Yearbook 2004 - AssaereoYearbook 2004 Association of European Airlines 50 years 1954-2004. Disclaimer Any views or opinions presented in this Yearbook are solely those of the AEA and

cargolux

Yearbook 2004

Association of European Airlines

50 years1954-2004

Disclaimer

Any views or opinions presented in this Yearbook are solely those of theAEA and do not necessarily represent those of individual member airlines.

Dear reader of the AEA Yearbook,

As you may see from the letterhead atthe top of the page, 2004 has been aspecial year for the AEA. LastDecember, the world celebrated 100years since the Wright Brothers first tookto the air, which means that AEA hasbeen around for half the lifetime ofmanned flight itself.

In recent years, the graph of our marketdevelopment has looked a bit like one ofthose pioneering flights, tossed up anddown by turbulence rather than thesmooth and steady climb that we havebeen used to.

As usual, part of this Yearbook describeswhat happened to our market in 2003.This should have been a recovery year,following the steep downturn after 9/11which persisted through much of 2002.Instead, we were hit with two exceptionaltraffic-suppressing events – the Iraq Warand the SARS outbreak.

The result – unforeseen at the beginningof the year – was that the AEA airlines,collectively, would suffer a fifthconsecutive annual loss.

And so on to 2004, another year whichdawned with hopes of a brighter outcome– hopes which have taken a sharp knockwith the skyrocketing price of jet fuel.

This is not meant to be a catalogue ofcomplaint. Our industry is dynamic andresilient and our customers remind usdaily just how much they take for grantedthe availability of convenient andaffordable air transport.

Nevertheless, when we airlines arecoping, on an individual basis, with suchupheavals in the marketplace, at anindustry level we badly need a stable andcoherent regulatory platform on which tobuild our strategic planning.

This is where AEA comes in.

2004 is also a year of major change inthe political landscape, as regards ourmain regulatory ‘partner’, the EU. OnMay 1st it experienced its biggest-everenlargement – and it is not hard toimagine the importance of air transport inintegrating those new markets.

2004 is also seeing a new EuropeanParliament, and a new Commission.These are the people who will overseethe ongoing involvement of the EU inexternal aviation affairs, security,environmental issues, safety regulation,consumer matters – all key issues for theairlines as they strive to establish a moresustainable economic basis on which togrow and to thrive.

I hope you will find all theseundercurrents properly addressed in thefollowing pages.

Vagn SoerensenChief Executive Officer of AustrianAEA Chairman 2004

Avenue Louise 350 B - 1050 BrusselsTel. +32 (0)2 639 89 89 Fax 639 89 99 E-mail [email protected] www.aea.be

.

_________

Adria Airways, Aer Lingus, Air France, Air Malta, Alitalia, Austrian, bmi, British Airways, Cargolux, Croatia Airlines, CSA, Cyprus Airways, Finnair, Iberia, Icelandair, Jat Airways, KLM,LOT, Lufthansa, Luxair, Malev, Meridiana, Olympic Airlines, SAS, SN Brussels Airlines,Spanair, SWISS, TAP Air Portugal, Tarom, Turkish Airlines, Virgin Atlantic Airways.


50 years50 years50 years1111954-2004954-2004954-2004

50 YEARS OF SERVING EUROPEAN AIR TRANSPORT

ASSOCIATION OF EUROPEAN AIRLINES - i

In 2004, the Association of European Airlines celebrates the 50th anniversary of its foundation as a permanent body serving the European airline industry. AEA actually traces its history further, to 1952, when the Presidents of Air France, KLM, Sabena and Swissair formed a joint study group, shortly afterwards expanded with the addition of BEA (a forerunner of British Airways) and SAS. In February 1954, the Air Research Bureau was established on a permanent basis, in Brussels. The name was subsequently changed to the European Airlines Research Bureau and - i n 1973 - AEA. Shortly after the ARB was established, the 1954 Strasbourg Conference on the Coordination of Transport in Europe led to the foundation of the European Civil Aviation Conference (ECAC) as an inter-governmental body. It recommended that participating states encourage air carriers to undertake cooperative studies aimed at promoting an orderly development of air transport in Europe. Evidently, the ARB was well-placed to be the industry's representative in dialogue with ECAC. By the time the AEA name was adopted, membership had grown to 19. There were three standing committees: Research and Planning, Airline Industry Affairs, and Technical Affairs, which was formed when a pre-existing industry body (the 'Montparnasse Committee') was absorbed into AEA.

Since then the AEA's structure has evolved to reflect the realities facing the industry. 'Industry Affairs' divided into Commercial and Aeropolitical (subsequently renamed Public Policy), in recognition of the growing involvement of the EU in air transport matters. This involvement was formalised in 1986 when air transport was confirmed as being subject to the single-market process. Social Affairs, Infrastructure and Environment have also gained their place within the AEA's structure. For most of AEA's history, membership was limited to IATA member airlines. This rule was relaxed in 1981 to allow Luxair to complete the (then) full set of EU flag-carriers. AEA has had in all 38 members: three (Balkan, Sabena, Swissair) have suffered corporate failures, two (BEA and BOAC) merged into British Airways, and two (British Caledonian and UTA) were taken-over by BA and Air France respectively. Apart from the six founder members, additions to membership have occurred as follows : 1950s - seven; 1960s - four; 1970s - four; 1980s - three; 1990s - seven; 2000s - seven. Evidently, there is as much demand for industry representation as at any other time in AEA's existence. For the Association to continue to serve its members into its second half-century, it will have to continue to adapt and transform itself, to be as dynamic as the industry it serves.

Association of European AirlinesAssociation of European Airlines

50 years1954-2004

ASSOCIATION OF EUROPEAN AIRLINES

ASSOCIATION OF EUROPEAN AIRLINES I - 1

CONTENTS

AEA – Serving the industry for 50 years i

SECTION I AEA AIRLINES IN 2003 I-1At a Glance I-2

The Global Economic Environment I-4Flying through Currency Upheavals I-6

Traffic Trends 2003 I-7Operating Results 2003 I-9

SECTION II OUTLOOK FOR 2004 II-1Looking Forward ... II-2

Sustaining the Recovery II-3Financial Outlook 2004 II-4

New Market Opportunities, in Europe and Globally II-5

SECTION III RESHAPING THE INDUSTRY III-1Comparing Business Models – Network and No-Frills Carriers III-2

No-Frills Carrier Developments III-4No-Frills Carriers and the Charleroi Decision III-5

Mergers and Alliances – Strengthening the Networks III-6An End to Bilateralism ? III-7

SECTION IV REGULATION – TOO MUCH OR NOT ENOUGH ? IV-1Security in the Aftermath of 9/11 IV-2

Does Europe at last have its Single Sky ? IV-4Airports – A Fair Deal for Airlines and Passengers IV-5

Compensating the Passenger IV-6The Great Gaseous Emissions Debate IV-7

SECTION V SPOTLIGHT ON THE AEA V-1AEA Highlights V-3

Who’s Who at AEA V-5AEA Fast Facts V-6

Airline Profiles & Review of 2003 V-7

SECTION VI KEY STATISTICS VI-1Key Statistics - Total AEA VI-2Key Statistics - By Carrier VI-4What do we mean by…? VI-9

2003 AT A GLANCE

I – 2 ASSOCIATION OF EUROPEAN AIRLINES

The traffic trend line started the year in

reverse gear, as demand faltered in

anticipation of the Iraq War. The

recovery from a relatively short-duration

trough due to the war itself was hindered

by the massive impact, particularly on the Far East, of the SARS phenomenon.

Currency fluctuations, in the shape of astrong Euro vis-à-vis the US dollar,affected costs, revenues and market conditions. See chapter I-6 for an

Passenger yields tumbled, in real terms,by 10.7% in 2003, a far greater drop thanat any other time in the long-run reduction in average prices. Severaleffects were in play, not least of which was the network carriers’ response totheir no-frills competitors.

analysis of how currency variations have repercussions – favourable and

otherwise – throughout the industry.

-40

-30

-20

-10

0

10

20

30

40

50

60% change in Revenue Passenger Kilometres

2004200320022001

MONTHLY TRAFFIC MONITOR

Source: AEA

AEA_YB_04010

Far East / Australasia

North Atlantic

Total Scheduled

Total Europe

12

13

14

15

16

17

18

19

20 US¢ per Revenue Passenger Kilometre

2003200119991997199519931991

PASSENGER YIELDS - Total Europe

Real Yields: adj. for exchange rate fluctuations and inflation

Source: AEA

AEA_YB_04001

-3.5% per annum

-10.7%

0.8

0.9

1.0

1.1

1.2

1.3

1.4 US dollars = 1 Euro

200420032002200120001999

CURRENCY EFFECTS: Strong Euro, Weak Dollar

Source: OANDAAEA_YB_04003

Euro appreciated by20% against US dollar

Annual average

-1.48 billion US$Financial Loss (-1.42 € bn)

5.9 bn US$ more RevenueTotal Scheduled Revenue all services (5.3 € bn)

516 000 fewer PassengersTotal Scheduled Passenger numbers

1.5% Passenger Traffic increaseTotal Scheduled Passenger Kms

1.8% increased CapacityTotal Scheduled Seat Kms on offer

2003 over 2002

ASSOCIATION OF EUROPEAN AIRLINES I – 3

CRISES IN PERSPECTIVE

Source: AEA

AEA_YB_04025

AEA traffic and revenue loss in six months following:

Event Impact on

millions %

RPK loss

USD millions

Revenue loss

September 11

SARS outbreak

North Atlantic

Far East

20 463

13 633

25.5

23.1

1 289

897

THE GLOBAL ECONOMIC ENVIRONMENT


In 2003, world economies generally maintained their slow climb back from the depths of 2001, with a growth of 2% for the OECD countries as a whole, and increases of 3% projected for 2004 and 2005. Quarterly figures for 2003 showed a still very sluggish growth situation in the early part of the year, with the geopolitical uncertainty surrounding Gulf War II, high oil prices and low consumer and business confidence. A significant upturn occurred in the third and fourth quarters, however. These were global figures, to which the European economies compared relatively poorly. With a 2003 growth of only 0.7%, the EU was the only main economic region to post poorer figures than in 2002. Within the EU, Germany, with zero growth, and France, with just +0.1%, were obvious constraints on the total. The UK economy was the most resilient among the bigger players, at plus 1.9% and is projected to continue above trend over the next two years.

Economic growth in the US was a relatively healthy 2.9%, with further robust results projected. Japan, so long in the doldrums, also posted relatively favourable figures at plus 2.7%. The business house JP Morgan identifies a change in strategic thinking among the world’s policy-makers aimed at promoting growth and economic welfare, rather than exclusively targeting price stability. In the longer term it sees a 60% probability of reflation – stable growth and modestly-rising inflation. There is a 25% probability of high and volatile inflation and growth leading to tightened monetary policies, and a 15% risk of global deflation, with price declines and low growth. Beyond the major markets, recent conditions have been generally favourable – perhaps the best period for emerging markets for a decade. China, Thailand and India are projected to have growth of 6% or better in 2004, with Latin American economies also buoyant.

-2

-1

0

1

2

3

4

5

6

7

8% growth in real GDP

20052004

Q4Q3Q2Q1

2002 2003200120001999199819971996199519941993199219911990

WORLD ECONOMIC GROWTH

Source: OECD

AEA_YB_04002

Japan USOECD EU

estimates


Russia is foreseen as emerging from years of stagnation with plus 5% or more, and similar figures expected for Turkey and Poland. However, there are some caveats. The current recovery is essentially US-led and has been driven by household consumption, based on low interest rates. It has been referred to as a ‘job-less’ recovery, as the market has grown on productivity gains and not through investment and associated gains in employment opportunities. It has also been built on wide US fiscal and current account deficits, with the budget deficit at its highest level ever, and growing. Government spending is up – with a strong military and security component – but tax receipts have fallen due to the 2000/1 recession and tax cuts in 2001 and 2003. Given the fiscal deficit, a rise in interest rates is not impossible. This could halt the growing indebtedness of US consumers, but also stall economic growth.

There exists also a huge US trade imbalance, financed by foreign investment in the US which, according to the International Monetary Fund, absorbed more than 75% of world capital in 2002. The largest investors are those countries which are also the largest exporters to the US and they are thus fuelling both the American and their own growth. If those countries (in particular China) attempt to address the imbalance this creates in their own economies – safeguarding against inflation, for example – this could again jeopardise world growth. All in all, while the indicators are generally favourable, there remain serious question-marks about the sustainability of the current model.

-12

-8

-4

0

4

8

12

16% change over previous year

0302010099989796959493929190

Business Investment lags Consumer Spending

Source: OECD

AEA_YB_04004

US Consumer Spending US Business Investment

2002 GLOBAL CAPITAL FLOWS

Importers of Capital

Exporters of Capital

Japan

United States

Australia

Spain

United Kingdom

Mexico

Others

Germany

China

Switzerland

RussiaOthers

Source: IMF

AEA_YB_04006

FLYING THROUGH CURRENCY UPHEAVALS


All international airlines conduct their business in a cocktail of currencies, within which their own, and the US dollar, predominate. The Dollar is particularly important for a number of reasons. For many European airlines, the USA is among their largest external markets. In many other countries, fares and rates are fixed in US$. Elsewhere, currencies such as the Chinese Yuan are pegged to the dollar or for policy reasons are limited in their fluctuation from it, as in Japan. As well as revenues earned in such markets, airlines also have costs and local expenses, but far more importantly, fuel and lease contracts which are traditionally expressed in US$. In the last year for which figures are available – 2002 – about a quarter of total costs for the AEA carriers based in the Eurozone were dollar-denominated, and exceeded their dollar revenues, which amounted to 18% of total receipts. It is estimated that, in general, a 5% appreciation of the Euro against the dollar

results in a 1% loss in revenue, purely due to exchange-rate effects. In 2003, the Euro experienced an unprecedented appreciation against the dollar, of 20%. The President of the European Central Bank described the currency movements as ‘brutal’ for exporters. They undoubtedly depressed economic growth, one of the principal drivers of air traffic demand. On the cost side, the currency fluctuations mitigated the impact of increasing fuel costs. Throughout 2003, the European airlines were relatively protected against the fuel price hikes by the weakness of the dollar. Whereas the average price of jet fuel increased by 26% in dollar terms between 2002 and 2003, the increase was limited to 5% in Euro. In January 2004 the Rotterdam spot price for jet fuel stood at US$ 43 per barrel, a figure surpassed only in late 2000 and in early 2003 in the lead-up to the Iraq War. Since then the price has continued to escalate, and by May had surpassed $48/barrel, triggering a round of fuel surcharges by airlines, within AEA and worldwide.

USAJapanCanadaRussiaIndiaSouth AfricaIsraelBrazilChinaEgypt

USD US DollarJPY Japanese YenCAD Canadian DollarRUB Russian RoubleINR Indian RupeeZAR South African RandILS Israel New ShekelBRL Brazilian RealCNY Chinese Yuan RenminbiEGP Egyptian Pound

32.44.34.24.03.33.12.72.62.01.9

USDLCLC

USDLCLC

USDUSDLCLC

SynchronisedSynchronised

SynchronisedFree

PeggedFree

Country Currency IATA recommendedTicket Price currency

De facto exchange rateregime vs USD

% traffic beyondAEA homemarket*

Total % 60.6 41.8 13.8

The Impact of the US dollar Exchange Rate extends beyond the US

Source: AEA, IATA, OANDA

AEA_YB_04007

* 2003 Passenger data LC = Local Currency

In 4 of the top 10 destinations beyond the AEA homemarket the official currency for airline tickets is the USD.Where tickets are issued in local currency, de facto exchange rates still link airline accounts to USD developments.

TRAFFIC TRENDS 2003


At the outset of 2003, the projection was for a year of recovery from the previous year’s depressed figures, with consequently the expectation of above-average growth rate. The substantial cloud on the horizon was the anticipated likelihood of war in Iraq and its consequences, for which the industry foresaw three basic scenarios: ‘clean and clinical’, ‘contained’ and ‘prolonged and escalating’. In the very early days of the year, however, the ‘Base Case’ was that war could be avoided. This scenario was soon abandoned and as early as mid-February the European, Middle Eastern and Far Eastern volumes were below 2002 levels, while the strong recovery-induced growth rates on the North Atlantic had been halved.

The Iraq War actually began in the third week of March and the effect on AEA traffic levels was immediate, with -15% in Europe, -10% on the North Atlantic and a figure somewhere between the two on the Far East. With many routes suspended, about

half the Middle East traffic disappeared during the first three weeks of the war. While the political and military circumstances of the war contained elements of all three scenarios, the traffic loss tended towards the less-severe end of the range of projections. The European market returned to growth within five weeks of the outbreak of war. On the North Atlantic, with a relatively more buoyant underlying growth (see above), an increase was recorded within three weeks. The Middle Eastern market, as might be expected, remained below previous year until June.

Traffic on Far Eastern routes did not return to growth at all during the early Summer. Within three weeks of the beginning of the Iraq War, the recovering market was hit with the reaction to the SARS outbreak, sparking a series of massive traffic decreases which persisted throughout the Summer. Reaching a peak of more than 30% in the middle of May, the traffic losses persisted at

-35

-30

-25

-20

-15

-10

-5

0

5

10% change in RPKs

W25W20W15W10W05

2003 WEEKLY TRAFFIC EUROPE-FAR EAST

Source: AEA

AEA_YB_04028

SARS virus first recognisedend Feb-03

"Disease contained"05-Jul-03

-60% change in RPKs

-50

-40

-30

-20

-10

0

W20W18W16W14W12W10

2003 WEEKLY TRAFFIC EUROPE-MIDDLE EAST

Source: AEA

AEA_YB_04027

Beginning of Gulf War II20-Mar-03

End of "hostilities"14-Apr-03


more than 20% for nine weeks from mid-April through mid-June. The subsequent recovery back to positive growth figures was even more persistent, with no year-on-year increase recorded until well into October. To illustrate the severity of the SARS phenomenon, during the six months from the start of the outbreak until the market returned to growth, Far Eastern traffic declined by 23.1% and the loss of passenger revenue amounted to US$ 900 million. These losses came close to the corresponding figures for the North Atlantic market in the six months following 9/11 – 25.5% of the Market and $1289 in lost revenue.

The SARS impact was not confined to Far Eastern routes. The illness took a brief foothold in Canada, and the loss of longhaul traffic invariably affected shorthaul routes as connecting passengers stayed away. It must be said that, despite the evident seriousness of the SARS epidemic and its human consequences, the effect on air travel was always disproportionately high and bore signs of ‘apprehension overload’ following 9/11, the Bali bombing, and the Iraq War. It was not until late October or early November that 2003 traffic began to exhibit what might be described as ‘normal’ patterns, with growth rates of around 4-5% in Europe, 7-8% on the North Atlantic, and about 4% to the Far East, giving an overall figure, including other regions, of around 6%. Overall for the year, traffic in passenger-kilometres grew by just 1.5%; in passenger boardings, there was a drop of 0.2%. Estimated ‘true’ RPK growth rate for the

year, cleaned of Iraq War and SARS effects, was 4.7%. The European RPK total for 2003 was at the same level as the 12-month total to March 2001 – in other words, zero growth in 2 years, nine months. On the North Atlantic, the annualised traffic was the same as it had been in March 1999 – four years and nine months previously. The 2003 traffic pattern was closely mirrored, for the most part, by capacity developments, with the result that load factors remained high. Overall, the figure of 73.4 was just 0.2 of a percentage point below the all-time high of 2002, while the load factor on European services, at 65.2, was the highest on record. The exception was on Far Eastern services, where the severity of the crisis, the speed with which it struck and the length of time it persisted, took the industry by surprise. Although capacity cutbacks were instated, they did not match the traffic losses and load factors for the year slipped by 3.8 points to 76.7%.

