Macro View on the Aviation Industry Dublin January 2017 Peter Morris Chief Economist 1
Agenda • Macroeconomic drivers and trends • GDP • Tourism • Trade • Leading indicators • Oil price and effects on the market • Aircraft orders • Global Risks 2015/16
The Aviation Evolutionary Cycle • GDP • Liberalisation • Price • Trade Blocs • Product & Information • Competition • Shock Events • Protectionism • Changing tastes Customer Regulatory Airline/ Airport Technology market structure • Aircraft • Ownership • Distribution • Alliance • Information • Route network • On board product • Polarisation • Performance • Consolidation
Western Europe likely to see the weakest growth, Asia the strongest GDP Growth Expectations to 2020 8 6 4 % GDP growth 2 0 -2 -4 Source: EIU Dec 16 -6 Asia and Australasia - [19] Eastern Europe - [13] Latin America - [20] Middle-East and North Africa - [19] North America - [2] Sub-Saharan Africa - [17] Western Europe - [21]
Four regions indicate improved GDP for 2017 GDP Growth Trends (%) 2015-17 5 4 3 2 % 1 - Asia and Eastern Europe - Latin America - Middle-East and North America - [2] Sub-Saharan Western Europe - Australasia - [19] [13] [20] North Africa - [19] Africa - [17] [21] (1) (2) 2015 2016 2017 EIU Dec 2016 5
Forecasts slipping then recovering in Asia FlightAscend analysis of EIU data 6
Will the new administration bridge the gap? 7
Optimism for some parts of Western Europe subsided in July FlightAscend analysis of EIU data 8
Tourism - 2016 trend slightly lower than 2015, but significant regional variations
Trade outlook shows some optimism for 2017 Source: WTO Nov 2016 10
Overall, OECD lead indicators suggest stability, improvement Source: OECD 2016
Global economic cycle Steady performance with improvement seen in Q4 2016 Indicator Current level Trend EIU estimate for 2016 was 2.2%. Forecasts for global GDP for 2017 GDP 2017 forecast currently higher at show an improvement over 2016 for 2.5%. Asia-Pacific leads at 4.0%, North and Latin America, as well as US 2.3%, W Europe 1.3%. Latin Middle East and Africa. Russia also America 1.7%. emerging from recession. OECD members fairly stable at Inflexion point in many countries OECD Leading Indicators ~100 index. Within this, Euro Area (e.g. China by Q4 2016). Overall, above 100; US and major 5 Asian most major economies showed an countries (including China) are improving trend. PMIs also showing below 100, as are many developing improving trend. nations World Trade H1 2016 showed World Trade value World trade drivers indicators have decline of c6%, volume up 0.5%. H2 shown improvements. WTO Outlook 2016 shows some improvements. Indicator dial shows 2 green, 4 amber, 1 red as at Nov 2016. 12
Global Air Passenger Demand has continued to be robust Annual Passenger Growth and Total Passengers 16 4,500 14 4,000 12 3,500 Annual % Growth 10 3,000 Average of 6% over 2010-16 8 2,500 Pax 6 2,000 4 1,500 2 1,000 Source: IATA 0 500 -2 0 Growth (%) LHS Pax (m) RHS Source: IATA 2016
Overall industry profits, margins solid since 2010 Global Airline Profits and % (EBIT) Margin 70 9 8 60 7 50 6 40 5 % Margin $Bn 30 4 3 20 2 10 1 Source: IATA 0 0 -10 -1 Profit ($Bn) % margin Source: IATA 2016
IATA expect supply to marginally lead demand in all regions in 2017 12% 10% 2016 Predicted Growth 8% 6% 4% 2% 0% Africa Asia-Pacific Middle East Latin America North Europe Global America Predicted Traffic Growth Predicted Capacity Growth Year to Date Traffic Year to Date Capacity Source: IATA 2016 15
Global passenger traffic growth still firm Year-on-Year Change -15% -10% 10% 15% 20% -5% 0% 5% Jul-08 Sep-08 Source: IATA Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 Traffic (RPK) May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Capacity (ASK) Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 IATA predicting 5.1% traffic growth Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 for 2017 Nov-14 Jan-15 Mar-15 May-15 2016 Capacity = 6.2%, Traffic = Jul-15 Sep-15 Nov-15 6.0% Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 16
