To represent, lead and serve the airline industry

The airline business environment in 2012 Brian Pearce Chief Economist, IATA pearceb@iata.org www.iata.org/economcs

Air travel up, cargo stabilizing?

Source: IATA

11

12

13

14

15

16

17

270

290

310

330

350

370

390

410

430

450

2007 2008 2009 2010 2011 2012

FT

Ks

pe

r m

on

th,

bil

lio

n

RP

Ks

pe

r m

on

th,

bil

lio

n

Total air travel and air freight volumesSeasonally adjusted

Source: IATA

Freight (FTKs)

Travel (RPKs)

Impact of Chinese New Year factory closures

Business confidence is starting to turn up

25

30

35

40

45

50

55

60

65

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Confidence I

ndex

% C

hange o

ver

Year

Premium Travel and Business ConfidenceSource: IATA, PMI

Business Confidence

Premium travel growth

World trade is expanding

110

120

130

140

150

160

170

9

10

11

12

13

14

2007 2008 2009 2010 2011 2012

ind

ex o

f w

orl

d t

rad

e, 2000=

100

Billi

on

FT

Ks

World trade in goods and air FTKsSource: Netherlands CPB and IATA

International FTKs(left scale)

World goods trade volumes(right scale)

Source: Netherlands CPB, IATA

Major customers reducing shipments

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

40

45

-35

-25

-15

-5

5

15

25

35

45

55

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

% g

row

th -

Inte

rna

tio

na

l F

TK

s

% G

row

th,

Se

mi-

Co

nd

ucto

r S

hip

me

nts

Semi-Conductor Shipments and Air FreightSource: IATA, SIA

Semi-Conductor Shipments

International FTKs

Source: IATA, SIA

But no business inventory overhang

9

10

11

12

13

14

15

16

17

0.9

1.1

1.3

1.5

FT

Ks (

billio

n)

Inven

tori

es t

o s

ale

s r

ati

o

Inventories to sales ratio

FTKs

Total Business inventories to sales ratio and FTKsSource: US Census Bureau and IATA

Source: IATA, US Census Bureau

Pattern of economic growth driving cargo

China, 35%

India, 12%

Latin America, 9%

US, 9%

MENA, 6%

Euro-zone, 4%

CE Europe, 3%SS Africa, 3%

Share of world GDP growth 2008-2011

Source: Haver

Revival in US confidence points to cargo boost

-35

-30

-25

-20

-15

-10

-5

0

0

20

40

60

80

100

120

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Bala

nce e

xpecte

ting im

pro

vem

ent,

net %

Bala

nce e

xpecting im

pro

vem

ent,

index

Consumer confidenceSource: Haver Analytics

China

Europe(right scale)

US

China

Europe(right scale)

US

Source: Haver

Fuel prices new threat to profitability

20

40

60

80

100

120

140

160

180

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

(Source: Platts, RBS)

Jet fuel price

Crude oil price (Brent)

Source: Platts, RBS

Close to GDP growth where profits disappear

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

-6%

-5%

-4%

-3%

-2%

-1%

1%

2%

3%

4%

5%

6%

1970 1975 1980 1985 1990 1995 2000 2005 2010

Wo

rld

GD

P g

row

th

Net

po

st-

tax p

rofits

as %

revenu

es

World economic growth and airline profit margins

Net post-tax profit margin

World economic growth

Source: Haver, ICAO, IATA

Asset utilization strong in passenger business

10

10.5

11

11.5

12

73%

75%

77%

79%

81%

2007 2008 2009 2010 2011 2012

Ave

rage

dai

ly h

ou

rs f

low

n

% A

SKs

Passenger load factor and twin aisle aircraft daily hours(seasonally adjusted)

Twin aisle aircraftutilization(right scale)

Passenger load factor (left scale)

Falling asset utilization problem for cargo

37%

39%

41%

43%

45%

47%

49%

51%

8.0

8.5

9.0

9.5

10.0

10.5

11.0

2007 2008 2009 2010 2011 2012

% a

vaila

ble

fre

igh

t to

nn

e c

apac

ity

Avera

ge d

aily h

ou

rs f

low

n

Freight load factor and freighter aircraft utilization(Seasonally adjusted)

Freight Load Factor

Freighter utilization

Source: IATA, Boeing

Lots of new capacity arriving

0

50

100

150

200

250

300

350

400

2007 2008 2009 2010 2011 2012 2013

Nu

mb

er

of A

ircra

ft

Widebody aircraft deliveries Source: Ascend

Other

Middle East

North America

Europe

Asia Pacific

Source: Ascend

Profitability will weaken but not disappear

-30

-25

-20

-15

-10

-5

0

5

10

15

20

-9.0

-6.0

-3.0

0.0

3.0

6.0

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

F

US

$ b

illio

n

% r

even

ue

s

Global commercial airline profitability

Net post-tax losses(right scale)

EBIT margin(left scale)

Known unknowns and unknown unknowns - risks considered very likely/high impact

Source: World Economic Forum ‘Global Risks 2011’

? ?

?

?

?

?

?

?

? ?

Impact of much higher oil prices in 2012

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

NorthAmerica

Europe Asia-Pacific Middle East Latin America Africa

Regional divergence in net post-tax profits, US$ billion

2011 2012 central forecast 2012 oil price spike

Economic disparities evident past 2 years

70

80

90

100

110

120

2008 2009 2010 2011

Export and import volumes

Emerging economies

Developed economies

Exports

Exports

Imports

Imports

Eurozone competitiveness remain a major risk

80

90

100

110

120

130

140

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Ind

ex e

qu

al t

o 1

00

in 1

99

9

Real exchange rates, based on relative unit labour costs

Germany

IrelandItalySpainGreece

France

30% gap

Source: Haver