50

55

60

65

70

75

80

85% Passenger Load Factors

Total ScheduledFar East/Australasia

North AtlanticTotal Europe

PASSENGER LOAD FACTORS

Source: AEA

AEA_YB_04008

Max in 1990-2002

min in 1990-2002

2003

million

OPERATING RESULTS 2003


2003 saw the 5th consecutive yearly deficit for AEA airlines, with an operating loss of US$ 1.5 billion (€1.4bn) after interest, almost twice the $0.8bn recorded in 2002. Operating ratio (revenue:expenditure) fell from 98.8 in 2002 to 97.8. With traffic and capacity moving more or less in step, with virtually no change to load factor, the main contributing factor was a weakening of the cost:revenue ratio, with costs almost 6% above the previous year, outstripping revenue growth. The accompanying graphic shows AEA profitability by quarter for the period 2000-2003. The years 2000 and 2002 describe a ‘normal’ pattern for the industry, with losses in the winter quarters and profits in the Summer. In 2000 the plusses outweighed the minuses, in 2002 they did not. In 2003, the first quarter posted a catastrophic loss with an operating ratio of just 89.0. If anything, the build-up to the long-anticipated Iraq War and rising tensions worldwide had a more tangible impact on operating results than the military campaign itself which lasted just 6 weeks after the launch attack on 20th March. The first quarter alone contributed a loss of $1.86bn to the annual total. The second quarter of 2003 suffered from both the ongoing War effects and the impact of SARS, which in mid-March had been classified by the WHO as a worldwide health threat, concentrated in Asia but also identified in Canada and to a lesser extent in Europe and Africa. Consequently this was the first non-profitable second quarter of the 2000s. Despite ongoing weaknesses in the Far East market which persisted through the Summer, the third quarter was in line with

the 2000 and 2002 results and while the fourth quarter was again negative, it was much less so than in previous years. The AEA airlines continue to address their structural cost base. Since 2000, they have trimmed back their workforce by 8%, equating to a reduction in head-count of 32,000. Personnel costs continue to be subject to constant review. Significant changes continue to be made to sales procedures, such as the reduction or abolition of agents’ commissions, internet booking and the introduction of e-ticketing. Shorthaul services have seen a move towards simplification of schedules, higher aircraft utilisation and ongoing product review. These changes, accelerated by competition from no-frills carriers, have accompanied flexible and competitive fare structures in Europe which, combined with the steady reduction in premium passengers, has seen real yields falling steadily.

85

88

91

94

97

100

103

106 Total Operating Ratio after Interest

Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1

OPERATING RATIO AFTER INTEREST

Source: AEA

AEA_YB_04009

2000 2001 2002 2003


ASSOCIATION OF EUROPEAN AIRLINES II - 1

CONTENTS


















LOOKING FORWARD

II – 2 ASSOCIATION OF EUROPEAN AIRLINES

The traffic recovery in 2004 – projectedto provide a passenger-kilometreincrease of 8.5% – will at last seeaggregate traffic volume for the AEAairlines surpass the previous annualhigh-point, which was attained in 2000.Load factors too are projected to reachtheir highest-ever level, nudging 75%.

While the airlines are working hard tocontain costs, their efforts are being

undone by runaway fuel prices,ascending into levels never beforeexperienced.

The stabilised traffic situation in 2004should have produced the firstconsolidated profit for the AEA airlinessince 1998, a modest figure of perhapsUS$ 0.5bn. Latest indications are thatthe fuel price effect will wipe out most orall of this surplus.

+0 to 0.5 bn US$ Financial Result*Total Scheduled (0 to 0.4 € bn)

+8.5% growth in Passenger Traffic*Total Scheduled RPKs

* estimates for 2004

0

10

20

30

40

50

60 US dollar per Barrel

2004200320022001200019991998199719961995

CRUDE OIL & JET FUEL SPOT PRICES

Source: EIA

AEA_YB_04012

ARA Jet Fuel BRENT WTI

Crude Oil Benchmarks and ARA-Jet Fuel (fob)

US militarystrike on Iraq

Economic slowdownin Asia

Strong worldoil demand

September 11

Gulf War II

Strong demand + Market Anxiety

SUSTAINING THE RECOVERY

ASSOCIATION OF EUROPEAN AIRLINES II – 3

Following the upheavals of 2003, traffic growth patterns in 2004 were bound to produce some unusual results. Most obviously, the 30% losses sustained on Far Eastern routes during the height of the SARS epidemic would require increases of around 43% just to restore volume to the 2002 level, and well over 50% to encompass two years of ‘normal’ traffic growth. Consequently, traffic figures in the early part of 2004 have shown wide variances over the corresponding 2003 levels. By the middle of June, European traffic was 7% up, North Atlantic almost 10% and Far East more than 20%. Increases in the second half of the year are expected to be lower. Translating these figures into medium-term trends produces much more modest growth rates over two years – in other words, compared to a 2002 baseline which was itself still depressed in the aftermath of 9/11. Through the first half of 2004, AEA cross-border traffic within Europe has been

growing at a rate which equates to about 3% per annum, compounded over two years. This is perhaps half the annual increase which prevailed through the 1990s. Domestic markets within Europe have been even more sluggish, with no significant growth currently being recorded. Longhaul markets are faring somewhat better. Again, discounting the severe fluctuations in year-on-year increases and looking instead at average annual growth rates over two years, North Atlantic traffic has expanded at 6%-7% in early 2004. This is in line with historical medium-term trends, although still constitutes only a partial recovery from the traffic losses sustained after 9/11. Allowing for additions to membership, the AEA traffic volume on the North Atlantic in 2004 is projected to be about the same as it was in 1999. On an annualised basis, the market is still about 10% smaller than it was at its highest level (March 2001). Far Eastern traffic in 2004 is in the process of fully recovering the previous year’s Iraq War and SARS-related losses. Over two years from 2002, the market is expanding at an average of about 5.5% per annum. Overall, the expected 8% increase on all services in 2004 follows on from a growth of just 1.5% in 2003, equivalent to an annual growth rate over two years of just 4.7%.

PROJECTED TRAFFIC GROWTH

Source: AEA

AEA_YB_04029

2004 over 2003 Revenue Passenger Kilometres

Route Area

% change

RPK

Europe cross-border

Europe domestic

North Atlantic

Far East

Total International

Total Scheduled

+5

-1

+8

+18

+9

+8

FINANCIAL OUTLOOK 2004


The anticipated 2004 increase in AEA scheduled traffic of 8.5% is expected to be accommodated within a capacity growth of 7%, which would push passenger load factors to an all-time high of close to 75%. Nonetheless, yields remain an area of concern, with Euro-denominated levels in 2004 predicted to be 4% down on the previous year. More alarming, however, is the impact of fuel prices. The average benchmark price for crude oil has reached US$34/barrel, almost 20% above its 2003 level, with daily peaks of near $50 noted in August. Jet fuel, as a derivative, is quoted even higher, already exceeding the $50/barrel mark in July 2004, with prices expected to stay high throughout the year. Typically, AEA airlines consume close to 8 billion US gallons of fuel per annum, representing about 12% of their total costs in a normal year. Some recourse from the high fuel prices is provided by hedging, fuel surcharges

and – in the current price environment – advantageous currency effects. Nevertheless, the current round of inflation could add an extra $1bn to the AEA fuel bill for 2004. Following five consecutive years of losses, 2004 brought the prospect of a return to profitability with a modest operating surplus, for the AEA membership as a whole, of up to $500m. This positive outcome was predicated on an estimated drop of 5-6% in (Euro-denominated) unit costs, reflecting the efforts the airlines have made to contain expenditure, offsetting the projected 4% drop in yields. However, once this scenario is modified to take account of the current fuel crisis, it becomes increasingly clear that hopes of a financial recovery were premature. In the longer term, higher energy prices threaten the fragile economic recovery which is a crucial feature of air travel demand growth. Prospects are not encouraging; the US Department of Energy’s EIA is predicting only a slight moderation of fuel prices in 2005 before resuming an upward trend in 2006.

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5 billion current USD after interest

040302010099989796959493929190

PROFIT / LOSS ON TOTAL SCHEDULED ROUTES

Source: AEA

AEA_YB_04011

estimate

0 - 0.5

US$ billions

COUNTRY POPULATION(million)

2002

GDP(bn Euro)

2002

GDP/Capita in PPPEU-15 = 100

2002

REAL GDPavg % growth p.a.

1993-2002

REAL GDP% growth

2003

CyprusCzech RepublicEstoniaHungaryLatviaLithuaniaMaltaPolandSlovak RepublicSlovenia

AC - 10EU - 15EU - 25

0.710.21.4

10.12.33.50.4

38.25.42.0

74.2379.5453.7

10.873.9

6.969.8

8.914.6

4.1200.325.123.3

437.79 162.39 600.0

76624053353969414769

5310085

3.71.93.73.24.12.73.44.03.83.8

---

2.01.75.03.05.55.82.82.94.02.2

3.90.70.8

Source: Eurostat, PriceWaterhouseCoopers, IMF, OECD

AEA_YB_04013

ACCESSION COUNTRIES - Main Economic Indicators


NEW MARKET OPPORTUNITIES, IN EUROPE AND GLOBALLY

On 1st May 2004, the European Unionexperienced its biggest-ever expansion.The 10 countries, with a combinedpopulation of 75 million will increase thesize of the Community by 20% in termsof population, and 23% in land area.

Evidently, the new markets are not large,either individually or collectively, inoverall EU terms. As a benchmarkPortugal, which has a population sizevery similar to that of Hungary or theCzech Republic, has almost 400,000weekly seats to/from EU destinations.

In terms of GDP per capita, only Cyprus,Malta and Slovenia would not rank belowall the existing EU members.

In spite of this, or perhaps because of it,the new countries bring a considerablegrowth potential to the aviation singlemarket.

At the most basic level, they have a needto upgrade their communications with theEU’s institutions. The average distancefrom Brussels to the ten capitals is1400km so air links are essential, yetonly Warsaw and Prague come

anywhere near the frequency of serviceto the other EU capitals.

In 1995, the year following the last round ofEU enlargement, traffic between Brusselsand Helsinki/Stockholm/Vienna grew by

28%. AEA members’intra-European traffic atHelsinki and Stockholmexhibited growth wellinto double digits(although the Viennaincrease wassomewhat lower).

Of the ten Accessioncountries, Malta andCyprus, and to a lesserextent Slovenia, areestablished leisuredestinations. Some citymarkets (Prague,Tallinn, Krakow) arealready, or will become,

established on the short-stay itinerary.

While the level of economicadvancement will, in the short term,constrain outbound travel from the newMember States, they are likely to be amagnet for inward investment, with theconsequent generation of travel demand.

The Accession States have relativelyunderdeveloped airline infrastructures.Most have only a single airline of anysignificant size, so any second-tierexpansion encouraged by single-marketease of access will be difficult to gaugefully in the near future.

Of the established carriers CSA and LOTare fully-fledged global alliance members(of SkyTeam and Star respectively).Malev is also associated with SkyTeam,and Adria with Star. Air Malta andCyprus Airways are unaligned at present.


Valletta

Luqa

KosiceBrno

KrakowKatowice

Wroclaw

Poznan

Gdansk

Ostrava

Nicosia

LarnacaPaphos

Ljubljana

Budapest

Bratislava

Prague

Riga

Tallinn

Major international airport

Capital

Warsaw

Vilnius

AEA_YB_04023

9 096.8seats

per week

(+10%)

605.9seats

per week

(+33%)

79.0seats

per week

(+34%)

93%of EU 25 market

6%of EU 25 market

1%of EU 25 market

Intra EU-15

Inter EU-15and

Accession

Intra Accession

Source: OAG, airline websites

AEA_YB_04014

2004 SEATS PER WEEK (000)12% Growth over 2002

0 2 4 6 8 10% GDP growth

Developed market economies

Emerging market economies

Chile

Russia

Korea

Taiwan

Malaysia

Singapore

Hong Kong

India

Argentina

Thailand

China

EMERGING MARKETS OUTLOOK

Source: JP Morgan

AEA_YB_040152003 2004E


In the remaining four accession countries– the Baltic States and Slovakia – theairline sector is less well-developed. Thesmall national carriers of Estonia andLatvia are substantially owned by SAS.The small Lithuanian national airline isgovernment-owned and the Slovakindustry is fragmented, the largest carrierbeing a recent ‘no-frills’ start-up.

These last two states are also the objectof ‘offshore hubbing’ with the planneddevelopment of a Bratislava-basednetwork by Austrian and a similardevelopment in Vilnius by the Latviancarrier Air Baltic.

A number of no-frills carriers have begunto show an interest in the new EU. Praguewas already served in 2003 by four suchairlines and Budapest by two. In 2004Tallinn, Riga and Ljubljana have beenadded to the no-frills ‘map’ while a numberof new entrants are springing up in Polandand Slovakia. SAS’s two Baltic affiliates,Estonian and Air Baltic (Latvia) alsosubstantially conform to the no-frills model.

Elsewhere in the world, the outlook isfavourable for developing markets; JPMorgan has described the currentsituation as ‘the best period for emergingmarkets since 1993’.

Asia – excluding Japan – is predicted togrow at 6.4% in 2004, of which China,Thailand and India are foreseen with8.0%, 6.3% and 6.0% respectively. Thefirst two of these include a rebound fromSARS, while India is beginning todemonstrate the economic impact of itsmultitude of skilled IT workers andthriving textile industry.

Latin American economies are predictedto grow by 4.4% in 2004, with Venezuela(7.5%) and Argentina (6.0%) leading theway. Emerging European economieshave forecast growth of 4.9% with Turkeyat 5.5% and Russia, re-emerging as asuperpower after years of stagnation,aiming at a plus 5.1%.


ASSOCIATION OF EUROPEAN AIRLINES III- 1

CONTENTS


















COMPARING BUSINESS MODELS – NETWORK AND NO-FRILLS CARRIERS

III – 2 ASSOCIATION OF EUROPEAN AIRLINES

The recent proliferation of no-frills carriers in Europe is a clearly identifiable trend, although one which is hedged around with misconceptions. Many of these deal with how these carriers are distinct from the ‘traditional’ airlines which make up the membership of the AEA. The confusion extends to terminology. The newcomers are also referred to as ‘low-cost’ or ‘low-fare’, the traditional airlines as ‘full-service’, ‘network’ or (in the US) ‘legacy’ carriers. Between the two groups of airlines, differences in costs and fares are a matter of degree. While some headline-grabbing fares offered by the no-frills carriers are pitched far below any economically-meaningful level, the mainstream prices typically offered in an internet booking query are frequently matched or beaten by full-service competitors. The key difference, however, is encapsulated in the term ‘network’. This, too, is a source of confusion, since there is no evident difference between the route map of a no-frills carrier, with spokes radiating from a central hub, and that of a full-service airline.

Under closer scrutiny, however, the spokes in the no-frills model do not actually touch. Both types of airline will fly their passsengers from A to B and from A to C, assuming A is their mainbase airport. (In the case of no-frills carriers, A, B and C may be very remote from the destination they purport to serve, involving long and expensive ground transportation). But the main difference is that the network carriers will provide travel between B to C, via their hub at A. They will quote a through fare (less than the sum of the parts), issue a through ticket, check bags all the way through, possibly check the passenger all the way through too, in a single transaction. They will give assistance with transfers, and should anything go wrong – such as a missed connection – they will nevertheless guarantee that the passenger makes it to his or her destination, with a minimum of hassle. As an analogy: imagine a complex metro system, like London or Paris, where there were no interconnections between the lines; to transfer from one to another passengers would have to exit and re-enter the station and queue up to buy another ticket.

Connectivity of this kind comes with a price tag; the major airlines’ hubs are very sophisticated structures. Moreover, there are operational costs involved in ensuring that all the aircraft, and their connecting loads, are in the right place at the right time. Further costs arise

through the operation of a mixed fleet of aircraft types, suited to different sizes of market.

DEGREES OF CONNECTIVITY

Source: AEA

AEA_YB_04020

No-Frills model Network airline model

A

BC

ASSOCIATION OF EUROPEAN AIRLINES III – 3

The network approach is equally suited to cargo transportation in an operation which generates revenues, but also imposes costs. It is noteworthy that the typical no-frills business model excludes cargo carriage. In one particular area of cost, the differential between the network and no-frills model has been substantially eroded in recent years. The no-frills approach typically includes a heavy reliance on internet sales and ticketless travel, which are also being embraced strongly by the network airlines, for whom, traditionally, distribution has been a major cost element. A 2002 study by the European Cockpit Association highlighted the areas in which no-frills carriers maintained a cost advantage over the network airlines. By far the most important component, accounting for almost 30% of the differential, was high-density seating in the aircraft. Next most important (17.5% of the cost gap) was station handling costs, as distinct from lower airport charges which accounted for 10.5%, as did the absence of in-flight catering, and avoiding the payment of travel agency commissions. The commonly-quoted feature of the no-frills model, of quick turnrounds and intensive daily utilisation, is not borne out by the ECA study, which attributes only 5% of the overall cost advantage to this factor. The cost profile also gives pointers as to the transferability – or

otherwise – of the no-frills model to longhaul operations. Elements of the typical no-frills model are uniquely suited to shorthauloperation – use of a single aircraft type, short turnrounds, multiple sectors a day, no in-flight service. Some areas in which they have no cost advantage, such as fuel, are a much bigger component of longhaul operations. While seating density is most certainly an issue on longer flights, some niche carriers have successfully operated longhaul programmes with much higher seating capacities than would be deployed by the network airlines. It is very likely that, in the future, start-up airlines will try and replicate elements of the no-frills model in longhaul , particularly transatlantic markets. Some may succeed although past experience is that they will find the going very difficult – a single aircraft-unserviceability problem or a delay which puts the crew beyond their duty limits can cause chaos to the schedule on a scale far greater than for shorthaul operations (or for network carriers, who have commercial agreements to help each other out on such occasions).

NO-FRILLS CARRIER ADVANTAGE V/S FULL SERVICE CARRIERS

Source: A.T. Kearney

AEA_YB_04017

SeatDensity

HigherAircraft

Utilisation

LowerCrew Costs

CheaperAirports/Landing

Fees

Outs.Maint./Single

Aircr. Type

MinimalStation

Costs/Outs.Handling

No In-FlightCatering

No AgentCommission

ReduceSales/

ReservationsCosts

LowerOverhead

Costs

TOTAL

16%3%

3%

6%2%

10%

6%

6%3%

2% 57%

% Cost Advantage

DEVELOPMENTS IN THE NO-FRILLS SECTOR


The no-frills business model, in several guises, continued to proliferate in 2003-4. Some sources put the number of such airlines in Europe as high as 60; for the purposes of AEA annual surveys only airlines having substantial route structures, very low fares, and a rigorous focus on point-to-point service are considered. The table below has been updated for 2003 to include the Italian operator Volareweb. Added for Summer 2004 are two UK operators with extensive, largely leisure-destination, route structures; Jet2.com at Leeds/Bradford and Thomsonfly at Coventry. Also added is the sector’s first Eastern-European operator. SkyEurope is a Slovakian carrier which had a limited operation in 2003, but has expanded substantially with operating bases in Bratislava, Budapest and Warsaw. Not included, since its main expansion occurred after the June schedule used in the survey, Wizz is a new Polish carrier, operating out of Warsaw and other Polish cities, but also Budapest. The aggregated capacity offered by this group of carriers represented a 20% increase

over the 2003 total. Ryanair and Easyjet continued to dominate the sector, each of them five times the size of the next-largest. The sector has not been without its setbacks, the most obvious of which was the European Commission ruling that certain payments made to Ryanair by the airport of Charleroi constituted illegal State Aid. This called into question the more general marketing support and inducements offered by airlines and regional authorities to new-entrant airlines. Among the profitable players in the sector there was a general deterioration in financial results and, coupled with the continued proliferation of new entrants, a sense that the sector was becoming congested. In a well-publicised remark in early 2004, the Ryanair CEO warned of a ‘bloodbath’. Ryanair itself abandoned thirteen routes between June 2003 and June 2004. In addition to the airlines in the survey, others are introducing hybrid business models which combine many elements of no-frills operation with network and full-service features. Of these, AEA member Aer Lingus has gone furthest in transforming itself.

