AIRLINES FINANCIAL MONITOR KEY POINTS

Worldwide airline shares rose 5% in October, slightly outperforming the market as jet fuel prices stabilized;

US airline shares continue to rise strongly on better financial performance, the opposite is true for Asia Pacific;

Initial Q3 financial results suggest continued improvement, dominated by airlines in North America;

Jet fuel prices were stable in October, as rising Saudi crude oil production offset upward price pressures from

supply disruptions and growing demand;

Air transport volumes moderated in September compared to August, but air travel growth remains solid compared

to a year ago and air freight demand indicators suggest scope for improvement ahead;

Capacity growth stabilized in October as new aircraft deliveries and net storage activity remained unchanged;

Passenger load factors slipped on international markets, but air freight loads showed some improvement from the

moderation in capacity growth, although levels are still low and down on a year ago;

Passenger yields are up on a year ago in the US but show weakness globally due to declines in Asia Pacific.

Financial indicators

Airline shares made further gains as jet fuel prices stabilized

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US

$ b

ase

d in

de

x

Bloomberg Airlines IndexSource: Bloomberg

Asian Airlines

US Airlines

European Airlines

World Airlines

Worldwide airline shares rose further in

October, up 5% on September. This

increase is slightly above that of the

broader market, with the FTSE Global All

Cap rising 4% in October compared to

September. Airline share prices in the US

saw the strongest improvement, up 13%

over the month (and 76% since the start

of 2013), supported by improvements in

financial performance. By contrast, airline

share values in Asia Pacific have been

relatively weak, reflecting declines in

financial performance so far this year.

Initial Q3 financial results suggest continued improvement, dominated by US

In US $ Million

# Airlines

Operating

profit

Net post-tax

profit

Operating

profit

Net post-tax

profit

7 North America 2222 1725 3281 2262

4 Asia-Pacific 1404 938 954 821

3 Europe 1528 1249 1457 772

1 Latin America 72 32 77 38

15 Sample total 5226 3944 5769 3893

Q3 2012 Q3 2013

Early releases of Q3 financial results

suggest a continuation of the solid

financial performance in Q2. The airline

industry typically earns a majority of its

profits in Q2 and Q3 so strong results are

expected. The sample is quite small (15

airlines), but in North America the

improvements in performance seen in H1

look set to continue in Q3. The initial

results indicate airlines in this region are

seeing year-on-year increases in both

operating and net profits, showing the

benefits of restructuring and

consolidation.

September-October 2013

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Airlines financial monitor – September-October 2013

Fuel costs

Jet fuel prices trended sideways in October, close to the average for 2013

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200Jet Fuel and Crude Oil Price ($/barrel)

(Source: Platts, RBS)

Jet fuel price

Crude oil price (Brent)

Jet fuel prices trended sideways in October,

averaging $125/bbl. Prices are still high,

within the range of the past two years, but

remains slightly (4%) below from the recent

($130/bbl) high in August.

Jet fuel prices have been maintained at

current levels by increases in crude oil

supply from Saudi Arabia. This has

countered upward pressure on prices from

supply disruptions in some OPEC nations as

well as strengthening demand from major

consumers like China.

Demand

September volumes moderated but RPKs up on year ago and FTKs at 25-month high

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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

There was no rise in global RPKs in

September compared to August (after a

strong increase in August compared to July),

but this is well within month-to-month

volatility. Growth has been strong over recent

months supported by improvements in the

demand environment. Passenger volumes

were up 5.5% in September on a year ago.

Growth in air freight markets stabilized in

September, following slow and steady

increase since April. The outlook remains

cautiously optimistic, with rising business

confidence and export orders.

Capacity

ASK growth slowed in September and AFTKs contracted for the first time in 6 months

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2007 2008 2009 2010 2011 2012 2013

AF

TK

s p

er

mo

nth

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illio

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Ks p

er

mo

nth

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illio

n

Total passenger and freight capacitySeasonally adjusted

Source: IATA

ASKs

AFTKs

Growth in capacity has been strong during

most of 2013, but there was a moderation in

September compared to August. This

largely reflects the stability in traffic volumes

in September compared to August. AFTK

growth has been accelerating strongly for

most of the year due to additional belly

capacity in the passenger fleet. But in

September there was a contraction of 0.5%.

