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Reviewing airline performance over the past year:
Indicators and trends
Prepared for:
Nikolai Lvov
Director – Aviation Banking, Citi
March 2019 | Citi Global Banking, Capital Markets and Advisory | Global Aviation
Table of Contents
1. Airline Profitability & Traffic Trends 1
2. Recent Airline Trends 13
3. Evaluating the Most Popular Forms of Liquidity 25
© 2019 Citibank, N.A. All rights reserved. Citi and Citi and Arc Design are trademarks and
service marks of Citigroup Inc. or its affiliates and are used and registered throughout the
world.
1. Airline Profitability & Traffic Trends
Global Aggregate Commercial Aviation Net Profits(US$ in Billions)
Strong Airline Profitability Set To Continue
(13.0)(11.3)
(7.5)(5.6)
(4.1)
5.0
14.7
(26.1)
(4.6)
17.3
8.3 9.2
10.7
13.7
36.0 34.2
37.7
32.3
35.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019F
Source: Airline Industry Economic Performance Decemberr 2018
1 Airline Profitability & Traffic Trends
Regional Differences in Profitability
Source: IATA, Flightglobal
Note: IATA outlooks; 2018 and 2019 is forecast, figures for 2017 are revised since June 18 IATA outlook. Other includes net total for Africa, LatAm, Middle East.
Net Profit Margins vary by region: North American Airlines are expected to remain the most profitable ones in 2018 while
airlines based in Asia-Pacific are expected to continue recording stable profitability in 2018 and overtake Europe in terms
of Net Profit Margin in 2019.
Net Profit Margins by RegionUS$’Bn North America
• Strongest financial performance for years
• Net profit margin is forecasted at 6% in 2019,
up from 5.7% in 2018 as low hedging allows
lower fuel prices to impact immediately.
Europe
• Net profit margin is forecasted at 3.4% in 2019,
due from 3.7% in 2018 due to higher
regulatory costs and competitive open aviation
area.
• Growth was damaged in 2016 by terrorist
attacks but has shown rebound in 2018
Asia Pacific
• Net profit margin is forecasted to be stable at
3.8% in both 2018 and 2019 under lower fuel
costs and strong regional economic growth.
0
5
10
15
20
25
2011 2012 2013 2014 2015 2016 2017 2018E 2019E
North America
Asia
Europe
Other
2 Airline Profitability & Traffic Trends
Air Travel Continues to be Supported by Global GDP Growth
Air Travel has Proved to be Resilient to External ShocksAir Traffic and Global GDP Growth; 1990 = 100
Growth Driven by Emerging Markets2016–2036 Annual GDP Growth (%)
Global Air Traffic Demand Growth is a Multiplier of
Underlying GDP Growth
Demand for air transport has historically grown at ~1.5x global GDP growth with only three periods at negative growth
since 1970. Growth will continue to be driven by the Emerging Markets.
Source: Ascend, Boeing Current Market Outlook, Airbus Global Market Forecast, World Bank, Capstats.
1.7
2
2.1
2.8
3
3.5
3.5
3.9
Europe
CIS
North America
World
LatAm
Africa
Middle East
Asia
0
100
200
300
400
500
600
700
800
900
1,000
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
Global Real GDP Passenger Traffic (RPK)
First
Gulf
War
9/11 and
Second
Gulf War
Global
Economic
Crisis
1990–2016
CAGR: 5.1%
2016–2034E
CAGR: 4.9%
2016–2034E
CAGR: 2.9%0 2,000 4,000 6,000
Africa
CIS
LatAm
Middle East
North America
Europe
Asia-Pacific
APAC Lead in World Traffic will Increase by 2035RPK Traffic by Airline Domicile (Bn)
2016 – 2035 traffic
2015 traffic
3 Airline Profitability & Traffic Trends
Global Demographics to Underpin Future Demand for Air Travel
Travel propensity increases more than proportionally with income, primarily driven by growth in emerging markets.
Propensity to Travel …
Source: Airbus Global Market Forecast, Oxford Economics.
• Europeans and North
Americans are currently the
most willing to fly given
higher GDP
• By 2037, trips per capita for
China and India will almost
quadruple from 0.4 to 1.4
and 0.1 to 0.4 respectively
0.00
0.01
0.10
1.00
10.00
100.00
0 10 20 30 40 50 60 70 80 90 100
India 2017
0.1 Trips per Capita
China 2017
0.4 Trips per Capita
India 2037E
0.4 Trips per Capita
Europe 2017
1.5 Trips per Capita
China 2037E
1.4 Trips per Capita
Europe 2037E
2.8 Trips per Capita
North America 2017
1.8 Trips per Capita
North America 2037E
2.5 Trips per Capita
Real GDP per Capita (2010 US$ in 000’s at Purchasing Power Parity)Trips p
er
Capita
100.00
10.00
1.00
0.10
0.01
0.00
0 10 20 30 40 50 60 70 80 90 100
4 Airline Profitability & Traffic Trends
Africa - Europe
Africa - Asia
Africa - Middle East
Central - South America
Europe - Central America
Europe - Asia
Europe - Middle East
Europe - North America
Europe - South America
Asia - North America
Asia - Southwest Pacific
Middle East - Asia
Middle East - North America
North - South America
Americas - Southwest Pacific
Within Central America
Within EuropeWithin Asia
Other
Domestic AustraliaDomestic Brazil
Domestic China
Domestic India
Domestic Japan
Domestic Russia
Domestic US
0%
2%
4%
6%
8%
10%
12%
14%
0% 2% 4% 6% 8% 10% 12% 14% 16%
International Route as of Dec 2018 Domestic Market as of Dec 2018
Global RPK Performances by Regions and Countries
Source: IATA
While Domestic US had the largest market share by RPK of 14.1%, Asia Pacific led the global RPK growth by international routes at 8.3% as of
December 2018. Domestic China, the 2nd largest aviation market after Domestic US as measured by total RPK , recorded the highest rate of
RPK growth of 14.1% across the globe.
Share of Total Global RPKs (Year ended Dec2018)
% Y
ear-
on-y
ear,
2018 Y
TD
RPK Growth by International Route and Domestic Market
5 Airline Profitability & Traffic Trends
70
75
80
85
90
95
100
105
2011 2012 2013 2014 2015 2016 2017 2018
Ancillary Revenue an Increasingly Integral Part of the Airline Product
Ancillaries are contributing an ever increasing proportion of the overall airline revenues per passenger in recent years, and
we expect ancillaries to continue to drive the growth of revenues per passenger going forward.
Indices (Jan 2011 = 100), Seasonally Adjusted
Airline Revenue per Passenger
Base Fare
Ancillaries
Economy-class Base Fare Yield
Global Average Passenger Base Fare Yield (US$ Terms)
Premium-class Base Fare Yield
Source: IATA using data from PaxIS.
