Operating Leasing introduction and where are we in the cycle?

Transcription

1 Operatig Leasig itroductio ad where are we i the cycle? Hog Kog, 26. Oktober 2018 Peter Huijbers, Director

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 Log term ivestmet with higher aual yield but lower exit returs (gree lies); Short term ivestmet with lower aual yield but higher exit returs (purple lies). 16,0% 14,0% 12,0% 10,0% 8,0% 6,0% Source (LOPA): Seatguru ST XIRR exit LT XIRR exit ST Yield LT Yield 4,0% Ø Each require differet operatig platforms 0,0% ,0% Date: 26 October 2018 Page 2

3 Retur o capital i the aviatio chai Airlies o average i the last decades did ot give a high retur o capital, however recet four years were very positive. Across other idustries like lessors, maufacturers ad MRO, this looks much better: Date: 26 October 2018 Page 3

4 Topics Commercial Airlie aircraft market overview Developmets i the airlie sector Role of aviatio cycles Date: 26 October 2018 Page 4

5 Aviatio idustry is resiliet to shocks Despite various exteral shocks, aviatio growth has bee strog Ad is predicted to remai strog i the future Date: 26 October 2018 Page 5

6 Traffic cycle correlated to GDP cycle Oly twice o recet 25 years, passeger traffic growth was egative ad recovered fast; I the past 9 years, growth i passeger traffic has bee aroud 6% aually; This growth 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 ad travel more Date: 26 October 2018 Page 6

7 The Middle Class & LCC s Private cosumptio, i particular by the Middle class is a key driver The Middle Class with discretioary disposable icome growig 3 to 4 times at the rate of world populatio Idia ad Chia will triple their share i Middle Class Cosumptio by 2050 ad are forecast to take 50% of global Middle Class spedig That is reflected i LCC growth i these regios Date: 26 October 2018 Page 7

8 The ew segmet: FIT FIT is the ew source for growth: Chiese Free Idepedet Travelers Projected to drive 55% of Chiese cosumer spedig over ext 5 yrs 50+% of FITs will take more overseas trips ad stay loger tha curret 5 days average (Tripadvisor) WeChat Pay overseas supports paymet challeges US/Chia trade issue impact: 17% less travel to the US i 2018, ad 42% less durig Golde Week by Chiese cosumers. I 2016, Chiese travelers spet USD 34.8b i the US. Date: 26 October 2018 Page 8

9 With traffic growth, ew deliveries grow Both maufacturers forecast more tha a doublig of today s fleet of 21,450 aircraft to almost 48,000 aircraft (icl. freighters), with over 63% of ew deliveries related to growth ad 37% to replacemet of curret fleet; Accordig to Airbus, over 10,600 aircraft stay i service ad thus eed remarketig ad re-fiacig: Date: 26 October 2018 Page 9

10 Airlie sector developmets Date: 26 October 2018 Page 10

11 Overall better airlie ecoomics 2018 remaied aother strog year with high load factors, but comig uder pressure with break eve load factors goig up Strog free cash flows allow debt to be repaid Date: 26 October 2018 Page 11

12 Cotiued profitability ad WACC < ROIC Profit margis i 2018 still very strog - rather uprecedeted for the airlie segmet yet comig uder pressure Ivestig i airlies is good for ivestors, as airlies have a Retur o Ivested Capital above the average cost of capital for the 4 th cosecutive year i a row! Date: 26 October 2018 Page 12

13 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, with iterestigly Lati America expected to surpassig Europe Whe lookig at Retur o Ivested Capital, Europe is doig cosistetly well, ad o its way to surpass North America that is seeig decliig ROIC Date: 26 October 2018 Page 13

14 Risig cost is causig cocer Fuel price is icreasig sigificatly, but is ot the oly issue. Labour costs ad ifra-structure are icreasigly becomig part of cost icreases: Date: 26 October 2018 Page 14

15 What about Freight? Eve the air cargo market i the past a good ecoomic early warig idicator was thought to be recoverig slowly, but whilst 2017 was a strog year for Air Cargo, 2018 did ot follow suit as export orders slow dow too. Date: 26 October 2018 Page 15

16 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 to offset sluggish passeger fares e.g. bag charges; aisle/emergecy seats reservatio; food & driks; priority check-i; fastlae at security checks; o-board WIFI Date: 26 October 2018 Page 16

17 Coclusio Life is [still] good!! but where is the iceberg? Date: 26 October 2018 Page 17

18 Aviatio cycle views Date: 26 October 2018 Page 18

19 The famous Aviatio cycle.. But... do we still have a cycle? Date: 26 October 2018 Page 19

20 The curret cycle just keeps goig. Date: 26 October 2018 Page 20

21 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 keeps growig, likely for aother year or two ad may decrease the Source: IATA Date: 26 October 2018 Page 21

22 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! As a example, lookig at 2017 orders, i 2022 oly the first 50% of these will have bee delivered, ad it would take to 2030 to deliver all. Source: Avitas Date: 26 October 2018 Page 22

23 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 but higher tha aytime before: Date: 26 October 2018 Page 23

24 Thigs to look out for fuel / oil Fuel prices are goig up, already more tha 20% higher tha 2017 ad givig some cocer But a potetial ear to parity of EUR vs USD make fuel prices (relatively) expesive for Euro(pea) carriers Date: 26 October 2018 Page 24

25 Thigs to look out for Chia If the elephat becomes a cold ad seezes. Maufacturig idex creepig up But so is the USD / CNY exchage rate. (show o iverted axis) Date: 26 October 2018 Page 25

26 The bottom lie effect But foremost: trade is slowig dow! Ø (s)low trade = (s)low aircraft demad! Date: 26 October 2018 Page 26

27 Thak you for your kid attetio 2018 PH Aviatio Asia Ltd. Whilst best efforts have bee used to verify correctess of data cotaied i this presetatio, o liability for potetial errors is accepted. Date: 26 October 2018 Page 27