0

500

1000

1 500

2 000 seats (000)

200420032002200120001999

NO-FRILLS WEEKLY SEATS - SUMMER SCHEDULE

Source: OAG/MAX; Airline websites

AEA_YB_04024

Snowflake MyTravelLiteVolareWebAir Berlin CS Basiq AirGermanwings Hapag-Ll. ExpbmibabyBuzz Go

DebonairEasyjet Virgin ExpRyanair Jet2comThomsonflySkyEurope

NO-FRILLS CARRIERS AND THE CHARLEROI DECISION


On 3rd February 2004, the European Commission issued their finding on the package of financial benefits enjoyed by Ryanair at their Charleroi ‘hub’1. The Commission summarised the benefits granted to Ryanair by the Walloon Regional Government and the publicly-owned ‘Brussels South Charleroi Airport’2 as follows:

Clearly, financial incentives on this scale represent a significant deviation from the commonly-understood features of the no-frills business model, as generally

practised by the airlines in this sector. However, they are believed to be typical of arrangements enjoyed by Ryanair at other European airports. The Commission’s findings were that the payments – which, evidently, came ultimately from the local taxpayer – were such that they would not be made by a private investor (under the ‘rational investor’ principle) and therefore constituted State Aid. Part of this was clearly illegal under competition rules and was required to be repaid. Part of it, the Commission decided, was justifiable as an instrument of Regional Development policy. The decision represents a first step, which necessarily requires further clarification, and further action. The real issue is the question of who determines infrastructure policy and its funding, underlying which is the relationship between airports and airlines in more general terms. Further guidelines are required creating transparency as to whose money is flowing, in which direction.

1 Ryanair fly to 12 destinations from Charleroi, although they do not offer connecting facilities in the same way network airlines do at their hubs – through pricing, ticketing and baggage, guaranteed connections, etc. 2 Schedule publications such as the Official Airlines Guide (OAG) do not show Charleroi – population 207,000 – as an origin/destination city; it is merely listed under Brussels, 50km distant.

• The Walloon Region granted Ryanair, under a private-law contract, a preferential rate for landing charges at Charleroi of EUR 1 per boarding passenger, which is about 50% of the standard rate set in a decree which had been published in the Official Journal. No other airline benefits from this.

• BSCA granted various types of advantages to Ryanair:

o a contribution towards promotional activities of EUR 4 per boarding passenger, over 15 years and for up to 26 flights daily. No other airline benefits from this.

o initial incentives amounting essentially to EUR 160,000 per new route opened, for 12 routes, or EUR 1,920,000 in total; EUR 768,000 in reimbursements for pilot training; EUR 250,000 for hotel accommodation costs. No other airline benefits from this.

o a preferential rate of EUR 1 per passenger for ground handling services, whereas the rates normally charged to other airlines is EUR 8-13. No other airline benefits from this.

Source: Commission Press Release of February 3rd, 2004

AEA_YB_04031

RYANAIR'S DEAL

MERGERS AND ALLIANCES – STRENGTHENING THE NETWORKS


Uniquely in recent years, the AEA Yearbook 2003 did not contain a section devoted to developments in industry consolidation. In the period from 2001 through mid-2003 the field of airline alliances, an area of great activity throughout the 1990s, fell somewhat silent. The big event of 2003 came after the Yearbook was published – the agreement between KLM and Air France which was signed in October. This will effectively merge the two airlines within a holding company which, within three years, will have 100% ownership of the two operating companies, which will retain their separate identities. The agreement rounds off a period of about 15 years in which cross-border mergers and takeovers have been proposed – and in many cases have come close to fruition. If, ultimately, the European airline market consolidates, as many observers believe will happen, Air France-KLM will be seen as the watershed, and possibly the catalyst for change. One factor which – rightly or wrongly – has been seen up to now as a decisive barrier to cross-border corporate structures is, potentially, diminishing in importance. Bilateral Air Service Agreements, which govern all international air travel (except within the European Single Market) invariably include clauses referring to the nationality of the airlines which may fly the routes covered by the agreement.

For example, air services between Netherlands and Peru would normally be restricted to Dutch or Peruvian airlines. Any airline ‘losing’ its nationality would also lose its international traffic rights.

However, the 2003 European Court of Justice ruling on specific ‘open skies’ agreements between the US and several EU countries also recognised that, in general, such nationality clauses were contrary to EU law. It will not be a straightforward task to replace a nationality clause with a ‘Community clause’ in treaties which could number about a thousand, nevertheless the parties to the AF/KL agreement do not see this as a stumbling-block to their future cooperation. As regards the global alliance scene, KLM formally joined SkyTeam in September 2004, along with Northwest and Continental. Clearly, the era of four (or more) global-alliance candidates is now passed.

United Airlines (3)US Airways (5)Air Canada (14)

Varig (33)

Lufthansa (6)Scandinavian Airlines (15)bmi (40)Austrian (43)Spanair (57)LOT (78)TAP* (53)Croatia Airlines* (115)Adria Airways* (135)Blue 1* (138)

South African Airways* (45)

All Nippon Airways (7)Thai Airways International (22)Singapore Airlines (24)Asiana Airlines (29)Air New Zealand (35)

American Airlines (1)

LAN (55)

British Airways (10)Iberia (13)Aer Lingus (48)Finnair (50)

Qantas (12)Cathay Pacifc Airways (28)

Delta Air Lines (2)Northwest (4)Continental (9)

Aeromexico (36)

Air France (8)Alitalia (17)KLM (20)CSA (81)Aeroflot* (54)

Korean Air Lines (16)

Source: 2002 Passenger Traffic from AEA, ICAO, IATA

AEA_YB_04018

AIRLINE ALLIANCES UPDATE

North America

Central America

South America

Europe

Africa

Asia

STAR ALLIANCE SKY TEAM ONEWORLD

21.8% World Traffic 19.0 12.7

* Includes airlines whose mambership has been accepted, but not yet taken up (n) ranking

AN END TO BILATERALISM ?


The decision by the European Court ofJustice in 2003, initially on the legality ofa number of bilateral agreementsbetween individual EU states and the US,established a mandate for theCommission to negotiate a multilateralagreement between the EU on the onehand and the US on the other.

This was widely seen as the necessaryfirst step towards the vision of a SingleMarket encompassing Europe and theUSA, a free-trade area of relaxed marketrules, but which would also provide astructure within which non-market issues– such as security – could be addressed.

AEA has long championed such acomprehensive agreement, which itbelieves would benefit the consumersand the airlines on either side of theocean.

Inasmuch as such a structure wouldresemble – although not replicate – theunique multilateral regime that exists inEurope, certain elements would require adistinct departure from the conventionalbilateral arrangements.

An obvious example is ownership. To bequalified to operate domestically andinternationally, US airlines have to be atleast 75% owned by US interests. Withinthe EU the figure is 51%, but with theadded distinction that for single-marketpurposes, ‘community airlines’ need onlybe majority-owned by communityinterests – that is to say, a UK-headquartered airline could be wholly-owned by German, French or Dutchinvestors.

While the European side has recognisedthe opportunities presented by such astructure, the US has tended to see onlythreats. They believe that their ‘Open

Skies’ blueprint, applied at a multilaterallevel, would serve the purpose ofopening up the market. In the Europeanview, this would essentially protect USadvantages in their domestic marketwhile sharing opportunities in Europe.

With the big political developments dueboth in the EU and the US this year,there is strong pressure to conclude adeal which both sides can claim asvictory, yet falls far short of the level ofintegration in the market that AEA wouldlike to see.

Then there is a different, but relatedissue. The ECJ judgement also ruledthat, as a general principle, ‘nationalityclauses’ in bilateral air agreements (forexample, that air services betweenGermany and Peru can only be flown byGerman or Peruvian airlines) werecontrary to EU law. For ‘German airline’,substitute ‘EU airline’.

The number of such bilateral treatiesinvolving EU countries amounts to abouttwo thousand, all negotiated on a ‘giveand take’ basis.

The bilateral system has long been seenas a factor in holding back industryglobalisation – notably in the area ofcross-border mergers and acquisitions.At the same time, it creates stability, andcompetitive checks and balances.

The steps which have been taken, inEurope, eventually on the North Atlanticand ultimately perhaps on a global scale,will create a very different regulatoryframework for the industry in the future,but it is not a change which will berealised in the short term.


ASSOCIATION OF EUROPEAN AIRLINES IV- 1

CONTENTS


















SECURITY IN THE AFTERMATH OF 9/11

IV – 2 ASSOCIATION OF EUROPEAN AIRLINES

Airline passengers can scarcely have failed to be aware of the greatly heightened security which has become part of their travel experience since September 11th 2001. For the most part, the ‘visible’ security enhancement has taken place at airports, where passengers are subject to much more stringent (and time-consuming) checks and inspections. Other developments are less obvious. Every aircraft in the AEA fleet – about 2,400 of them – is now equipped with a hugely expensive armoured cockpit door with a sophisticated locking system. The airlines have implemented intensive programmes of staff screening, security awareness training, and increased surveillance of sensitive areas. Another ‘back-office’ development – which, nevertheless, has featured heavily in the public domain – has been the use by governmental agencies of passenger data.

This has been initiated by the American authorities’ requirements that airlines

serving the USA comply with new data-provision rules. These have taken basically two forms – APIS (Advance Passenger Information System), which deals with the kind of data which would normally be routinely collected on arrival, but is now required to be transmitted before departure, and PNR (Passenger Name Record) data. The PNR is the record which is created within the reservation system when the passenger makes a booking. In its most basic form, it consists of just four ‘fields’ – name, itinerary, a contact number – which is quite likely to be a travel agency – and the date by which the ticket has to be issued. Evidently, none of these are particularly controversial or sensitive. The PNR, however, is also used to store other information which may be of assistance to the airline in providing customer service, such as special meals, requests for assistance and so on.

If the ticket has been bought with a credit card, it is entirely possible that the details are noted in the PNR. Supply of PNR data to the US took the form of a request for access to airline computer systems, an

approach labelled ‘pull’ since it involved the American authorities pulling information out of the databases.

Filter

Airline / airline groupreservation system

Authority

AccessControl

Secured short-term store

Deletione.g. 72 hours

Airlines CRS systems Zero-risk environment Authority Access

Source: Secure Information Technology Center - Austria

AEA_YB_04019

PROPOSED PASSENGER ACCESS INFRASTRUCTURE

ASSOCIATION OF EUROPEAN AIRLINES IV – 3

Subsequently, issues of data privacy quickly surfaced. Proposals were made to ‘push’ the data, in a filtered form, from the European side to the US. On two occasions in 2003-4 a joint position has been reached between the European Commission and the USA on what level of detail, and the uses to which the data might be put, would be acceptable to both sides. In both instances, the European Parliament has expressed its dissatisfaction. The consequence has been that the airlines have operated in a legal limbo, between two unreconciled sets of rules. The huge burden of additional security, and the different way it is treated in Europe and the US, has led to a cost imbalance so great that it has become an issue of competitive advantage. The US airline industry has received over $14 billion in financial assistance from the government in 2002-4 – not all of which has been specifically security-related. The US Transport Safety Agency (TSA), with a 2003 expenditure of $6.1bn, is essentially funded by Federal government. Airline contributions to the budget through a fee-based system have subsequently been reimbursed. AEA continues to campaign for governments to shoulder their national-security responsibilities for funding anti-

terrorist measures, and to ensure that differing requirements are reconciled. The scope for protecting aircraft against as-yet-negligible threats is almost limitless – already US legislators are talking about aircraft having to be equipped with countermeasures against hand-held missiles. If such programmes are mandated, with some airlines having to pay while their competitors are reimbursed, the competitive balance in the industry will be fundamentally disturbed.

1P- UR48MF

1. 1HEAD/RICHARD*ADT 2. 1HEAD/JANET*ADT

3. 1HEAD/RICHARD*CHD

1 FY 666Y 28FEB SA FCOCDG MK2 930P 1130P/O E

2 UU 72Y 29FEB SU CDGATL MK2 125A 635A/O E

3 UU 73Y 17MAR WE ATLCDG MK2 1030A 1145P/O E

4 FY 665Y 18MAR TH CDGFCO MK2 730A 930A/X E

P- 1.ZA770 678-4599-T/IMAGINARY TRAVEL/ JODIE

T- 1.T/

TKG FAX-NOT PRICED FARE TYPE EX

PNR-Passenger Name RecordPassenger

Flight Number Routeing

Source: AEA

AEA_YB_04026

INCREMENTAL SECURITY RELATED COSTSFOR EUROPEAN AIRLINES - 2002

Cockpit Doors27.4%

Insurance50.5%

Others*22.1%

Source: AviaSolutions

AEA_YB_04016

* Includes: terrorism training, surveillance, IT

DOES EUROPE AT LAST HAVE ITS SINGLE SKY? On 20th April, 2004, a set of four EU regulations, comprising the basic Single European Sky (SES) package, entered into force. This could be said to be the culmination of a fifteen-year campaign on the part of the European airline community, and in particular AEA, for an end to the operational and economic disadvantages of an airspace fragmented along national boundaries.

To European travellers conscious that the delay rate is once again creeping upwards, immediate benefits may not be evident. Nevertheless the latest regulations form the political framework for the development of the necessary institutional arrangements and the

technical & operational implementation of a radically new Air Transport Management (ATM) system for Europe. The framework regulation clarifies the role of the principal players. It recognises that the cooperation of the civil and military sectors is crucial for the optimised usage of the available airspace. The European Commission will define the objectives and the timetable of the new implementing rules for the SES. Eurocontrol will be responsible for working out the detail of the process. The Single Sky Committee is the interface between the Commission and the member states. The Industry Consultation Body is the means whereby AEA and other stakeholder organisations can provide strategic advice to the Commission on the implementation of the future European ATM system and its components. Only a well-established cooperation mechanism, involving all airspace users’ organisations, will guarantee the anticipated benefits of the Single Sky. While the medium term should see the more effective deployment of current resources, the SES also provides the basis for far-reaching development of new ATM systems. The European aerospace industry has proposed a project on the realisation of ATM for the year 2020, called SESAME, which the Commission has made a high strategic priority. AEA and other airspace users have signalled their support for the project, and in particular its potential to contribute to a world-wide harmonisation of ATM systems.


THE SES 'PACKAGE'

The Framework Regulation, covering:

·····

·

··

Civil/military cooperationSingle Sky CommitteeIndustry Consultation BodyThe role of Eurocontrol

The Airspace Regulation: Establishing ‘functional blocks’ of upper airspace, eliminatingnational boundaries.

The Service Regulation:Providing the political framework toenabling the provision of cross-borderATM services throughout the Community,also standard for controller licensing.

The Interoperability Regulation: Harmonising systems, constituents and procedures within the European ATM network.Promoting the introduction of new agreed and validated concepts in ATM operations and technology.

Source: European Commission

AEA_YB_04022

AIRPORTS – A FAIR DEAL FOR AIRLINES AND PASSENGERS

ASSOCIATION OF EUROPEAN AIRLINES IV – 5

Recent developments involving promotional deals offered by regional airports to ‘no-frills’ carriers have raised more general issues of the relationship between airports, airlines and their passengers. Airports are no longer simply elements of the air transport infrastructure; they have evolved into commercial businesses which typically derive half their revenues from non-aeronautical sources. These sources are self-evident: shops, restaurants, banks, car-hire companies, and vast areas of advertising space. All have excellent business potential and all generate premium rental and concession fees. The reasons are also self-evident. These facilities are not aimed at airport workers, or casual visitors. They share the terminal buildings with a captive market of generally affluent consumers – the airlines’ passengers.

These passengers have already contributed once to the airport’s revenue stream through per capita fees charged to the airlines. By means of this commercial activity, they contribute a second time. The airlines have, in recent years, suffered a series of sustained losses. Even in profitable years, surplus rarely exceeds 5% of total expenditure for individual airlines, and virtually never at the industry level. Yet such profitability would be regarded as shockingly poor within the major-airport community, where double-digit surpluses are commonplace and figures in excess of 25% are not unknown. Unlike the no-frills carriers, the full-service airlines have no alternative but to serve the major airports if they are to preserve the integrity of their networks.

Consequently, given their status as natural monopolies, such airports enjoy considerable market power. A measure of economic regulation is necessary to protect against abuse of dominant position. This could take the form af a legal mechanism for consultation and agreements on airport charges, underpinned by an independent arbitration body. A coherent airports policy should also address the trend towards the privatisation of airports – in itself, no bad thing as it paves the way for efficient organisational structures and market-orientated strategies. Nevertheless, given the diversity of commercial activity at airports, it would be detrimental if the private investor were to focus exclusively on maximising returns, at the expense of the airport’s core business of infrastructure provision.

"WIN-WIN" SOLUTIONSAirport results in 2003

Copenhagen

· Profit up 14%· Passenger volume down 3.1%· Traffic revenue up 0.9%

"...driven by an increase in airport charges..."

Frankfurt

· Profit up 8%· Passenger volume down 0.2%· Aviation revenue up 4.4%

"...driven by an increase in airport charges..."

Zurich

· Profit up 1.4%· Passenger volume down 5%· Aeronautical revenue up 5%

"...with full year impact of higher passenger andbaggage sorting charges more than offsetting thedrop in aviation activity..."

Source: Merrill Lynch

AEA_YB_04021

COMPENSATING THE PASSENGER


The long-drawn-out review of European rules applying to passengers who are denied boarding resulted in early 2004 in a Council vote to adopt a new Regulation, to come into force in early 2005. The vote was an extremely close one, with individual states shifting their positions up to the last minute. The outcome was a deeply disturbing one for the airline industry. The more-or-less doubling of the compensation to passengers unable to be accommodated on a flight for which they held a valid reservation was not a particularly contentious point for the AEA airlines, who in any case were focused on implementing a system of volunteer calls to ensure that passengers giving up their seats did so willingly. The features of the new legislation which are of greatest concern to the industry concern compensation for passengers whose flights are delayed or cancelled. While customer-orientated airlines will always take appropriate action to minimize passenger inconvenience in the event of schedule disruption, the new rules fail to take proper account of the predominance of such events occurring outside the airlines’ control. As such, the new rules run counter to the liability provisions in the Warsaw and Montreal Conventions, international treaties to which all EU states are parties, which recognise external circumstances as mitigating factors. As well as being in conflict with existing legal provisions, the new regulations carry anomalies which make them, from a practical point of view, unworkable.

In the case of a delay or cancellation on one leg of a multi-sector journey, the airline involved would be responsible for compensation and reimbursement of the cost of the whole journey. In other words, a passenger who travels half-way round the world, and finds his last, local flight is cancelled (for reasons which may be wholly outside the control of the airline) is entitled not only to compensation at the higher , longhaul, level, but also refund of the entire cost of his trip – all out of the pocket of what might be a very small regional airline. While the denied-boarding rules currently in place have faced airlines with the possibility of compensating one or two passengers, in very isolated instances, the new Regulation raises the prospect of statutory payments to an entire planeload of customers – at a cost of up to a quarter of a million Euro per incident. In response to legislation which they believe to be misguided and poorly conceived, the airlines, through IATA, have had no option but to mount a legal challenge to the Regulation.

Existing compensation rules:

€ 150 for flights up to 3500km€ 300 for flights over 3500km

for denied boardingflying within/departing EU

New rules (as from 17 Feb 2005):

€ 250 for flights up to 1500km€ 400 for flights 1500 – 3500km

€ 600 for flights over 3500kmfor denied boarding, cancellation, delay over 5hr

flying within/departing EUflying into EU (EU carriers only)

DENIED BOARDING COMPENSATION"THE RULES"

Source: AEA

AEA_YB_04030

ASSOCIATION OF EUROPEAN AIRLINES IV- 7

THE GREAT GASEOUS EMISSIONS DEBATE

Since the Kyoto Conference of 1997focused attention on the impact of‘greenhouse gases’ on climate change,the airline industry has signalled itsacceptance that it has a role to play infacing the global-warming challenge.

This is an issue around which there is agreat deal of uncertainty, supposition andmisconception, but a number of thingsare clear.

Firstly, aircraft burn kerosene andproduce carbon dioxide and othergreenhouse gases. Secondly, the airtransport share of the global total isextremely small – perhaps 2-3% of theworld’s CO2. Thirdly, demand for airtransport – even allowing for thesetbacks of recent years – follows agrowth trend.

Weaving these strands together, it isclear that the industry cannot becomplacent. It has already been singledout by sections of the environmentallobby, perhaps less because of themagnitude of its emissions than the factthat it presents a relatively easy target.