0
10
20
30
40
50
60
0
20
40
60
80
100
120
140
160
180
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Carg
o, A
ncilla
ries U
S$ p
er P
assenger
Base fare
US
$ p
er
Passenger
6 Airline Profitability & Traffic Trends
8.8%
9.4%
9.5%
9.6%
9.7%
9.8%
9.9%
10.6%
10.7%
10.9%
11.2%
11.9%
12.1%
12.2%
12.4%
12.5%
13.1%
13.2%
14.6%
15.2%
15.4%
16.5%
16.9%
17.3%
18.2%
19.5%
20.0%
21.6%
23.2%
25.0%
27.6%
27.7%
28.2%
28.5%
34.2%
39.8%
41.6%
42.4%
43.6%
46.6%
Pobeda
Aeromexico
Azul
Hawaiian
Thomas Cook
WestJet
GOL
Air Canada
Nok Air
Vietjet
Sun Country
flydubai
Qantas Airways
Air Arabia
Aer Lingus
American
Cebu Pacific
Delta
Southwest
United
JetBlue
Norwegian
Alaska Air Group
AirAsia Group
AirAsia X
easyJet
Scoot
Pegasus
Jetstar
HK Express
Jet2.com
Volaris
Ryanair
WOW air
Volotea
Allegiant
Wizz Air
Frontier
VivaAeroBus
Spirit
LCC
Legacy
Sources of Ancillary Revenue
Although LCCs are more reliant on ancillary revenues given their lower base fares, airlines across the board (including
legacy carriers) are now looking to diversify their revenue sources through ancillary businesses.
Ancillaries as a % of Total Revenue 2017Ancillary Revenue Strategies
• Tiered product with first, business, and
economy class
• Increasing unbundling, e.g. thorough
basic faresSeat Allocation
Baggage
Allowance
Frequent Flyer
Programmes
Travel Services,
Commissions
& Advertising
Legacy Carriers Low Cost Carriers
• Traditionally one-class, economy only
operations, however premium options
with larger seats and leg-room have been
introduced
• Baggage allowance included in ticket
price, only excess baggage is subject to
fees. Exceptions are no-frills economy
products
• Charge for every non-hand baggage item
in basic tariffs. Premium tariffs usually
include a checked baggage allowance
• Established frequent flyer programme,
sale of miles to program partners
constitutes a large part of ancillary
revenues
• Subscription based discounts
• Some FFPs, however typically with
limited usability of miles
• Across airline types, revenues are generated by selling advertising (e.g. in-flight
magazines) or commission based sales of travel related products (e.g. insurance, car
rentals, accommodation)
• Some airlines operate their own travel agencies or are part of a travel agency business
Source: The 2018 CarTrawler Yearbook of Ancillary Revenue 2018, IdeaWorksCompany; Company disclosure.
7 Airline Profitability & Traffic Trends
Strong Macro Fundamentals Support Improving Credit ProfilesStrong global airline profitability driven by passenger demand growth and favorable oil price environment has attracted a
number of new investors to the Aviation space. In recent years Airline’s Return on Capital has outstripped WACC and is
projected to continue to do so. Regionally, the improvement in credit profile is more apparent in the US and Europe.
Source: IATA, Economic Performance of the Airline Industry, December 2018.
Return on Capital Invested in Airlines and their Cost of Capital Balance Sheets Improvements for Some RegionsAdjusted Net Debt / EBITDAR
North America
Europe
LATAM
Asia PacificMiddle East
0
2
4
6
8
10
12
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018F
% o
f In
veste
d C
apital
Return on Capital (ROIC) Capital Cost of Capital (WACC)
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
2010 2011 2012 2013 2014 2015 2016 2017
North America Europe Asia-Pacific Middle East LatAm
8 Airline Profitability & Traffic Trends
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Exh
ange R
ate
s, U
S$ p
er
Unit
of
Local C
urr
ency
(Index
to E
qual 1 in
1Q
08)
China
Japan
Eurozone
Indonesia
India
Brazil
Turkey
Argentina
Unit Cost Pressure2018 margin was compressed by a rise in the jet fuel price. However, US oil output is expected to increase in 2019,
lowering the jet fuel price and driving the recovery of industry margin. Rising non-fuel costs, mainly attributable to a higher
interest rate environment and the strengthening of USD, will be a challenge for further margin improvement.Jet Fuel Price Lower as Market Over-Supplied Unit Costs Rising Higher than Unit Revenues
Unit Cost Growth
Unit Revenue Growth
Source: IATA Economics using data from The Airline Analyst, Datastream and Platts.
Problems from a Strong US$ Likely to ContinueInterest Rates will be Pushed Higher
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
10 Y
ear
Gove
rnm
ent
Bond Y
ield
s,
%
US
Eurozone
China
9.2 10.7
13.8
36.0 34.2
37.7
32.3 35.5
0
20
40
60
80
100
120
140
5
6
7
8
9
10
11
12
2011 2012 2013 2014 2015 2016 2017 2018 2019
Jet F
uel P
rice (U
S$ p
er B
arre
l)
US
Oil
Supply
(M
illio
n B
arr
els
a D
ay)
US Oil Supply (LHS) Jet Fuel Price (RHS)Net Profit (US$ in Billions)
0
20
40
60
80
100
120
140
5
6
7
8
9
10
11
12
