CAPA Outlook: State of the Industry

Transcript

Jonathan Wober:Good morning. Thank you, Claudius, for that introduction, and thank you, Minister, for that lovely welcome. I landed yesterday at the airport and then walked to the hotel and had to walk across the runway, which is definitely a first— stepping off a plane and then walking straight across that runway. And I'm also very happy to be spending the weekend here in Gibraltar, so I get to see some of the things that we've just glimpsed on the video. Anyway, enough of that. Now, I'm here to try and capture the state of the industry in 15 minutes, so bear with me. There's going to be— see how I work this— there's going to be— it works— there's going to be numbers, okay? So I need you to pay attention, please. Make notes. I might test you at the end. 15 minutes I have, and I've got 15 numbers. The issues I'm going to touch on I've outlined there on the slide. all the issues I think that are important, but I'm sure that I'll miss something out, an issue that you feel is important. So please, if you see me in a coffee break, lunch break this evening, let me know what your most important number is that captures the state of the industry. And if you're speaking in a panel or moderating a panel, bring some numbers to those panels because we need to know numbers, evidence. Okay, so with that, I've got my— I've only got 14 minutes left now. This is my first number. So this is a chart straight from CAPA's website, number of aircraft in service. This is jet aircraft only. If I get into all the small turboprops, it goes, it goes too far. But jet aircraft today, global total, 98% of those that there were 3 years ago today, or at the end of November, I should say. So you can see on the bottom right, I've put the percentage by business model for each of the categories there. So the blue is full-service carriers and the yellow-orange color is low-cost carriers. Those are the 2 major categories of operators of jet aircraft. Full-service carriers at 94% and low-cost carriers 102%, so leading the way on the passenger side. You'll also see the green sliver at the bottom, which is cargo, 113%. cargo airlines are now. So the recovery is, is well on the way. It's being led by low-cost carriers and cargo. Of course, also charter is up at 118%, but it's relatively small numbers. So, so that was my first one. My second one, seat capacity globally is at 92% of the same week 3 years ago in 2019, and there are some variations by region. Global average 91.9%. Latin America is already above its pre-COVID levels at 102.5%. Most other regions are above 90%, which is very strong. Europe a bit behind at just 86%, operational constraints being a part of that. And then Asia-Pacific, the big laggard down there at 73%. And a big part of that, of course, is the restrictions ongoing in China. And when you consider that Asia-Pacific is more than a quarter of global seats and China is about 2/3 of Asia-Pacific seats, that has a big impact on the global industry in, in all kinds of ways. So moving on now, September traffic figures from IATA. These are the most recent monthly figures available. Overall, the passenger business RPKs are at 74%, or they were in September, of September 2019 levels, but cargo up there at 100%. It's worth pointing out that cargo has actually been well above 100% for many months until the invasion of Ukraine and the spike in— and the depression of world trade, but it's still, still going at 100%. On the passenger side, 74% is the total average, but we can see a difference between international RPKs at 70% or just under, and domestic RPKs up at 81%. So if we look forward, and this is actually IATA forecasts from earlier in the year, they may update this any minute, but the broad trend here I don't think is going to change hugely. So we had that RPK numbers going back to, where does that go back to, 1945, and then the projection that there had been pre-COVID for 2040 compared to the, the post-COVID projection for 2040, there's a 6% shortfall, sort of permanent structural loss of passenger traffic volume, even with a recovery in place, and probably 2024 before we get to 2019 levels of RPKs. Airfare inflation has been running riot. I was having a good discussion with a couple of people about this last night and how sustainable it might be. So in the, in the EU-27 countries, October 2022, the most recent month available, saw a 31% increase year on year in the cost of passenger air transport. The rate of inflation in the EU-27 has been double-digit for most of the past year. It's been above 20% for each of the past 6 months. It's actually been above 30% for each the past 4 months, and there's a similar pattern in the UK. So the UK is the red line and the EU-27 is the blue line. So very similar patterns in both of them. And of course, I mean, this is— there's a number of things behind this, but relatively constrained capacity at a time of pent-up demand coming through, and of course passing on high oil prices. About more of that later. So trying to capture something here about what's going on in the supply chain, it's very simple. Chart, and it doesn't capture everything, but one of the important aspects of the supply chain, of course, is the supply of aircraft. The 2 major suppliers, Boeing and Airbus, if we look at their deliveries annually since 1996 and an estimate for 2022, the 2 of them together probably will be delivering something north of 1,100 aircraft