than 8% during the 2000s
IATA Economics www.iata.org/economics 9
0% 5% 10% 15% 20% 25%
RyanairRepublic Airways
COPAAllegiant
GOLAir Arabia
TurkishAeroflot
Pinnacle AirlinesEmirates
Singapore AirlinesSouthwest Airlines
AegeanLAN
INDUSTRY
EBIT margin %, 2000-2009
Average EBIT margins, 2000-09
LCC
Full service long-haul
Regional
L AmericaN AmericaMid EastAsia-PacificEurope
Source: IATA Vision2050 report http://www.iata.org/pressroom/facts_figures/Documents/vision-2050.pdf
Profitability is very unbalanced across the value chain Airlines sit in the middle of the value chain making the least returns
IATA Economics www.iata.org/economics 10
ROIC excluding goodwill of sample, period 2004-2011, %
20
7 0 5
10 15 20 25 30 35 40 45
44
4 15
9 6 9 11
9-11 Cost of capital
9-11 7-9 6-8 6-8 7-10 10-11 8-11 7-8
Source: McKinsey
Existing and proposed regulation risk significant cost A selection of regulations/policies illustrating industry and market-level costs
IATA Economics www.iata.org/economics 11
Source: IATA
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Airportregulation
Budgetdeficits
Passengerrights
Climatechange
Congestionpolicy
% a
vera
ge ti
cket
pric
e
Policy risk impact
Austrian tax
German tax
Climate fund levy
EU ETS
LHR 2012-14
Delhi
ACSA
LHR congest-ionpricing
CDG congest-ion pricing
Europe
Total cost for industry
$1.5bn
Demand for air travel and cargo diverge
IATA Economics www.iata.org/economics 12
Source: IATA
11
12
13
14
15
16
17
18
19
300
320
340
360
380
400
420
440
460
480
2007 2008 2009 2010 2011 2012 2013
FTK
s pe
r mon
th, b
illio
n
RP
Ks
per m
onth
, bill
ion
Air travel and air freight volumesSeasonally adjusted
Freight FTKs
Passenger RPKs
Revenue divergence greater than volumes
IATA Economics www.iata.org/economics 13
Source: ICAO (history), IATA (forecast)
20
30
40
50
60
70
80
90
150
200
250
300
350
400
450
500
550
600
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013F
US
$ bi
llion
US
$ bi
llion
Passenger and cargo revenues
Passenger revenue
Cargo revenue
Cargo asset utilization under pressure
IATA Economics www.iata.org/economics 14
37%
39%
41%
43%
45%
47%
49%
51%
53%
7.0
7.5
8.0
8.5
9.0
9.5
10.0
10.5
% a
vaila
ble
freig
ht to
nne
capa
city
Aver
age
daily
hou
rs fl
own
Freight Load Factor
Freight aircraft utilization
Freight load factor and freighter aircraft utilization(Seasonally adjusted)
Source: IATA, Boeing
Asset utilization high in passenger business
IATA Economics www.iata.org/economics 15
73%
74%
75%
76%
77%
78%
79%
80%
81%
10.2
10.4
10.6
10.8
11.0
11.2
11.4
11.6
11.8
2007 2008 2009 2010 2011 2012 2013
% o
f AS
Ks
Aver
age
daily
hou
rs fl
own
Passenger aircraft utilization
Passenger load factor
Twin-aisle aircraft utilization
Ancillary services increasingly important
2000 2002 2004 2006 2008 2010 2012 2014
190
180
170
160
150
140
40
30
20
10
0
Cargo + other
Fare
Ancillaries
Revenue per departing passenger
IATA Economics www.iata.org/economics 16
Source: Ancillaries derived from IdeaWorks 2013 report, IATA forecast
World economy is finally turning up
IATA Economics www.iata.org/economics 17
30
35
40
45
50
55
60
65
70
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2007 2008 2009 2010 2011 2012 2013
Con
fiden
ce in
dex,
50
equa
l no
chan
ge
Year
-on-
year
% c
hang
e
World trade growth
Industrialproduction growth
Business confidence(right scale)
Source: Netherlands CPB, Markit
Jet fuel price to slide to low end of range
IATA Economics www.iata.org/economics 18
0
20
40
60
80
100
120
140
160
180
200
2008 2009 2010 2011 2012 2013 2014
Jet kerosene and crude oil price, $/barrel
$140/b
$110/b
Jet kerosene price
Brent crude oil price
Source: RBS, Platts, IATA
Industry profitability almost as good as 2010
IATA Economics www.iata.org/economics 19
-35
-25
-15
-5
5
15
25
-9.0
-6.0
-3.0
0.0
3.0
6.0
US
$ bi
llion
% re
venu
es
Global commercial airline profitability
Net post-tax profit(right scale)
EBIT margin(left scale)
Source: ICAO, IATA
Better but divergent regional performance
IATA Economics www.iata.org/economics 20
-6%
-4%
-2%
0%
2%
4%
6%
8%
2007 2008 2009 2010 2011 2012 2013F 2014F
Airline net post-tax profit margins
Asia-Pacific
N America
Europe
Source: ICAO, IATA
IATA Business Intelligence data shows opportunities
China-ATH has PDEW of 113. Currently there is no direct flight. People connect through SVO, IST, DXB, AUH,DOH, FRA
9,19%
8,38%
8,08%
6,66%
5,80%
2,79%
2,68% 1,85% 1,79%
DOH
IST
SVO
AUH
DXB
FRA
CDG
PEK
MUC