Where are we in the cycle and general introduction
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1 Where are we i the cycle ad geeral itroductio Operatig Leasig School Hog Kog 31 October 2017 Peter Huijbers, CEO 2017 Proprietary data w CALS
2 Aircraft ca be moey makers... but there are may differet agles related to the choice of busiess model; Airlies Premium (ad typically log haul) airlie; (Ultra) Low Cost Carrier; Ow aircraft log term or lease shorter term; Lessors 16,0% ST XIRR exit LT XIRR exit ST Yield LT Yield Log term ivestmet with higher aual yield but lower exit returs; 14,0% 12,0% 10,0% Short term ivestmet with lower aual yield but higher exit returs. 8,0% 6,0% 4,0% 2,0% 0,0% Ø Each require differet operatig platforms Source (LOPA): Seatguru 2017 Proprietary data w CALS Date: 23 October 2017 Page 2
3 Topics Commercial Airlie aircraft market overview Developmets i the airlie sector Role of aviatio cycles 2017 Proprietary data w CALS Date: 23 October 2017 Page 3
4 Aviatio idustry is resiliet to shocks Today s aual growth is the same as 1960 ies global traffic total 2017 Proprietary data w CALS Date: 23 October 2017 Page 4
5 Traffic cycle correlated to GDP cycle Growth i passeger traffic is historically well correlated to growth i GDP; I recet years, traffic growth outperformed GDP growth, partly due to effect of Low Cost Carriers, partly due to growth of the so-called Middle Class, who sped more ad travel more: 2017 Proprietary data w CALS Date: 23 October 2017 Page 5
6 The Middle Class & LCC s Private cosumptio, i particular by the Middle class is a key driver The Middle Class with $20k - $150k discretioary disposable icome growig 3 to 4 times at the rate of world populatio LCCs are big beeficiary ad driver No surprise that Asia Pacific, ad Chia i particular, leads the pack here 2017 Proprietary data w CALS Date: 23 October 2017 Page 6
7 The ew segmet: FIT FIT is the ew source for growth: Chiese Free Idepedet Travelers Projected to drive 55% of Chiese cosumptio spedig over ext 5 years Accordig to Tripadvisor, more tha 50% of FITs will take more overseas trips ad stay loger tha curret 5 days average WeChat Pay overseas supports paymet challeges Source: SCMP 2017 Proprietary data w CALS Date: 23 October 2017 Page 7
8 With traffic growth, ew deliveries grow Both maufacturers forecast almost a doublig of today s fleet of 23,480 aircraft to 41,030 aircraft, with over 57% of ew deliveries related to growth ad 43% to replacemet of curret fleet; Accordig to Boeig, 5,920 aircraft stay i service ad thus eed remarketig ad re-fiacig: 2017 Proprietary data w CALS Date: 23 October 2017 Page 8
9 Airlie sector developmets 2017 Proprietary data w CALS Date: 23 October 2017 Page 9
10 Overall better airlie ecoomics Recet data shows that airlies have more cash also drive by lower price of oil but broadly pass o to passegers: Also the achieved load factor (LF) is well above the breakeve load factor: 2017 Proprietary data w CALS Date: 23 October 2017 Page 10
11 Cotiued profitability ad WACC < ROIC Retur o airlie capital is risig globally with Lati America beig stable: Ivestig i airlies is good for ivestors, as vast majority of airlies have a Retur o Ivested Capital above the average cost of capital: 2017 Proprietary data w CALS Date: 23 October 2017 Page 11
12 But where exactly? As to global airlie profitability, North America has bee ad is accordig to IATA expected to cotiue to be the sigle largest profit cotributor, eve larger tha APAC ad Europe combied; This is i lie with yield though the et profit/pax i the Middle East is relatively high (as probably drive by more log haul traffic). Traffic growth is good to very good across the board 2017 Proprietary data w CALS Date: 23 October 2017 Page 12
13 What about Freight? Eve the air cargo market i the past a good ecoomic early warig idicator seems to recover, albeit slowly, ad is better tha GDP would suggest it to be: 2017 Proprietary data w CALS Date: 23 October 2017 Page 13
14 Eve more profit: diversify yield sources Some airlies are very good i fidig ways to extract more reveue from passegers above a regular ticket price e.g. bag charges; aisle/emergecy seats reservatio; food & driks; priority check-i; Fast-lae at security checks; o-board WIFI 2017 Proprietary data w CALS Date: 23 October 2017 Page 14
15 Coclusio Life is good!! but where is the iceberg? 2017 Proprietary data w CALS Date: 23 October 2017 Page 15
16 Aviatio cycle views 2017 Proprietary data w CALS Date: 23 October 2017 Page 16
17 The famous Aviatio cycle. Do we still have a cycle? 2017 Proprietary data w CALS Date: 23 October 2017 Page 17
18 All Ecoomies are weaker, so is trade: Busiess cofidece is close 50% i Emergig Ecoomies, margially above that i Developed Ecoomies Hardly growth i trade volumes as either Emergig or Developed ecoomies are cotributig sigificatly 2017 Proprietary data w CALS Date: 23 October 2017 Page 18
19 Ecoomic growth slowig.. but ot RPKs Global Ecoomic growth hoverig at less tha 3% mark with icrease i growth movig to the right Traffic i terms of RPK growig for aother year or two ad may decrease the 2017 Proprietary data w CALS Date: 23 October 2017 Page 19
20 Despite RPK growth, capacity adjustmet The last two years have show a steady backlog, idicatig that the market seems to be saturatig as to future capacity build up. However, oe should ote that the curret backlog is worth almost 10 years of productio! Lookig at values, ot oly are sigle aisle aircraft overtakig twi aisle aircraft deliveries, but also the twi aisle segmet is reducig Source: Avitas 2017 Proprietary data w CALS Source: IBA Date: 23 October 2017 Page 20
21 Thigs to look out for ivestmets A lack of ivestmets together with: Low Treasury yields but for how log? High house prices ad growig aother bubble? Equity fud flows see less moey - possibly as ivestors seek other better returs optios 2017 Proprietary data w CALS Date: 23 October 2017 Page 21
22 Thigs to look out for debt Debt cotiues to grow ot oly i Emergig but also i Developed Ecoomies But comparig log term, it is still below the 2008/2009 level just but higher tha aytime before: 2017 Proprietary data w CALS Date: 23 October 2017 Page 22
23 Thigs to look out for fuel / oil Fuel prices are still at a low, affordable level, yet here as well, effectively a 20% growth compared to the year before With the still ear to parity of EUR vs USD, it makes fuel prices (relatively) expesive for Euro(pea) carriers 2017 Proprietary data w CALS Date: 23 October 2017 Page 23
24 Thigs to look out for Chia If the elephat becomes a cold ad seezes. Maufacturig idex creepig up a positive sigal But so is the USD / CNY exchage rate. Ad that egatively impacts Chiese carriers havig fuel ad retal as USD exposure 2017 Proprietary data w CALS Date: 23 October 2017 Page 24
25 What is loomig o the horizo? Iflatio shock? Ecoomic growth i 2016 slowig dow ad 2017 ot really ay better 2017 Proprietary data w CALS Date: 23 October 2017 Page 25
26 The bottom lie effect But foremost: trade is slowig dow! Ø (s)low trade = (s)low aircraft demad! 2017 Proprietary data w CALS Date: 23 October 2017 Page 26
27 Thak you for your kid attetio 2017 CALS. Whilst best efforts have bee used to verify correctess of data cotaied i this presetatio, o liability for potetial errors is accepted Proprietary data w CALS Date: 23 October 2017 Page 27
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