th

17 – 20 September 2018 Madrid Marriott Auditorium Hotel & Conference Center

5World Financial Symposium

18th September 2018 Madrid Marriott Auditorium Hotel & Conference Center

7th SIS General Meeting

Global Industry Update

SIS General Meeting 18th September 2018

Nicole BoussiotiHead, Member &

External Relations Europe

AVIATION IS AN ECONOMIC ENABLER

Source: ATAG

Robust pax volumes growth but some easing for freight

Source: IATA www.iata.org/economics 5

15.0

16.0

17.0

18.0

19.0

20.0

21.0

450

500

550

600

650

700

2012 2013 2014 2015 2016 2017 2018

RPKs, seasonally adjusted

FTKs, seasonally adjusted

Billions per month Billions per month

6.2%yoy

2.1%yoy

…and load factor trends have begun to diverge

Source: IATA www.iata.org/economics 6

41%

42%

43%

44%

45%

46%

47%

77%

78%

79%

80%

81%

82%

83%

2012 2013 2014 2015 2016 2017 2018

Passenger load factor, seasonally adjusted

Freight load factor, seasonally adjusted

% of ASKs % of AFTKs

Industry profitability still high and now stabilizing

Source: The Airline Analyst, IATA

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2011 2012 2013 2014 2015 2016 2017 2018

Worldwide average airline operating margin

Data adjusted to remove seasonal influences Unadjusted

data

www.iata.org/economics 4

Source: IATA Economics using data from Platts, ICE

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2011 2012 2013 2014 2015 2016 2017

Year-on-year % changeIndustry wide growth in unit revenues and unit costs

Unit cost growth

Unit revenue growth

5www.iata.org/economics

Rising costs are a key challenge

…and its not only due to oil prices

Source: IATA Economics using data from Datastream, Markit, Oxford Economics

7.0

7.2

7.4

7.6

7.8

8.0

8.2

8.4

CASK 2016 Q1 Fuel Labour Infra- structure Other CASK 2017 Q4

US cents per ASKUnit cost changes between 2016 Q1 and 2017 Q4

51%

30%

11%8%

% contribution to increase in CASK

6www.iata.org/economics

Divergent trends in premium & economy pax yields (base fare)

Source: IATA 7www.iata.org/economics

70

75

80

85

90

95

100

105

2011 2012 2013 2014 2015 2016 2017 2018

Premium-class yield

Indices (Jan 2011=100), seasonally adjusted, $US terms

Economy-class yield

www.iata.org/economics 11Source: IATA

Producing good returns for investors for a 4th year

8.5

7.7

0

2

4

6

8

10

12

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

% of invested capitalReturn on capital invested in airlines and their cost of capital

Cost of capital (WACC)

Return on capital (ROIC)

Industry profits under pressure in 2018, but still high

www.iata.org/economics 12Source: ICAO, IATA

-40

-30

-20

-10

0

10

20

30

40

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

US$ billion% revenuesGlobal commercial airline profitability

Net post-tax profit (right axis)

EBIT margin (left axis)

Driven largely by N.America (again) plus Europe & Asia

www.iata.org/economics 13Source: ICAO, IATA

-5

0

5

10

15

20

25

30

35

40

2010 2011 2012 2013 2014 2015 2016 2017 2018f

Africa L America Middle East

Asia Pacific Europe N America

US$ billion

Per passenger (net) profit shows wide regional variation

www.iata.org/economics 14Source: IATA

18.67

1.39

8.56

5.49

-4.66

6.39

8.96

19.56

1.57

7.53 6.82

-1.66

4.81

9.27

15.67

2.95

7.58

5.10

-1.55

5.897.76

-10

-5

0

5

10

15

20

25

Nth America Latin America Europe Asia Pacific Africa Middle East Industry

2016 2017 2018(f)

US$Profit per passenger (US$)

0% 10% 20% 30% 40% 50%

Trade war hits global growth

Synchronised global growth falters in wake ofUS rate rises and tapering of QE in Eurozone

Geopolitical tensions (eg relating to Korea,Russia, Syria)

Market turmoil (eg amid G7 policy tightening,corporate sector distress)

Tighter policies in China

Heightened foreign policy uncertainty triggerssynchronised slowdown

Oil and commodity price rally accelerates

Rise of populism in the EU (eg Italian populistcoalition)

Brexit-related uncertainty weighs heavily onEurope

Q1 2018

Q2 2018

What do you see as the top 3 downside global economic risks over the next two years?

Percentage of respondents citing as top risk

Source : Oxford Economics Global Risk Survey

n/a

n/a

Percentage of respondents citing as top risk

0% 10% 20% 30% 40% 50%

0% 10% 20% 30% 40% 50%

Trade war hits global growth

Synchronised global growth falters in wake ofUS rate rises and tapering of QE in Eurozone

Geopolitical tensions (eg relating to Korea,Russia, Syria)

Market turmoil (eg amid G7 policy tightening,corporate sector distress)

Tighter policies in China

Heightened foreign policy uncertainty triggerssynchronised slowdown

Oil and commodity price rally accelerates

Rise of populism in the EU (eg Italian populistcoalition)

Brexit-related uncertainty weighs heavily onEurope

Q1 2018

Q2 2018

What do you see as the top 3 downside global economic risks over the next two years?

Percentage of respondents citing as top risk

Source : Oxford Economics Global Risk Survey

n/a

n/a

Key downside global risks?

Source: Oxford Economics www.iata.org/economics 12