One of the environmentalists’ instrumentsof choice is a punitive kerosene tax, setat a level high enough to choke offdemand. Successive studies haveshown that this would be only minimallyeffective, nevertheless it remains anattractive money-making proposition fornational exchequers.

It is worth bearing in mind, however, thateach percentage point of artificially-constrained growth represents threemillion AEA passengers a year preventedfrom making a journey they wouldotherwise have made. Manipulation anddistortion of the market on this scale isindeed a blunt instrument.

Other, far more efficient, solutions exist.ICAO has recognised that emissionstrading is the most environmentallyeffective and the most economicallyefficient mechanism for limiting globalwarming emissions from aviation.

This involves setting an overall targetcovering a group of sources, and thenletting those participants decide in aflexible manner how to achieve thetarget. It doesn’t matter how muchindividual sources emit, as long as theoverall target is met.

Participants can either 1) meet theirtarget by reducing their own emissions 2)reduce their emissions below their targetand sell or bank the excess emissionsallowances or 3) let their emissionsremain above their target, and buyemissions allowances from otherparticipants.

The European Union is introducing anEmissions Trading Scheme (ETS),covering energy, mining and iron & steel,at the beginning of 2005. The aviationsector is of the view that an ETS must becompatible with the overriding objectiveof enhancing the competitiveness ofEuropean aviation.

Many technical aspects, includingcompetitive issues, would need to beresolved if this scheme was to beextended to aviation, and especiallyimportant is that the European airlinesshould not suffer competitivedisadvantages as a result of thisinitiative.


ASSOCIATION OF EUROPEAN AIRLINES V - 1

CONTENTS


















Brussels, 29 January 2004Meeting of the AEA Presidents' Committee with

Vice-President European Commission Loyola de Palacio and Ludolf van Hasselt of the EC Transport Directorate

V – 2 ASSOCIATION OF EUROPEAN AIRLINES

th

AEA HIGHLIGHTS

ASSOCIATION OF EUROPEAN AIRLINES V – 3

In 2004 AEA celebrates the 50th

anniversary of its foundation. Read thefull history of the Association at thebeginning of this Yearbook.

Vagn Soerensen, CEO of Austrian waselected as the Association’s Chairman for2004. His appointment was confirmed atthe Presidents’ Assembly which tookplace in London on 21st November 2003.He succeeds Rod Eddington, ChiefExecutive of British Airways, who heldthe post in the preceding year.

AEA announced three seniorappointments in 2003 and early 2004,strengthening its position as an airline-driven lobbying organisation.

On 1st September 2003, GiancarloCrivellaro joined the AEA as GeneralManager Political Affairs withresponsibility for the development andthe co-ordination of AEA memberairlines’ policies on aviation relatedregulatory issues.

On the same date, Paul Vandermoerewas nominated as AEA’s GeneralManager Communications, withresponsibility for the management ofAEA’s integrated communicationprogramme including media relations,public relations and issue management.

On 1st April 2004, Guenter Martis ofAustrian, took up the position of GeneralManager Technical & Operations,covering many issues includingoperations, engineering & maintenance,air traffic management, flight crewlicensing, technical procurement andsecurity.

Throughout the past year AEA was activeon a myriad of topical industry issues.

The AEA also addressed several industrysymposiums and conferences. Thefollowing is just a snapshot:

• European Aviation Club, Brussels,February 2003;

• Merrill Lynch Conference, London,March 2003;

• Greek Presidency EuropeanConference, Crete, May 2003;

• Aviation Industry Group, London,October 2003;

• World Economic Forum, Davos,January 2004;

• IATA Legal Symposium, Sevilla,February 2004;

• French Direction des TransportsAériens, March 2004;

• International Aviation Club & theAmerican Bar Association, Washington,March 2004.

AEA also organised several workshops:

• Airline Industry Development andRegional Co-operation in South EastEurope, Belgrade, November 2003;

• EU Enlargement Workshop, Malta, April2003.

• South-East European Regional AirTransport Conference, Zagreb, June2004.

• AEA EU Enlargement Seminar,Brussels, June 2004.

Belgrade, 7 November 2003AEA Workshop on Airline Industry

Development & Regional Co-Operation in South East Europe


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WHO’S WHO AT AEA


The Association of European Airlines is an industry organisation representing 31 major European airlines, with a collective turnover of € 60bn, carrying more than 300 million passengers and 5 million tonnes of cargo in 2003. AEA airlines operate 10,400 flights daily with a fleet of more than 2,400 aircraft, serving 550 destinations worldwide, with a combined staff of just over 360,000. The membership of AEA includes European scheduled and charter, passenger and all-cargo carriers, operating domestic, European and international services. AEA is a non-profit making association. It operates for, and is represented jointly by all its members, expressing the common interests of its members at international and governmental level. The Secretary General normally acts as theAssociation's spokesman. The AEA is governed by the full Assembly of Presidents of its member airlines. The Presidents elect a Chairman to represent and support the AEA for a period of one year, assisted by the so-called Presidents’ Committee, which is composed of the past and present Chairmen and seven other Presidents elected by the Assembly, with a total of nine representatives. The AEA Secretariat, with at its head the Secretary General, is located in Brussels and has a staff of twenty-two.

Assembly of Presidents

Chairman 2004

Presidents' Committee

Vagn Soerensen, Austrian

Jean-Cyril Spinetta, Air FranceGiancarlo Cimoli, AlitaliaVagn Soerensen, AustrianRod Eddington, British AirwaysIvan Misetic, Croatia AirlinesFernando Conte, IberiaLeo van Wijk, KLMWolfgang Mayrhuber, LufthansaJørgen Lindegaard, SAS

AEA Secretariat

Ulrich Schulte-Strathaus, Secretary GeneralNathalie Mulleners, Administrative Assistant

Paul Vandermoere, General Manager CommunicationsDavid Henderson, Manager InformationDoreen Blow, Executive AssistantAnne-Marie Weirauch, Administrative Assistant

Giancarlo Crivellaro, General Manager Political AffairsSefik Yuksel, General Manager Trade & Social AffairsLe Thi Mai, General Manager Infrastructure & EnvironmentGuenter Martis, General Manager Technical & OperationsVincent de Vroey, Manager Operations & ATMNathalie Herbelles, Manager Legal AnalysisAnn Flynn, Administrative AssistantYvonne Hopkins, Administrative Assistant

Sue Lockey, General Manager Market ResearchDario Spila, Manager Research & AnalysisStefan Bruehlmann, Manager Strategy & Statistics

Seya Immonen, General Manager Finance & AdministrationMario De Smedt, Manager ITDidier Poriau, Specialist Applications & IT SupportJozef Swalus, Specialist Printing & DispatchMiriam Swan, Administrative Assistant

Secretary General

Communications Team

Political Team

Market Research Team

Administration Team

´´́́

31

360 0002 400

member airlines

employeesaircraft in the fleet

3005

10 400310

million passengersmillion tonnes of freight

flights per day

550 destinations served

times around the world every day

60 billion € total turnover




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Adria AirwaysKuzmiceva 71000 LjubljanaSlovenia

18 Scheduled Destinations1 within Slovenia17 rest of Europe0 beyond Europe

539 Employees

8 Aircraft in Fleet3 Airbus A3205 Canadair CRJ-200

0 Aircraft on Order

Status at 31st December 2003 for informationon destinations, employees and fleet.

Owned by…55.80% Slovenian Pension Fund20.00% Slovenian Restitution Fund18.07% National Finance Corporation3.39% Infond Investment Company2.74% Zlata Moneta

Owner of…-

Major partnershipsCode-share agreements with Aeroflot, AirFrance, Austrian, Croatia Airlines, Lufthansa.

Financial Resultsmill 2003 2002

Turnover 121.6 112.1Operating profit/loss 3.9 3.1Net profit/loss 0.45 0.52

Review of 2003

In 2003, Adria Airways and Russia's Aeroflot extendedtheir co-operation with the introduction of code shareflights on the Ljubljana-Moscow route. The service, whichhas been operated since late October, lands at Moscow’sSheremetyevo Airport.

Summer 2003 timetable saw the operation of scheduledflights from Ljubljana to 22 destinations in Europe, as wellas an extensive network of charter flights to sunshinedestinations in Europe and Tunisia. Overall the plannedfrequencies for both scheduled and charter services wereslightly increased over previous year.

Adria Airways introduced its second scheduled flightwithin the EU internal market on a so-called 7 th freedomservice, between Germany and Austria. In addition to theestablished service Frankfurt-Vienna started in November2001, Adria launched a daily service Munich-Vienna inMarch 2003, operated with the 48-seater CanadairRegional Jet.

Adria’s authorised Bombardier service centre for CanadairRegional Jet aircraft carried out technical maintenancework on 65 CRJ-200 and CRJ-700 aircraft for otherairlines, including Lufthansa City Line, Air Dolomiti, BritAir, Malev and Air Nostrum. The Canadian aircraftmanufacturer Bombardier selected Adria one year ago forits first and only authorised service centre in Europe.

In February Adria Airways added a fifth CanadairRegional Jet CRJ-100 to its fleet. At year end the fleetconsisted of 8 aircraft, composed of 3 Airbus A320 and 5Canadair Regional Jet 200 aircraft.

Branko LucovnikPresident

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Aer LingusDublin AirportDublinIreland

44 Scheduled Destinations3 within Ireland36 rest of Europe5 beyond Europe

4476 Employees

30 Aircraft in Fleet4 Airbus A330-3003 Airbus A330-2006 Airbus A321-2006 Airbus A320-2008 Boeing 737-5003 Boeing 737-400

17 Aircraft on Order17 Airbus A320


Owned by…95.24% State ownership4.76% Aer Lingus employees

Owner of…-

Major partnershipsMember of the Oneworld Alliance.Code-share agreements with: AmericanAirlines, British Airways, Iberia, KLM andSWISS.

Financial Results€ mill 2003 2002


Review of 2003

Throughout 2003 Aer Lingus continued its strategy oftransforming the State-owned airline into a streamlinedand profitable company. A major advertising campaignlaunched in August built on the strong associationbetween the Aer Lingus brand, low fares and the servicedifferentiators which set the airline apart from other no-frills carriers. The focus of the campaign was to drivesales through the company’s website, aerlingus.com, andby year end over 50 per cent of all bookings were madeonline. The website is now the most important distributionchannel for the airline.

Aer Lingus is rapidly expanding its route network, havingadded 30 new routes over the last two years. Among thenew destinations launched during 2003 were Lisbon,Bologna, Palma, Toulouse and Tenerife. All the newroutes were launched as a result of greater efficiencies inthe utilisation of aircraft and resources.

In the final quarter of the year, a fleet restructuringarrangement was concluded with Airbus, which will seethe airline’s transition to a single fleet type for itsEuropean operation by end of 2005. Seventeen A320aircraft will be acquired to complement the A320s andA321s already in the fleet, with options on a further tenA320 aircraft. The move to a single aircraft type is a keyelement of Aer Lingus’ very significant cost savings whileincreasing capacity and improving operational flexibility.

William WalshChief Executive


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Air France45 rue de Paris95747 Roissy CDG CedexFrance

200 Scheduled Destinations39 within France78 rest of Europe83 beyond Europe

71525 Employees (Group, FY 02-03 avg)

247 Aircraft in Fleet22 Airbus A340-30010 Airbus A330-2008 Airbus A321-2005 Airbus A321-10054 Airbus A320-20013 Airbus A320-10040 Airbus A319-1005 Airbus A318-10025 Boeing 777-20015 Boeing 747-4003 Boeing 747-400F4 Boeing 747-3005 Boeing 747-20010 Boeing 747-200F23 Boeing 737-5005 Boeing 737-300

42 Aircraft on Order10 Airbus A380-8005 Airbus A330-2001 Airbus A321-2004 Airbus A320-2001 Airbus A319-10010 Airbus A318-10010 Boeing 777-3001 Boeing 747-400F

Status at 31st December 2003 for informationon destinations and fleet.

Owned by…45.51% Public Float44.07% State ownership10.42% Air France employees

Owner of…100% Régional, Brit Air, CityJet96% KLM39% Sté Nouvelle Air Ivoire33.4% Air Austral11.9% CCM (Corsica)7.7% Air Mauritius7.5% Air Tahiti5.6% Tunis Air3.6% Cameroon Airlines3.5% Air Madagascar2.9% Royal Air Maroc2.1% Air Calédonie2% Alitalia1.5% Austrian

Major partnershipsMember of SkyTeam Alliance.Franchisees: Régional, Brit Air, CityJet,British European, CCM.Various code-share agreements, incl.Aeroflot, China Eastern, China Southern,Iberia, JAL, LOT, Luxair, South African, TAM.

Financial Results (Group FY 31st March)

€ mill 2003/04 2002/03Turnover 12337 12687Operating profit/loss 139 192Net profit/loss 93 120

Review of 2003

In October 2003 Air France and KLM signed anagreement which will lead to the creation of Europe’sleading airline group, to be known as Air France-KLM.The new holding company, a listed company, will, after atransitory period of 3 years, have 100% ownership of thetwo operating companies Air France and KLM, which willeach retain their separate identities. The deal wasapproved by US and EU competition and in May 2004 AirFrance acquired 96% of KLM’s share capital following anexchange offer. With the stake of the French Stateeffectively diluted, from 54% to 44.7%, Air France ishereby privatised.

In January Air France and Alitalia finalised a cross-equityshareholding of 2% of each other’s capital, underlining thedetermination of the SkyTeam member airlines to build along-term partnership.

In November Air France signed a code-share agreementwith China Southern Airlines on the Paris-Guangzhou(Canton) route, launched in January 2004. This will be the4 thdestination in China and will raise the number of weeklyflights operated by Air France to China to 26.

In May Air France’s Concorde made its last commercialflight. The aircraft completed 27 years of service, carryingmore than 1.3 million passengers before its retirement.

In October, when celebrating its 70 anniversary, AirFrance saw the arrival of the A318, making Air France thefirst major airline to operate all 4 aircraft types in the A320family. With up to 123 seats, the A318 is the latest andsmallest aircraft in the A320 family. A total of 15 single-aisle A318s have been ordered to replace Boeing 737s onFrench domestic and European routes. The last Boeing767 was retired from the fleet during Summer 2003.

Jean-Cyril SpinettaChairman

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omAir MaltaHead OfficeLuqa LQA05Malta

49 Scheduled Destinations2 within Malta43 rest of Europe4 beyond Europe

1877 Employees

13 Aircraft in Fleet4 Airbus A320-2007 Boeing 737-3002 Boeing 737-200

12 Aircraft on Order5 Airbus A3207 Airbus A319


Owned by…96.4% State ownership3.6% Private shareholders

Owner of…100% Malta Air Charter Co Ltd49% AZZURRA Air

Major partnershipsCode-share agreement with Alitalia.

Financial Results (FY 31st July)

€ mill 2003/02 2002/01*Turnover 219.3 312.9Operating profit/loss (22.3) 0.3Net profit/loss (55.5) (1.4)

* 16 months due to change in FY

Review of 2003

In June 2003, the Maltese Government appointed a newBoard of Directors, led by Mr. Lawrence Zammit, whoassumed the position of Chairman. Mr Ernst Funkcontinues in his role as Chief Executive Officer of theCompany.

With the accession of Malta to the European Union on 1st

May 2004, Air Malta is redefining and repositioning itselfin the market in order to meet effectively the challenges ofopen competition. It will still be expected to be a leader inthe growth of the economy of Malta, supporting thetourism and communications sectors. At the same time, itwill further develop its scheduled leisure and businesspoint-to-point services, identifying its appropriate niche asa regional carrier in the European Union.

Accordingly, Air Malta is planning to expand and align itsroute network, as from 2004, in relation to its newstrategic plan, which takes into account the realities ofMalta’s EU membership.

The airline has made a substantial investment in its fleetrenewal programme which was concluded in 2003. Inearly 2004 the company took delivery of two new Airbus,an A320 and an A319, with a total of five A320s andseven A319s set to enter the fleet by 2008 giving AirMalta an all-Airbus fleet, with substantial financial,operational and technological efficiencies.

In the year under review the airline continued toparticipate actively in the Association’s activities. In April2003 Air Malta hosted an AEA meeting for representativesfrom major European airlines to discuss both commonand sectorial implications of EU enlargement. Themeeting was chaired by the Secretary General andaddressed by Mr. Ludolf Van Hasselt of the EuropeanCommission.

Lawrence ZammitChairman


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omAlitalia – Linee Aeree Italiane SpaViale Alessandro Marchetti 11100148 RomaItaly

82 Scheduled Destinations23 within Italy33 rest of Europe26 beyond Europe

22200 Employees

195 Aircraft in Fleet166 of which Alitalia23 Airbus A32111 Airbus A32010 Airbus A3199 Boeing 777-20013 Boeing 767-3003 Boeing 747-200F89 MD828 MD11 (grounded)29 of which AZ Express14 Embraer RJ-14510 ATR-725 ATR-42 (grounded)

10 Aircraft on Order4 of which Alitalia2 Airbus A3191 Boeing 777-2001 Boeing 767-3006 of which AZ Express6 Embraer RJ-170


Owned by…62.4% State ownership35.6% Private investors2% Air France

Owner of…100% Alitalia Express20% Eurofly2% Air France

Major partnershipsMember of SkyTeam Alliance.Various code-share agreements incl. withAeroMéxico, Air France, Air Malta, ChinaAirlines, Croatia Airines, CSA, CyprusAirways, Delta Airlines, JAL, Korean Air,Meridiana, Qatar Airways, SN BrusselsAirlines, TAROM and Varig.

Financial Results (Group)

€ mill 2003 2002Turnover 4385 4844Operating profit/loss (373) (118)Net profit/loss (519.7) 93.1

Review of 2003

In 2003, Alitalia continued to implement restructuringmeasures aimed at restoring the viability of the companyand off-setting damaging external factors such as the warin Iraq and the outbreak of SARS. The changing marketconditions due not only to the above-mentioned externalfactors but also to the development of no-frills competitionand permanent changes in consumer perception andexpectations as regards air transport have lead thecompany to adopt a new business plan covering theperiod 2004-2006.

The plan focuses on the reduction of unit cost,implementation of new commercial and distributionpolicies, further network repositioning and productredefinition. It also confirms the refocusing of thecompany on core business activities. In this regard, in July2003, Alitalia sold 80% of its charter company Eurofly.

In parallel to these measures, Alitalia further developed itsalliance with Air France and SkyTeam. With the AirFrance CEO a member of the Alitalia board and theAlitalia CEO a member of the Air France board, inJanuary 2003 a 2% equity swap was completed betweenthe two companies, thus further reinforcing existing links.

In September 2003, Alitalia concluded a trilateral allianceagreement with Air France and KLM as well as a bilateralalliance agreement with KLM. Those agreementsrepresent an important preliminary step for the integrationof Alitalia into the newly created Air France-KLM group,underlining the intention of Alitalia to play an active part inthe consolidation process at European level.

In order to implement this strategy, the privatisationprocess of Alitalia was formally initiated in December2003 when the Italian government launched the legislativeprocedure for a decree allowing State holding in thecompany to fall below 50%.

Giancarlo CimoliChairman & CEO


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AustrianFontanastrasse 1P.O. Box 501107 ViennaAustria

118 Scheduled Destinations6 within Austria86 rest of Europe26 beyond Europe

7137 Employees (Group)

91 Aircraft in Fleet33 of which Austrian2 Airbus A340-3002 Airbus A340-2004 Airbus A330-2003 Airbus A321-2003 Airbus A321-1008 Airbus A320-2004 MD872 MD831 MD824 Fokker 7019 of which Lauda Air3 Boeing 777-2003 Boeing 767-3004 Boeing 737-8002 Boeing 737-7001 Boeing 737-6002 Boeing 737-4001 Boeing 737-3003 Canadair CRJ-10039 of which Austrian arrows8 Bombardier Q40012 Bombardier Q30012 Canadair CRJ-2001 Canadair CRJ-1006 Fokker 70

16 Aircraft on Order7 Airbus A3194 Boeing 737-8002 Bombardier Q4003 Canadair CRJ-200


Owned by…39.7% OIAG Austrian Privatisation Agency43.5% Free float10.3% Austrian Institutional Investors5.0% Austrian Airlines1.5% Air France

Owner of…100% Austrian arrows100% Austrian Airtransport100% Lauda Air22.5% Ukraine International Airlines

Major partnershipsMember of the Star Alliance.Various code-share agreements with:Air Dolomiti, Air France, Air Mauritius, CSA,LH CityLine, Luxair, MAS, Royal Jordanian,TAROM, Ukraine International.