2011 2012 2013 2014 2015 2016 2017 2018 2019
Jet F
uel P
rice (U
S$ p
er B
arre
l)
US
Oil
Supply
(M
illio
n B
arr
els
a D
ay)
US Oil Supply (LHS) Jet Fuel Price (RHS)Net Profit (US$ in Billions)
(20)%
(15)%
(10)%
(5)%
0%
5%
10%
15%
20%
2011 2012 2013 2014 2015 2016 2017 2018
YoY
% C
hange
9 Airline Profitability & Traffic Trends
Oil Price Outlook
Source: Bloomberg, Citi Research estimates as of February 2019
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2018 2019 2020 17' 18' 19' 20'
OECD Demand 47.83 47.16 48.09 48.15 47.95 47.24 48.14 48.18 47.81 47.88 47.71 0.44 0.39 0.07 -0.17
Non-OECD Demand 51.25 51.54 52.13 52.19 52.46 52.74 53.27 53.29 51.78 52.94 54.72 1.28 1.68 1.16 1.78
Total Demand 99.09 98.70 100.22 100.34 100.58 99.98 101.40 101.47 99.59 100.86 102.43 1.72 2.07 1.27 1.57
Supply 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2018 2019 2020 17' 18' 19' 20'
US 10.23 10.54 11.24 11.74 12.10 12.31 12.42 13.01 10.94 12.46 14.19 0.50 1.59 1.52 1.73
Canada 4.23 4.09 4.07 4.51 4.30 4.60 4.61 4.67 4.23 4.55 4.80 0.30 0.26 0.32 0.25
Mexico 1.88 1.85 1.81 1.72 1.71 1.70 1.69 1.69 1.81 1.70 1.65 -0.21 -0.14 -0.12 -0.05
Brazil 2.65 2.71 2.88 2.92 2.90 3.05 3.20 3.35 2.79 3.13 3.56 0.11 0.16 0.33 0.44
Russia 10.96 11.00 11.26 11.42 11.33 11.20 11.35 11.50 11.16 11.34 11.53 0.02 0.18 0.18 0.19
Non-OPEC Crude 47.18 47.28 48.08 49.44 49.51 49.81 50.21 51.31 48.00 50.21 52.86 0.38 1.93 2.21 2.65
EX-US Non-OPEC NGLs 3.01 2.85 2.94 2.93 3.01 2.88 2.95 2.93 2.93 2.94 2.96 0.02 0.01 0.01 0.02
US NGLs 4.01 4.30 4.60 4.61 4.52 4.71 4.85 4.91 4.38 4.75 5.15 0.27 0.60 0.37 0.40
Non-OPEC Crude + NGLS 54.20 54.43 55.62 56.98 57.04 57.40 58.01 59.16 55.31 57.90 60.98 0.67 2.54 2.59 3.07
Iraq 4.44 4.44 4.71 4.67 4.72 4.65 4.70 4.70 4.56 4.69 4.81 0.12 0.02 0.13 0.12
Iran 3.68 4.10 3.53 2.83 2.59 2.60 2.50 2.50 3.53 2.55 2.80 0.22 -0.25 -0.98 0.25
Kuwait 2.70 2.71 2.79 2.78 2.76 2.75 2.90 3.10 2.75 2.88 3.08 -0.18 0.04 0.13 0.20
Libya 1.01 0.89 0.90 1.08 0.81 0.95 0.95 0.95 0.97 0.92 0.90 0.44 0.15 -0.06 -0.02
Nigeria 1.66 1.51 1.62 1.64 1.65 1.65 1.65 1.65 1.61 1.65 1.70 0.06 0.08 0.04 0.05
Saudi 9.94 10.13 10.40 10.79 10.12 9.80 10.10 10.10 10.32 10.03 10.00 -0.48 0.36 -0.29 -0.03
U.A.E 2.84 2.88 3.00 3.36 3.14 3.05 3.15 3.25 3.02 3.15 3.20 -0.12 0.09 0.13 0.05
Venezuela 1.54 1.39 1.30 1.26 0.94 0.70 0.58 0.46 1.37 0.67 0.47 -0.27 -0.59 -0.70 -0.20
OPEC Crude 32.14 32.33 32.57 32.69 31.11 30.52 30.88 31.05 32.43 30.89 31.26 -0.39 -0.23 -1.54 0.37
OPEC Condensate & NGLs 6.69 6.68 6.70 6.72 6.72 6.72 6.72 6.72 6.70 6.72 6.89 0.13 0.04 0.02 0.17
Unconventional Inc Biofuels 2.89 3.62 3.90 3.27 3.06 3.72 3.97 3.49 3.42 3.56 3.71 0.05 0.27 0.14 0.15
Processing Gains 2.03 2.04 2.08 2.08 2.03 2.04 2.08 2.08 2.06 2.06 2.06 0.04 0.02 0.00 0.00
Total Supply 97.95 99.11 100.87 101.74 99.96 100.40 101.67 102.49 99.92 101.13 104.90 0.49 2.64 1.22 3.76
Stockbuilds for SPR, infrastructure -0.71 -0.65 -0.44 -1.13 -0.99 -0.71 -0.42 -0.42 -0.73 -0.64 -0.77 - - - -
Error Term/Seasonality Adjustment 2.22 -0.37 -0.54 -0.14 0.96 -0.04 -0.03 -0.12 0.29 0.19 0.19 - - - -
Expected Total Stock Change 0.37 -0.61 -0.33 0.32 -0.65 -0.33 -0.18 0.48 -0.06 -0.17 1.89 - - - -
Call on US Crude 9.87 11.15 11.57 11.43 12.74 12.64 12.60 12.54 11.00 12.63 12.30 - - - -
Call on OPEC crude 31.77 32.94 32.90 32.38 31.75 30.85 31.06 30.57 32.50 31.06 29.37 - - - -
Crude Supply 79.31 79.61 80.65 82.14 80.62 80.33 81.09 82.36 80.43 81.10 84.12 -0.02 1.70 0.67 3.02
Crude Runs 81.43 81.77 84.07 83.56 82.73 83.07 85.07 84.56 82.71 83.86 - 1.42 0.95 1.15 -
1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2018 2019 2020 17' 18' 19' 20'
OECD Demand 47.83 47.16 48.09 48.15 47.95 47.24 48.14 48.18 47.81 47.88 47.71 0.44 0.39 0.07 -0.17
Non-OECD Demand 51.25 51.54 52.13 52.19 52.46 52.74 53.27 53.29 51.78 52.94 54.72 1.28 1.68 1.16 1.78
Total Demand 99.09 98.70 100.22 100.34 100.58 99.98 101.40 101.47 99.59 100.86 102.43 1.72 2.07 1.27 1.57
Supply 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 2018 2019 2020 17' 18' 19' 20'
US 10.23 10.54 11.24 11.74 12.10 12.31 12.42 13.01 10.94 12.46 14.19 0.50 1.59 1.52 1.73
Canada 4.23 4.09 4.07 4.51 4.30 4.60 4.61 4.67 4.23 4.55 4.80 0.30 0.26 0.32 0.25
Mexico 1.88 1.85 1.81 1.72 1.71 1.70 1.69 1.69 1.81 1.70 1.65 -0.21 -0.14 -0.12 -0.05
Brazil 2.65 2.71 2.88 2.92 2.90 3.05 3.20 3.35 2.79 3.13 3.56 0.11 0.16 0.33 0.44
Russia 10.96 11.00 11.26 11.42 11.33 11.20 11.35 11.50 11.16 11.34 11.53 0.02 0.18 0.18 0.19
Non-OPEC Crude 47.18 47.28 48.08 49.44 49.51 49.81 50.21 51.31 48.00 50.21 52.86 0.38 1.93 2.21 2.65
EX-US Non-OPEC NGLs 3.01 2.85 2.94 2.93 3.01 2.88 2.95 2.93 2.93 2.94 2.96 0.02 0.01 0.01 0.02
US NGLs 4.01 4.30 4.60 4.61 4.52 4.71 4.85 4.91 4.38 4.75 5.15 0.27 0.60 0.37 0.40
