Boeing Commercial Market Outlook

Transcript

Wendy Sowers:Good morning, everybody. It's always fun to go third after we've talked about the market outlook. I will obviously, or often, talk about some of the same things that we see over the long run, but hopefully I can add a little bit different flavor in a few areas. So very similar to the charts we saw both from Brian and from Bob in terms of the growth. This is a little bit different look in that it's looking at the actual number of passengers instead of converting it to RPKs, revenue passenger kilometers, but it tells the same story, which is that over the long run, this has been a growth industry. If economic growth has been around 3% and our industry has grown 5%, we are in a growth industry. It's not necessarily Silicon Valley 25% a year, but we deal with a lot more out there in the environment. And perhaps also following on both Bob and Brian, this chart has a special place in my heart because that right-hand side, and Brian and Bob both touched on it as well, if you look at the slope of that line on the right-hand side of that chart, it's only taken us 4 years to add another billion passengers here in this recent timeframe. Right. The slope of the line has gotten much more steep. Straight up, and sometimes when folks, as Bob mentioned, sometimes when folks look at our forecasts, both from us and from Airbus, they say, "Well, yes, of course you say it's going to be growth industry. It supports what you're what you're doing." But if we look at history, if we look at what has been happening in the industry, we can see that happening right now. So then the question is: Why is that happening? What do we see in the marketplace, and how does that influence our outlook? And we've talked a bit about. some of the cyclical factors that are going on. From a long-term forecast perspective, when we're thinking about 20 years, we really want to think about, or I, you know, we're thinking about what the forecast is going to look like. What are some of those structural drivers? So I'm going to talk just a little bit about what we're seeing out there and how we're thinking about it when we're trying to think about what's going to happen in the next 20 years. The first, so from my standpoint, there are really 2 big groups of our 2 main dimensions of that. One is on the economic and demographic side of things, and the second side is what the airlines themselves are doing in the market. So I'm gonna start with the economic and demographic side. This is just a look at the last, on the left-hand side of the chart, the last 5 years' growth we've seen, and it's dividing it into advanced economies versus emerging economies. Now first off, if you'd asked me this question about 5 years ago and I said that there was 5% traffic growth in the advanced economies, US, Europe, Australia, Japan, I might have said, gee, that sounds a little strong, but 5% in those economies, which are growing below that global average, is actually quite strong. We're seeing low-cost carriers come into the market. We've seen more liberalization. We've seen strong growth. But the fact that we've got almost 11% in the emerging markets over the last 5 years in terms of traffic growth really echoes what we're seeing in terms of the economic growth. in those markets, but also reflects the demographics and the growing middle classes, and I'll talk about that piece in just a little bit in the next chart. What that's done for us is what you see on the right-hand side of the chart. The share of growth, or the share of the market, the traffic that we're seeing out there in the market, is really much more balanced than it's been in the past, and I think Brian touched a little bit on a potential dampening as we go forward, and for those of you who are students of the industry, and you could certainly see it in Brian's charts, We've had definitely our ups and downs in the industry, but if you think about it from a kind of a Portfolio 101 financial management perspective, if you have a more diversified portfolio, you tend to have less volatility. The fact that we have more balance today than we have in the past between emerging markets and advanced markets, I think, supports that perspective that going forward, we should see less volatility going in the market. So thinking about the emerging markets and why it's so important. So you've got growing middle classes. The pie is actually increasing in terms of folks who can travel, who have the opportunity and the means to travel. So in the economist sense, in their consumer basket of goods, they're choosing air travel more often. And a lot of that has to do with income levels. And Bob was talking about propensity to travel. This is a bit different way to look at it, and it's a historical look, it's not a projection. But all of those dots represent a given year over the last 20 years for all of the countries around the world, and we've pulled out a few of the countries here to give some perspective about how things have changed over the last 20 years. So up in the upper right-hand corner, very similar to what you saw in, in Bob's depiction, you have some of the more advanced economies. More mature markets farther along in liberalization events for those economies. So you've got the UK, you've got Australia, you've got Germany, higher propensity to travel, higher income levels. And then you can see some of the emerging markets on the left-hand side of the chart. So we've got India, we've got China, Brazil. You can see as income levels have risen in those countries, we've had increasing propensity to travel. So that's why we talk so much about the emerging markets. I think it's instructive to look at Vietnam in this picture, so we just— I just happened to highlight that one. You can see that the trips per capita, the slope of that line is steeper than we're seeing in some of those other economies. If you think about the entry of low-cost carriers and the liberalization we've seen in that market in particular, you can very much see that reflected in that increasing propensity to travel. So echoing what Brian talked about earlier, when we're thinking about going forward, where are we? And is this— are we entering a market where we might see more protectionism? That liberalization is particularly important for us when we're thinking about where the growth trajectories go in the future. So those factors, those economic factors really drive where we're seeing air travel growth going forward. This is a look at what we're seeing in terms of the next 20 years in terms of the travel growth. So you can see the dark blue portion of the bar up there is where we ended excuse me, 2017, and the lighter blue portion is the growth that we see over the next 20 years. Far and away, Asia-Pacific will be the largest market going forward. Within China, echoing what Peter was talking about, China being an important market is number 2. A couple of other thoughts there. Number one, if you look at those top 4 markets, for the most part, certainly not all, but for the most part, those markets can be served by single-aisle airplanes. We have certainly seen a trend in the marketplace that where airlines can serve single— with