Although this took some pressure off load

factors in September, the growth in AFTKs

throughout the year has kept load factors at

low levels.

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Airlines financial monitor – September-October 2013

Growth in seats broadly stable over the month, helping support utilization rates

-1.0%

-0.7%

-0.4%

-0.1%

0.2%

0.5%

0.8%

1.1%

1.4%

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-150

-100

-50

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% 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 was broadly stable in

September compared to August. During the

past couple of months, the number of new

aircraft deliveries has remained relatively

flat, but the net number of existing aircraft

coming out of storage has fallen. As a result,

growth in seats in September has come

down to about a 5% annualized rate, having

been well into double-digit growth during

recent months. This rate of expansion is

strong but in line with growth in demand,

which should help to support aircraft

utilization rates.

Passenger load factors weakened slightly while freight loads showed improvement

38%

40%

42%

44%

46%

48%

50%

52%

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73%

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77%

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81%

82%

2007 2008 2009 2010 2011 2012 2013

Fre

igh

t lo

ad

fa

cto

r, %

AF

TK

s

Pa

sse

ng

er

loa

d f

acto

r, %

AS

Ks

Load factors on passenger and freight marketsSeasonally adjusted

Passenger load factor

Freight load factor

Passenger load factors weakened slightly in

September compared to August, with

capacity expanding marginally and demand

remaining stable. In contrast to previous

months, there was an improvement in

domestic load factors, but growth in capacity

on international markets exceeded the small

increase in traffic volumes.

Air freight load factors improved in

September compared to August, but remain

low and down on a year ago after an

extended period of decline. In September,

only carriers in the Middle East and Latin

America experienced a rise in freight load

factors compared to a year ago.

Yields

Passenger yields are up on a year ago in the US but weak in other regions

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2007 2008 2009 2010 2011 2012 2013

Fare

(U

S$/p

assen

ger)

Yie

ld (

cen

ts/R

PM

)

Average return fare worldwide and US airlines yieldsSeasonally Adjusted

Source: IATA, Airlines for America

ATA Total Yld SA

Global Return Average Fare SA

The trend in US passenger yields has been

broadly flat since early 2012. Over the past

few months, however, yields have received

a boost from improvements in demand and

load factors, and levels are now up

compared to a year ago.

Global fares in US$ showed some signs of

stability in Q3, but have been following a

declining trend since mid-2011. The

weakness in global fares reflects softness in

passenger yields in the Asia Pacific region

as well as distortions from exchange rate

effects and the exclusion of fuel surcharges

and ancillary revenues.

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Airlines financial monitor – September-October 2013

Data tables

Year on Year Comparison

Sep 2013 vs. Sep 2012 YTD 2013 vs. YTD 2012

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

Africa 5.7% 6.0% 73.7% -0.8% 11.2% 26.3% 6.8% 4.8% 70.7% 1.1% 5.6% 28.7%

Asia/Pacific 9.2% 8.4% 78.0% -3.1% 1.3% 55.5% 7.2% 6.7% 78.1% -2.1% -0.5% 55.1%

Europe 3.7% 3.2% 83.1% 1.4% 2.6% 46.0% 3.5% 2.1% 81.0% 0.6% 1.7% 46.6%

Latin America 6.5% 4.0% 79.5% 3.9% 1.5% 42.7% 6.1% 4.8% 77.7% 3.8% 2.6% 40.9%

Middle East 9.5% 12.5% 77.2% 9.9% 11.6% 44.4% 11.0% 11.5% 78.3% 12.3% 11.6% 43.9%

North America 1.7% 1.8% 82.0% 0.9% 2.3% 34.6% 2.0% 1.5% 83.8% -1.1% 0.7% 33.8%

Total Market 5.5% 5.3% 80.3% 0.5% 3.3% 45.1% 5.0% 4.3% 80.1% 0.5% 1.9% 44.7%

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

November 2013