Non-OPEC Crude + NGLS 54.20 54.43 55.62 56.98 57.04 57.40 58.01 59.16 55.31 57.90 60.98 0.67 2.54 2.59 3.07
Iraq 4.44 4.44 4.71 4.67 4.72 4.65 4.70 4.70 4.56 4.69 4.81 0.12 0.02 0.13 0.12
Iran 3.68 4.10 3.53 2.83 2.59 2.60 2.50 2.50 3.53 2.55 2.80 0.22 -0.25 -0.98 0.25
Kuwait 2.70 2.71 2.79 2.78 2.76 2.75 2.90 3.10 2.75 2.88 3.08 -0.18 0.04 0.13 0.20
Libya 1.01 0.89 0.90 1.08 0.81 0.95 0.95 0.95 0.97 0.92 0.90 0.44 0.15 -0.06 -0.02
Nigeria 1.66 1.51 1.62 1.64 1.65 1.65 1.65 1.65 1.61 1.65 1.70 0.06 0.08 0.04 0.05
Saudi 9.94 10.13 10.40 10.79 10.12 9.80 10.10 10.10 10.32 10.03 10.00 -0.48 0.36 -0.29 -0.03
U.A.E 2.84 2.88 3.00 3.36 3.14 3.05 3.15 3.25 3.02 3.15 3.20 -0.12 0.09 0.13 0.05
Venezuela 1.54 1.39 1.30 1.26 0.94 0.70 0.58 0.46 1.37 0.67 0.47 -0.27 -0.59 -0.70 -0.20
OPEC Crude 32.14 32.33 32.57 32.69 31.11 30.52 30.88 31.05 32.43 30.89 31.26 -0.39 -0.23 -1.54 0.37
OPEC Condensate & NGLs 6.69 6.68 6.70 6.72 6.72 6.72 6.72 6.72 6.70 6.72 6.89 0.13 0.04 0.02 0.17
Unconventional Inc Biofuels 2.89 3.62 3.90 3.27 3.06 3.72 3.97 3.49 3.42 3.56 3.71 0.05 0.27 0.14 0.15
Processing Gains 2.03 2.04 2.08 2.08 2.03 2.04 2.08 2.08 2.06 2.06 2.06 0.04 0.02 0.00 0.00
Total Supply 97.95 99.11 100.87 101.74 99.96 100.40 101.67 102.49 99.92 101.13 104.90 0.49 2.64 1.22 3.76
Stockbuilds for SPR, infrastructure -0.71 -0.65 -0.44 -1.13 -0.99 -0.71 -0.42 -0.42 -0.73 -0.64 -0.77 - - - -
Error Term/Seasonality Adjustment 2.22 -0.37 -0.54 -0.14 0.96 -0.04 -0.03 -0.12 0.29 0.19 0.19 - - - -
Expected Total Stock Change 0.37 -0.61 -0.33 0.32 -0.65 -0.33 -0.18 0.48 -0.06 -0.17 1.89 - - - -
Call on US Crude 9.87 11.15 11.57 11.43 12.74 12.64 12.60 12.54 11.00 12.63 12.30 - - - -
Call on OPEC crude 31.77 32.94 32.90 32.38 31.75 30.85 31.06 30.57 32.50 31.06 29.37 - - - -
Crude Supply 79.31 79.61 80.65 82.14 80.62 80.33 81.09 82.36 80.43 81.10 84.12 -0.02 1.70 0.67 3.02
Crude Runs 81.43 81.77 84.07 83.56 82.73 83.07 85.07 84.56 82.71 83.86 - 1.42 0.95 1.15 -
($/bbl) 1Q18 2Q18 3Q18 4Q18 1Q19E 2Q19E 3Q19E 4Q19E 1Q20E 2Q20E 3Q20E 4Q20E 2018E 2019E 2020E 2021E 2022E 2023E
Brent 67 75 76 68 64 60 63 67 62 57 53 50 72 64 56 50 60 65
WTI 63 68 69 58 55 48 51 58 57 52 48 45 64 53 51 45 55 60
Brent-WTI 4 7 7 10 9 12 12 9 5 5 5 5 7 11 5 5 5 5
Brent Scenarios ($/bbl) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 2018E 2019E 2020E 2021E 2022E 2023E
Bull (30%) 67 75 76 68 67 71 76 80 75 70 65 60 72 74 68 60 65 70
Base (55%) 67 75 76 68 64 60 63 67 62 57 53 50 72 64 56 50 60 65
Bear (15%) 67 75 76 68 61 53 55 58 54 50 47 44 72 57 49 45 55 60
Futures 67 75 76 68 63 66 66 65 65 65 64 64 72 65 64 61 62 63
10 Airline Profitability & Traffic Trends
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2017/1 2017/7 2017/12 2018/6 2018/12 2019/6 2019/12 2020/6 2020/12
Global Interest Rates Outlook10-year Benchmark Yields
Global Economic Outlook and Forecast
Citi Forecast (1) Market Forecast (2)
Current 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20
US
Policy Rate 2.50 2.50 2.75 3.00 3.00 0.50 3.00 3.00 2.50 2.60 2.70 2.80 0.30 2.80 2.80
CPI YoY 1.60 1.30 1.20 1.30 1.50 0.10 1.90 2.00 1.80 1.90 2.00 2.20 0.60 2.30 2.20
Core PCE YoY 1.90 -- -- -- -- -- -- -- 1.90 1.90 2.00 2.00 0.10 2.10 2.10
3m LIBOR 2.61 3.00 3.20 3.20 3.20 0.59 3.20 3.20 2.72 2.81 2.89 2.95 0.34 2.99 2.99
2Y UST 2.46 2.75 2.75 2.75 2.75 0.29 2.75 2.75 2.63 2.74 2.81 2.86 0.40 2.88 2.91
5Y UST 2.43 2.70 2.70 2.70 2.70 0.27 2.70 2.70 2.65 2.77 2.83 2.87 0.44 2.92 2.96
10Y UST 2.64 2.85 2.85 2.85 2.85 0.21 2.85 2.85 2.82 2.91 2.99 3.03 0.39 3.08 3.09
30Y UST 3.02 3.05 3.05 3.05 3.05 0.03 3.05 3.05 3.10 3.17 3.25 3.29 0.27 3.36 3.39
Euro
Policy Rate 0.00 0.00 0.00 0.00 0.25 0.25 0.25 0.50 0.00 0.00 0.00 0.10 0.10 0.10 0.20
10Y Bund 0.07 0.10 0.20 0.35 0.55 0.48 0.70 0.85 0.34 0.48 0.59 0.71 0.64 0.77 0.84
Q219
2.91%
1.51%
0.48%
2.64%
1.19%
0.07%
Q419
3.03%
1.70%
0.71%
Current Q220
3.09%
1.89%
0.84%
Q420
3.08%
1.98%
1.03%
Interest Rate Hike Probability
Meeting Date
Policy Rate (Current: 2.25-2.50)
≤2.25 2.25-2.50 2.50-2.75 ≥2.75
3/20/2019 2.3% 97.7% 0.0% 0.0%
5/1/2019 2.3% 97.7% 0.0% 0.0%
6/19/2019 6.9% 93.1% 0.0% 0.0%
7/31/2019 6.9% 92.4% 0.7% 0.0%
9/18/2019 11.0% 88.3% 0.6% 0.0%
10/30/2019 12.4% 87.0% 0.6% 0.0%
12/11/2019 20.5% 78.9% 0.6% 0.0%
T
G
B
Source: Citi, Bloomberg, as of Mar 12, 2019; Note: 1. Citi Forecast as of Feb 20, 2019 2. Recent Market Consensus Forecast as of Mar 12, 2019
-10
10
30
50
70
90
110
130
150
2013/1/1 2014/1/1 2015/1/1 2016/1/1 2017/1/1 2018/1/1 2019/1/1
2s/5s Yield Sprd 7s/10s Yield Sprd 10s/30s Yield Sprd
The Movement of Treasury Yield Spreads
11 Airline Profitability & Traffic Trends
Citi FX Forecasts
The US Dollar is expected to depreciate against most major currencies in the next two years.