Airline profits peaked in 2016? 40 IATA indicating that Q2 2016 is likely to be the top of the airline profit cycle 30 Global Airline Net Profit (US$bn) 20 10 0 -10 -20 -30 Source: IATA 17
Cumulative Profit over past 20 years 140 120 Global Airline Net Profit (US$bn) 100 80 60 40 20 0 -20 -40 Source: IATA 18
Having returned to profitability with high oil prices, the industry has profited from their rapid decline 40 120 30 100 Crude Oil Price (US$ per Barrel) 20 Global Airline Net Profit (US$bn) 80 10 60 0 40 -10 20 -20 -30 0 Net Profit (LHS) Crude Oil Price (RHS) Source: IATA, EIA 2016 Source – IATA/ Ascend
Oil prices have stabilised after falls that commenced in July 2014 IATA’s 2017 base case fuel scenario is now $64.90 per barrel Jet Fuel 140 350 (=$1.54 per USG) Crude oil price trajectory 120 has considerable 300 uncertainty at present Jet Fuel Cents per US Gallon 100 250 Crude Oil $ per Barrel 80 200 60 150 40 100 20 50 0 0 Oil Price Jet Fuel Source: US EIA / IATA 20
Oil ‘Futures’ prices suggests stable oil prices - still substantially below the view in 2015 Future Brent Crude Price ($/Barrel) for Delivery 2016-20 At Jan 2015 At Jan 2016 At Jan17 90 80 70 60 50 40 30 20 Source: Barchart 10 0 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Fuel price impacts the justifiable lease premium for A320neo vs. ceo Monthly Lease premium ($) for average yearly fuel price 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2015 Ave Fuel Price 152c 2016Ave Fuel 124c 2017 Ave Fuel 154c Source: FlightAscend calculation 22
Next generation fuel burn environmentally more efficient 90 -13% CO2 emissions (g per pax-km) 80 -14% 70 60 50 40 30 20 10 0 767-300ER 787-8 A330-300 A330-900neo Source – FlightAscend analysis of Airbus and Boeing data, 3,000nm sector
Deliveries represent typically around 7% of global fleet 2200 11% 2000 10% Deliveries as % of Fleet in Service 1800 9% Passenger Airliner Deliveries 1600 8% 1400 7% 1200 6% 1000 5% 800 4% 600 3% 400 2% 200 1% 0 0% Deliveries / Forecast Deliveries Deliveries as % of Fleet in Service Source: Flight Fleets Analyzer & 2016 Flight Fleet Forecast (deliveries into passenger airline service only) 24
Current jet backlog deliveries to 2021 2000 No of Aircraft on Firm Order 1500 1000 500 0 2017 2018 2019 2020 2021 Airbus Backlog Boeing Backlog Others Backlog Source: Flight Fleets Analyzer & Flight Ascend research – jet firm orders backlog @ 1 Jan 2017 25
Source: WEF 2017 Significant variance in risk factors by region
Source: WEF 2017
And to cheer us all up for 2017 - the Global Worry Index reaches new heights
Summary • GDP growth and other macro indicators show overall improvement in 2017 • Oil price has increased since 2015 but oil futures prices indicate stability • Passenger Traffic growth 2017 expected to slow, but will likely be higher than previously forecast, with local exceptions • Airline business model dynamic continues to evolve for a share of the ‘new’ profitability • Aircraft demand remains strong, with most main new programmes sold out till 2020 • Wider demand risk factors (war, politics, terrorism) continue to fission
A final thought • Positive GDP Growth • Profitable Industry • Full Order Books • Fuel drifting upwards, but relatively stable • New aircraft technology coming on stream
Thank you! Peter Morris Chief Economist +44 (0)20 8564 6790 +44 (0)7725 496758 peter.morris@ascendworldwide.com 31
Factors impacting airline and airport markets Dimension Factor Geopolitical War, Terror, Health issues Political/ Economic Regulatory, Market Environment, Environmental legislation Macro Economic GDP Growth, Exchange Rates, Finance Rates Airline Business Models Network, LCC, Regional on SH and LH Supplier Costs Fuel, Labour, Airport, ATC, booking, Security Competitor Behaviour Pricing, Products, Capacity, Alliances Customer Behaviour Premium Markets, Destination Choice, FFPs 32
Recommend
More recommend
