CARGO E-CHARTBOOK Q OVERVIEW

Transcription

1 CARGO E-CHARTBOOK Q OVERVIEW Airline cargo businesses are starting to see an improvement in forward looking demand indicators, but continued increases in capacity have placed downward pressure on yields and revenues over recent months. The demand environment and drivers are showing some positive signs, despite sluggish world trade growth and high jet fuel prices. There are indications that finished goods inventories are falling and business confidence has started to increase in Q after several months of no change. Consumer confidence in Europe is at the highest levels since, following the first quarter of Eurozone growth in Q after 8 months of contraction, and US consumer optimism continues to increase. Some of this improvement is being offset by slowdown in the Chinese economy where confidence has slipped, suppressing demand for air-freighted commodities like semi-conductors. But most notably, the better demand conditions are being countered by capacity increases which have caused yields to decline. The trend could continue if future demand fails to meet capacity expansion in coming months. Nonetheless, cargo heads surveyed in July are broadly optimistic, saying they expect yields to remain stable and volumes to increase over the next months. Economic Situation the global economic outlook for remains weak, despite recent positive improvements in the Eurozone. Growth in emerging economies, supported by relatively looser fiscal policy, continues to outpace expansion in developed regions (page ) Traffic Growth has shown some early signs of improvement, in line with positive developments in business confidence, but growth remains weak and the upturn has been modest so far (page ) Demand Environment has started to show signs of improvement. Business confidence has picked up in Q and although world trade growth remains slow, several emerging market regions continue to see solid trade expansion (page ) Demand Drivers also look a bit better. Consumer confidence in Europe is now the highest it has been since and US consumer optimism is also on the rise. Weakness in emerging Asia is reflected in the decline in demand for air-freighted commodities like semi-conductors. But in Japan, economic stimulus has helped support capital investment intentions of local companies (page ) Capacity freight load factors remain weak as capacity continues to rise. While no growth in freighters has contained further decline in asset utilization rates, new aircraft deliveries are set to expand the existing widebody fleet by 7% this year. (page ) Competition decline in air freight rates has intensified over recent months. At the same time, sea freight rates have plunged, reflecting weakening demand for sea transport (page ) Revenue and Yields air freight yields continue to weaken. Although there has been some improvement in air freight demand over recent months, capacity growth has kept load factors low (page 5) Costs jet fuel prices have surged over recent weeks, reaching $/bbl again in August, as geopolitical developments threaten to disrupt supply and the outlook for demand growth improves. Cargo profitability continues to face downward pressure from high input costs (page 5) Profitability outlook consistent with the improvement in the demand backdrop, the outlook for air freight is broadly optimistic according to heads of cargo surveyed in July. Respondents expect traffic volumes to increase over the next months but yields to remain unchanged (page 5) IATA Economics

2 Cargo echartbook Q Economic Outlook & Traffic Growth The global economic outlook for remains weak overall () but there have been some positive developments over recent months. The Euro area economy is expected to contract overall in, but growth in Q saw the Eurozone emerge from 8 months of contraction, and this should help reduce the continued downward pressure on global demand. Economic growth in the US in is expected to be similar to, with a continuation of tight fiscal policy (), but looser bank lending standards () in that economy have helped it perform more strongly than the Euro area overall. Despite a recent slowdown in China, economic growth in Asia Pacific is expected to outstrip growth in advanced economies. Moreover, unlike advanced economies which are struggling to maintain growth rates of the previous year in, most emerging regions are excepting to improve economic performance in compared to. Although there are signs of improvement in business confidence and air freight volumes in Q, growth rates remain weak and the pick-up has been modest so far, with no marked improvement in air freight demand on Far East markets (&5). Growth in new export orders has improved over recent months (), which is a positive forward looking indicator for world trade growth and air freight demand Forecasts for GDP growth Source: EIU Freight Traffic Growth Source: IATA, ACI Domestic Freight Volumes (ACI) International Freight Volumes (ACI) International FTKs (IATA) - US Japan Euro Area ASPAC excl Japan Latin America Middle East North Africa Sub- Saharan Africa World -8 Difference in % GDP over previous year Goverment Cyclically Adjusted Fiscal Balance Source: IMF United States Euro Area Japan China India Russia Brazil Tightening Loosening % 5% % % % % % -% -% -% -% 5. International Freight growth by major routes Source: IATA ODS Europe - Far East Within Far East North Atlantic North and Mid Pacific % banks 8 - European Banks US Banks. Bank credit conditions Source: ECB, Federal Reserve Looser Credit Standards Tighter Credit Standards 8 - % banks % Growth YoY Growth in New Export Orders Index Source: Markit/JP Morgan New Export Orders Index IATA Economics:

