Trends and Challenges for the Airline Industry · To represent, lead and serve the airline industry...

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


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


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


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


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

http://www.benefitsofaviation.aero/Pages/default.aspx

http://www.benefitsofaviation.aero/Pages/default.aspx

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


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%!


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


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

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


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


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


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

http://www.iata.org/economics

Revenue divergence greater than volumes


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


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


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


Source: Ancillaries derived from IdeaWorks 2013 report, IATA forecast


World economy is finally turning up


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


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


-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


-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

IATA Solutions Spectrum

www.iata.org/solutions

http://www.iata.org/solutions

Trends and Challenges for the Airline Industry · To represent, lead and serve the airline industry...

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