CAPA Outlook: State of the Industry

Transcript

Jonathan Wober:Hello, so my name is Jonathan Wober. Good morning. Chief Financial Analyst for CAPA. Last month I celebrated 10 years with CAPA, and I could just echo some of the comments that we've just heard from Chris. This is one of the most beautiful cities that we've ever had an event in. I did— I have been walking around the city, and I'd love to come back and walk around more. So I've got to talk about the state of the industry, and I've got 15 minutes in which to do it. And I'm going to— anybody who's seen any of my presentations before, you'll know that I like to talk about numbers. So I hope you're all paying attention and are ready to look at some charts. Excuse me. Before I get into the charts and the numbers, I just wanted to tell you a short story about my journey over here. I came over earlier in the week from London Luton Airport, and just before we were about to board the Wizz Air flight, we were hit by a blizzard. And this is the photograph I took from the gate. I mean, there was seriously heavy chunks of snow suddenly started falling, and this is a remote stand, so you've got to stand on those steps with the, with the snow blowing into your face, which we did. 10 minutes later, the snow stopped, it was raining, it was, it was +5 degrees, but this is a safety-led industry, so they had to do the de-icing procedure. So this is the first time I've been on a plane where it's happening to me, so I took some photographs. And so we were delayed by an hour coming over here. Now, the reason for telling this is, other than it's interesting because you guys are all in the aviation sector, but it's a kind of a metaphor in a sense for the way the industry often operates. It's very focused on operational day-to-day issues, on, on tackling immediate problems, and not always necessarily knowing exactly what the bigger picture is. But when you get up above the clouds, you get a much clearer view of things. So what I'm going to try to do is get up above the clouds and give you a clearer view of the state of the industry. So my format is I've got 15 minutes, I've got 13 minutes left now, And I'm going to try and get through 15 numbers in those 15 minutes. And those are the topics that I'll touch on. I'm not going to read them all out now, but I'll go through them. So the first number, 101%, and that number represents the number of jets, passenger jet aircraft in commercial service globally as a percentage of what there was the same time, the same month This is the end of February before the pandemic. So February 2023 versus February 2019, 101%. That's the global total. So just over 25,300 passenger jet aircraft in service today. Uh, sorry, yeah, and 25,000— um, that doesn't look like 101%. There must be a typo, but it is 101%. Now if we split the, the operators into different business models, The 2 biggest groups are obviously full-service carriers, low-cost carriers. The low-cost carriers are up at 109% of jets in service the same time 4 years ago, and the full-service carriers a little bit behind at 95%. Looking down to the smaller categories of business model, regional operators are at 89%, so the biggest laggards in a sense. Cargo up at 116%. And they've been kind of leading through the pandemic, as I'm sure you're all aware. And the charter operators, 119%. So that was number— I got, I got several numbers for the price of one there. 101%, that's it. That's a good number. That's a number that I'm sure you're all pleased to see. In terms of seat capacity, the global industry is at 97% of the equivalent week of 2019. We're talking about numbers for this current week. the week commencing— when did it commence? The beginning of this week, whatever that date was. So very, very close to pre-pandemic seat capacity numbers. There are differences by region. Africa and Latin America just up above 100%, whereas Middle East, North America, Asia-Pacific, and Europe are below, with, with, with Europe and Asia-Pacific being the laggards in this, in this respect, although Asia-Pacific has done a massive catching-up exercise in recent weeks following the reopening, uh, mostly of China. So moving on to our next 2 numbers, if we look at the most recently available traffic data— that was capacity, what about traffic? We have a bit more of a lag because the most recent traffic data from our friends at IATA are for January, but passenger traffic defined as revenue passenger kilometers is at 84%, or it was in January, of the equivalent month of 2019, whereas cargo is up at 89%. Cargo actually spent much of, of last year above 100%, but has eased off a bit as the global economy has slowed a bit. But in a way, that's a good news story. The fact that cargo traffic was being driven by the economy rather than pandemic issues is, is, you know, is a good thing. If we split passenger traffic between domestic and international, You can see that domestic is doing better, up at 97%, and international down at 77%. So moving on from there, what about pricing? Well, there's been quite a bit of pent-up demand, and there's also been high fuel prices. So these things, and in particularly in Europe, there's been sort of scarcer capacity. These things have combined to give very high levels of airfare inflation. So these charts show us the year-on-year change in the price of passenger air transport, both in the European Union, which is the blue line, and in the UK, which is the red line. Now focusing on the EU, 19% year-on-year growth was what was reported for January, which is the most recent data from the EU, having peaked up at 40%. But this is the— what is it now— this is the 10th successive month of double-digit increases in the price of passenger air transport in the EU, and it's been above zero for 19 months. So if you actually, if you do the calculation for, for the end of, um, 2022, December 2022 versus December 2019, there's an increase of 32% over that period. So a huge increase in, in airfares. Similar pattern in the UK. Um, looking at aircraft deliveries, uh, from the 2 biggest suppliers of aircraft, Boeing and Airbus, In 2022, the year just ended, the combined deliveries of those 2 suppliers was 1,143 aircraft, which