3 Cargo echartbook Q Demand Environment & Drivers The demand environment for air cargo has started to show signs of improvement. Business confidence, a key indicator of air freight growth, has picked up in Q after remaining broadly flat since late Q (8). And although world trade growth remains slow compared to periods like when air freight markets experienced rapid expansion (7), several emerging market regions continue to see solid momentum in trade volumes growth. Finally, there is no sign of an inventory overhang, suggesting businesses have no immediate need to reduce their reliance on quick transportation of cargo (9). Demand drivers also look a bit better. European consumer expectations of the economic outlook continue to improve, now at the highest levels since (), and consumer confidence in the US is also on the way up. China, by contrast, saw some decline in consumer confidence over recent months, with the economy failing to meet growth expectations in H. This has placed downward pressure on demand for air-freighted commodities, as indicated by contraction in semi-conductor shipments (). Elsewhere in Asia, monetary policy stimulus has helped support Japan s economy, where capital expenditure is on the rise. Capital investment intentions of UK companies remain stable (). Billion FTKs World trade in goods and air FTKs Source: Netherlands CPB and IATA (Seasonally Adjusted) International FTKs (left scale) World goods trade volumes (right scale) 9 index of world trade, 5= % Growth, Semi-Conductor Shipments Semi-Conductor Shipments and Air Freight Source: IATA, SIA International FTKs Semi-Conductor Shipments % growth - International FTKs % Growth YoY 8. Purchasing Managers confidence survey and Air Freight Demand Source: IATA, Markit/JP Morgan - - JP Morgan Manufactuerers PMI (+ months) International FTKs Balance expecting improvement, index 8. Consumer confidence Source: Haver Analytics China US Europe (right scale) Balance expecteting improvement, net % Inventories to sales ratio Total Business inventories to sales ratio and FTKs Source: US Census Bureau and IATA Inventories to sales ratio FTKs 8 8 FTKs (billion) Net balance intending to increase investment Capital spending intentions Source: Haver Analytics UK business (left scale) Japan business (right scale) Net balance intending to increase investment IATA Economics:

4 Cargo echartbook Q Capacity & Competition Freight load factors have weakened over recent months (). Although demand has improved slightly, capacity has been on the rise as a result of expansion in the passenger fleet (). On the positive side however, no growth in the freighter fleet has contained any further decline in aircraft utilization rates (). But deliveries of new twin-aisle aircraft with belly hold capacity should increase by over % in compared to (5), expanding the existing widebody fleet by 7% this year, and this could place downward pressure on aircraft utilization rates in H if demand does not pick up. The decline in air freight rates has intensified over recent months. At the same time, sea freight rates have plunged (7), reflecting weakening demand for sea transport. Demand for container shipping is either softening or contracting in all regions except for Latin America (8). Modest improvement in the Eurozone economy over recent months has helped stabilize demand for Asian goods moved by air, which had previously been in decline since (). But notable improvements are yet to be seen on this key air freight market. Number of aircraft Freighter fleet in service. Cargo fleet composition Source: IATA, Ascend Widebody pax fleet in service 5% % % % % % -% -% -%. EU Trade with Asia % change from pre-crisis peak June 8 - Seasonally adjusted monthly data in tonne (Source: International Transport Forum) Asia to EU by sea EU to Asia by sea Asia to EU by air EU to Asia by air -% End of year totals End of month totals Average daily hours flown. Freight load factor and freighter aircraft utilization (Seasonally adjusted) Freight aircraft utilization Freight Load Factor 5% 5% 9% 7% 5% % % 9% 7% % available freight tonne capacity % 8% % % % % -% -% -% 7. Ocean container and air freight rate growth Source: Drewry, CASS Ocean container Air freight Number of Aircraft Twin Aisle Aircraft Deliveries by Airline Region Source: Ascend Other Middle East North America Europe Asia Pacific % Growth, Year-on-Year 8 8. Container Shipping Volume Growth by Region Source: Drewry May- Apr- May North America North Europe Far East Middle East Latin America IATA Economics:

5 Cargo echartbook Q Revenues, Costs & Profits Air freight yields continue to weaken (9). Although there has been some improvement in air freight demand over recent months, capacity growth has kept load factors low. Jet fuel prices have surged over recent weeks, reaching $/bbl again in August (). The latest increases result from concerns of supply disruptions due to unrest in Syria and Egypt, as well as an improved demand outlook with positive growth indicators from the US and an end to the Eurozone recession. Although there no increase in nominal wage rates (), high fuel costs continue to place downward pressure on profits (). However, consistent with the improvement in the demand backdrop, the outlook for air freight is more optimistic according to heads of cargo surveyed in July. The outlook is for an increase in traffic volumes over the next months, but yields are expected to remain unchanged ().is stable (). US$ per kilo Air Freight Yields (US$ per kilo) Source: IATA CASS SE Asia-Europe SE Asia - Europe (incl. Other charges) Global total - LHS Global (incl. Other charges) - LHS US$ per kilo % of Revenues % % 8% % % % % -% -%. Profitability of US Cargo Only Airlines Source: US BTS Operating Profit Margin Net Profit Margin 8. Jet Fuel and Crude Oil Price ($/barrel) (Source: Platts, RBS) 75. Global Airline Industry Cargo Revenues Source: ICAO, IATA % 8 Jet fuel price Crude oil price (Brent) Revenues (US$ billion) 5 5 Cargo Revenues % Growth % % % % -% % Growth -% FF -% % Growth y-o-y in nominal wages 7 5 USA European Union China P.R.. Nominal Wage Growth Source: Haver Analytics % Growth y-o-y in nominal wages (China) Weighted Score IATA survey of heads of cargo Volumes - next months Yields - next months Increase Decrease IATA Economics: 5

6 Cargo echartbook Q Air Freight Routes and Direction Table. International Freight Volume Growth by Route Area (Source: IATA ODS statistics) % Growth in Freight Tonnes, year-on-year Route Area Jan- Feb- Mar- Apr- May- Jun- Africa - Middle East.%.%.%.%.%.% Europe - Far East -.8% -5.% -.% -.% -.5% -.9% Europe - Middle East.8% 5.8% 7.%.% 8.8% 8.8% Within Far East -.% -.%.8%.%.% -.% Within Middle East.%.%.%.%.%.% Within South America 8.% -8.7% -.% 5.5% 5.% -5.% Mid Atlantic.8%.5% -.% -.%.% 7.9% Middle East - Far East 5.% -5.8% 5.5%.%.%.% North Atlantic.% 8.%.% -.8%.%.7% North America-Central America -7.%.8% -.8% -.% -.% -.% Europe - Africa -.8%.% -.5% -5.% -.% -7.7% North America South America.% -5.%.%.% 9.5% 8.% Far East - Southwest Pacific -.% -9.8% -.%.% -.7% -9.% North and Mid Pacific -.9% -7.% -5.5%.%.9%.7% South Atlantic 7.8%.9% -7.%.% -.% -8.% Within Europe.5% 8.% -.9% -.% -.7% -.% Table. Outbound CASS Market Revenues (excl. fuel surcharges) % Growth in Air Freight Revenues, year-on-year US$m Origin Region Q Q Q Q Q Q Q Africa Caribbean Central America Europe Japan & Korea Middle East North America South America South East Asia Table. Inbound CASS Market Revenues (excl. fuel surcharges) US$m % Growth in Air Freight Revenues, year-on-year Destination Region Q Q Q Q Q Q Q Africa Caribbean Central America Europe Japan & Korea Middle East North America South America South East Asia IATA Economics:

7 Glossary Cargo echartbook Q ACI: Airports Council International AFTK: Available Freight Tonne Kilometers European CB: European Central Bank EIU: Economist Intelligence Unit CASS: Cargo Accounts Settlement System FT: Financial Times FTK: Freight Tonne Kilometers PMI: Purchasing Managers Index Netherlands CPB: Netherlands Bureau for Economic Policy Analysis ODS: Origin-Destination Statistics SIA: Semiconductors Industry Association US BTS: US Bureau of Transportation Statistics M-o-m Month over month percentage change Y-o-y Year over year percentage change IATA Economics th September IATA Economics: 7