€ mill 2003 2002Turnover 2242.7 2398.0Operating profit/loss 63.3 41.4Net profit/loss 45.8 42.8

Review of 2003

In September the airlines of the Austrian Airlines Grouppresented their new brand identity. Mainline operatorAustrian Airlines, is renamed ‘Austrian’ and regionalairline Tyrolean Airways will henceforth be marketed as‘Austrian arrows’, both using the red arrow logo. TheAustrian Airlines Group brand also includes the carrierLauda Air, mainly responsible for leisure traffic. The visualmodifications are part of a fundamental restructuring ofthe business model.

In 2003, against the background of the impendingenlargement of the European Union, Austrian AirlinesGroup continued to build up its Central Europe andEastern European axis with the introduction ofsubstantially more frequencies as well as newdestinations, such as Rostov (Russia) and Baku(Azerbaijan), offering in total more than 35 destinations inthis economic area.

Austrian entered into a new code-share agreement withStar Alliance partner Air New Zealand on flights toAuckland, Wellington and Christchurch arriving viaAustralia.

In an on-going fleet harmonisation, the Group withdrewfrom the corporate jet business, with the long-term leasingout of the three Embraer RJ-145 aircraft in the fleet. Theplanned fade out of MD80s started in December, with therelease of two MD82 aircraft. In the order book a fourthBoeing 777 aircraft for Lauda Air has been converted tothree Boeing 737-800s for delivery between 2005 and2006. One Canadair Regional Jet and three of the sevenA319s ordered are due for delivery in 2004, followed bytwo Bombardier Q400 aircraft in 2005.

Vagn SoerensenCEO


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bmiDonington HallCastle DoningtonDerbyEast Midlands DE74 2SBGreat Britain

30 Scheduled Destinations12 within the United Kingdom16 rest of Europe2 beyond Europe

4548 Employees

43 Aircraft in Fleet3 Airbus A330-20010 Airbus A321-20011 Airbus A320-2006 Fokker 10010 Embraer RJ-1453 Embraer RJ-135



Owned by…50% plus 1 share BBW

(private shareholders)30% minus 1 share Lufthansa20% SAS

Owner of…100% bmi regional100% bmibaby

Major partnershipsMember of the Star Alliance.Various code-share agreements with: AirCanada, LOT, Singapore Airlines, SouthAfrican Airways, Spanair, United Airlines andVirgin Atlantic.


£ mill 2003 2002Turnover 772 724Operating profit/losNet profit/loss (9.8) (19.6)

Review of 2003

In June 2003 bmi applied with Star Alliance partner UnitedAirlines, for blanket code-share agreement to cover eachother’s markets from Heathrow in an ongoing attempt tobring competition to USA services from Heathrow,currently restricted by bilaterals to VirginAtlantic/Continental and British Airways/American Airlines.

bmi launched a code-share program with Spanair andLOT Polish airlines, as both airlines joined the StarAlliance in the course of 2003.

The bmi group, comprising bmi, bmi regional and no-frillssubsidiary bmibaby, continued to expand in 2003. Thegroup saw record passenger numbers reflecting thesuccess of route restructuring to be better tuned todemand, and a fare review. Information in this Yearbookdoes not include bmibaby.

Notable development in the route network: mid-year bmiresumed flights from Manchester to Washington, after abreak over the Winter period, being the company’ssecond transatlantic route after Manchester-Chicago.Routes between Heathrow and Venice and Alicante werealso launched.

bmi announced its aim to have an all-Airbus fleet within 18months. In an acceleration of this transition, an order forfour Airbus A319 aircraft with options for five additionalaircraft was placed. The first three of this 132-seateraircraft will be available for the 2004 Summer schedules,with the fourth aircraft to be delivered early in 2005.

Sir Michael Bishop CBEChairman


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British Airways plcWatersideP. O. Box 365Harmondsworth UB7 0GBGreat Britain


47702 Employees

300 Aircraft in Fleet (Group*)

27 Airbus A32033 Airbus A31943 Boeing 77721 Boeing 767-30013 Boeing 757-20057 Boeing 747-40010 Boeing 737-50024 Boeing 737-4005 Boeing 737-30028 Embraer RJ-14516 Avro RJ1005 British Aerospace 1468 BAe ATP10 de Havilland Dash-8* Group includes BA and BA CitiExpress.

16 Aircraft on Order16 Airbus A320/A321


Owned by…100% Publicly quoted company.

Owner of…100% British Airways CitiExpress18.3% Qantas Airways18.3% Comair (South Africa)9% Iberia

Major partnershipsMember of the Oneworld Alliance.Franchisees: British Mediterranean, Comair(South Africa), GB Airways, Loganair (UK),Maersk Air (UK), Regional Air (Kenya), Sun-Air (Denmark) and Zambian Airways.Various code-share agreements.

Financial Results (Group, FY 31st March)

mill 2003/04 2002/03Turnover 7560 7688Operating profit/loss 405 295Net profit/loss 130 72

Review of 2003

CE Rod Eddington was elected AEA Chairman for 2003.

In February British Airways, Oneworld partner Iberia andfranchise partner GB Airways launched a range of newcode-share routes, marking the 2 nd phase in the airline’swide ranging commercial agreement, signed in July 2002.

British Airways and SN Brussels Airlines receivedapproval from the European Commission to continue theircommercial relationship. British Airways also expanded itscode-share co-operation with another Oneworld partner,Cathay Pacific.

In June British Airways signed an agreement to sell itswholly owned German subsidiary dba (formerly DeutscheBA) to a Nuremburg-based aviation consultancy andinvestment company.

The Summer 2003 timetable saw the introduction ofBritish Airways’ first ever services from London City.Operated by British Airways CitiExpress, Edinburgh,Frankfurt and Geneva are now all served from the city.

Concorde, the world’s only supersonic passenger aircraftwas withdrawn from service at the end of October. Theaircraft flew for Air France and British Airways from itslaunch 27 years earlier, in 1976.

In December, British Airways welcomed the publication ofthe UK Government’s Aviation White Paper which detailedplans for the future development of air transport in the UKover the next 30 years. In particular the airline welcomedthe inclusion of the option for a third, short runway atLondon Heathrow.

Throughout the year the airline’s drive towards greaterefficiency and cost savings continued with theachievement of key Future Size and Shape targets.

Rod EddingtonChief Executive

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Cargolux Airlines InternationalLuxembourg AirportL-2990 LuxembourgGrand Duchy of Luxembourg

57 Scheduled Destinations1 within Luxembourg7 rest of Europe49 beyond Europe

1356 Employees

12 Aircraft in Fleet12 Boeing 747-400F

1 Aircraft on Order1 Boeing 747-400F


Owned by…34.9% Luxair33.7% SAir Lines31.1% Luxembourg financial institutions0.3% Others

Owner of…-

Major partnershipsVarious agreements with: AZAL (Azerbaijan),China Airlines, China Eastern Airlines,Aeromexpress, Asiana, Alitalia, Pacific EastAsia Cargo and Turkish Airlines.


US$ mill 2003 2002Turnover 954.3 807.5Operating profit/loss 64.9 55.6Net profit/loss 70.9 49.6

Review of 2003

In 2003 Cargolux strengthened its position in the globalairfreight market and recorded the strongest operatingresult the company has ever achieved.

Cargolux’s business model targets a flexible, customerand quality focused all-cargo-airline, adding economicvalue to the company. In 2003 the company realigned andrefocused the internal organisation, improving on variousoperational performance indicators and achieving higherlevels of productivity.

Overall the operational focus moved more towards Asia,with increased presence and strong demand, particularlyin China.

Furthermore in the network, the start of the year sawweak demand for services to/from South America, withroutes adjusted accordingly. By mid-year this market wasshowing signs of recovery. Freight onboard the aircraftranges from shoes to helicopters and from fruit to carparts for export across South America and beyond.

Cargolux extended its North American network byopening sectors from the US to the Mexican industrialcentre of Guadalajara, responding to the high demand forfreight shipments from the booming electronics assemblybusiness there.

As air-cargo markets continue to grow, Cargolux will takedelivery of its 13 th Boeing 747-400F.

Ulrich OgiermannPresident & CEO

cargolux


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Croatia AirlinesSavska 4110000 ZagrebCroatia

26 Scheduled Destinations8 within Croatia17 rest of Europe1 beyond Europe

1045 Employees

10 Aircraft in Fleet3 Airbus A320-2004 Airbus A319-1003 ATR 42-300

0 Aircraft on Order


Owned by…94.08% State ownership2.44% State agency1.65% Croatian Privatisation Fund1.83% Other shareholders

Owner of…-

Major partnershipsVarious code-share agreements with: AdriaAirways, Air France, Alitalia, Austrian, CSA,Lufthansa, LOT, SN Brussels Airlines andTurkish Airlines.

Financial Results€mill 2003 2002

Turnover 173.3 171.5Operating profit/loss 17.1 19.3Net profit/loss 2.0 (3.2)

Review of 2003

Implemented on 1st October 2003 all Croatia Airlinesinternational ticket prices are now quoted in Euro, insteadof US$ as used previously. Approximately 80% ofCroatia’s traffic is conducted within the Eurozone.

In late 2002 and early 2003 new tariffs were introducedwhich had a positive effect on traffic trends. Overall 2003was unique in that every month was a record month inpassenger traffic, the busiest month being August. In JulyCroatia Airlines recorded its 10-millionth passenger sinceits inception. The company started flying in 1991 with aleased-in MD82 aircraft.

In June, Pope John Paul II flew Croatia Airlines on histhird visit to, and tour of, the country.

On behalf of the Croatian CAA, a candidate member ofthe Joint Aviation Authorities, Croatia Airlines was certifiedwith JAR OPS 1 AOC (Air Operator Certificate).

In December, Croatia Airlines was presented with ISO9001, thus completing its project of introducing integratedquality management systems in accordance with threeinternational norms – ISO 9001 and aviation norms JAROPS 1 and JAR 145.

The Summer timetable saw the addition of frequencies tothe Adriatic coast responding to ever increasing demand.A new scheduled service was also introduced for theSummer season: Split-Brussels. Frequencies to severalEuropean capitals from Split and Dubrovnik increased,and the airline introduced code-share flights with SNBrussels Airlines.

At year-end Croatia Airlines schedule included services to26 destinations in Europe, domestic and international, anda further 11 cities served in co-operation with partnerairlines.

Ivan MiseticPresident & CEO

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Czech AirlinesHead OfficeRuzyn Airport 160 08 Prague 6Czech Republic

73 Scheduled Destinations4 within the Czech Republic57 rest of Europe12 beyond Europe

4543 Employees

35 Aircraft in Fleet3 Airbus A310-30012 Boeing 737-50011 Boeing 737-4004 ATR-725 ATR-42

0 Aircraft on Order


Owned by…56.43% Czech National Property Fund34.59% Czech Consolidation Bank4.33% Czech investor

( Ceská pojiötovna a.s.)2.94% City of Prague0.98% City of Bratislava0.49% Shares for Endowment Fund0.24% National Property Fund of the

Slovak Republic

Owner of…-

Major partnershipsMember of the SkyTeam Alliance.Various agreements with: Air France,Aeroflot, Aeromexico, Aerosvit Airlines(Ukraine), Air Malta, Alitalia, Austrian, CroatiaAirlines, Delta Air Lines, KLM, LOT,Lufthansa, Malev, Olympic Airlines, TAROMand Turkish Airlines.

Financial ResultsUS$ mill 2003 2002


Review of 2003

In September Jaroslav Tvrdik, a former Czech Minister ofDefence with an acclaimed military career, becamePresident of Czech Airlines. He was also electedChairman of the CSA Board of Directors. He replacesMiroslav Kula.

CSA and Transavia Airlines signed a long termmaintenance agreement, whereby CSA will performmaintenance on the Dutch carrier’s fleet of Boeing 737-800s. CSA is a leading provider of B737 maintenance inCentral Europe.

In the network CSA added new destinations Cork,Edinburg, Tallinn, Yerevan and Sliac (Slovakia). In 2003the busiest route out of CSA’s Prague hub was London(Stansted and Heathrow). CSA longhaul routes includeservices to New York, Toronto, Montreal, Canada, Dubai,UAE, Kuwait, Colombo and Sri Lanka performed with theA310. For 2004 the company will be looking to expand itsoffer to Eastern Europe with the introduction of, amongstothers, Samara and Ekaterinburg (Russia), Baku(Azerbaijan) and Krakow (Poland).

The construction has started of a new CSA CargoTerminal, with capacity of 60 thousand tonnes of goodsand mail at Prague Airport. The ‘old’ cargo terminal willmake way for the planned expansion of the airport and theconstruction of a new passenger terminal.

A third Airbus A310-300, one Boeing 737-400, and twoBoeing 737-500s joined CSA’s fleet in 2003. This fleetexpansion meant an increase in capacity of 10% overall,50% for longhaul services. All four of the aircraft werepurchased via operational leasing. The fleet total at year-end stood at 35 aircraft.

Jaroslav TvrdikPresident, CEO

Chairman of the Board


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Cyprus Airways Ltd21 Alkeou Street2404 EngomiP. O. Box 219031514 NicosiaCyprus

32 Scheduled Destinations2 within Cyprus20 rest of Europe10 beyond Europe

2170 Employees

12 Aircraft in Fleet2 Airbus A330-2008 Airbus A320-2002 Airbus A319-100

0 Aircraft on Order


Owned by…69.62% State ownership30.38% Private shareholders

Owner of…100% Eurocypria49% Hellas Jet

Major partnershipsVarious code-share agreements with:Aeroflot, Alitalia, El Al, Gulf Air, KLM, LOT,SN Brussels Airlines and Syrian ArabAirlines.


CY mill 2003 2002Turnover 188 185Operating profit/loss (36) (3)Net profit/loss (20.8) 10.5

Review of 2003

In 2003 total revenue passengers on Cyprus Airways’flights recorded an increase of 2.4%, reaching the 1,695million mark. 1.7 million tonnes of cargo were alsotransported on these services.

The preliminary indication of the financial results for theCyprus Airways Group for the financial year ending 31st

December 2003 shows a net loss after tax of CY 20.8million ( 35.6 million), compared to a net profit after tax ofCY 10.5 million ( 18 million) in 2002. Turnover increasedby 1.2% to CY 188 million.

Hellas Jet, the new start up airline in Greece in whichCyprus Airways Group has a 49% share, commencedoperations in June 2003, operating out of AthensInternational Airport to London, Zurich, Paris andBrussels.

Cyprus Airways maintains alliances and co-operationagreements with major international airlines and operatescode-share flights with several partners: Aeroflot, Alitalia,El Al, Gulf Air, KLM, LOT, SN Brussels Airlines and SyrianArab Airlines.

With the acquisition of a second A330-200 aircraft, thedelivery to Eurocypria (the company’s charter subsidiary),of 4 B737-800 and the withdrawal of the A310 aircraft, theyear also saw the completion of the fleet renewal processstarted in 2002.

Constantinos LoizidesChairman

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mFinnair OyP.O. Box 1501053 FinnairFinland

55 Scheduled Destinations16 within Finland31 rest of Europe8 beyond Europe

6920 Employees

58 Aircraft in Fleet5 Airbus A321-20011 Airbus A320-2009 Airbus A319-1007 Boeing 757-2007 MD835 MD825 MD119 ATR-72

6 Aircraft on Order1 Airbus A321-2001 Airbus A320-2002 Airbus A319-1002 MD11


Owned by…65% Public bodies (state, local

government, employmentpension funds)

12% Registered in nominee name7% Financial institutions &

insurance companies6% Private individuals5% Foreign investors4% Private companies1% Associations

Owner of…100% Nordic Airlink (Sweden)49% Aero Airlines (Estonia)

Major partnershipsMember of the Oneworld Alliance.Various code-share agreements, with:Aero Airlines, Air China, Air France, CityAirline, CSA, Finnish Commuter Airlines,Lithuanian Airlines, Malev, SN BrusselsAirlines, Sun Air, TAP, Ukraine InternationalAirlines.


€mill 2003 2002Turnover 1557.6 1656.4Operating profit/loss (18.8) 60.0Net profit/loss (16.2) 36.8

Review of 2003

Finnair celebrated its 80 th anniversary in 2003, and the 50 th

anniversary of the company’s name. Founded as Aero in1923, ‘Finnair’ was first used in marketing in 1953 andwas subsequently adopted as its official name in 1968.

Asia has been an area of strategic development forFinnair and the company now operates over twentyweekly frequencies to Asian destinations, coveringBeijing, Hong Kong, Tokyo, Osaka, Bangkok andSingapore, with the addition of Shanghai to the network inSeptember 2003.

The Winter season also saw the return of Miami services,following a three-year absence.

During the year the offer of code-share destinations withEuropean partners Air France, SWISS and SN BrusselsAirlines was expanded.

Finnair acquired a controlling interest in the Swedish no-frills airline Nordic Airlink through the acquisition of 85% ofthe company’s shares in 2003, subsequently increased to100% in May 2004. Nordic Airlink operates six aircraftwhich are used for scheduled Scandinavian routes, aswell as charter and regional operations.

Following the addition of a fifth MD-11 in early 2003,Finnair is set to receive its sixth aircraft in Spring 2004 foruse on routes to Asia. The DC9s in the fleet (8 at year-end 2002) were retired from the fleet and were replacedby Airbus A320s. A second ATR-72 turboprop aircraft wastransferred to Finnair’s Estonian subsidiary Aero Airlinesin November.

Keijo SuilaPresident & CEO


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Líneas Aéreas de España SACalle Velazquez 13028006 MadridSpain

99 Scheduled Destinations34 within Spain34 rest of Europe31 beyond Europe


140 Aircraft in Fleet3 Airbus A340-60018 Airbus A340-3007 Airbus A321-20046 Airbus A320-2004 Airbus A319-10017 Boeing 757-2002 Boeing 747-3005 Boeing 747-20014 MD8824 MD87

16 Aircraft on Order3 Airbus A340-6003 Airbus A321-2007 Airbus A320-2003 Airbus A319-100


Owned by…60% Floating30% Banks and various companies9% British Airways1% American Airlines

Owner of…-

Major partnershipsMember of the Oneworld Alliance.Franchisee: Iberia Regional/Air Nostrum.Various code-share agreements with: AirFrance, CSA, LOT, Regional Airlines, RoyalAir Maroc, Royal Jordanian, SN BrusselsAirlines, SWISS, Syrian Arab Airlines, TAP,TAROM, Ukraine International Airlines.


€ mill 2003 2002Turnover 4619.3 4699.5Operating profit/loss 160.7 249.1Net profit/loss 145.9 159.8

Review of 2003

In June 2003 Fernando Conte was appointed Chairman &CEO of Iberia, replacing Xabier de Irala, who resignedafter being in charge since 1996.

Iberia and British Airways, Oneworld partner airline and9% shareholder, continued to expand their co-operationwith the introduction of more code-share operations. Thetwo carriers applied for anti-trust immunity from theEuropean Commission in July 2002, to enter into anextensive commercial alliance which will also involve BAfranchise partner GB Airways. The go-ahead was finallygiven in December 2003.

In the network Iberia added extra capacity on its LatinAmerican routes during both the Summer and Wintertimetables, confirming its leadership on the Europe-LatinAmerican routes.

Iberia introduced a code-share agreement with Belgiancarrier SN Brussels Airlines, on flights from Brussels toMadrid and Barcelona, in replacement of the Belgianairline’s seat agreement with Virgin Express. Furthercode-shares were signed with SWISS, and Danish carrierMaersk.