basically was just below the year of 10 years earlier, 2012 numbers. So 10 years of lost deliveries, in a sense, you could say. This year, going by what the manufacturers are saying in terms of their guidance and using a bit of judgment, the 2 combined will probably get back above 1,200, 1,250 or something, probably a little bit above the 2019 numbers. So in a sense, that's back above pre-pandemic levels, although of course 2019 was, you know, depressed relative to previous years, partly because of the Boeing MAX delivery problems. Moving on to the next one, fuel costs. This chart, based on numbers from IATA and using IATA's forecasts as well for the current year and last year. In 2022, fuel costs were about 30% of industry revenues and will be at a similar level, maybe a bit lower, in 2023 according to IATA. And we're going to hear more from Andrew at IATA later on, so he'll probably be able to give us even more insight on this. But given that for the, for the 6 years leading up to the pandemic it was about 20 to 22%, That's a, that's a big increase in, in your cost base. The next chart is again using data from IATA, and this is quite busy. The, the number that's on the headline there, 81%. So in the, in the 3 years, 2020, '21, and 2022 of the pandemic, 81% of the entire profit of the airline industry since records began was, was wiped out of those accumulated profits. So just to break the chart down a little bit, if we look at the net profit of the industry from when records began, and I forget the exact year, but in the 1940s or thereabouts, all the way through to 2009, there was an accumulated loss of $12 billion. So I mean, give or take, that's zero, because $12 billion on the amount of revenue isn't that much either way, but there was a loss accumulated all the way up to 2009. There was a golden age, 2010 to 2019, when the industry generated $243 billion in accumulated net profits. So great, everything's changed, this is going to be the best industry to invest in ever. But if— so if you accumulate those 2 periods from the beginning of time, as it were, to 2019, we have an accumulated net loss Sorry, net profit of $231 billion in that, in that period. Then in 3 years, uh, the industry lost $187 billion at the net profit level, which is 81% of that previously accumulated profit. The good news here is, is IATA is forecasting a small profit for the industry in the current year. I'm sure that there will be further updates on that as we proceed through the year. Um, this is an interesting one. I wanted to look a bit at industry structure, so a couple of charts to look at that. This number here— there's 2 numbers here. There are today 712 airlines globally, and 4 years ago there were 697 according to the CAPA databases and also using data from our friends at OAG. So there's been a net increase in the total number of airlines in those databases, and you'd think given the magnitude of the catastrophe that struck the industry and, and globally with the pandemic. You'd think there'd be a loss of airline numbers, but no, there's actually been a net gain. It did fall to 536 at one point in 2020, but it's gained again. Now, to some extent, the number of airlines doesn't tell you a full story because sometimes you just get groups reorganizing and making new subsidiaries and all of that sort of thing, but it's still quite striking. I think there's been a net increase. So what does that mean for industry structure? Well, if we focus on Europe and to some extent North America, The intra-Europe top 10 groups, so this isn't just individual airlines but the top 10 groups, in— this is using data for the schedules projected for July this year in the summer peak. The top 10 will have 72% of intra-European seats, seats on routes within Europe. Now that compares with 67% 4 years ago, so there's been an increase in concentration in terms of the share held by the top 10 groups. So that, that's something that is needed in the industry, further consolidation. There's a whole separate debate about this, but there's probably too many airlines out there. But if you compare this with intra-North America, the top 10 have 94% of seats intra-North America, which is more or less unchanged from 4 years ago. So the significant consolidation that took place in the North American industry has, has really yet to happen in Europe. It's a much slower process towards that consolidation in Europe, and even a pandemic doesn't make a huge amount of difference to it. Okay, so we've had 13 numbers so far, and in my opinion, the 2 most important numbers for the industry are still to come. Some of you have seen this presentation before, but keep quiet. These 2 numbers are 27 and 0. We have 27 years to achieve the net-zero target which was finally adopted by ICAO last year to achieve net-zero carbon emissions by 2050, and it's kind of important— it's more than kind of important, it's totally essential for the goal to be reached before '27 itself becomes zero. So that's the end of the numbers. Just a final recap, I won't read all these, you'll probably— you should be getting copies of the presentation so you've got a summary of all the numbers there, or you can take a photo of the screen before I move on. And a final thought, a final picture, which— I'm like one of those people that shares their holiday snaps with you, aren't I? And this is as we were approaching Budapest. So this you can just about— is there a pointer? You can just about see there's another aircraft just off there. So when you're up above the clouds, not only can you get a big picture, but you get the idea that there are other operators, other airlines out there. And that sort of brings me to the, the event over the next couple of days. You're here to meet other airlines and other people in the industry. Enjoy the event, and please let me know what numbers I should have put there that I didn't, or let me know what numbers were— I shouldn't have put there that I did. And come and talk to me in the coffee breaks. Unfortunately, I'm out of time, so there's no time for questions at the moment, but do, do grab me when you see me. And thank you. I'll pass over now to Marco.

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