Currency Spot 19-Mar 19-Jun 19-Sep 19-Dec 20-Mar 20-Jun 20-Sep 20-Dec
G10
Euro EURUSD 1.13 1.14 1.16 1.17 1.19 1.22 1.24 1.26 1.29
Japanese Yen USDJPY 111 109 106 104 102 100 98 96 94
British Pound GBPUSD 1.29 1.3 1.32 1.33 1.36 1.38 1.41 1.44 1.46
Swiss Franc USDCHF 1.01 1 0.99 0.99 0.98 0.96 0.95 0.94 0.93
Australian Dollar AUDUSD 0.71 0.71 0.71 0.72 0.72 0.73 0.74 0.75 0.76
New Zealand Dollar NZDUSD 0.68 0.68 0.68 0.68 0.68 0.68 0.67 0.67 0.67
Canadian Dollar USDCAD 1.32 1.31 1.3 1.29 1.28 1.26 1.24 1.23 1.21
Swedish Krona USDSEK 9.21 9.1 8.96 8.83 8.6 8.3 8 7.71 7.44
Norwegian Krone USDNOK 8.61 8.47 8.3 8.13 7.92 7.69 7.46 7.24 7.02
EM Asia
Chinese Renminbi USDCNY 6.76 6.8 6.82 6.84 6.82 6.77 6.72 6.67 6.62
Hong Kong Dollar USDHKD 7.85 7.84 7.84 7.85 7.85 7.84 7.83 7.83 7.82
Indonesian Rupiah USDIDR 14059 13822 13933 14046 14184 14343 14502 14662 14823
Indian Rupee USDINR 70.6 71.7 70.4 69.1 68.9 69.6 70.3 71 71.7
Korean Won USDKRW 1122 1120 1122 1124 1122 1117 1112 1107 1102
Malaysian Ringgit USDMYR 4.07 4.08 4.07 4.06 4.03 4 3.97 3.94 3.91
Philippine Peso USDPHP 52.1 52.3 52.5 52.7 52.8 52.9 52.9 52.9 53
Singapore Dollar USDSGD 1.36 1.35 1.34 1.33 1.33 1.32 1.31 1.31 1.3
Thai Baht USDTHB 31.3 31.9 32.2 32.6 32.7 32.6 32.4 32.2 32.1
Taiwan Dollar USDTWD 30.8 30.8 30.8 30.9 30.8 30.7 30.6 30.5 30.4
EM Europe
Czech Koruna USDCZK 22.8 22.5 22.1 21.7 21.2 20.7 20.1 19.6 19.1
Hungarian Forint USDHUF 280 281 276 271 266 260 255 250 245
Polish Zloty USDPLN 3.82 3.75 3.69 3.63 3.56 3.48 3.41 3.33 3.26
Israeli Shekel USDILS 3.64 3.63 3.62 3.61 3.6 3.59 3.59 3.59 3.58
Russian Ruble USDRUB 65.6 66.7 66 65.3 65.5 66.5 67.5 68.5 69.5
Turkish Lira USDTRY 5.25 5.46 5.88 6.3 6.53 6.59 6.65 6.71 6.77
South African Rand USDZAR 13.77 14.03 13.92 13.8 13.76 13.78 13.8 13.82 13.84
EM LatAm
Brazilian Real USDBRL 3.71 3.7 3.68 3.66 3.64 3.63 3.62 3.61 3.6
Chilean Peso USDCLP 661 659 653 648 647 650 653 656 659
Mexican Peso USDMXN 19.2 19.8 20 20.2 20.4 20.5 20.7 20.8 20.9
Colombian Peso USDCOP 3128 3124 3094 3064 3040 3020 3000 2980 2960
Source: Foreign Exchange Forecasts When Will the USD Turn? Citi Research, February 2019
12 Airline Profitability & Traffic Trends
2. Recent Airline Trends
Shift in Leverage: Airlines, Then vs. Now
B / B2 / B- B / B2 / B- B / B2 / BB+ / B1 / --BBB- / Baa3 / --
Source: Company Financials, FactSet; Note: Adj. Debt calculated as LT+ST debt (incl. capital leases) + 8 x Rent Expense.
(1) Ratio calculated as: (Total Debt – Lease Debt + FY17 Rent Expense x 8) / (EBITDA + FY17 Rent Expense).
B- / B2 / B- B- / -- / B-A- / Baa1 / A -- / -- / ---- / -- / -- -- / -- / --
Adjusted Debt / EBITDAR
FY 2007
BB / B1 / --
The aviation industry has seen a noticeable decline in Adjusted Leverage from an average of 5.1x in 2007 to 3.0x in 2018,
leading to improvements in external ratings as well as encouraging more airlines to seek inaugural ratings.
Adjusted Debt / EBITDAR
FY 2018
BBB- / Baa3
/ BBB-
BBB- / Baa3
/ --
BB / Ba2 / BB BB- / Ba3
/ BB-
BBB+ / A3
/ BBB+
BBB+ / Baa1 / --BBB+ / -- / BBB+ -- / -- / -- B+ / B1 / --
2.2x 2.3x3.4x 4.0x 4.3x 4.8x 5.1x 5.3x
6.2x 6.6x 7.0x
10.0xAverage: 5.1x
1.0x
2.0x2.5x 2.6x 2.6x 2.8x 3.0x
4.9x 5.0x
2.9x (1)Average: 3.0x
13 Recent Airline Trends
Improved Creditworthiness of Global Rated AirlinesMoody’s
Issuer Name Rating Outlook Rating Outlook Rating Outlook
-- -- -- -- A Stable
A3 Stable BBB+ Stable A- Stable
-- -- BBB+ Stable BBB+ Stable
Baa1 Stable BBB+ Stable -- --
Baa2 Stable -- -- -- --
Baa2 Stable -- -- -- --
Baa3 Stable -- -- BBB Stable
Baa3 Negative BBB- Negative -- --
Baa3 Stable BBB- Stable BBB- Stable
Baa3 Stable BBB- Positive -- --
Baa3 Stable BBB- Stable BBB- Stable
-- -- BB+ Stable BBB- Stable
-- -- BB- Stable BB+ Negative
Ba1 Stable BB Stable BB Positive
Ba2 Stable BB Stable BB Stable
Ba2 Stable BB Positive BB- Positive
Ba3 Stable BB- Stable BB- Stable
Ba3 Under Review BB- Stable -- --
Ba3 Stable BB- Stable -- --
Ba3 Stable B+ Stable -- --
-- -- -- -- BB- Stable
Ba3 Stable BB- Stable BB- Stable
Ba3 Stable BB- Stable B+ Positive
B1 Stable B+ Stable -- --
B2 Stable B+ Stable -- --
-- -- B Stable B Stable
B2 Stable B- Stable B Stable
Source: Bloomberg, Factset as of March 2019.
