AIRLINES FINANCIAL MONITOR KEY POINTS

Airline share prices continue to outperform as financial markets upgrade their outlook on airline profits;

Early Q4 profit results show a pause in the recent improvement, with US results below year ago levels, but

the majority of indicators moved in a positive direction in Q4;

In the new year, jet fuel prices rose back above $130/bbl, after OPEC cut crude oil production in December;

Passenger and freight markets finished 2012 strongly, supported by a further increase in business

confidence;

Airlines kept capacity growth below the increase in demand, despite an acceleration in the growth of the in-

service fleet;

As a result, freight load factors improved in December and passenger loads moved up to record levels;

Passenger yields have leveled out but remain up on last year after adjusting for exchange rate effects.

Financial indicators

Airline share prices outperform as market optimism on airline profits increases

0

20

40

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120

140

160

180

US

$ b

as

ed

in

dex

eq

ual

to 1

00

in

20

07

Bloomberg Airlines IndexSource: Bloomberg

Asian Airlines

European Airlines

US Airlines

World Airlines

Financial markets continue to improve

their outlook for the airline industry, with

the Bloomberg Airlines Index up 7% in

January compared to December,

outperforming the 5% rise in the FTSE

Global All Cap Index. Improved efficiency

measures and restructuring efforts

helped airlines achieve better than

expected financial performance in the

second half of 2012. As a result, markets

continue to upgrade their valuation of

airline shares, particularly in Europe and

North America, where prices rose 10% in

January compared to December.

Initial Q4 profits data show a pause in the improvement of airline profits

In US $ Million

# Airlines Region

Operating

profit

Net post-tax

profit

Operating

profit

Net post-tax

profit

9 North America 1453 367 845 -181

4 Asia-Pacific 549 134 468 198

2 Europe 25 2 32 19

0 Latin America 0 0 0 0

0 Others 0 0 0 0

15 Sample total 2027 503 1345 36

Q4 2011 Q4 2012

Initial Q4 2012 financial results show

positive airline industry profits, but a

decline on the year ago period. The

sample of 15 airlines shows the

improvement in the US stalling across

most airlines in the region, and little

further improvement in Asia-Pacific.

Despite these results most indicators of

profitability, described below, were

moving in a positive direction in Q4.

December-January 2013

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Airlines financial monitor –December-January 2013

Fuel costs

Jet fuel prices rise back above $130/bbl in January

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100

120

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180

200 Jet Fuel and Crude Oil Price ($/barrel)(Source: Platts, RBS)

Jet fuel price

Crude oil price (Brent)

Upward pressure on jet fuel prices

eased at the end of 2012 but has once

again started to rise. Compared to the

recent low in November, jet fuel prices

have risen 5% in January, edging

toward the higher-end of the price range

seen over the past 2 years.

Increasing oil supplies from non-OPEC

nations helped stabilize prices at the

end of 2012. But this has been

countered by Saudi Arabia’s cut in

crude oil production in December,

leading to rising oil prices in January.

Demand

Air freight markets rebound as passenger volumes continue to increase steadily

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2007 2008 2009 2010 2011 2012

FT

Ks p

er

mo

nth

, b

illio

n

RP

Ks p

er

mo

nth

, b

illio

n

Total air travel and air freight volumesSeasonally adjusted

Source: IATA

FTKs

RPKs

Global air travel markets started to

improve at the end of 2012, helped by

business confidence continuing to

increase throughout Q4. Although

downward pressure on demand from the

Eurozone crisis saw a slowdown in the

high growth rates seen at the start of

2012, air travel expanded by 5.3%, only

slightly down on 2011 growth of 5.9%.

Air freight markets contracted 1.5%

overall in 2012, but a more supportive

business environment and stronger US

consumer confidence at the end of 2012

has helped volumes recover to mid-

2011 levels.

Capacity

Passenger and freight capacity growth kept slower than expansion in demand

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440

460

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500

520

540

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580

2007 2008 2009 2010 2011 2012

AF

TK

s p

er

mo

nth

, b

illio

n

AS

Ks p

er

mo

nth

, b

illio

n

Total passenger and freight capacitySeasonally adjusted

Source: IATA

ASKs

AFTKs

Passenger capacity increased again in

December. But airlines are still keeping

the expansion at a slightly slower rate

than the increase in demand. And this is

being done despite the number of new

aircraft deliveries remaining strong.

