Aircraft utilization and passenger load factor - IATA
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To represent, lead and serve the airline industry
Cycle turns up but risks and structural challenges remain
September 2010Brian Pearcewww.iata.org/economics
Confidence was still high in July survey Airline CFO question: what change in profits do you expect
0102030405060708090
100
Mar
200
6
Sep
2006
Apr 2
007
Oct
200
7
Apr 2
008
Oct
200
8
Apr 2
009
Oct
200
9
Apr 2
010
Wei
ghte
d Sc
ore
(50
= N
o C
hang
e)
Last Three Months
Next Twelve Months
Source: IATA
Markets rebound from Great Recession
Source: IATA
International air freight and passenger volumesseasonally adjusted
160
180
200
220
240
260
2005 2006 2007 2008 2009 2010
RP
K, b
illio
ns
9
10
11
12
13
14
FTK
, bill
ions
FTK
RPK
World trade slowing but still above trend
World trade in goods and air FTKsSource: Netherlands CPB and IATA
8
9
10
11
12
13
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Billio
n FT
Ks
90
100
110
120
130
140
150
160
170
inde
x of
wor
ld tr
ade,
200
0=10
0
International FTKs(left scale)
World goods trade volumes(right scale)
Air travel driven by business passengers
Source: IATA Premium Traffic Monitor
Premium passengers and world trade growthSource: IATA, CPB Netherlands
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
% c
hang
e ov
er y
ear
Developed countries trade in goods
Premium passenger numbers
Business confident, consumers less so
Source: JP Morgan/Markit and Haver
Business and consumer confidence in major economies
60
65
70
75
80
85
90
95
100
105
2006 2007 2008 2009 2010
Inxd
ex to
100
in 2
007
Business confidence
Consumer confidence
Consumer confident in ‘emerging’ markets
Consumer confidenceSource: Haver Analytics
0
20
40
60
80
100
120
Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010
Bal
ance
exp
ectin
g im
prov
emen
t, in
dex
-35
-30
-25
-20
-15
-10
-5
0
Bal
ance
exp
ecte
ting
impr
ovem
ent,
net %
China
Europe(right scale)
US
Large geographical differences in travel
Source: IATA Premium Traffic Monitor
Growth in passenger numbers by flight segment
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2007 2008 2009 2010
Cha
nge
over
yea
r
Middle-East - Asia
Within Asia
North & Mid Pacific
North Atlantic
Freight market growth converging
Source: IATA
International Freight growth by major routesSource: IATA ODS
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-0
9Aug-09Sep
-09Oct-
09Nov-0
9Dec
-09Ja
n-10Feb
-10Mar-
10Apr-1
0May
-10Ju
n-10
YoY
Gro
wth
Within Far East
Europe - Far East
North Atlantic
North and Mid Pacific
Fares rebounding but so are fuel prices
Source: IATA and Platts
Average international fares and jet kerosene prices
300
320
340
360
380
400
420
2006 2007 2008 2009 2010
US
$ pe
r one
-way
fare
100
150
200
250
300
350
400
450
US
cen
ts p
er g
allo
n
Jet kerosene price(right scale)
Average one-way international fare(left scale)
Yields up 45% from Asia, flat from Europe
Air Freight Yields US$ per KiloSource: IATA CASS
1.1
1.2
1.2
1.3
1.3
1.4
1.4
1.5
1.5
1.6
1.6
2005
Q1
2005
Q2
2005
Q3
2005
Q4
2006
Q1
2006
Q2
2006
Q3
2006
Q4
2007
Q1
2007
Q2
2007
Q3
2007
Q4
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2009
Q1
2009
Q2
2009
Q3
2009
Q4
2010
Q1
2010
Q2
0.4
0.9
1.4
1.9
2.4
2.9
3.4
Global Total
Europe (RHS) to North America
SE Asia to Europe (RHS)
Asset utilization not as good as it appears
Source: IATA
Aircraft utilization and passenger load factor
71%
72%
73%
74%
75%
76%
77%
78%
79%
80%
2005 2006 2007 2008 2009 2010
Pas
seng
er lo
ad fa
ctor
, % A
SK
s
10.2
10.4
10.6
10.8
11.0
11.2
11.4
11.6
Airc
raft
utili
zatio
n, d
aily
hou
rs
Passenger load factor
Twin aisle utilization
Utilization of freighters looks much better
Source: IATA, Boeing
Freighter utilization and freight load factor
40%
42%
44%
46%
48%
50%
52%
54%
56%
58%
2005 2006 2007 2008 2009 2010
Frei
ght l
oad
fact
or, %
AFT
K
7.5
8
8.5
9
9.5
10