14 Recent Airline Trends
Ratings ∆ Market Cap (USD MM)
2013 2014 2015 2016 2017 2018 over period Dec-2013 March-2019 ∆
S&P B- B B+ BB- BB- BB- +3
13,302 14,922 12%Moody's B1 B1 Ba3 Ba3 Ba3 Ba3 +1
Fitch B+ B+ BB- BB- BB- BB- +1
S&P BB- BB BB+ BB+ BBB- BBB- +3
23,389 33,757 44%Moody's B2 B1 Ba3 Baa3 Baa3 Baa3 +5
Fitch -- -- -- -- BBB- BBB- --
S&P B B BB- BB- BB BB +3
13,705 22,685 66%Moody's B2 B1 Ba3 Ba3 Ba2 Ba2 +3
Fitch B+ B BB- BB BB BB +2
S&P BBB- BBB- BBB- BBB- BBB- BBB- --9,840 12,132 23%
Moody's Ba1 Ba1 Ba1 Ba1 Baa3 Baa3 +1
S&P BB BB BB BB BB+ BBB- +2
13,554 14,953 10%Moody's B1 Ba3 Ba2 Baa3 Baa3 Baa3 +4
Fitch -- -- BB+ BB+ BBB- -- N/A
S&P BBB- BBB BBB BBB BBB+ BBB+ +2
13,197 29,751 125%Moody's Baa3 Baa2 Baa1 Baa1 A3 A3 +3
Fitch BBB BBB BBB+ BBB+ BBB+ BBB+ +1
S&P BB+ BB+ BBB- BBB- BBB- BBB- +12,732 6,196 127%
Moody's Baa3 Ba2 Ba1 Baa3 Baa2 Baa2 +1
S&P B- B B+ BB- BB- BB +4
1,984 6,828 244%Moody's B3 B2 B1 B1 Ba3 Ba2 +4
Fitch B B B+ B+ BB- BB- +2
S&P -- -- BB BB- BB- B+ -24,134 3,657 -12%
Moody's -- -- Ba1 Ba3 Ba3 Ba3 -2
S&P BB BB BB BB- BB- BB- -1
8,406 6,775 -19%Moody's -- -- Ba2 B1 Ba3 Ba3 -1
Fitch BB BB BB- B+ B+ B+ -2
Fitch -- -- A A A A -- -- -- N/A
Fitch BB- BB- B+ B+ B+ BB- -- 2,693 1,625 -40%
S&P -- BBB+ BBB+ BBB+ BBB+ BBB+ --11,037 16,412 49%
Fitch -- BBB+ BBB+ BBB+ BBB+ BBB+ --
S&P B B BB- BB- BB BB +3
2,524 5,036 100%Moody's B3 B2 Ba3 Ba3 Ba1 Ba1 +5
Fitch B B+ BB- BB- BB BB +3
S&P -- -- -- BBB+ BBB+ BBB+ --8,211 6,431 -22%
Moody's -- -- -- Baa1 Baa1 Baa1 --
S&P BB+ BBB- BBB- BB+ BB+ BB+ --5,044 7,325 45%
Fitch -- BBB- BBB- BBB- BBB- BBB- --
Average +1.8 +50%
Airline Rating Improvement Since 2013A significant number of top performing airlines in the world have obtained public international credit ratings. On average, these airlines have
benefited from a ~2 notch rating uplift and 50% increase in market capitalization since 2013, reflecting an improved operational & financial
performance during that time.
Source: Bloomberg, FactSet. Market Caps from Bloomberg (31 December 2013) and FactSet (6 March 2019), and translated into USD based on the exchange rate at these respective dates.
(*) Market Cap data represents the IAG group level data. Credit ratings from 2013-2017 are for British Airways specifically and 2018 ratings are for IAG (the group is not currently rated by Fitch).
Airline Ratings At Year-End
(*)
15 Recent Airline Trends
RankingAirline / Group Country
Passenger traffic (RPK)Seat capacity
(ASK)Load factor Passenger number
2017 2016 Million Change % Million Change % Percent Million Change %
11 (11) China Eastern Airlines China 183,152 9.3 225,967 9.6 81.1 110.8 8.9
19 (23) Hainan Airlines China 121,223 23.3 140,843 24.4 86.1 71.7 18.3
43 (43) Sichuan Airlines China 42,285 10.3 50,441 11.7 83.8 24.5 6.5
46 (41) China Airlines China 40,171 3.8 50,189 1.6 80.0 15.1 2.9
60 (67) Shandong Airlines China 32,984 24.8 39,665 16.7 83.2 23.2 24.6
65 (68) Spring Airlines China 30,248 22.2 33,400 23.7 90.6 17.2 20.9
69 (73) Juneyao Airlines China 27,411 24.1 31,529 22.3 86.9 16.7 25.2
71 (76) Capital Airlines China 25,662 23.3 28,687 24.9 89.5 15.4 17.6
Chinese Airlines Rising in World Rankings
RankingAirline / Group Country
Passenger traffic (RPK)Seat capacity
(ASK)Load factor Passenger number
2017 2016 Million Change % Million Change % Percent Million Change %
1 (1) American Airlines US 364,191 1.3 444,877 1.1 81.9 199.6 0.5
2 (2) Delta Air Lines US 350,299 2.2 409,209 1.0 85.6 186.4 1.4
3 (3) United Continental US 347,963 2.8 422,179 3.5 82.4 148.1 3.4
4 (4) Emirates Airline UAE 292,221 5.6 377,060 2.4 77.5 58.5 4.3
5 (7) Lufthansa Germany 261,156 15.2 322,821 12.7 80.9 130.0 18.6
6 (5) IAG UK 252,819 3.8 306,185 2.6 82.6 104.8 4.1
7 (6) Air France-KLM France 248,476 4.3 286,190 2.6 86.8 83.9 4.7
8 (8) China Southern Airlines China 230,697 11.9 280,646 9.6 82.2 126.3 10.2
9 (9) Southwest Airlines US 207,802 3.4 247,731 3.6 83.9 157.8 3.9
10 (10) Air China Group China 201,090 6.9 247,872 6.4 81.1 101.6 5.2
Top 10 passenger airlines ranked by RPK
Other Chinese Airlines in the Top 100 ranked by RPK
There are now 10 Chinese airlines in the World’s top 100. Their average traffic growth from 2016 to 2017 is approximately
16%.
Source: FlightGlobal, World Airline Rankings 2018
16 Recent Airline Trends
75%63% 64%
25%37% 36%
2008 2013 2018
72% 70% 68%
28% 30% 32%
2008 2013 2018
Low Cost Carriers Continue to Shift the Airline Landscape
Source: CAPA.
Note: Measured by seats.
North AmericaSeats in mm, % change
EuropeSeats in mm, % change
Asia – PacificSeats in mm, % change
Latin AmericaSeats in mm, % change
Full Service Carrier
Low Cost Carrier
+2.2% +7.6%
+10.1%+12.2%
+2.3%
(1.2%) +5%
+1.8%
NE Asia
97% / 3%
SE Asia
63% / 37%
NE Asia
86% / 14%
SE Asia
45% / 55%
935 1,347 1,823
846 900 1,095970 908 975
222 308 319
(2.2%) (2.3%) (760) (180)
(10.1%) (5%)
(12.2%) +1.2%
Low Cost Carriers Continue to Shift the Airline LandscapeDeveloping regions across the globe, particularly in the Asia-Pacific region, have seen a large shift in the market share by
low cost carriers. South East Asia has the far more significant LCC penetration than North East Asia which increased from
37% in 2008 to 55% in 2018.
68%60% 59%
32%40% 41%
2008 2013 2018
86%76% 71%
14%24% 29%
2008 2013 2018
17 Recent Airline Trends
EuropeAsia Pacific
FSCs and LCCs are Moving towards the Center
Product offerings and price point of FSCs and LCCs are increasingly converging towards center as competition intensifies.
Low Product Offering / Service Level
A Move to the Centre
Price P
oin
t
High
Hig
hLow
Source: Company Press Release, Flightglobal Ascend articles, Multi-brand airline groups: A winning approach in the hyper-competition era?, Arthur D Little, 2018
Low Product Offering / Service Level
A Move to the CentreP
rice P
oin
t
High
Hig
hLow
18 Recent Airline Trends
Emergence of a Low Cost Long Haul Business Model
Widebody Aircraft Numbers in Service With LCCs, January 2018
… With South East Asia leading in terms of capacity
Source: CAPA, FlightGlobal, Boeing
Airline designations as “Mainline”, “Leisure” and “Low-cost” as per FlightGlobal / CAPA / Boeing definitions
Today, we see 23 Low Cost airlines operating 169 Widebody aircraft on Long Haul routes. The majority of these airlines are complemented by
a short haul feed network using Narrowbody aircraft. Pure Low Cost Long Haul airlines such as Air Asia X and Level are fed via sister airlines
(e.g. Air Asia, Vueling)
…It still represents a small portion of mainline capacity
Transatlantic Capacity share from September 2003 to 2017ASK based on twin-aisle, long-haul (over 3,000 nm) operation only
Whilst Low Cost Long Haul capacity is surging…
Widebody Aircraft Numbers in Service With LCCs, January 2018
Currently, there are 23 airlines with a LCLH offering..
