Business Environment - Ituaviation.itu.edu.tr › img › aviation › datafiles › Lecture Notes...Business Environment Dr. Fariba Alamdari Fundamentals of Airline Management Module

Business Environment Dr. Fariba Alamdari

Fundamentals of Airline Management

Module 1: 12 October 2015

Istanbul Technical University

Air Transportation Management

M.Sc. Program

2

Market trends

Business environment

Topics

Copyright © 2015 Boeing. All rights reserved.

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Proprietary: The information contained herein is proprietary to The Boeing Company and shall not be reproduced or disclosed in whole or in part except when such user possesses direct ,written authorization from The Boeing Company.

The statements contained herein are based on good faith assumptions are to be used for general information purposes only. These statements do not constitute an offer, promise, warranty or guarantee of performance.

Objectives

Review the key indicators of the global business environment and how they

impact our industry

Assess market forecast drivers and considerations

Review Boeing’s Current Market Outlook

Opportunity to discuss current trends and implications


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NOTE: Annual growth rates (%) and cumulative profit ($B)

Passenger

market resilient,

growing

Global economic

growth rate below

average

Airlines managing

better than ever

before

Since 2010


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Production increasing to meet demand

Traffic: +6% in 2014

Load factors: ~80% globally

Utilization: +15% vs. 2003

Stable values & lease rates

Profits: $20 billion and growing

Parked fleet: Steady at ~3% D

em

an

d

Fle

et

Valu

e


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Continued

strong

replacement

demand

Market

much more

diverse,

balanced

Growth driven

by emerging

economies,

LCCs

New airplanes,

capabilities

opening new

markets


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It’s what passengers want, not bigger airplanes

New direct routes

Additional frequencies

Larger airplane size on existing

routes

78%

8%

14%


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~6% traffic growth

(RPKs)

SOURCE: IATA and BCA Analysis

+180 million

passengers

+900 more airplanes

(passenger)


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Key developments

Satisfactory G R Y Cautionary Major Concern

Indicator Key Metrics 2014 2015 2016 Updates

Economic environment

GDP Trade volumes Oil prices Exchange rates Financial markets

Global economic growth on track, regional variance increased

US Dollar strength continues

Brent oil price trading ~$65/bbl, mid-term outlook for $80+/bbl

Passenger demand

Traffic volumes Yields

Traffic up 7.4% in March, 6% for 1Q15

At/above long-term average 2015+

Significant variation between regions, business models

Passenger Capacity

Airline schedules Parked fleet Utilization rates Load factors

Traffic up 8.2% in July, 6.5% YTD (IATA)

At/above long-term average 2015+

Air cargo demand

Traffic volumes Yields

Traffic down 0.6% in July (IATA), ~3% YTD.

Significant variation between regions, business models

Air cargo capacity

Parked fleet Utilization rates Load factors

Load factors, large freighter utilization recovering

Parked current-generation airplanes, but initial returns to service

Airline financials

Industry profitability Airline performance Airplane financing

Industry on track for ~30bn net profit, yields down, fuel even more.

Airlines managing economic uncertainty, volatile fuel prices

Airline industry net margins: 2.7% in 2014, 3.2+% in 2015


$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000

Australia/NZ

Canada

Africa

Other Europe

India

Russia and CIS

Brazil

MidEast

LatAm ex. Brazil

Other Asia

Japan

China

United States

European Union

2014 GDP, Billions real (2010) U.S. Dollars

Content owner:

Jan Hogrefe

1.9% 2.5% 6.4% 0.6% 3.4% 1.4% 2.5% -2.7% -3.2% 7.4% 1.6% 3.4% 1.0% 2.0%

World Growth: 2014 2.6%

2015 2.4%

2016 2.9%

2017 3.2%

2015-2025 3.4%

Based on IHS Monthly Interim Forecast

(September 2015 Update — Annual Real GDP)

2015 2016 2015-25 CAGR

2.0% 2.8% 6.2% 1.3% 3.5% 1.9% 3.5% -0.8% -0.1% 7.6% 1.9% 3.9% 2.0%

2.1%

1.8% 2.5% 6.1% 1.0% 4.0% 3.2% 4.4% 2.6% 2.8% 7.6% 2.6% 4.4% 2.3% 2.7%

Note: “China” includes Hong Kong and Macau. China’s stand alone growth rates: 2015 6.5%, 2016 6.3%.

