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HongKong,31October2017
PeterMorris,ChiefEconomist
1
MacroEconomicsandPoliticalDynamics
FlightGlobal:Pioneeringaviationinsightandanalyticsbusiness
2
RELXGroup:London,AmsterdamandNewYorkStockExchangelisted
28,500employees
MarketCapital$36.87bn
FlightGlobal:370+staff
11officesacrosstheworld
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Independent, objective, global team
We do not invest in aircraft and we are not brokers – we have NO conflicts of interestWe are based in London, New York and Hong Kong and travel the world bringing regional and global opinion into our research
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Access to top industry participants
Clients are Airlines, all the top lessors, the major banks involved in aviation finance, MROs, OEMs, regulatory bodiesPresence at all major aviation events (Paris Airshow, ISTAT Asia / US / Europe…)
3
FlightAscend’s uniqueValuepropositionasanappraiser
TheFlightAscendConsultancyTeam
4
George DimitroffHead of ValuationsISTAT Appraiser
Michael LapsonSenior AnalystISTAT Appraiser
Daniel HallSenior AnalystASA Sr. Appraiser
Rob MorrisGlobal Head of Consultancy
Chris WillsHead of Consultancy Ops.ISTAT Sr. Appraiser
Peter MorrisChief Economist
Chris SeymourHead of Market Analysis
Tony BrooksSenior AnalystISTAT Appraiser
Joanna LuHead of Advisory Asia
Thomas KaplanValuations Analyst
Sara DhariwalValuations Analyst
Henk OmbeletSenior Analyst
Richard EvansSenior Consultant
Ben ChapmanValuations ManagerISTAT Appraiser
Eva KaragianniValuations Analyst
Dennis LauAviation Analyst
Michael HuiAviation Analyst
Oliver FordValuations Analyst
Luke SmithValuations AnalystLionel Olonga
Valuations Analyst
Ryan HammacottRisk Analyst
Syed ZaidiAviation Analyst
VacantSenior Consultant
Kevin NgAviation Analyst
Valerie BershovaValuations Analyst
David GriffinSenior AnalystISTAT Appraiser
Outline• IndustryDrivers• RecentTrafficandCapacityTrends• Profitability• PoliticalUncertainty
TheAviationEvolutionaryCycle
• Ownership• Alliances• Routenetworkgrowth• Segmentation• Consolidation
• Aircraftperformance• Distributionoptions• Informationflow• Onboardproduct• ActualPerformance
• Liberalisation• TradeBlocs• Competition• Protectionism
• GDPandpopulation• Price• Product&Information• ShockEvents• Changingtastes
Customer Regulatory
Airline/Airportmarketstructure
TechnologyInvestment
Passengertrafficgrowthhasvaried,butshownrobustrecoveryfromshocks
7
GulfWar NYC GFCAFC
Changesintheworld’seconomiccentreofgravity
8
Maturemarketsslipdowntable,developingmarketsrise
9
Source:PWCFeb2017
A decade and a half of structural change by region
11%
2%
Changingairlinesharesofworldseatcapacity2002-16
11
Source:TurkishAirlines
Steadygrowthexpectationsto2021acrossmostregions
12
SteadyImprovementinEuropeangrowthexpectations
13
SimilarlyinAsiaPacific
14
ChinaGDPgrowthisexpectedtoslowwitheconomicmaturityanddemographics
15
0123456789
10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
ChinaGDPGrowthProjection
ThreemajorregionsandOECDoverallnowover100onCompositeLeadingIndicatorsIndex• USAnowthemajoroneleftmarginallybelow100
16
98.0
98.5
99.0
99.5
100.0
100.5
101.0
USA Eurozone Major5Asian OECDTotal
OECDLeadingIndicators,August2017
WTOTradeIndicatornowhighestsince2011
17Source:WTOSeptember2017
18
Source: IATA
Globalpassengertrafficgrowthstrongerthanexpectedinearly2017
-15%
-10%
-5%
0%
5%
10%
15%
20%Ju
l-08
Sep-
08N
ov-0
8Ja
n-09
Mar
-09
May
-09
Jul-0
9Se
p-09
Nov
-09
Jan-
10M
ar-1
0M
ay-1
0Ju
l-10
Sep-
10N
ov-1
0Ja
n-11
Mar
-11
May
-11
Jul-1
1Se
p-11
Nov
-11
Jan-
12M
ar-1
2M
ay-1
2Ju
l-12
Sep-
12N
ov-1
2Ja
n-13
Mar
-13
May
-13
Jul-1
3Se
p-13
Nov
-13
Jan-
14M
ar-1
4M
ay-1
4Ju
l-14
Sep-
14N
ov-1
4Ja
n-15
Mar
-15
May
-15
Jul-1
5Se
p-15
Nov
-15
Jan-
16M
ar-1
6M
ay-1
6Ju
l-16
Sep-
16N
ov-1
6Ja
n-17
Mar
-17
May
-17
Jul-1
7
Year
-on-
Year
Cha
nge
Traffic (RPK) Capacity (ASK)
2016 Capacity = 6.2%, Traffic = 6.3%
2017YTD Capacity = 6.5% Traffic = 7.9%
Strong growth seen in domesticmarkets
-0.7%
6.0%
3.4%
8.1%
15.3%
14.9%
14.8%
7.4%
-2.1%
3.0%
4.7%
6.6%
12.7%
15.3%
16.7%
7.7%
-5% 0% 5% 10%Domestic revenue passenger kilometres (%year-on-year)
Source: IATA
15% 20%
Apr 2017 Mar 2017
Industry
Domestic Russia
Domestic India
Domestic China
Domestic Japan