0
100
200
300
400
500
600
700
800
2009 2010 2011 2012 2013 2014 2015 2016
0%
25%
50%
75%
100%
2004 2006 2008 2010 2012 2014 2016 2018
Mainline Leisure Low-cost Other
0%
20%
40%
60%
80%
100%
0
5
10
15
20
25
Wid
eb
od
ies a
s %
of T
ota
l Fle
et
Wid
eb
od
y A
ircra
ft
Widebody Aircraft Widebodies as % of Total Fleet
62
33
28
1411
8 73
1
0
10
20
30
40
50
60
70
South EastAsia
WesternEurope
NorthAmerica
North EastAsia
SouthwestPacific
Eastern/CentralEurope
UpperSouth
America
NorthAfrica
MiddleEast
19 Recent Airline Trends
Increasing Demand Drove Asian LCCs Order Backlog
Source: Airbus Reinforces Its Market Lead in Asia-Pacific Region, February 2018; Boeing, CAPA
Note: Ratio of Order to In-Service Fleet = Fleet on order/ (Owned Fleet + Operating Lease)
To cater for the rising passenger demand, airlines in the Asia Pacific have kept strong order books, particularly
the LCCs.
Full Service CarrierNo. of Aircraft
0%
50%
100%
150%
200%
250%
300%
350%
0
200
400
600
800
1000
1200
CHINASOUTHERNAIR LINES
CHINA EAS TER NAIR LINES
AIR C HINA AIR ASIABE RHAD
QANTASAIR WAYS
ALL NIPP ONAIR WAYS CO
LTD (ANAHOL DINGS)
SINGAPOREAIR LINES
JAP AN AIRLINESCOMP ANYLIMITED
PE RUSAHAANPE NE RB ANGAN
GAR UDA P T
CATHAY P AC IF ICAIR WAYS
KOR EANAIR LINES C O
LTD
JET AIR WAYS AIR INDIA VIET NAMAIR LINES
ASIANAAIR LINES
AIR NEWZE ALAND
EVA AIR WAYS MALAY SIAAIR LINES B HD
THAI AIRWAY S CHINA AIRLINES Sh enzh enAirl in es
Owned Fleet Operating Lease
Total Firm Order Backlog Ratio of Order to In Service Fleet
0%
50%
100%
150%
200%
250%
300%
350%
0
200
400
600
800
1000
1200
AIRASIA BERHAD INDIGO VIETJET SPRING AIRLINES CEBU AIR INC JEJU Lion Air
Owned Fleet Operating Lease
Total Firm Order Backlog Ratio of Order to In Service Fleet
Low Cost Carriers No. of Aircraft
20 Recent Airline Trends
45
11
89
4
6
44
1
35
10
5, 2
3
63
2
6
78
12
7
35
2
8
81
35
7
6
8
130
26
6
68
4
35
2 38
29
21
607
Asia Pacific ex Greater China: Convergence between FSCs and LCCs
FSC
LCC
Source: Ascend, Company reports & filings
As the Asian aviation competition is intensified by the rapid growth of Asian LCCs, many Asian flag carriers have set up their LCCs to retain
customers without diluting their premium brand image. Meanwhile, LCC groups have expanded beyond the traditional business model to
include long-haul routes or premium services in order to enhance their competitiveness against FSCs.
Zip Air
Bubble size: FY2017 RPK (mm)
Minority owned / JV airlines
Majority owned airlines
Majority owned airlines (To be established)
FSC Group LCC Group
5
21 Recent Airline Trends
147
2
33
50
112
15
150
23
9
176
4 5
42
44
40
2
2
46
48
Mainland Chinese airlines operate various regional airlines for strong domestic demand and enjoy favorable resource allocation given their
indirect government ownership but seldom employ LCC model. Hong Kong and Taiwanese airlines, on the contrary, have stronger international
travel demands and thus operate separate regional airlines targeted at Greater China destinations.
China market is dominated by the Big Three which set up regional
hubs to cater for strong domestic traffic demand:
– Bohai-Rim (Headquartered in Beijing);
– Chengdu-Chongqing Economic Rim
(Regional Base in Chengdu)
– Yangtze River Delta (Headquartered in Shanghai)
– Northwest (Regional Base in Xi’an)
– South (Regional Base in Kunming)
– Pearl River Delta (Headquartered in Guangzhou)
– Northeast (Regional Base in Shenyang)
– West (Regional Base in Urumqi)
They are all indirectly owned by the State-owned Assets
Supervision and Administration Commission (SASAC) of the
State Council, resulting in favorable resources allocation (e.g
routes, slots and flight schedules) and financial support (e.g
government grants and subsidies)
Under such government control, they also control or affiliate most
regional, state-owned airlines (e.g Sichuan Airlines, Shandong
Airlines, Xiamen and Henan Airlines)
Hong Kong and Taiwan aviation market have stronger demand for
international routes so airlines tend to operate separate domestic
airlines for operation and revenue control
– March 2019: Cathay Pacific is in talks on a potential
acquisition of low-cost rival Hong Kong Express
Greater China: LCC Model Not Yet Fully Embraced
Source: Ascend, Company reports & filings
FSC
LCC
China
9
?
Bubble size: FY2017 RPK (mm)
Minority owned / JV airlines
Majority owned airlines
Potential AcquisitonLCC
22 Recent Airline Trends
92
28
13
2
145
103
112
15
46
3
147
21
55
29
1
153
465
1553
160
Lufthansa Group is a conglomerate consisting of several hundred
subsidiaries that range from catering to aircraft maintenance. The success
of multibrand strategy by Lufthansa is driven by below two factors:
– To be flexible with Network Airlines. For example, the close geographic
proximity of its major hubs allows Lufthansa Group to modulate any
overlapping traffic flows based on demand
– Sufficient investment in LCC subsidiaries so that they can develop their
own personality and brand value without dependence on the established
FSC associates
Ryanair Holdings Plc announced to restructure the group structure into four
airline subsidiaries: Ryanair DAC, Laudamotion, Ryanair Sun and Ryanair
UK with below objectives:
– Deliver cost and operating efficiencies by promoting subsidiaries to
compete actively for capital and aircraft
– Allow small scale M&A opportunities, similar with the Laudamotion
acquisition
– Each subsidiary has their own CEOs and management teams so as to
encourage people to progress within various corporate levels
These objectives are different from the goal of network planning as Ryanair
focuses on low unit costs and stimulates demand for new routes at very low
fares. .