10.5
11
Frei
ghte
r util
izat
ion,
dai
ly h
ours
Freight load factor
Freighter utilization
Operational cash flow rebounds (partly)
Source: Bloomberg
EBITDA as % revenuesseasonally adjusted
-5%
0%
5%
10%
15%
20%
2005 2006 2007 2008 2009 2010
% re
venu
es
US airlines
Asia-Pacific airlines
European airlines
Business inventory cycle boost ending
Source: IATA Cargo eChartbook
Total Business inventories to sales ratio and FTKsSource: US Census Bureau and IATA
0.8
1
1.2
1.4
1.6
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-108
9
10
11
12
13
14
15
16
17
18
Inventories to sales ratio
FTKS
Large reversal of fiscal stimulus ahead
Source: US CBO
US federal budget position, $ billion
-2000
-1500
-1000
-500
0
500
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
US
$ bi
llion
Bank bailout & fiscal stimulus
Europe exposed to govt debt pressures
Source: Haver
Credit Default Swap Spreads
0
100
200
300
400
500
600
700
800
900
1000
May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10
basi
s po
ints
Greece
Portugal
SpainUK
GermanyUS
Western consumers also in bad shape
Source: Haver
Consumer debt-income and unemployment in the US
3
4
5
6
7
8
9
10
11
1997 1999 2001 2003 2005 2007 2009
Une
mpl
oym
ent r
ate
0.8
0.9
1.0
1.1
1.2
1.3
1.4
Hou
seho
ld d
ebt-i
ncom
e ra
tio
Consumer debt
Unemployment
Developed economies to weaken in 2011
Source: EIU
Forecasts for GDP growth source: EIU
0
1
2
3
4
5
6
7
8
US Japan Europe ASPAC exJapan
Middle EastNorth Africa
LatinAmerica
World
% c
hang
e ov
er y
ear
2010 2011
Volumes will slow, revenues slow furtherGrowth in air cargo volume and world trade
-15
-10
-5
0
5
10
15
20
25
1999 2001 2003 2005 2007 2009 2011F
% c
hang
e ov
er y
ear
Cargo growth
World trade in goods growth
Source: IATASource: IATA
Fuel prices appear range-bound
Jet Fuel and Crude Oil Price ($/barrel)Source: Platts, bloomberg
0
20
40
60
80
100
120
140
160
180
200
2003 2004 2005 2006 2007 2008 2009 2010
Jet Fuel
Crude oil (Brent)
Forward curve
Capacity now coming out of storage
Aircraft Retirements and DeliveriesSource: Ascend
-110
-70
-30
10
50
90
130
2006
2007
2008
2009
Jun-09
Jul-0
9 A
ug-09 Sep
-09 O
ct-09
Nov-0
9 D
ec-10
Jan-10
Feb-10
Mar-
10 A
pr-10
May
-10 Ju
n-10 Ju
l-10
Airc
raft
per m
onth
Deliveries Retirements Storage
MonthlyAverage
Passenger fleet utilization will rise
Daily hours of aircraft utilisation seasonally adjusted
7.9
8.0
8.1
8.2
8.3
8.4
8.5
8.6
2005 2006 2007 2008 2009 2010
Sin
gle
aisl
e, h
ours
10.2
10.4
10.6
10.8
11.0
11.2
11.4
11.6
Twin
ais
le, h
ours
Twin aisle
Single aisle
Source: IATA
Delivery of new capacity set to riseScheduled deliveries of new aircraft, jets and turboprops
0
200
400
600
800
1000
1200
1400
1600
2004 2005 2006 2007 2008 2009 2010 2011
Ann
ual d
eliv
erie
s
OtherMiddle EastNorth AmericaEuropeAsia Pacific
Source: Ascend
So yield gains likely to stall in 2011Global revenues/tkp, costs/tkp and fuel cost/tkp
65.0
70.0
75.0
80.0
85.0
90.0
95.0
100.0
105.0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Yield
Cost per TKP
Fuel cost/TKP(right scale)
Source: ICAO, IATA
Profits cycle up in 2010 but slips in 2011
Global commercial airline profitability
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
F
2011
F
% re
venu
es
-20
-15
-10
-5
0
5
10
15
20
US
$ bi
llion
Net losses(right scale)
EBIT margin (left scale)
Source: IATA
Asia strongest, Europe weakest
Source: ICAO, IATA
Airline net profits by region
-6
-4
-2
0
2
4
6
Europe Asia-Pacific N America L America Middle east Africa
US
$ bi
llion
2009 2010 2011
Still unable to deliver ‘normal’ returnsReturn on invested capital in the airline industry vs the cost of capital
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.019
93
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
F
2011
F
% o
f inv
este
d ca
pita
l
Return on capital(ROIC)
Cost of capital(WACC)
Forecast
Source: IATA
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