Iberia placed an order for Airbus A340-600s to replace itsBoeing 747-200s in the longhaul fleet. The first threeA340-600s are for delivery in 2004, with the remainder tofollow in 2005 and 2006. During the Summer 2003 seasonIberia already operated three A340-600, on lease fromILFC, to replace some of the older Boeing 747.

Fernando ConteChairman & CEO


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IcelandairReykjavik Airport101 ReykjavikIceland

26 Scheduled Destinations7 within Iceland14 rest of Europe5 beyond Europe


17 Aircraft in Fleet2 Boeing 767-3001 Boeing 757-30011 Boeing 757-2002 Boeing 757-200F1 Boeing 737-300F

0 Aircraft on Order


Owned by…35.2% Investment Funds13.92% Insurance companies13.62% Individual investors13.44% Various companies21.57% Banks2.25% Pension Funds

Owner of…-

Major partnershipsCode-share agreements with SAS.


ISK mill 2003 2002Turnover 37561 38945Operating profit/loss 1983 3873Net profit/loss 1121 2611

Review of 2003

In early 2003 a restructuring of Icelandair Group wasimplemented. The international airline, Icelandair, is now a100% owned subsidiary of The Flugleidir-IcelandairGroup, which comprises a total of 12 subsidiaries,including AEA-member Icelandair, the charter companyLoftleidir Icelandic, Icelandair Cargo and the domesticairline Air Iceland performing air transport services. Othersubsidiaries include hotels, travel services, technical andground handling services.

Financially 2003 was the second best performance in thecompany's 67 year history. Pre-tax profit for 2003 wasIcelandic Krona ISK 1406 million (€16 million). Net profit(after taxes) stood at 1121 million ISK (€13 million).Operating revenues were ISK 37561 million (€434million), while operating costs were ISK 35578 million(€411 million). The Flugleidir-Icelandair Group has seenunprecedented success in the last two years with 2002being the groups best ever year with a pre-tax profit ofISK 3347 million (€39 million).

Within the Group, the international airline Icelandair isresponsible for more than 50% of turnover. Icelandair'snetwork services the home market, the fast growingtourism market into Iceland and the North Atlantic one-stop market. Icelandair is strongly emphasizing a policy offurther strengthening Icelandair's international flightoperations, through charter and cargo operations as wellas passenger services.

In August, Icelandair celebrated its 30 th anniversary.Icelandair was formed by the merger in 1973 of twolocally-based airlines - Flugfélag Íslands and Loftleidir -operating both international and domestic services. Theformer (the original Icelandair) traces its roots back to1937, whilst the latter had its origins in 1945.

Sigurdur HelgasonPresident & CEO


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JAT AirwaysBulevar umetnosti 1611000 BeogradSerbia & Montenegro

39 Scheduled Destinations3 within Serbia & Montenegro29 rest of Europe7 beyond Europe

3528 Employees

25 Aircraft in Fleet1 Boeing 737-40010 Boeing 737-3003 Boeing 727-2001 Douglas DC106 Douglas DC9-304 ATR-72-200

0 Aircraft on Order


Owned by…100% State ownership

Owner of…-

Major partnershipsCode-share agreements with Austrian, CSAand Uzbekisatn Airways.

Financial ResultsYUN mill 2003 2002

Turnover 10200 9895Operating profit/loss (412) (522)Net profit/loss (412) (522)

Review of 2003

In August 2003 the former ‘JAT-Jugoslovenskiaerotransport’ (Yugoslav Airlines) was officially renamedJat Airways and saw the launch of a new company logo.At the same time the Federal Republic of Yugoslavia, as acountry, was renamed Serbia and Montenegro.

Jat Airways has announced plans to restructure into aholding company, with the parent company operatingmainline commercial aviation. Several dependententerprises, which will be owned by the parent company,will be separate legal entities. This ‘structural adjustmentand development plan’ as determined by Jat AirwaysManaging Board, is to be realised by 2005.

Jat Airways has the intention of developing its regionalpresence. This will be achieved through a new regionalairline that will use ATR-72s from the parent company’sfleet. This company will operate regular flights from Jat’shub at Belgrade to destinations principally in the Balkans,starting operations in 2004.

The AEA conference initiated in Belgrade by Jat Airwaysin 2003, had as its goal to re-establish regionalconnections among carriers. This strategic objective setby the former President & CEO, Mr. Predrag Vujovic, isconfirmed by his successor, Mr. Aleksandar Milutinovic.

With regards to the network, 2003 saw the introduction ofsome new routes. The major new longhaul destination isNew York, served in co-operation with operating carrierUzbekistan Airways.

Jat Airways leased-in its first Boeing 737-400 in 2003,with a further 2 due to arrive in February 2004. These willreplace the remaining Boeing 727-200s in the fleet, whichhave been leased out, as has the DC-10. Jat Airwaysintends to pursue fleet commonality with Boeing 737-300sand 737-400s on its European and Mediterranean flights.

Aleksandar MilutinovicPresident & CEO

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omKLMP.O. Box 7700Schiphol Airport 1117ZLThe Netherlands

118 Scheduled Destinations1 within the Netherlands56 rest of Europe61 beyond Europe

37487 Employees (Group, 31st March 2003)

126 Aircraft in Fleet3 Boeing 777-20012 Boeing 767-3005 Boeing 747-40017 Boeing 747-400 Combi2 Boeing 747-400F4 Boeing 737-90013 Boeing 737-80014 Boeing 737-40015 Boeing 737-30010 MD1120 Fokker 7011 Fokker 50

14 Aircraft on Order6 Airbus A330-2007 Boeing 777-2001 Boeing 747-400F


Owned by…96% Air France-KLM

Owner of…100% KLM cityhopper100% KLM cityhopper uk100% Transavia Airlines50% Martinair20% Kencargo Airlines International

Major partnershipsMember of SkyTeam.Various agreements, incl. with Air Alps, AirEuropa, Alaska Airlines, Aer Lingus, ChinaSouthern Airlines, Comair, ContinentalAirlines, CSA, Cyprus Airways, Jet Airways,Kenya Airways, KLM cityhopper, KLM exel,Lithuanian Airlines, Maersk Air, Martinair,MAS, Malev, Meridiana, Surinam Airways,TAM, Transavia Airlines, UkraineInternational Airlines.

Financial Results (Group, FY 31st March)

€mill 2003/04 2002/03Turnover 5877 6485Operating profit/loss 120 (484)Net profit/loss 24 (416)

Review of 2003

In Autumn 2003 KLM and Air France announced anunprecedented consolidation move in European airtransport, with the ‘combination’ of the two carriers, to beknown as Air France-KLM. The grouping will create theworld’s largest airline by turnover and the third largest bytraffic volumes, whilst capitalising on brand recognition,the two dynamic hubs of Paris-Charles de Gaulle andAmsterdam-Schiphol and complementary networks. KLMand Air France will form ‘One group’, ‘Two airlines’ and‘Three businesses’. KLM and US partners Northwest andContinental will subsequently join the SkyTeam alliance.Having gained approval of the competition authorities inearly 2004, a share exchange took place in May 2004whereby Air France acquired 96% of KLM’s share capital.The company has subsequently been de-listed.

Following a strategic review of the company’s no-frillsstrategy, KLM sold its 100% holding in its UK-basedsubsidiary buzz, to Ryanair, in April 2003. The companyalso integrated the operation of KLM cityhopper and KLMcityhopper uk (formerly KLM uk).

KLM renewed its co-operation agreement with ContinentalAirlines and extended its code-share agreements, withChina Southern Airlines and with Brazilian airline TAM onservices to and within South America. In Europe, code-sharing services with Malev were introduced.

In October KLM took delivery of its 1st Boeing 777-200ERaircraft. A total of 10 aircraft have been ordered, withdelivery expected over the next 2 years. The 777 willoperate in a 327-seat configuration, replacing the Boeing747-300 fleet. KLM Cargo introduced two new Boeing747-400ER freighters in April 2003, replacing the two 747-300SFs in the fleet. From 2005 the A330-200 will startreplacing the MD-11s and the Boeing 767-300 ERs.

Leo M. van WijkPresident & CEO


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LOT Polish Airlinesul.17 Stycznia 3900-906 WarszawaPoland

46 Scheduled Destinations12 within Poland30 rest of Europe4 beyond Europe

3789 Employees

51 Aircraft in Fleet3 Boeing 767-3002 Boeing 767-20010 Boeing 737-5007 Boeing 737-4002 Boeing 737-30014 Embraer RJ-1458 ATR-72 (operated by EuroLot)5 ATR-42 (operated by EuroLot)

12 Aircraft on Order2 Boeing 737-80010 Embraer RJ-170


Owned by…67.97% State treasury25.10% SAir Lines6.93% Employees

Owner of…100% EuroLot

Major partnershipsMember of the Star Alliance.Various code-share agreements with: AirFrance, American Airlines, ANA, Austrian,bmi, CSA, Cyprus Airways, El Al, Finnair,Lufthansa, SN Brussels Airlines and UnitedAirlines.

Financial ResultsPLN mill 2003 2002

Turnover 2856.9 2718.8Operating profit/loss (31.3) 150.6Net profit/loss (109.2) 112.6

Review of 2003

In 2003, the Polish Treasury put on hold plans to float its68% stake in the airline. Another 25% equity share in thecompany held by SAir Lines (Swissair) until its bankruptcyin 2002, is now in the hands of the receiver, pendingfinding a strategic investor.

In 2004 LOT celebrates its 75 th anniversary. In late 1928several private airline companies were amalgamated intothe state enterprise ‘Polskie Linje Lotnicze LOT Sp .z.o.o.’, which started operations on 1st January 1929. Thenetwork consisted of two routes, from Warsaw toKatowice and Bvdgoszcz. More recent milestone dates forthe company include membership of the Star Alliance inOctober 2003 and, on the 1st May 2004, the accession ofPoland to the EU.

In addition to LOT’s existing flights from Warsaw toLondon Heathrow and Manchester and from Krakow toLondon Gatwick, the company launched co-operation forjoint flights with bmi in March, adding further UK points tothe offer. LOT also signed a commercial agreement withUnited Airlines, including code-sharing on flights betweenPoland and the US. Following Lufthansa, Austrian, ANAand bmi, United is the fifth member of the Star Alliance tosign an agreement with LOT.

In April LOT ordered ten 70-seat Embraer RJ-170 planes,and entered into a contract with the Brazilianmanufacturer whereby the technical base of the carrierwill become an authorised European Embraer servicecentre. In the first half of 2004, six of the new aircraft willbe delivered, with the remaining four due in 2005. Thedeal also includes further options for an additional elevenEmbraer RJ-170, -190 or -195 aircraft. LOT currentlyoperated 14 Embraer RJ-145s.

Marek GrabarekPresident & CEO


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omDeutsche Lufthansa AG2-6 Von-Gablenz-Strasse50679 CologneFederal Republic of Germany

172 Scheduled Destinations18 within Germany71 rest of Europe83 beyond Europe

39068 Employees

332 Aircraft in Fleet306 of which Lufthansa, LH CityLine

and LH Cargo4 Airbus A340-60030 Airbus A340-3005 Airbus A330-20026 Airbus A321-100/-20020 Airbus A320-20017 Airbus A319-1003 Airbus A310-30010 Airbus A300-60030 Boeing 747-40024 Boeing 737-50034 Boeing 737-30020 Canadair CRJ -70043 Canadair CRJ -100/-20018 Avro RJ858 Boeing 747-200F14 MD11F26 of which LH Regional (wetlease

fleet operated on behalf of LH).2 Airbus A319-1002 Boeing 767-3001 Boeing 737-7005 ATR 4211 de Havilland Dash-85 Fokker 50+ In addition, up to 40 aircraft are operatedby franchise partners on behalf of LH.

31 Aircraft on Order15 Airbus A3806 Airbus A340-60010 Airbus A330


Owned by…89.95% Free float10.05% Public sector

Owner of…100% Lufthansa Cargo100% Lufthansa CityLine100% Air Dolomiti30% bmi49% Eurowings13% Luxair10% Condor

Major partnershipsMember of the Star Alliance.Franchisees (LH Regional): Air Dolomiti,Augsburg Airways, LH CityLine, Contact Air,Eurowings.Various code-share agreements withpartners and Adria Airways, Air China, AirOne, Cimber Air, Cirrus Airlines, CroatiaAirlines, CSA, Maersk Air, SAA, US Airways.Member of the WOW cargo alliance, withSAS, SIA and JAL Cargo.


Turnover 9070 9428Operating profit/loss (445) 110Net profit/loss (1223) 1111

Review of 2003

In June, Wolfgang Mayrhuber was appointed as Chairmanand CEO, succeeding Jürgen Weber, who took up theposition of Chairman of the Lufthansa Supervisory Board.

In June 2003, in collaboration with the Munich AirportCompany, Lufthansa opened a new terminal at Munich,used exclusively by Star Alliance and partner airlines, andunderlining Munich's importance as Lufthansa's secondinternational hub.

In response to the AEA TEATS study Lufthansa initiated acampaign to cut the high external input costs of airtransport in Germany. Partners in this initiative are thehub airports Frankfurt and Munich, the ATC-provider DFSand government organisations that regulate the airtransport sector or are shareholders in providers.

Lufthansa and Arlington-based US Airways announcedplans for a long-term strategic alliance, centred aroundcode-sharing, pre-empting US Airways’ accession to StarAlliance in 2004. Lufthansa and Aeroflot also undertook tointensify their co-operation, specifically in the domain ofaircraft maintenance and pilot training.

Lufthansa is restructuring its regional traffic effectiveJanuary 2004. Under the joint name ‘Lufthansa Regional’,Augsburg Airways, Contact Air, Eurowings, LH CityLineand Italian carrier Air Dolomiti (now 100% owned) aregrouped under a new umbrella brand with distinctive logo.

In December Lufthansa took delivery of its first A340-600.The airline has ordered a total of 10 aircraft of this type.These aircraft have been fitted with Lufthansa’s newBusiness Class comfort concept and the entire longhaulfleet will be retrofitted by the Spring of 2006. LufthansaCargo will sell all 8 of its Boeing 747-200s in 2004 in orderto operate a uniform MD 11 fleet. From 2005, five MD11swill be added to the current 14 MD11s in the fleet.

Wolfgang MayrhuberChairman & CEO


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luLuxairLuxembourg Airport2987 Luxembourg

42 Scheduled Destinations1 within Luxembourg34 rest of Europe7 beyond Europe

2241 Employees

16 Aircraft in Fleet3 Boeing 737-5002 Boeing 737-4003 Fokker 508 Embraer RJ-145

3 Aircraft on Order3 Boeing 737-700


Owned by…25.2% Banks23.1% State ownership13.4% State-owned bank13.2% Luxair Group and others13.0% Lufthansa12.1% Panalpina World Transport

Owner of…34.88% Cargolux

Major partnershipsVarious agreements with: Air France,Austrian and Lufthansa.


€ mill 2003 2002Turnover 289.1 302.0Operating profit/loss (4.1) 13.3Net profit/loss 3.6 29.6

Review of 2003

Despite the difficult economic context, Luxair stilltransported nearly 1.1 million passengers in 2003,representing a decline of some 8% over 2002. Thefinancial result is nevertheless expected to be positive.Tour operators Luxair Tours and Happy Summer, whichbelong to the Luxair Group, also performed well despitestrong competition, as did the Luxair-owned CargoCenter.

The works for the construction of a new Terminal atLuxembourg airport started in 2003, to be completed bythe end of 2005.

In the network, the Summer timetable saw the resumptionof flights to Athens which will be operated year-round. InMay Luxair launched charter services to Dubrovnik for itstour operating subsidiary Luxair Tours.

Daily flights to Zurich and Budapest were added to theWinter timetable. In November 2003 Luxair made somechanges to its network by introducing 3 daily flights toLondon City Airport. This route was previously served incode-share with Belgium’s VLM Airlines. Luxair nowoperates this route with its own Fokker 50 aircraft. Luxairhas discontinued services to London Stansted Airport,while maintaining the flight to London Heathrow Airport.

In 2003 Luxair placed firm orders for three Boeing 737-700 aircraft, with one more on option. These aircraft willreplace the Boeing 737-400 and 737-500 which arecurrently being used for charter and scheduled Europeanflights. The extended range of the new Boeings will alsoallow Luxair to look into new possible destinations. Thefirst two aircraft will join the fleet in early 2004 while thedelivery of the third one is expected for February 2005.The new Boeings show the new Luxair logo and corporateidentity which will be introduced on the whole fleet andthroughout the Luxair group during 2004.

Christian HeinzmannPresident & CEO


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Malev Hungarian AirlinesKönyves K· lm· n krt. 12-141097 BudapestHungary

50 Scheduled Destinations1 within Hungary43 rest of Europe6 beyond Europe

2756 Employees

31 Aircraft in Fleet2 Boeing 767-2001 Boeing 737-8002 Boeing 737-7003 Boeing 737-6002 Boeing 737-5006 Boeing 737-4007 Boeing 737-3006 Fokker 702 Canadair CRJ-200

12 Aircraft on Order4 Boeing 737-8005 Boeing 737-7003 Boeing 737-600


Owned by…97.9% State privatisation and assets

handling company1.2% Municipalities0.9% Private shareholders and other

organisations

Owner of…100% Malev Express

Major partnershipsMarketing agreements with Air Europa,Balkan Air, KLM and Northwest Airlines.Various code-share agreements with: AirBosna, Air Europa, Aeroflot, Aerosvit Airlines(Ukraine), Air France, Alitalia, Austrian,Balkan Air, Bulgaria Air, City Air Germany,CSA, Finnair, KLM, LOT, Moldavian Airlines,Northwest Airlines and TAROM.

Financial ResultsHUF bn 2003 2002

Turnover 110.7 108.9Operating profit/loss (9.7) (4.3)Net profit/loss (13.5) (2.3)

Review of 2003

In May a new Board of Directors was elected with Mr.László Sándor as Chairman of the Board and ChiefExecutive Officer. In the same month Mr. András Hajdúresigned as Chief Commercial Officer and Mr. TamásMorvai as Chief Financial Officer. In June respectively Mr.Ervin Nemes and Mr. András Dunai were nominated tothese positions.

2003 presented a difficult operating environment, due tothe war in Iraq and SARS, and saw Malev embark on aProgram of Modernization of the Fleet and continue withthe restructuring of the company. The external factorscombined with the short-term losses associated with thetwo above mentioned programs led to the deterioration ofthe company’s operating result. Malev reported anoperating loss of HUF 9.7 billion (€38.5 million) in 2003,which is HUF 5 billion (€ 20 million) worse than theoperating result of 2002.

2003 saw the launch of preparations for Malev to join theSky Team alliance. Malev is expected to take upAssociate Membership in 2004.

In 2003 the Malev network was extended with 4 newdestinations. In April services to Pristina, in May to Splitand in July to Geneva and Krakow were launched. Thenew destinations have shown promising results.

In the Summer of 2003 a new strategy was elaboratedand accepted. Two CRJ-200 and 6 new generationBoeing aircraft joined the Malev fleet as part of the FleetModernization Program which will lead to a healthier coststructure.

László SándorChairman & CEO


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.itMeridiana S.p.ACentro DirezionaleAeroporto Costa Smeralda07026 Olbia (SS)Italy

28 Scheduled Destinations24 within Italy4 rest of Europe0 beyond Europe

1360 Employees

21 Aircraft in Fleet17 MD824 BAe 146-200

4 Aircraft on Order4 Airbus A319-100


Owned by…57.19% Interprogramme Holding SA17.59% Aga Khan SA16.08% Meridiana employees7.90% Financial institutions1.24% Others

Owner of…-

Major partnershipsCode-sharing with Alpi Eagles and KLM.



Review of 2003

In 2003 Meridiana embarked on a new business strategydesigned to counter the impact of no-frills carriersoperating in the region. The new strategy offers thestandard high-comfort service of a regular airline with areduced-fares structure, made possible by reorganisation,an extensive cost cutting plan, but also through thegradual establishment of multiple operating hubs.

By year-end Meridiana offered a network of destinations,operating from the four hubs of Olbia, Florence, Veronaand Catania. Although principally a domestic airline,Meridiana also offers four destinations outside its homecountry, to Amsterdam, Barcelona, London and Paris.