single-aisle airplanes, they are. That gives some perspective when we get to the forecast portion. The second piece of it is the growth rates. We're just talking about the fact that some of these more mature markets don't grow as quickly, but if you look at the flows and the endpoints of those markets, you can see that there's definitely growth opportunity for some of those more mature markets connecting to the emerging markets. So you see higher growth rates, for instance, going Europe to Latin America than you would just within Europe. And I think that reflects the propensity to travel piece that we were just looking at on the last chart. So not all of that, while there might not be as much propensity to travel to grow in some of those mature, more mature markets, those connections to the emerging markets are definitely an opportunity for growth going forward. So I talked about the economic and the demographic side. The second piece of it is what the airlines are doing. This is just a picture on the left of where we've seen real yields over the last several decades. Brian touched on this as well. And on the right-hand side, you just have the number of city pairs that we see the industry serving. Oftentimes when I talk to folks, particularly outside our industry, about the fact that the airlines provide better service today, Sometimes I get an eyeball roll as people think about trying to get their bags into the overhead seats and maybe declining seat pitch, those kinds of things. But I think it's really important to come back to these 2 macro drivers, which is fundamentally we've got better service, which is the increased network, the more service pairs that we have, at a lower price. Now, Brian raised some points about can that declining yield continue to happen? And I agree that's a question going forward. I think a lot of the opportunity is in these growing markets, and there's opportunity for that to continue or at least to be stable. But better service at a lower price, you tend to get more. So as the industry continues down this path, we would expect to see more growth going forward. What underpins that on the yield side is what the airlines are doing on their operations side. On the left-hand side of the chart, you can see just a few measures that we're looking at all the time. in terms of what the airlines are doing in terms of efficiency. We've got load factors. They're up 500 basis points, 5 points over the last 10 years. We can certainly feel that when we get on the airplanes. Stage lengths are increasing. We talked about asset utilization and asset productivity. The airlines are using their airplanes more. Then finally, utilization hours flown per day, a full hour more hours flown per day. Every airplane in the fleet every day. To put some numbers around that, we took a look at if airlines were still operating at the same utilization and efficiency levels that they were 10 years ago, we would need 3,800 airplanes, more airplanes in the fleet today than we have if we were still operating at those levels of a decade ago. That efficiency piece is really, really important for the airlines, but it's also those declining yields. The airlines are becoming more efficient, therefore the fares that they need to charge are not as high to hit the profitability levels that Brian was talking about. And then some more statistics on the network. Last year, just in the last year, the airlines have added 2,000 new city pairs. For those of you who are students of our forecast, you'll know that we talk about fragmentation and the fact that that the airline— that as passengers want to travel, they'd rather travel nonstop. So those new city pairs once again represent better service for the airline customers, for the passengers. Historically, I think we've looked at this in the single-aisle context. I think the 787, what we're seeing in the marketplace today is that we're also seeing that same dynamic play out in longer-haul markets. So over 200 new markets have been opened with the 787, and well over half of those actually touch Europe here. So Europe is a key driver in this dynamic that we're seeing, particularly in the longer-haul markets. 2 thoughts here, not to dive deeply into low-cost long-haul or LCCs. I know we'll be talking about them as we go through the rest of the day, but I think it's worth noting that this innovation that we're seeing in the marketplace and airlines bringing better service It crosses a range of dynamics that airlines are offering to passengers. We've talked a lot about, historically, about low-cost carriers. It's mainly been in the short-haul market. We've got low-cost entering those long-haul markets. It's another opportunity for stimulation, another opportunity for traffic growth. Today, 6% of the seats across the North Atlantic are being flown on low-cost carriers. That's up from 1%. Just a year ago, so another growth opportunity: airlines bringing new opportunities into the market space. And we touched a little bit on Bob was talking about the different types of service that we see in the marketplace. I think one of the other interesting things that we're seeing today in the marketplace, and this happens to be a European example, but it is certainly not just happening here in Europe, is the airlines thinking about their offering. More in a portfolio kind of way. So what are the different segments that I'm serving, and what are the different product offerings I'm gonna be putting out there in the market to serve those different passenger segments? So for example, today we see a lot of the full— traditionally full-service carriers here in Europe, and as well in other markets, offering an LCC kind of product into the marketplace, and once again stimulating growth as they're offering more service levels, and more product offerings into the market. Just to wrap up on the forecast side, you'll see between the economics and demographics and the service levels and the innovation that the airlines are bringing to the market, we do see a very healthy growth market. This is a picture from the delivery perspective, and you'll see that it's fairly similar to what Bob showed. We've got about 3 quarters of the airplanes going into single-aisle markets. Overall, and you'll see over on the right-hand side the geographic perspective in terms of where those airplanes are going to be going and where the growth is taking place. Very much echoes what we saw on the traffic chart: about 40% into Asia Pacific, 20% Europe and North America, and then another 20% to the remaining emerging markets. And then finally, a fleet look. Once again, on the left-hand side of the chart, you'll see pretty similar to what. Bob showed, you'll see our replacement perspective in terms of— we also see the fleet doubling. We see a few more of the airplanes that are in service today being replaced, so it's more like a 56-44 split. Several thousand more airplanes being replaced over the next 20 years, but overall, the fleet composition remaining fairly stable. A little bit more in the single aisle, particularly as we have more capable single aisles coming into the marketplace. There we go. Thank you very much.

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