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World Economic Outlook

Growth accelerating from 2015 onward


Forecast

Global economic growth stabilized in 2015, accelerating in 2016

World Economic Outlook

Real annual GDP Growth (%)

BOEING is a trademark of Boeing Management Company.


-2

-1

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1

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3

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5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Long-term

average

Content owner:

Jan Hogrefe

Source: IHS (September 2015 Interim Forecast)

World economy accelerating in 2015/2016

Main drivers: oil, monetary stimulus, U.S. economy

Advanced economies improving

Emerging markets mixed

Economies leaving Great Recession era

Outlook supports traffic growth

Uncertainty remains elevated

Watch items:

Geopolitical hotspots

Oil/FX volatility

Success of monetary policy

!

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World Trade

Content

owners: Wendy

Sowers & Jan

Hogrefe

International trade weakness since start of year

Volume Index (s.a. 2005 = 100); indicator of world merchandise trade

Updated on: 09/29/15

Data as of: July 2015

Source: Netherlands Bureau for Economic Policy Analysis (http://www.cpb.nl/eng/research/sector2/data/trademonitor.html)

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Emerging Markets

World Trade

Advanced Economies

http://www.cpb.nl/eng/research/sector2/data/trademonitor.html


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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

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Oil and jet fuel prices

Content owner:

Wendy Sowers

$/Barrel (Brent Crude Oil)

Brent Crude Oil

Jet Fuel

Oil price forecasts are nominal annual average prices for 2015-18

Historical data source: EIA

Avg Ann Prices

2007 $72

2008 $97

2009 $62

2010 $80

2011 $111

2012 $112

2013 $109

2014 $99

2015 $55

Oil prices down 40% since 2014, mid-term price outlooks $80+/bbl

IHS PIRA

Forecasts

Updated: 9/28/2015

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EIU

$/gallon (US Gulf Coast Jet Fuel)

OxEcon


Passenger traffic resilient due to multiple factors

Emerging markets – GDP, middle

class growth

New airline business models

Demographics support leisure travel

Air travel relative affordability

Business travel – revenue focus, travel

intensive sectors outperforming

Passenger demand

Annual Growth Annual RPKs (trillions)

Passenger Traffic

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1

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3

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7

-15%

-10%

-5%

0%

5%

10%

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20%

1990

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2015F

Preliminary Update: September 28, 2012 Historical data source: ICAO Preliminary Forecast: based on GI Sep 2012 GDP release and BCA Market Analysis

Business Environment Overview 14

IMPORTANT NOTE:

Notes found on Notes Page View are

PROPRIETARY – please remove all notes if

using chart externally.

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Source: ICAO, BCA


Near-term cargo market challenges, long-term growth market

Air cargo traffic Annual Growth Annual RTKs (billions)

Traffic recovery began 2Q2013

Significant regional variation

Large freighter utilization recovering

Load factors improving, yields pressure

easing

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in Sanitized

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Update: December 2014


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Improving financial outlook – rising economic outlook, lower fuel prices

Airlines managing dynamic

business environment

– Economic, geopolitical uncertainty

– Fuel prices

– Volatile exchange rates

Significant variation by region,

business model


IMPORTANT NOTE:




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$/ATK

$0.30

$0.35

$0.40

$0.45

$0.50

$0.55

$0.60

$0.65

$0.70Unit Revenue

Unit Cost

Unit Cost ex Fuel

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F


($30)

($20)

($10)

$0

$10

$20

$30

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2014E

2015F

-6%

-4%

-2%

0%

2%

4%

6%

..

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Content owner:

Wendy Sowers

Net Profit (Loss) Billions Percent of Revenue

Airlines managing economic uncertainty, volatile fuel prices

Updated on: 8 June 2015

Airline industry net profitability POST to BDSI

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Source: ICAO (1983 – 2013) and IATA June 2015 (2014-15)

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7.4

1.0 1.9 0.3 0.2

(0.1)

-2

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N. Amer Europe Asia MidEast LatinAm Africa

2013 2014E 2015F

Net Profit (billions $)

Source: IATA, June 2015

North America leading industry profitability

Regional profitability outlook POST to BDSI

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Updated on: 8 June 2015


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Broad liquidity with export credit uncertainty