this year, but that's the aggregate level that they delivered between them 10 years ago. So that's, that's 10 years effectively of, of lost delivery. Airbus is doing better, 700 aircraft expected this year, which is 5 years ago's level. And Boeing, let's say around 450, is 13 years ago's level. So there's a lot of catching up to do. There's a lot, there's a lot of issues in there. COVID is obviously a big part of it, but there's other issues, the MAX and all of that. So 10 years lost of deliveries. Fuel, big hike in the oil price, particularly since the invasion of Ukraine by Russia. It's come off a peak, but we're likely to see that the industry's fuel cost as a percentage of its revenue will be something in the region of 28% in 2022. And bearing in mind that the 5 years leading up to COVID, it was in the 20 to 22 2% region. That's quite a big hike in a relatively short space of time. As I said earlier on, that's part of the reason why fares are going up, but the question mark is how sustainable that could be if we're facing weaker economic growth and weaker demand. You know, how persistent will this overhang of demand continue to be in the future? So this chart's a bit busy, so I should just try and explain what we've got on the chart, but the blue bars show you the annual net profit. of the global industry going back to 2000 on this chart. The red line is the global airline industry operating profit margin. But what I want to try and focus on is accumulated profits. So if you go back to the beginning of aviation history, up until 2009, the entire industry made an accumulated profit of $12 billion. Then there was this golden era where it seemed that nothing could go wrong. The 10 years between 2010 and 2019, the industry made an accumulated profit of $243 billion, but that meant that for, for in all time up to 2019, it was $231 billion. I hope you're keeping up with all of this. But then in the 3 years from 2020, '21, and forecast for 2022 from IATA, the loss will be $190 billion. which is 80% of the total profit in every other year before that. So that's quite a big wipeout of profitability. If we look at what IATA was forecasting earlier in the year, and as I say, they're likely to update these fairly soon, but I think the broad shape isn't going to be very different, net profit margins are negative. So 5 regions of the world are likely to still be loss-making in 2022, with North America being the exception. North America, of course, benefits from a very strong domestic market and the consolidation that the industry went through a few years ago. There's highlighting that. So government aid, and we've got sessions on a lot of these topics coming up over the next couple of days. I'll be moderating a panel myself tomorrow on this topic. Government aid. A year ago or so, IATA put out this chart. $243 billion worth of aid had gone to airlines from governments around the world, a record number. About half of that was in reimbursable form. So in other words, you've got to be paid back. So that's a burden to repay the debt and debt-like nature of some of those elements. And that number, $243 billion, is more than the accumulated net profits of the entire airline industry since the beginning of history. So that's a huge amount of money that went into the industry. Okay, so here's one I want you to help me with. So 3 years ago, the end of November, on the CAPA— from the CAPA databases, I got 693 named airlines. So how many were there at the end of November this year? Does anybody think it was more than that? Bigger number than 693? Someone's got their hand up back there. Less than that? Anybody think it's less than 693? So, so, a few people think it's less, one person thinks it's more. So everybody else, you all think it's the same number? Yes. Well, you guys are geniuses. Although strictly speaking, whoever said it was less, they're correct. It's one fewer. But, you know, we went through the biggest crisis that the industry has ever been through by a long shot. And the number of airlines is actually identical. Having said that, in May 2020, it had fallen to 536. So round numbers, 150 airlines disappeared in the first few months. But since then, 150 airlines have entered. So that's an interesting state of affairs, I think, considering the crisis the industry's been through. Of course, government aid is a part of that. You'd have expected the numbers to have fallen much more heavily without government aid. Okay, 13 numbers I've had so far, but the 2 most important ones, in my opinion, are still to come, and those numbers are 27 years to net zero So ICAO, as I'm sure you're all aware, finally adopted a long-term aspirational goal earlier this year to get to net zero carbon emissions by 2050. Personally, I have a couple of problems with the term long-term aspirational goal. Long-term makes it sound like it's so far away we don't need to do anything, and aspirational makes it sound like we don't really need to do it anyway, but this goal must be reached before the 27 runs down to zero, in my opinion. And there is a session on this topic, of course, tomorrow as well. Okay, there's a reminder of the 15 numbers. My time is up. I'm not going to say them all, but please give me other numbers when you see me around and talk about them when you're up here on the stage. And enjoy the rest of the conference. Thank you very much. Thank you, Jonathan.

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