Looking ahead, Meridiana presented its 2004 businessplan which targets a 10% growth in passenger traffic. Thecompany is introducing further low cost flights, betweenRome airport Fiumicino to the Linate airport in Milan, andwith the Summer 2004 schedules new routes in thenetwork include Catania-Paris, Palermo-Paris, Florence-Madrid.

The company also plans to renew the fleet, starting withthe acquisition of four Airbus A319 aircraft in Spring 2004,to replace the BAe aircraft in the fleet, and thereplacement of its MD82s.

Giovanni SebastianiManaging Director & CEO


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omOlympic AirlinesAthens International AirportBldg 975th km Spata-Loutsa AvenueSpata 19019Greece

67 Scheduled Destinations35 within Greece22 rest of Europe10 beyond Europe

1126 Employees

38 Aircraft in Fleet2 Airbus A340-3002 Airbus A300-60016 Boeing 737-4001 Boeing 737-3007 ATR-726 ATR-424 deHavilland Dash-8

0 Aircraft on Order



Owner of…-

Major partnershipsCode-share agreements with: AeroSvit, AirMalta, CSA, Gulf Air, Kuwait Airways, TAP.


Turnover 816.3Operating profit/loss (105.8)Net profit/los 8.7)

Review of 2003

On 12th December 2003, after 46 years of continuousoperation, Olympic Airways was restructured andrenamed as Olympic Airlines.

The new company incorporates the total flight operationactivities of the former Olympic Airways Group (OlympicAirways, Olympic Aviation and Macedonian Airlines) withoperations adjusted to the needs of the internationalairline market and its competitors. It operates under thesame two-letter airline designator code : OA.

In 2003, Olympic carried in excess of 5 millionpassengers, serving 35 domestic and 32 internationaldestinations with a fleet of 38 aircraft.

In November 2003, a new code-share agreement withGulf Air gave the company the opportunity, as a marketingcarrier, to be present in Australia on a daily basis.

Olympic Airlines was officially appointed Grand NationalSponsor of the Athens Olympic Games 2004.

Petros PapageorgiouPresident

Leonard Odysseas VlamisCEO

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SAS Scandinavian AirlinesFrösundaviks Allé 119587 StockholmSweden

72 Scheduled Destinations26 within Scandinavia37 rest of Europe9 beyond Europe

22945 Employees*

174 Aircraft in Fleet7 Airbus A340-3003 Airbus A330-3008 Airbus A321-20020 Boeing 737-8006 Boeing 737-70030 Boeing 737-6008 MD90-3015 MD8734 MD8212 MD8124 deHavilland Q4007 Fokker 50

8 Aircraft on Order1 Airbus A330-3004 Airbus A321-2003 Boeing 737-800


Owned by…SAS AB, parent company of the SAS Group,is listed on the stock exchanges of Oslo,Stockholm and Copenhagen:50% State ownership40-45% Institutional investors5-10% Individual investors

Owner of…SAS AB is owner of:100% SAS Danmark A/S100% SAS Norge AS100% SAS Sverige AB100% Braathens (Norway)100% Blue1 (formerly Air Botnia)99.6% Widerøe’s Flyveselkap (Norway)95% Spanair49% Estonian Air47.2% airBaltic (Latvia)37.5% Air Greenland25% Skyways (Sweden)20% bmi

Major partnershipsMember of the Star Alliance.Agreements with Air China.

Financial Results*SEK mill 2003 2002

Turnover 50290 58565Operating profit/loss 1109 2880Net profit/loss** (1643) (689)

** before tax* Incl. all business units except airline holdings and hotels.

Review of 2003

Following the restructuring in 2002, the SAS Group nowcomprises five business areas, including ‘ScandinavianAirlines’ (including SAS Commuter), member of AEA, and‘Subsidiary and Affiliated Airlines’. In August 2003Scandinavian Airlines reorganised its operations, leadingto the creation of autonomous business units(subsequently legal units) for its regional organisations,with bases in Copenhagen, Oslo and Stockholm, plus anintercontinental unit. This has been followed by thecreation of a single unit in Norway, with the integration ofBraathens and Scandinavian Airlines, under the nameSAS Braathens.

All information provided in this Yearbook refers to ScandinavianAirlines, except for ‘ownership’ which is that of the SAS Group.

Jørgen LindegaardPresident & CEO

SAS Group


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mSpanairEdificio SpanairApdo Correos 5008607611 Palma de MallorcaSpain

26 Scheduled Destinations17 within Spain8 rest of Europe1 beyond Europe

2904 Employees

53 Aircraft in Fleet5 Airbus A32111 Airbus A3204 Boeing 7171 MD8721 MD8311 MD82



Owned by…94.9% SAS Group5.1% Teinver

Owner of…18% AeBal

Major partnershipsMember of the Star Alliance.Various agreements with: AeBal, PGAPortugalia Airlines and with Star Alliancemembers.


Turnover 838.8 799.9Operating profit/loss 103.0 121.5Net profit/loss (4.9) (42.4)

Review of 2003

On 1st April 2003 Spanair joined the Star Alliance, whichalso includes United Airlines, Lufthansa and Spanair’sstake holder SAS.

By mid March Spanair, as the first carrier in Spain,introduced a simplified and transparent One-Way pricingsystem on Domestic routes.

In November Spanair received clearance from the USTransportation Department for code-share operations onUS-Spain routes with American carrier US Airways.

With effect from 1st April and Star Alliance membership,Spanair entered into a code-share agreement with Britishcarrier bmi, connecting points in Spain to Manchester,Glasgow, Edinburgh, Belfast and Dublin, via London.

For the Summer timetable Spanair introduced servicesfrom Madrid to Stockholm (Sweden) and Oslo (Norway).These flights come in addition to Madrid-Copenhagen,Barcelona-Stockholm and twice daily Barcelona-Copenhagen flights, and underline the importance of theNordic countries in the Spanair network.

In July and August, peak tourist season, Spanairintroduced an additional 211 flights from mainland Spainto the Spanish Balearic Islands (Mediterranean Sea) andCanary Islands (off the West coast of Africa) to meet highdemand.

Spanair celebrated the third anniversary of its ‘PunctualityGuarantee’ policy, by extending it to all scheduleddomestic routes with effect from 15 th January 2004. Theguarantee provides passengers with a free ticket if theaircraft doors close more than 15 minutes after scheduledue to airline-related delays.

Gonzalo Pascual AriasExecutive President &Chairman of the Board

Enrique MeliáCEO


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SN Brussels AirlinesDelta Air Transport nv/sa trading asSN Brussels AirlinesThe Corporate VillageDa Vinci laan 91930 ZaventemBelgium

52 Scheduled Destinations1 within Belgium36 rest of Europe15 beyond Europe

1977 Employees

37 Aircraft in Fleet3 Airbus A3303 Airbus A31912 Avro RJ10014 Avro RJ855 BAe 146

0 Aircraft on Order


Owned by…92% SN Air Holding8% SIC

Owner of…-

Major partnershipsVarious code-share agreements with Alitalia,American Airlines, British Airways, CroatiaAirlines, CSA, Cyprus Airways, Finnair,Hellas Jet, Iberia, Lithuanian Airlines, MaerskAir, Malev, Portugalia, Royal Air Maroc,SWISS, TAP, and Ukraine InternationalAirlines.


Turnover 533.5 464.9Operating profit/loss (17.6) (102.5)Net profit/loss 0.6 (36.8)

Review of 2003

SN Brussels Airlines was created in 2002, after thebankruptcy of Sabena, by 40 Belgian companies whofounded the SN Air Holding. The airline, 92 % owned bySN Air Holding, operates a fleet of 37 aircraft, connects itsBrussels homebase with Europe and operates longhaulservices to Africa.

In the network SN Brussels Airlines expanded its Africannetwork in 2003 (operated by Birdy Airlines on behalf ofSN Brussels Airlines), with the launch of services toCasablanca (Morocco) and Mombassa (Kenya) bringingthe offer on this continent to 15 destinations. SN is theonly European carrier on several African routes. At year-end SN Brussels also operated to 36 points in Europe.

At the end of the year SN Brussels Airlines and ThalysInternational signed a partnership which connects Parisand Brussels Airport by high speed train in under twohours.

Next to its own flight operations, SN Brussels Airlines hasdeveloped a strong code-share strategy. This strategywas further expanded in the course of 2003. Almost 10 %of SN passengers are transported thanks to theagreements with partner airlines. SN Brussels Airlinessigned new code-share agreements with several carriersin 2003, including Cyprus Airways to Paphos andLarnaca, Ukraine International to Kiev, Croatia Airlines toZagreb and Split, TAP Air Portugal to Lisbon andPortugalia to Oporto, Hellas Jet to Athens, British Airwaysto Southampton, Iberia to Barcelona and Madrid, Alitaliato Milan and Rome, and American Airlines to and beyondChicago.

The fleet saw the arrival of three 132-seater short/mediumhaul Airbus A319 aircraft, which entered into service atthe end of March 2003.

Rob KuijpersExecutive Chairman

Peter DaviesCEO


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mSwiss International Air Lines Ltd4002 BaselSwitzerland

72 Scheduled Destinations4 within Switzerland38 rest of Europe30 beyond Europe

8838 Employees

85 Aircraft in Fleet6 Airbus A3409 Airbus A3304 Airbus A32113 Airbus A320

(2 operated by Swiss Sun)7 Airbus A3195 MD1115 Avro RJ1004 Avro RJ8514 Embraer RJ-1456 Saab 20002 Saab 340 (operated by ECA)

37 Aircraft on Order6 Airbus A3401 Airbus A32015 Embraer RJ-19515 Embraer RJ-170


Owned by…64.1% Institutional investors20.4% Swiss Confederation12.2% Cantons and communities3.3% Private individuals

Owner of…99.9% Europe Continental Airways

(ECA) ‘Crossair Europe’

Major partnershipsCode-share agreements with Aer Lingus,American Airlines, British Airways, Finnair,Iberia, JAL and Qantas.

Financial ResultsCHF mill 2003 2002

Turnover 4109 4364Operating profit/loss (527) (859)Net profit/loss (705) (1018)

Review of 2003

In September SWISS accepted an invitation to join theOneworld partnership, including American Airlines andBritish Airways. However by mid-2004 the company hadreversed its decision to join the alliance.

In October SWISS and Oneworld airline British Airwaysentered into a strategic alliance. As part of the co-operation, the two airlines will code-share betweenSwitzerland (Zurich, Basel and Geneva) and Heathrow, tobe extended to all Switzerland-UK flights in 2004. Underthe agreement British Airways also agreed to a CHF 50million (€ 32 million) guarantee for SWISS.

In 2003 SWISS extended its code-share agreement withFinnair, and signed with Japan Airlines and Qantas,completing the carrier’s presence on five continents.

From 2003 SWISS charter operations are performedunder the designation Swiss Sun, using two A320s. Earlyin the year SWISS noted its intention to start-up a regionalsubsidiary ‘Swiss Express’, which was ultimatelyabandoned in favour of a new European fare system.

In 2003 Swiss International Air Lines took delivery of sixA340-300s on order, with another six on order. The 228-seat longhaul aircraft will replace the MD-11s in the fleet.SWISS reduced its order for Embraer 175 and 190 aircraftfrom 60 to 30. Overall the SWISS network and fleet havebeen resized, with capacity lowered by 15% and fleet sizereduced from 135 to 85 aircraft at year-end 2003 as partof an on-going company restructuring.

In early 2004 Christoph Franz was appointed President &CEO of SWISS, effective 1st July, following the departureof André Dosé.

Pieter BouwChairman of the Board

Christoph FranzPresident & CEO


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TAP Air PortugalApartado 501941704-801 LisbonPortugal

36 Scheduled Destinations7 within Portugal15 rest of Europe14 beyond Europe

8360 Employees

38 Aircraft in Fleet4 Airbus A340-3003 Airbus A321-2009 Airbus A320-20016 Airbus A319-1006 Airbus A310-300

0 Aircraft on Order



Owner of…51% YES Charter Airlines40% Air Sao Tome e Principe15% Air Macau (indirect participation

through a 20% stake held bySEAP holding company, in whichTAP holds 75%).

Major partnershipsVarious agreements with:bmi, Continental Airlines, Finnair, Iberia,LAM (Mozambique), Olympic Airlines, PGAPortugalia Airlines, SATA (Air Azores), SNBrussels Airlines, TACV-Transportes Aereosde Cabo Verde and Ukraine International.


Turnover 1144 1248Operating profit/loss 22 55Net profit/loss 19 (6)

Review of 2003

TAP entered 2003 with a cost savings programme, toachieve an additional cost reduction of 30 million, andfurther enhance the company’s efficiency and improve itsfinancial result. TAP, which is still 100% state-owned, isearmarked for privatisation, with its structural organisationas a holding – TAP, S.G.P.S. – as approved by thePortuguese Government in March 2003. As a first steptowards privatisation, a new Company – SPdH(Portuguese Handling Services) – was launched (startedfrom the former TAP Ground Handling Business Unit).SPdH started operations in October and has been put outto international tender, the process being due forcompletion in the first half of 2004.

In May TAP and Continental Airlines established acommercial co-operation agreement due to include code-sharing on the US to/from Portugal route and beyond.TAP also extended the reach of its code-share agreementwith bmi to several destinations in the UK, started a newcode-share operation with Iberia, which includes flightsto/from Portugal (Lisbon, Porto & Faro), to/from Madridand Barcelona as well as several destinations beyond thetwo Spanish cities, and launched a broader co-operationwith Portugalia (another Portuguese airline). TAP alsoentered into code-share with Deutsche Bahn (Germanrailways), including a number of destinations in Germanybeyond Frankfurt.

In the network, the company increased its operation toBrazil to 33 frequencies a week, thus reinforcing itspositioning as the leading European carrier in that market.

In 2003, TAP added and enhanced several servicefeatures, including the installation of new high-tech lie-flatseats on all wide-body aircraft (A310 & A340). Theinterruption of the Qualiflyer Programme brought thecreation of TAP’s own FFP and the return of itsReservations System to the Company‘s HQ.

Manuel Pinto BarbosaChairman

Fernando PintoCEO


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TAROM – Romanian Air TransportPloiesti Road 16.5 KmOtopeni International AirportBucharestRomania

36 Scheduled Destinations9 within Romania18 rest of Europe9 beyond Europe

2608 Employees

19 Aircraft in Fleet2 Airbus A310-3004 Boeing 737-7006 Boeing 737-3007 ATR 42-500

0 Aircraft on Order


Owned by…92.63% State ownership5.42% Romanian Air Traffic Services1.43% Muntenia (private financial

investment fund)0.52% Romanian Civil Aviation Authority

Owner of…-

Major partnershipsVarious code-share agreements with:Aeroflot, Air France, Alitalia, Austrian, CSA,Iberia, LOT, Malev and Syrian Arab Airlines.

Financial ResultsUS$ mill 2003* 2002

Turnover 226.5 202.6Operating profit/loss (5) (23.6)Net profit/loss (12.6) (23.1)

* estimate

Review of 2003

TAROM continued on its course of restructuring, aimed atreturning the company to profitability by 2005, at whichpoint the Romanian government, TAROM's majorityowner, is expected to privatise the carrier.

In 2003 the Romanian carrier underwent somemanagement changes. Alexandru Szlivka, appointedPresident & CEO in October 2002, left the company inFebruary and was succeeded by Ioan Lixandru, whohimself resigned in November. The position is currentlyheld by Mrs. Rodica Odobescu.

In June a new Departures Terminal at Bucharest -Otopeni International Airport became operational, for useby domestic flights operated by TAROM. The Romaniangovernment embarked on a feasibility study on setting upa new regional, primarily domestic, carrier for the country,which would work closely with, and act as a feeder forTAROM.

In the network, TAROM operates a predominatelyEuropean and Middle Eastern schedule. Longhauloperations to Beijing were dropped amidst the SARScrisis and with the cessation of New York, the carrierdiscontinued its last longhaul operation in November2003.

In June TAROM indicated it was considering ordering fourAirbus A318 aircraft, as part of a fleet restructuringprogram. In the narrow-body fleet TAROM operatesBoeing 737-300s and took delivery of a third of four 737-700s on order in 2003. With the introduction of AirbusTAROM will be operating a mixed type shorthaul fleet.The company’s only longhaul aircraft - two A310s - wereput up for sale.

Rodica OdobescuPresident & CEO


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Türk Hava Yollari A.O.Genel Müdürlük BinasiAtatürk Havalimani34830 YesilköyIstanbulTurkey

103 Scheduled Destinations27 within Turkey46 rest of Europe30 beyond Europe

10239 Employees

65 Aircraft in Fleet7 Airbus A340-3005 Airbus A310-30026 Boeing 737-8002 Boeing 737-50014 Boeing 737-4008 Avro RJ-1003 Avro RJ-70

0 Aircraft on Order


Owned by…98.17% State-owned Privatisation

Administration1.83% Private investors

Owner of…50% Sun Express

Major partnershipsCode-share with American Airlines.

Financial ResultsTRL tn 2003 2002


Review of 2003

In early 2003 Turkish Airlines saw changes at the top, withthe departure of both the President and the full Board, andthe arrival of Abdurrahman Gündogdu as new President &CEO.

Plans for the sale of Turkish Airlines, which is majoritystate-owned, are about to be launched, with the TurkishGovernment set to offer an initial 10-15% stake to thepublic in 2004. It is envisaged that the State will retain atleast a 51% shareholding in the company.

Turkish Airlines is expanding the scope of its domesticoperations, as part of a Government plan to increaseregional air services within the country which also saw theintroduction of new services from at least two, pendingapproval four, other Turkish airlines.

In the fleet, Turkish Airlines announced a renewalprogram and the intended acquisition of 19 new aircraft,types still to be decided. The A310s, Boeing 737-400 and-500s currently in the fleet will likely be replaced, as willthe Avro RJ-100s and -70s for which the lease contractswill not be renewed when they expire. The aim is toincrease the fleet size from its current 65 aircraft to 90-95aircraft by 2008, through combination of ownership andlease deals.

Abdurrahman GündogduPresident & CEO


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Virgin Atlantic AirwaysThe OfficeManor RoyalCrawley, West SussexRH10 9NUGreat Britain


6912 Employees

28 Aircraft in Fleet6 Airbus A340-6009 Airbus A340-30013 Boeing 747-400

10 Aircraft on Order6 Airbus A3804 Airbus A340-600


Owned by…49% Singapore Airlines

Owner of…-

Major partnershipsVarious agreements with: Air India, bmi,Continental Airlines, Malaysian AirlineSystem, Singapore Airlines.


£ mill 2003/042 2002/031

Turnover 1272 1401Operating profit/lossNet profit/loss* 20.9 15.7

* pre-tax1 FY ending 30th April 2003

2 Change of FY: 10 months to Feb. 2004

Review of 2003

In May 2003 Virgin Atlantic Airways became the thirty-firstmember airline of the AEA, and the third UK-based carrierto join the airline association.

In 2003 Virgin Atlantic expanded its code-shareagreement with Singapore Airlines to include SIA’sservices between Manchester and Singapore, in additionto Singapore-London services, and on transatlanticservices from Manchester to Orlando. SIA is 49% ownerof Virgin Atlantic Airways.

Early in 2003 Virgin Atlantic Airways introduced a newservice from London Gatwick to Port Harcourt in Nigeria,the first ever direct service between these two cities. Thiswas followed in May 2003 by a new service to Grenadaand Tobago in the Caribbean. In the autumn of 2003,Virgin Atlantic launched a new Upper Class Suite, thelargest fully flat bed in business class.

Foreseen for 2004 is the launch of services to Australia,made possible by the liberalisation of the air serviceagreements between Hong Kong and the UK.

