Updated outlook for the global airline industry

September 2011 IATA Economics www.iata.org/economics To represent, lead and serve the airline industry

Cash flows are being squeezed

20% EBITDA as % revenues seasonally adjusted Asia-Pacific airlines European airlines US airlines

15%

% revenues

10%

5%

0%

-5%

2005

2006

2007

2008

2009

2010

2011

Mainly by the rise in fuel costs

Fuel prices and average fares
180 160 900 850

140 120 100 80 Average return fare (right scale)

Jet kerosene price (left scale)

800 750 700 650

60 40
2007 2008 2009 2010 2011

600 550

Average international return fare, US$

Jet kerosen prices, US$ per barrel

But also due to faltering asset utilization

Aircraft utilization
11.6 8.6 8.5 11.4
Single aisle average daily hours flown Twin aisle average daily hours flown

11.2

Twin aisle aircraft (left scale)

8.4 8.3 8.2

11.0

8.1 10.8
Single aisle aircraft (right scale) 8.0 7.9 7.8 10.4

10.6

7.7
10.2 2007 2008 2009 2010 2011 7.6

Particularly on freight markets

Total load factors on passenger and freight markets Seasonally adjusted Source: IATA 84% 52% Freight load factor 50% 48% 46% Passenger load factor

Passenger load factor, % ASKs

82% 80% 78%

76%
74%

44%
42%

72%
70%

40%
38%

2007

2008

2009

2010

2011

Freight load factor, % AFTKs

Fleet changes adding seats at 8% annualized rate

Airline fleet development
Source: Ascend

Deliveries

Other factors

Storage activity

% change in seats m-o-m

Change in operating fleet (a/c per month)

150

1.0%
% change in airline seats

100
50 0 -50 -100 -150 -200

0.8%
0.6% 0.4% 0.2% 0.0% -0.2% -0.4%

Travel has held up but outlook is weaker

Worldwide growth in air travel and business confidence
65 60
Index of business confidence

Growth in RPKs (right scale)

15%

10%

5%

50 45
40 35 30 2006 -10% Business confidence (left scale) 0%

-5%

-15%

2007

2008

2009

2010

2011

% change over year

55

Freight markets have stopped growing

Air freight volumes and world trade
17

175
16

15
155 World trade (left scale)

145

14

135

13

125

12

115 2007 2008 2009 2010 2011

11

Air freight FTKs, billions per month

World trade volume, 2000=100

165

Air freight volumes (right scale)

Global growth slowing towards critical level

World economic growth and airline profit margins 6% 7% World economic growth

5%
Net post-tax profits as % revenues

6%
5%
World GDP growth

4% 3% 2% 1%

4% 3% 2%

-1% -2% -3% 1% Net posttax profit margin 0% -1% -2% -3% 1970 1975 1980 1985 1990 1995 2000 2005 2010

-4%
-5% -6%

Financial markets expect defaults in Europe

Government bond yields in Europe
18

16
14 12 10

Greece

Portugal Ireland

8
6 4 2 0 Jan-2007 France UK Germany Jan-2008 Jan-2009 Jan-2010 Jan-2011 Spain Italy

The euro zone crisis

Continue to muddle through?
Modest haircuts for investors Agreement to meet FR/IR/PO borrowing needs If multi-year reforms/austerity implemented Insufficient to restore solvency Failed to stop contagion to Italy and Spain ECB intervening directly in bond markets Inflation risk or recession if intervention stopped

An orderly debt default?

Need to recapitalize banks in periphery and core EFSF designed for needs of small group

A disorderly debt default?

Contagion/banking crisis Unilateral action required trigger for Euro breakup?

Will reinforce medium-term geographical shifts driven by growth of middle incomes

Global middle class in 2009 and prediction for 2030

And the potential to better connect large cities, particularly in ASPAC and LATAM

5-10 mln 10-15 mln 15-20 mln > 20 mln Urban Popn. 2015 Source: UN, SRS Analyser

Short-term will add to growth disparities

EIU's forecasts for GDP growth
9 8 7 6 5 2010 4 3 2 1 0 Euro area -1 US Japan Latin America MENA Asia ex Japan 2011 2012

Fuel costs expected to stay relatively high

Brent crude oil price and forecasts, US$/b
140 Highest Bloomberg forecast Futures 19 Sep Lowest Bloomberg forecast

120

100

80

60

40

20 2007 2008 2009 2010 2011 2012

Airline profit expectations weak but positive

Do you expect profitability to improve, decline or not change?
Last Three Months

Weighted Score (50 = No Change)

100 90 80 70 60 50 40 30 20 10 0

Next Twelve Months

Oct 2008

Apr 2010

Oct 2007

Oct 2009

Oct 2010

Apr 2007

Apr 2008

Apr 2009

Sep 2006

Mar 2006

Apr 2011

Expectations for slower volumes, soft yields

IATA survey of CFOs
100 90 80 70 60 50 40 30 20 10 0

Volumes - next 12 months

Weighted Score

Yields - next 12 months

Apr 2007

Apr 2008

Apr 2009

Sep 2006

Mar 2006

Apr 2011

Apr 2010

Oct 2007

Oct 2008

Oct 2009

Oct 2010

In this environment we expect profits to be positive but not strong

Global commercial airline profitability

6.0
EBIT margin (left scale)

20 15

3.0
% revenues

10
5

0.0

0 -5

-3.0

-10 -15

-6.0

Net post-tax losses (right scale)

-20
-25 -30

-9.0

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011F

2012F

US$ billion