Air freight capacity contracted slightly in

December compared to November,

despite airlines seeing further growth in

air freight volumes over the month. This

continues the declining trend in air

freight capacity started in mid-2012.

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Airlines financial monitor –December-January 2013

Growth in seats spikes as aircraft come out of storage

-1.0%

-0.7%

-0.4%

-0.1%

0.2%

0.5%

0.8%

1.1%

-200

-150

-100

-50

0

50

100

150

200

% c

han

ge i

n a

irlin

e s

eats

Ch

an

ge i

n o

pera

tin

g f

leet

(a/c

per

mo

nth

)

Airline fleet developmentSource: Ascend

Deliveries Other factors Storage activity % change in seats m-o-m

Growth in seats increased significantly

in December with 142 new aircraft being

delivered and a net 22 aircraft coming

out of storage. This has brought the rate

of new seats added to the fleet to a 10%

annualized growth rate, a significant

increase on previous months when the

same measure was in the range of 2-

4%.

Growth in new seats added to the fleet

is now above the highs seen in mid-

2012, and also above the current

expansion in ASKs. A continuation in

the trend could see asset utilization

rates come under downward pressure.

Air freight load factors rebound as passenger loads reach record-high levels

38%

40%

42%

44%

46%

48%

50%

52%

70%

72%

74%

76%

78%

80%

82%

84%

2007 2008 2009 2010 2011 2012

Fre

igh

t lo

ad

fac

tor,

% A

FT

Ks

Pass

en

ger

load

facto

r, %

AS

Ks

Total load factors on passenger and freight marketsSeasonally adjusted

Source: IATA

Passenger load factor

Freight load factor

Airline capacity management continues

to provide support to passenger load

factors, which increased again in

December over the prior month. In fact,

throughout 2012, load factors have been

kept near record-high levels.

In December, air freight load factors

rose further as demand increased and

capacity contracted. In line with the

rebound in air freight volumes, load

factors have also risen back to mid-2011

levels.

Yields

Passenger yields have stabilized but remain up on a year ago in local currency terms

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550

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2007 2008 2009 2010 2011 2012

Fare

(U

S$

/pas

se

ng

er)

Yie

ld (

cen

ts/R

PM

)

Average return fare worldwide and US airlines yields(seasonally adjusted)

US airlines yield(left scale)

Average return fare worldwide (right scale)

Passenger yields appear to have

stabilized. In the US yields have been

trending sideways since the second

quarter of 2012, after experiencing an

increase for more than 2 years.

Globally, average passenger fares have

diverged from US yields since early

2011, but this has been a result of the

translation effect of the strengthening

US dollar. In local currency terms, global

passenger yields have been increasing

and are above year ago levels.

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Airlines financial monitor –December-January 2013

Data tables

Year on Year Comparison

Dec 2012 vs. Dec 2011 2012 vs. 2011

RPK ASK PLF FTK AFTK FLF RPK ASK PLF FTK AFTK FLF

Africa 6.3% 3.7% 69.0% 10.9% 5.5% 25.4% 7.2% 6.5% 67.7% 7.1% 9.2% 24.7%

Asia/Pacific 6.3% 4.6% 76.6% -3.8% -2.9% 58.4% 6.0% 5.2% 77.5% -5.5% -2.4% 56.1%

Europe 1.6% -0.2% 77.4% -1.8% -7.7% 52.6% 5.1% 2.9% 79.6% -2.9% 0.3% 47.2%

Latin America 7.7% 4.4% 76.2% 3.0% 4.4% 38.6% 9.5% 7.5% 76.1% -1.2% 4.9% 38.3%

Middle East 12.6% 11.8% 77.3% 15.7% 10.7% 45.8% 15.2% 12.4% 77.5% 14.7% 11.4% 44.8%

North America 1.0% 0.2% 81.5% -0.7% -2.8% 35.6% 1.1% 0.1% 82.9% -0.5% -2.0% 35.0%

Total Market 4.2% 2.7% 77.9% -0.3% -1.9% 47.0% 5.3% 3.9% 79.1% -1.5% 0.2% 45.2%

RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor; All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the specific month.

IATA Economics

4th

February 2013