European flag carriers have implemented Multi-brand strategies for network planning by operating various FSCs to develop a hub-and-spoke
model and creating LCCs for point-to-point routes to under-served and/or over priced markets. However, instead of network planning, Ryanair
announced to restructure Ryan Holdings Plc into four subsidiaries for cost and operating efficiencies
Europe: Different Strategic Objectives between FSC and LCC Groups
Source: Ascend, Company reports & filings; ANALYSIS: Ryanair matures with IAG-style structure, Ascend, 5 February 2019; The CEO of Europe's largest airline reveals how his company is thriving in the world's toughest airline
market, Business Insider, 19 January 2019
+
FSC
Bubble size: FY2017 RPK (mm)
Minority owned / JV airlines
Majority owned airlines
Majority owned airlines (To be established)LCC
23 Recent Airline Trends
277 90
46
3 36
33
146
4 12
176
131
253
Middle East: Multiple Strategic Investments
FSC
LCC
?
Emirates has grown codeshare relationships with various airlines and network coordination with sister company Fly Dubai, while Etihad and
Qatar have been evaluating and/or exiting cross-holding positions.
Emirates has maintained modest growth as the leading super-connector between west
and east: expanding loyalty program partners, codeshares, and continued plans to
double capacity in 10 years.
– October 2017: Emirates and flydubai started codeshare flights since and expanded
the coverage to 84 cities. Codeshare flight network will further expand in 2019 with
the launch of new Flydubai destinations.
Exiting/restructuring partnerships and reducing capacity to curtail losses from
underperforming investments and competition from Emirates
Etihad’s investment in Jet Airways:
– January 2019: Etihad made a conditional offer to increase its current hold
– Etihad’s equity injection is subject to the approval of the Bank-led Resolution Plan,
which is piloted by the State Bank of India and constitutes equity infusion, debt
restructuring and asset monetization to close Jet Airways’ current funding gap of c.
Rs 8,500 crore
Airline Date Update % Owned
May ‘17 Restructure 49%
Oct ‘17 Bankruptcy 29%
Feb ’18 Restructure 49%
Oct ‘18 Restructure 24%
Qatar has aggressively pursued partnerships by taking minority stakes in regional
partners
– January 2015: Qatar acquired minority stakes of IAG, bringing up to 20%
– September 2017: Qatar acquired 49% Meridiana (Rebranded as Air Italy)
– November 2017: Qatar acquired 9.6% Cathay Pacific
– January 2019: Qatar acquired 5% in China Southern
– Qatar Indian full-service venture sidelined due to restrictive foreign investment rules
Source: CAPA, BITRE, Credit Suisse research, Company press releases
Bubble size: FY2017 RPK (mm)
Minority owned / JV airlines
Majority owned airlines
Strategic PartnerLCC
24 Recent Airline Trends
3. Evaluating the Most Popular Forms of Liquidity
Each financing source is susceptible to both credit market and regulatory shocks which can reduce the supply
and increase the cost of financing
It is therefore prudent to pursue a diverse funding strategy
The Cornerstones of Aircraft Financing
Bank
Debt
Leasing
Companies
Export
Credit
Capital
Markets
25 Evaluating the Most Popular Forms of Liquidity
Healthy Aircraft Financing Environment
Positive Outlook for Aircraft FinanceThe aircraft finance environment for 2018 and 2019 is still positive. The industry is expected to have continued developing
new markets and structures, enabling broader financier and investor participation in aviation and greater efficiency for
airlines and lessors.
Growing delivery finance requirementsUS$ Billion
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E
Leasing
Companies
Capital
Markets
Commercial
Banks
Export Credit
Agencies
Private Equity
& Hedge
Funds
Tax Equity
Insurance
Airframe and
Engine
Manufacturers
Major ConcernCautionarySatisfactory
4%8%
44%38%
24%
26%
26%
25%1%
2%1…
1%
$122B
$139B
$153B
$172B
$185B $189B
2017 2018 2019 2020 2021 2022
Export Credit Bank Debt Capital Markets
Cash Insurance Manufacturer
Source: Boeing Capital London Roundtable, May 2018.
26 Evaluating the Most Popular Forms of Liquidity
Source of Funding
Source of Financing for Boeing Deliveries 2009–2017
Source: Boeing Capital London Roundtable, May 2018; Airbus Marketing & Financing Updates, Sep 2018
Source of Financing for Airbus Deliveries 2003-2017
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003 2005 2007 2009 2011 2013 2015 2017
Airline:
Cash and Commercial Debt
Lessor:
Cash and Commercial Debt
Lessor:
SLB
Airline:
ECA
Lessor:
ECA
Manufacturer:
ECA & SLB
39%
2%
26%
32%
1%
Capital Market
$10B
$12B
$13B
$55B
$66B
$68B
$76B
$117B
Africa
Central Asia
LatAm
Middle East
China
Europe
Asia excl. China
North America
Sale-leaseback Export Credit Bank Debt Capital Markets
Cash Insurance Manufacturer
27 Evaluating the Most Popular Forms of Liquidity
Share of Global Fleet on Operating Lease Stable at ~43%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000Jan
-90
Dec-9
0
Nov-9
1
Oct-
92
Se
p-9
3
Au
g-9
4
Jul-9
5
Jun
-96
Ma
y-9
7
Ap
r-98
Ma
r-99
Fe
b-0
0
Jan
-01
Dec-0
1
Nov-0
2
Oct-
03
Se
p-0
4
Au
g-0
5
Jul-0
6
Jun
-07
Ma
y-0
8
Ap
r-09
Ma
r-10
Fe
b-1
1
Jan
-12
Dec-1
2
Nov-1
3
Oct-
14
Se
p-1
5
Au
g-1
6
Jul-1
7
Share
of G
lobal F
leet in
Serv
iceO
pera
tin
g L
ease F
leet
Operating Lease Fleet Share of Total Global Fleet
Source: FlightAscend Consultancy, Commercial Market Update Webinar, 13 December 2017
28 Evaluating the Most Popular Forms of Liquidity
Rank Leasing CompanyTotal
Portfolio
1 AerCap 34,680
2 GECAS 24,652
3 BBAM 20,916
4 Avolon 19,426
5 SMBC Aviation Capital 16,200
6 ICBC Leasing 16,148
7 Air Lease 14,796
8 BOC Aviation 14,620
9 DAE Capital 10,610
10 Aviation Capital Group 9,206
11 BoComm Leasing 7,900
12CDB Aviation Lease
Finance7,390
13 ORIX Aviation 7,308
14 Nordic Aviation Capital 6,467
15 Goshawk 6,467
16 Jackson Square Aviation 6,412
17 Aircastle 5,782
18 Amedeo 5,003
19China Aircraft Leasing
Company4,642
20 Macquarie AirFinance 4,635
Chinese Share of Global Lease Portfolio to Increase Further
Source: FlightAscend Consultancy, Commercial Market Update Webinar, 13 December 2017; Flight Ascend Consultancy; Flight Fleets Analyzer and Ascend Values data, end-2018
Note: Based on the Top 50 companies with a substantial operating lease business ranked by the value of their owned and/or managed fleets at 31/12/2018.
8,500 9,600
13,000
15,600
18,000
23,300
32,900
41,600
57,300
71,800
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Share
of G
lobal L
ease P
ortfo
lio
Valu
e o
f C
hin
ese B
acked P
ort
folio
(U
S$m
)
Portfolio Value ($mm) Share of Global Portfolio
(1)
Share of Chinese Backed Portfolio Top 20 Leasing Companies
29 Evaluating the Most Popular Forms of Liquidity
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