Domestic USA
Domestic Brazil
Dom. Australia
20
Source: IATA
Freightmarketnowpredictedtogrow7.3%in2017
-30%
-20%
-10%
0%
10%
20%
30%
40%Ju
l-08
Oct
-08
Jan-
09Ap
r-09
Jul-0
9O
ct-0
9Ja
n-10
Apr-1
0Ju
l-10
Oct
-10
Jan-
11Ap
r-11
Jul-1
1O
ct-1
1Ja
n-12
Apr-1
2Ju
l-12
Oct
-12
Jan-
13Ap
r-13
Jul-1
3O
ct-1
3Ja
n-14
Apr-1
4Ju
l-14
Oct
-14
Jan-
15Ap
r-15
Jul-1
5O
ct-1
5Ja
n-16
Apr-1
6Ju
l-16
Oct
-16
Jan-
17Ap
r-17
Jul-1
7
Year
-on-
Year
Cha
nge
Traffic (FTK) Capacity (AFTK)
2016 traffic = 3.8%, capacity = 5.3%
IATAhasmarkedlyupdatedforecasts for 2017
2.5
0
5.1
3.3
5.66.6
2.9
-2-2
-4
7.4 7.3 77.7
0
2
4
6
8
10
GDP Paxyields RPKs Freight tonnes ASKs Operatingmargins
Percentage
change
or%
revenu
es PreviousforecastCurrent forecast
Source: IATA
2017 industryprofits down butupgraded
0
2
4
6
8
104035302520151050-5-10
%revenu
es
US$billion
Net profits and operating margins
Net profits - currentOperating margin - current
Net profits - previousOperating margin - previous
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: IATA
23
GlobaleconomiccycleSteady performance with improvement seen since late 2016
Indicator Current level Trend
GDP EIUestimatefor2016was2.2%. 2017forecastcurrently higherat2.9%.Asia-Pacificleadsat4.4%,US2.2%,WEurope2.1%,LatinAmerica1.1%.
ForecastsforglobalGDPfor2017 showanimprovementover2016forNorthandLatinAmerica,aswellasMiddleEastandAfrica.Russiaalsoemergingfromrecession.
OECDLeadingIndicators OECDmembersstableover100index.Withinthis,EuroAreaabove100;Major5Asiancountries(includingChina)nowabove100,asaremanydevelopingnations.USjustbelow100.
Inflexionpointinmanycountries (e.g.ChinabyQ42016).Overall,mostmajoreconomiesshowedanimprovingtrend.PMIsalsoshowingimprovingtrend
WorldTrade Tradein1st 2Q2017up3-4% WorldtradedriverscontinuetoshowmomentumintoQ32017.WTOOutlookindicatorshowing3Green,3Amberand1RedinAugust2017
24
AviationdemandcycleDemand side stable, traffic trends positive, but some yield pressures Indicator Current level TrendPassenger traffic Abovetrendgrowthforsixthyearrunning, 2017
predictedtobe7.4%. LedbyIndia.China.LCCsandyear-on-yearrecoveryinRussia.
Trafficgrowthacceleratingsincelate 2016.Q22017uptoover7%comparedto2016.
Freighttraffic Jan-July 2017up10.6% Improvingtrendinrecentmonths.Freightloadfactorsincreasingthroughout2017.
Yields USsawdeclinesof5-10%formostof2016,reflectinglowerfuelprices.IATAestimate-8%globally.Costsarenowincreasingagain,andUSyieldsareflattoup2%year-on-year
Yields fellfromDecember2014;However,costsweredownby>10%asaresultoffallingoilprices.Nowcostsareincreasing,yieldshavestabilised.
LoadFactors Stillnearhistoricallyrecordlevelsinallmarkets.IndiaandChinaatrecordhighs
AllregionsexceptMiddleEastshowingimprovementsinrecentmonths
Newaircraftorders YTD2017book-to-billaround0.7forallcommercialjets,evenlowerforRJs
Orderintakefallensharplyfromthelevelsof2011-2014. However,thiswasexpectedgivenrecordbacklogof14,000aircraft($900bn)andlimitedopenslotsthrough2020
Deferrals&cancellations
Deferralshavetickedupfollowingrecentairlinecapacityadjustmentsfrompriorlowlevel.Cancellationsnowjustaboveaverage,althoughthisislowerifnormalisedforfleetsize
Bothcancellations anddeferralrateincreasedin2016,butslowingin2017.MostcancellationsduetoOEMscleaningorderbookbutdeferralsreflectfleetplaniteration(Southwest,AA,Turkish,Qantas).
25
Source: Flight Schedules data
ForwardschedulesshowsomeslowingofASKgrowthforwinter2017/18,butstillabove6%
0%
2%
4%
6%
8%
10%
12%
Year
-on-
Year
Cha
nge
Nov 2016 Schedule Jan 2017 sched Mar 2017 schedLeap Year adj. Jun 2017 sched Aug 2017 schedSep 2017 Sched
Feb 2016 was a Leap Year
Capacity ran at 6% growth during Q2/Q3 2016
ForecastHistory
26
Source: ICAO, IATA, Flight Ascend Consultancy Analysis
GlobaltrafficwillneedtobewellabovetrendtoabsorbOEMoutputthrough2020
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Glo
bal P
asse
nger
Tra
ffic
Gro
wth
1982hadworstglobalGDPsince1945,butstill
2%trafficgrowth 1991and2001saw3%trafficfall,exacerbated
by'shock'events
Trafficgrowthof7.7%2017-2020impliedbyOEMproductionrates
Period CAGR1983-1990 8Years 6.6%1994-2000 7Years 6.6%2003-2008 6Years 6.6%2010-2016 7Years 6.5%2010-2020?? 11Years 6.9%
Andtocheerusallupfor2017- theGlobalWorryIndexreachesnewheightsbuthasrelentedtolevelofGFC
Source:Policyuncertainty.com