2. Economic Enviroment
Global economic growth weakened substantially in 2011. The highest increases were once again registered in the Asia-Pacific region, while growth rates in North America and Western Europe did not exceed the 2-percent mark. Together, these three regions represent the aviation industry’s key markets. In 2011, the volume of international air traffic rose by 5.9 % in the passenger sector but decreased by 0.7 % in the freight sector.
2.1. General economic climate
In 2011, the global economy was strongly affected by the natural disaster in Japan, and the political unrest in North Africa and the Middle East. What is more, the sovereign debt crises in the euro zone and the U.S. led to an enduring loss of confidence in the global economy.
On the back of these events, global economic growth weakened substantially in 2011, rising by only 2.6 % compared with 4.0 % in 2010. The U.S. economy was more stable than expected, registering growth of 1.8 %. The crisis management of political leaders in Western Europe weighed heavily on the continent’s economy, which grew by 1.8 % in 2011. The Asia-Pacific region succeeded in shaking off the effects of the natural disaster in Japan, growing by a satisfactory 3.7 % and retaining its crown as the world’s top growth region (source: EIU, February 2012).
Asia-Pacific, North America and Western Europe are the aviation industry’s key markets, together accounting for 70 % of total passenger traffic, 90 % of freight traffic and 90 % of the international aircraft fleet.
As an export-oriented aviation company, MTU has a strong interest in the euro / U.S. dollar exchange rate. As in previous years, the euro / U.S. dollar exchange rate was marked by high volatility in 2011. The average exchange rate for the period January 1 to December 31, 2011, was 1.3920 U.S. dollars to the euro and thus well above the previous year’s average of 1.3260 U.S. dollars to the euro. The euro peaked at 1.4882 U.S. dollars on May 4, 2011, and reached its lowest level of the year of
1.2889 U.S. dollars on December 29, 2011. The closing rate for the year on December 30, 2011,
was 1.2939 U.S. dollars to the euro, somewhat below the 2010 closing rate of 1.3362.
The crude oil price was less volatile in 2011 than in 2010, with a WTI average spot price per barrel of 95 U.S. dollars over the year (source: EIA). This represents an increase of around 20 % compared with the 2010 average (79 U.S. dollars per barrel). Reasons for this price rise are to be found in constantly increasing production costs and growing demand from Asia. As their kerosene bill is the biggest cost factor for airlines, the trend toward either grounding or phasing out old, inefficient aircraft types remains unbroken, thus lending impetus to the production of new models.
2.2. Industry-specific developments in the aviation sector
Global passenger traffic rose in 2011 by 5.9 %, a figure substantially above the long-term trends that correlate with economic growth. By contrast, freight traffic decreased by 0.7 %.
Flying hours, which are an indicator of demand for engine parts and maintenance, grew by 6 % in 2011 (source: Ascend Online, UBS).
Airlines continued to hone their capacity management in 2011, and maintained their seat occupancy factor at the same high level as in 2010, namely 78 %.
Orders for new aircraft continued to rise in 2011. The order intake for short- and medium-haul aircraft and widebody jets increased from
1,400 units in 2010 to 2,692 in 2011. This figure includes 1,566 short- and medium-haul aircraft equipped with the new, more economical Pratt & Whitney PW1000G series or CFMI’s Leap engines. The order backlog for single-aisle and widebody aircraft rose by some 20 % in 2011 to reach 8,600 aircraft. The year 2011 also saw a new delivery record for Airbus and Boeing, with over 1,011 aircraft leaving their production plants. In December 2011, the percentage of aircraft grounded was 10 % as opposed to 12 % in 2010.
Ticket prices, too, rose in 2011. The lucrative business travel sector revived, adding substantially to airline income. According to IATA statistics, the industry as a whole posted an increase in revenues of around 9 % to U.S. $ 596 billion (2010: U.S. $ 547 billion). Higher fuel costs put a damper on profits. The industry as a whole now expects to make a profit of U.S. $ 6.9 billion for 2011.
There was no recovery in the business jet sector in 2011, with deliveries slumping by 13 % in the first two quarters (source: GAMA). The slight pick-up in deliveries in the third quarter may indicate a change in this trend.
2.3. Overall assessment of the business situation
In 2011, the global economy was unable to repeat its 2010 performance in terms of growth rates. Although economic development in emerging markets – especially in China – remained buoyant, growth rates in the industrialized economies were dragged down by the euro zone’s sovereign debt crisis.
As a result of these factors, global passenger traffic grew by 5.9 % in 2011. Airlines posted total revenues of U.S. $ 596 billion and profits of U.S. $ 6.9 billion, well overshooting the profit figure of U.S. $ 4 billion forecast by IATA at the start of the year.
Airbus and Boeing both notched up new delivery records, while the order backlog for both short- and medium-haul aircraft and widebody aircraft rose substantially.