Satisfactory Cautionary Major Concern


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Global economy

Oil price volatility

Geopolitical hot spots

Air cargo recovery

Supply-demand balance

Liberalization / open skies




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Summary

Strong, growing market being driven by expansion

Airlines managing capacity and are profitable

There are market watch items that need to be managed



Market trends

Business environment


Emerging Markets Real GDP Growth Outlook

Russia, Brazil slowing Emerging Market growth in the near term

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Rea

l G

DP

gro

wth

in %

all Emerging Markets Brazil Russia India China

forecast

Source: IHS Economics, September 2015 forecast


Advanced Economies Real GDP Growth Outlook

Economic growth accelerating in Advanced Economies

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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Rea

l G

DP

gro

wth

in %

all Advanced Economies United States Japan Eurozone

forecast

Source: IHS Economics, September 2015 forecast

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Consumer Confidence

Content

owners: Wendy

Sowers & Jan

Hogrefe

Sources: Global Insight, European Commission Confidence around decade-high in US, improving in EU

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

United States

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China

Economic Sentiment Indicator

Consumer Component

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-5%

0%

5%

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15%

Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

BOEING PROPRIETARY Business Environment Overview 27 BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY BOEING PROPRIETARY

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World Passenger Traffic and Capacity

BOEING PROPRIETARY

YoY Growth

World

YoY Growth

Europe

YoY Growth

US Domestic

YoY Growth

Asia Pacific Int’l

Source: ATA, AEA, AAPA, IATA, ALTA, CAAC, airline reports, Boeing market analysis

ASK

RPK

Above-trend traffic growth with all major regions performing well

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Emerging Market Traffic and Capacity

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Jun-13 Dec-13 Jun-14 Dec-14 Jun-15

BOEING PROPRIETARY

YoY Growth

China

YoY Growth

Latin America

Source: CAAC

Middle East Int’l

Source: ALTA

YoY Growth (Pax)

India

Source: Airports Authority of India

Dom

Intl

Very strong performance in emerging markets

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25%


YoY Growth

Source: IATA

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ASK

RPK


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Traffic Growth International Premium and Economy

Source: IATA, data through July 2015

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Premium traffic growth strong, top markets performance mixed

Growth in premium pax carried was very

strong in July: increased by +8.5%YoY

Economy pax carried increased at a

slightly slower pace of +6.6%YoY

Top 3 markets by premium revenue —N

Atlantic, Europe-Far East and trans-

Pacific— growths were mixed, at +8%,

6.2% and +3%, respectively

As US & EU environment improves,

premium traffic to and from US & EU

picks up, too

Improving business confidence and

financial market sentiment suggest near-

term premium travel demand sustaining



Global passenger capacity growing broadly in balance with traffic

Airlines adjusting capacity in response

to demand, route profitability

Load factors are at or near record

highs throughout the year; March

should just be an anomaly due to

Easter timing

Parked fleet - typical seasonal trends

Utilization near peaks, single aisle

more seasonal

Passenger Capacity

60%

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90%

J F M A M J J A S O N D

World Load Factor

2000

2010

2011 2012


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2013

2014

2015


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Content owner:

Wendy Sowers

World

Europe

US Domestic

Asia Pacific Int’l

Load Factor

Load Factor

Load Factor

Load Factor

2008

Record high load factors from traffic growth, capacity discipline

2011

Passenger Load Factors

2012

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2013 2014 2015



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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Large Freighters include 777Fs and 747 Fs (all models)

BOEING PROPRIETARY Business Environment Overview 32

Source: BCA RM&T Fleet Reliability Statistics (subject to reporting revisions)

Content owner:

Jeff Deckrow

Flight Hours Per Day (12-month moving average)

Passengers planes continue near or at record levels

Large freighter utilization growth moderating

Single Aisle Twin Aisle

Passenger

Large Freighter

Airplane Utilization Trends (thru July 2015)

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Single Aisles include 717, 737 and 757 (all models)


Air cargo traffic down -0.6% in July 2015 YoY, 3.1% YTD

Sources: IATA Carrier Tracker (industry international scheduled freight) and A4A US domestic cargo traffic.

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% Monthly Change YoY

12-Month Rolling Average

Updated: 09/21/15

World air cargo traffic recovering since 2Q2013

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Business Environment - Ituaviation.itu.edu.tr › img › aviation › datafiles › Lecture Notes...Business Environment Dr. Fariba Alamdari Fundamentals of Airline Management Module