Sir Richard BransonChairman

Steve RidgwayCEO


ASSOCIATION OF EUROPEAN AIRLINES V I - 1

CONTENTS


















KEY STATISTICS - TOTAL AEA

2003

%/pt %/pt %/pt

2002 DO EU ET

Passengers (000) 98 153.8 0.2 132 827.8 -1.7 230 981.7 -0.9

Passenger Kilometres (mill) 51 550.9 0.7 133 912.7 0.1 185 463.6 0.3

Share in Tot. Sched. AEA Traffic (%) 8.6 22.4 31.0

Seat Kilometres (mill) 77 584.6 -2.1 206 748.4 0.1 284 333.0 -0.5

Passenger Load Factor (%) 66.4 1.9 64.8 0.0 65.2 0.5

Total Freight Tonnes Carried (000) 197.3 -9.7 539.8 -4.4 737.2 -5.9

Total Freight Tonne-Kilometres (mill) 153.4 -7.9 713.0 -3.7 866.4 -4.5

% Freight on Passenger Services 79.8 85.3 84.3

Total Revenue Tonne-Kilometres (mill) 4 994.4 0.0 13 386.9 -0.5 18 381.3 -0.4

Available Tonne-Kilometres (mill) 8 530.2 -2.1 23 493.1 -1.5 32 023.3 -1.7

Overall Load Factor (%) 58.5 1.3 57.0 0.6 57.4 0.8

Average Seats per Aircraft 128 118 120

Average Stage Distance (km) 469 887 721

2003

%/pt %/pt %/pt

NF EM IE

Passengers (000) 3 103.2 9.4 5 361.9 2.5 141 292.9 -1.3

Passenger Kilometres (mill) 5 996.9 9.3 17 766.8 1.9 157 676.5 0.7

Share in Tot. Sched. AEA Traffic (%) 1.0 3.0 26.3

Seat Kilometres (mill) 9 174.7 14.9 25 565.1 -1.2 241 488.2 0.4

Passenger Load Factor (%) 65.4 -3.3 69.5 2.1 65.3 0.2

Total Freight Tonnes Carried (000) 52.4 2.0 200.0 0.0 792.2 -2.9

Total Freight Tonne-Kilometres (mill) 141.1 1.1 933.6 9.0 1 787.7 2.9

% Freight on Passenger Services 92.5 77.1 81.6

Total Revenue Tonne-Kilometres (mill) 710.0 6.3 2 669.7 3.6 16 766.6 0.4

Available Tonne-Kilometres (mill) 1 126.7 9.8 4 153.1 -1.8 28 773.0 -1.1

Overall Load Factor (%) 63.0 -2.1 64.3 3.3 58.3 0.9

Average Seats per Aircraft 157 195 124

Average Stage Distance (km) 1 686 2 663 943

Int'l Short/ Medium Haul

4 2 - 4

Europe - North Africa

3

SCHEDULED TRAFFIC BY ROUTE AREA & NON-SCHEDULED TRAFFIC

DomesticGeographical

EuropeTotal Europe

1 2 1 - 2

Europe - Middle East

VI - 2 ASSOCIATION OF EUROPEAN AIRLINES

%/pt %/pt %/pt %/pt

NA MA SA AF

24 991.7 4.3 5 778.5 5.5 3 271.0 11.8 6 786.1 1.4

170 587.8 4.1 44 027.1 5.7 27 933.6 11.7 45 011.3 2.2

28.5 7.4 4.7 7.5

214 331.4 4.6 55 413.0 4.6 33 993.1 3.4 60 435.8 4.8

79.6 -0.4 79.5 0.8 82.2 6.1 74.5 -1.9

1 331.6 4.0 151.8 -2.9 200.4 -1.2 379.6 8.2

9 295.4 1.3 1 279.0 -0.6 1 839.9 10.5 2 724.8 8.3

69.2 83.4 55.5 57.8

25 909.7 3.1 5 437.0 4.1 4 498.4 11.0 6 980.0 3.4

37 252.6 5.1 8 037.1 2.2 6 177.7 -1.2 10 230.6 3.1

69.6 -1.3 67.6 1.2 72.8 8.0 68.2 0.2

271 327 265 285

6 313 6 347 6 549 5 030

%/pt %/pt %/pt %/pt

AE IC TO CT

12 073.7 -4.5 53 199.2 2.3 292 646.0 -0.2 9 197.8 -3.9

101 410.9 -5.0 389 269.5 2.0 598 496.9 1.5 19 569.8 -6.3

16.9 65.0 100.0

132 169.5 -0.4 496 795.6 3.2 815 868.4 1.8 24 334.9 -6.0

76.7 -3.8 78.4 -0.9 73.4 -0.2 80.4 -0.2

1 656.9 7.1 3 720.8 5.2 4 710.4 3.0 41.8 -31.6

14 497.4 3.5 29 637.3 3.5 31 578.5 3.4 314.1 -62.3

35.5 51.4 53.3 19.9

24 444.9 -0.2 67 298.0 2.5 89 059.0 1.9 2 090.1 -11.0

33 215.3 3.3 94 954.5 3.6 132 257.6 2.1 2 980.9 -12.0

73.6 -2.6 70.9 -0.8 67.3 -0.1 70.1 0.8

283 281 189 170

6 566 6 159 1 237 1 720

6 75

North Atlantic Mid Atlantic South Atlantic

8

Europe - Far East/Australasia

Total Long Haul Total Scheduled Non-Scheduled

9 5 - 9 1 - 9

Europe - Sub Saharan Africa

ASSOCIATION OF EUROPEAN AIRLINES V I - 3

2003

(000) % rank (mill) % rank

Adria Airways 758.4 5.3 29 700.2 3.3 28

Aer Lingus

Air France 43 490.3 0.2 2 99 073.8 0.6 2

Air Malta 1 308.9 -6.4 23 2 173.7 -5.7 24

Alitalia 22 244.7 1.8 5 31 254.2 5.5 6

Austrian 6 895.1 -2.5 10 14 537.5 5.4 11

bmi 6 319.8 -7.1 11 4 335.6 -5.2 18

British Airways 34 815.4 2.4 3 100 425.7 1.3 1

Cargolux - - - - - -

Croatia Airlines 1 243.9 12.6 24 870.3 10.9 27

CSA 3 344.3 19.4 18 4 784.2 24.6 16

Cyprus Airways 1 694.2 3.2 22 3 352.1 2.3 20

Finnair 5 672.3 -2.8 12 8 653.3 2.3 13

Iberia 24 669.8 3.3 4 41 957.6 3.7 5

Icelandair 1 134.0 -5.4 25 2 999.8 -5.9 22

Jat Airways 1 011.2 2.4 26 1 041.5 7.1 26

KLM 18 719.2 -6.2 7 56 540.6 -4.5 4

LOT 3 252.2 12.4 19 5 433.8 5.2 15

Lufthansa 44 463.3 1.2 1 96 616.8 3.2 3

Luxair 819.8 -8.4 28 548.5 -5.0 29

Malev 2 260.8 7.7 21 3 316.3 7.8 21

Meridiana 3 775.0 13.6 17 2 561.7 13.9 23

Olympic Airlines 5 105.1 -8.3 15 6 083.6 -19.4 14

SN Brussels Airlines 2 904.1 24.0 20 3 958.3 51.9 19

SAS 20 456.5 -10.7 6 23 020.3 -4.8 9

Spanair 5 288.6 2.4 14 4 551.4 6.7 17

SWISS 10 686.0 -5.3 8 24 169.9 10.9 8

TAP Air Portugal 5 633.7 3.6 13 12 011.5 6.7 12

TAROM 975.1 6.0 27 1 546.2 -1.2 25

Turkish Airlines 9 852.4 -0.6 9 15 047.1 -4.3 10

Virgin Atlantic 3 851.7 1.1 16 26 931.4 -0.9 7

AEA 292 646.0 -0.2 598 496.9 1.5

TOTAL SCHEDULED

Passengers Passenger Kilometres


KEY STATISTICS - BY CARRIER

2003

(mill) % rank (%) pt rank

1 260.3 4.4 28 55.6 -0.6 28 Adria Airways

Aer Lingus

131 647.6 1.7 2 75.3 -0.8 4 Air France

3 225.7 -3.2 24 67.4 -1.8 17 Air Malta

43 564.5 4.5 6 71.7 0.7 8 Alitalia

20 386.6 4.2 11 71.3 0.8 12 Austrian

6 650.9 -9.0 18 65.2 2.6 20 bmi

137 843.3 1.2 1 72.9 0.1 6 British Airways

- - - - - - Cargolux

1 460.5 1.6 27 59.6 5.0 25 Croatia Airlines

6 622.2 21.6 19 72.2 1.7 7 CSA

4 735.5 5.7 21 70.8 -2.3 13 Cyprus Airways

13 815.2 6.8 13 62.6 -2.8 22 Finnair

55 926.2 1.0 5 75.0 1.9 5 Iberia

4 336.6 -2.0 22 69.2 -2.9 14 Icelandair

1 772.4 6.6 26 58.8 0.3 26 Jat Airways

72 409.6 -1.9 4 78.1 -2.1 1 KLM

7 592.2 2.0 15 71.6 2.1 9 LOT

124 166.0 2.2 3 77.8 0.7 2 Lufthansa

1 078.8 -0.1 29 50.8 -2.6 29 Luxair

4 813.1 -1.4 20 68.9 5.9 16 Malev

3 810.0 6.3 23 67.2 4.5 18 Meridiana

9 720.3 -14.8 14 62.6 -3.5 23 Olympic Airlines

6 887.6 27.1 17 57.5 9.4 27 SN Brussels Airlines

33 332.7 -2.2 9 69.1 -1.8 15 SAS

7 488.7 7.0 16 60.8 -0.1 24 Spanair

33 829.9 7.4 8 71.4 2.3 10 SWISS

16 836.5 3.9 12 71.3 1.8 11 TAP Air Portugal

2 403.3 -5.2 25 64.3 2.6 21 TAROM

22 646.0 -1.1 10 66.4 -2.2 19 Turkish Airlines

35 606.2 6.3 7 75.6 -5.5 3 Virgin Atlantic

815 868.4 1.8 73.4 -0.2 AEA

Available Seat Kilometres Passenger Load Factor

ASSOCIATION OF EUROPEAN AIRLINES VI - 5

2003

(000) % rank (mill) % rank

Adria Airways 3.9 -16.6 26 3.5 -21.7 27

Aer Lingus

Air France 659.1 1.8 2 4 874.5 0.3 2

Air Malta 8.8 8.5 23 13.8 1.7 23

Alitalia 201.2 -4.4 7 1 354.8 -2.5 6

Austrian 73.1 2.9 12 430.7 8.8 11

bmi 18.2 0.1 17 55.7 -3.2 19

British Airways 625.2 1.8 3 4 193.8 1.7 4

Cargolux 520.3 16.0 5 4 226.3 7.3 3

Croatia Airlines 3.9 -0.7 25 2.6 -2.5 28

CSA 17.8 21.8 18 36.2 32.6 21

Cyprus Airways 17.1 4.4 21 43.1 6.6 20

Finnair 54.3 12.9 13 255.4 18.7 13

Iberia 180.9 0.7 8 809.9 2.1 9

Icelandair 36.0 16.5 15 95.5 5.1 16

Jat Airways 3.6 -7.1 27 4.5 0.8 26

KLM 522.2 0.1 4 4 085.3 2.3 5

LOT 17.8 3.7 19 70.4 5.6 17

Lufthansa 1 021.3 -0.7 1 7 260.5 1.3 1

Luxair 0.3 21.8 30 0.2 30.9 30

Malev 9.8 -5.4 22 28.4 12.8 22

Meridiana 1.8 -14.7 29 1.1 -15.2 29

Olympic Airlines 28.8 -17.6 16 55.8 -30.1 18

SN Brussels Airlines 17.7 125.9 20 100.7 118.4 15

SAS 127.0 -1.7 10 723.6 3.2 10

Spanair 8.1 -1.7 24 10.6 -6.5 24

SWISS 224.9 13.7 6 1 247.6 21.4 7

TAP Air Portugal 48.4 -1.3 14 199.8 2.9 14

TAROM 3.1 -19.5 28 6.8 -19.0 25

Turkish Airlines 117.7 -0.8 11 368.9 -1.8 12

Virgin Atlantic 138.4 12.6 9 1 018.4 13.8 8

AEA 4 710.4 3.0 31 578.5 3.4

TOTAL SCHEDULED - Passenger & All-Cargo Services

Freight Tonnes Carried Freight Tonne-Kilometres


2003

(mill) % rank (mill) % rank

66.6 1.6 29 134.4 1.9 29 Adria Airways

Aer Lingus

13 811.1 -0.8 2 19 397.3 -0.2 3 Air France

208.9 0.7 25 357.0 -30.3 26 Air Malta

4 498.9 3.0 6 6 386.4 2.2 6 Alitalia

1 980.2 6.5 11 2 814.5 5.0 12 Austrian

417.6 -6.1 20 780.5 -11.1 18 bmi

13 277.4 1.4 3 21 196.9 1.3 2 British Airways

4 226.3 7.3 7 5 950.1 10.5 7 Cargolux

81.5 10.1 28 160.4 1.6 28 Croatia Airlines

471.1 24.9 17 735.5 22.5 20 CSA

348.2 2.9 22 569.4 7.1 23 Cyprus Airways

1 047.4 5.5 14 2 079.7 9.7 14 Finnair

4 632.0 3.3 5 7 798.5 1.6 5 Iberia

395.3 -2.3 21 612.0 -5.7 22 Icelandair

98.6 5.0 27 205.0 5.5 27 Jat Airways

9 955.2 -1.5 4 12 639.7 -1.3 4 KLM

607.8 4.6 16 1 002.7 2.6 16 LOT

17 199.7 2.4 1 23 664.8 2.8 1 Lufthansa

49.7 -5.1 30 102.7 -0.3 30 Luxair

290.4 -5.0 23 692.5 6.4 21 Malev

231.7 13.7 24 422.2 6.1 24 Meridiana

632.1 -20.8 15 1 281.9 -13.4 15 Olympic Airlines

456.9 62.7 18 811.2 13.7 17 SN Brussels Airlines

3 041.1 -2.9 10 4 533.9 -1.0 10 SAS

420.2 6.3 19 745.6 9.1 19 Spanair

3 687.7 14.2 8 5 826.3 11.1 8 SWISS

1 298.2 6.0 13 2 208.6 3.7 13 TAP Air Portugal

146.8 -2.6 26 393.6 -3.0 25 TAROM

1 930.3 -3.9 12 3 056.0 -2.4 11 Turkish Airlines

3 550.0 3.4 9 5 698.3 7.7 9 Virgin Atlantic

89 059.0 1.9 132 257.6 2.1 AEA

Available Tonne-KilometresRevenue Tonne-Kilometres


2003

(%) pt rank

Adria Airways 49.5 -0.2 25

Aer Lingus

Air France 71.2 -0.4 3

Air Malta 58.5 18.0 18

Alitalia 70.4 0.6 5

Austrian 70.4 1.0 6

bmi 53.5 2.8 22

British Airways 62.6 0.1 12

Cargolux 71.0 -2.1 4

Croatia Airlines 50.8 3.9 23

CSA 64.0 1.2 9

Cyprus Airways 61.2 -2.5 14

Finnair 50.4 -2.0 24

Iberia 59.4 1.0 16

Icelandair 64.6 2.2 8

Jat Airways 48.1 -0.2 28

KLM 78.8 -0.2 1

LOT 60.6 1.2 15

Lufthansa 72.7 -0.3 2

Luxair 48.4 -2.5 27

Malev 41.9 -5.0 29

Meridiana 54.9 3.7 21

Olympic Airlines 49.3 -4.6 26

SN Brussels Airlines 56.3 17.0 20

SAS 67.1 -1.3 7

Spanair 56.4 -1.5 19

SWISS 63.3 1.7 10

TAP Air Portugal 58.8 1.3 17

TAROM 37.3 0.1 30

Turkish Airlines 63.2 -1.0 11

Virgin Atlantic 62.3 -2.6 13

AEA 67.3 -0.1

TOTAL SCHEDULED - Passenger & All-Cargo Services

Overall Load Factor


WHAT DO WE MEAN BY … ?


MEMBERS OF THE AEA

JP Adria AirwaysEI Aer LingusAF Air FranceKM Air MaltaAZ AlitaliaOS AustrianBD bmiBA British AirwaysCV Cargolux Airlines InternationalOU Croatia AirlinesOK CSA Czech AirlinesCY Cyprus AirwaysAY FinnairIB IberiaFI IcelandairJU JAT AirwaysKL KLMLO LOT Polish AirlinesLH LufthansaLG LuxairMA Malev Hungarian AirlinesIG MeridianaOA Olympic AirlinesSK SASJK SpanairSN SN Brussles AirlinesLX SWISSTP TAP Air PortugalRO TAROMTK Turkish AirlinesVS Virgin Atlantic Airways

AREA/ROUTE DEFINITIONS

The data refer to the scheduled operations of AEAmember airlines, broken down between the followinggroups of routes. It should be noted that each route isallocated in its entirety to one region from station oforigin to final destination, except for the Atlantic wherefirst point of entry determines the route allocation.

Numbering corresponds to that found in the KeyStatistics section.

1. Domestic & Territorial: scheduled servicescommencing and terminating within the boundries of aState by an air carrier whose principal place ofbusiness is in that State, or on routes between a Stateand territories belonging to it, or between two suchterritories even tough a stage may cross internationalwaters or over the territory of another State and carryinternational traffic on intermediate stages. In the caseof multinational airlines owned by partner States, trafficwithin each partner State is reported as Domestic andall other traffic as international.

2. Geographical Europe: includes all scheduledinternational routes originating and terminating withinthe region comprising geographical Europe and

European Russia up to the Urals (longitude 55°E),including Iceland, Turkey, Azores, Canary Islands,Madeira and Cyprus.

1-2 Total Europe: the sum of Domestic & Territorialand cross-border Geographical Europe.

3. Europe-North Africa: scheduled services betweenEurope and Algeria, Egypt, Libya, Morocco, Sudan andTunisia.

4. Europe-Middle East: scheduled terminatingservices between Europe and Bahrain, Iran, Iraq,Israel, Jordan, Kuwait, Lebanon, Muscat, Oman, Qatar,Saudi Arabia, Syria, UAE, Republic of Yemen.

2-4 International Short/Medium Haul: the sum ofGeographical Europe, North Africa and Middle East.

5. North Atlantic: scheduled services between Europeand the Americas via gateways in Continental USA andCanada.

6. Mid Atlantic: scheduled services between Europeand the Americas via gateways in the Caribbean (plusBermuda), Central America or the South Americanmainland north of Brazil.

7. South Atlantic: scheduled services between Europeand the Americas via gateways in, or south of, Brazil.

8. Europe-Sub Saharan Africa: scheduled servicesbetween Europe and Africa, excluding those countriesclassed as North Africa (see above).

9. Europe-Far East and Australasia: scheduledservices between Europe and points east of the MiddleEast region, including trans-Polar and trans-Siberianflights.

5-9 Total Long-haul: the sum of North, Mid- and SouthAtlantic, Sub-Saharan Africa, Far East/Australasia and‘Other long-haul’ routes not covered above.

Total International: the sum of InternationalShort/Medium Haul and Total Long-haul.

1-9 Total Scheduled Traffic: the sum of InternationalShort/Medium Haul and Total Long-haul plus Domestic& Territorial.

Non-Scheduled: see below.

Systemwide: Total Scheduled and Non-Scheduledtraffic.

STATISTICAL DEFINITIONS

Reporting Methodology: For the statistical dataincluded in the data tables in this Yearbook, thereporting guideline applicable from 2001 data is as


follows: All operational and traffic items should bereported by the operating carrier, including thoseperformed by code-shared, franchised or pooledservices, blocked-off charter, blocked-spacearrangements, joint services and leased aircraftservices. In this context the term operating carrierrefers to the carrier whose flight number is being usedfor air traffic control purposes.

In terms of data coverage, airline mainline data mayalso include data for subsidiaries, franchisees ordaughter companies. For 2003 data, followingsubsidiaries and/or franchisees are reported to the AEAannual data collection by the participating airlines, inaddition to mainline data:

• Air France (AF): Brit Air, British European,Compagnie Corse Méditerranée (CCM), City Jet,Régional (merger of Regional Airlines, Flandre Airand Proteus).

• Alitalia (AZ): Alitalia Team (until Aug 2002) andAlitalia Express.

• Austrian Airlines Group (OS): Austrian AG, LaudaAir, Tyrolean Airways. Tyrolean Airways.

• British Airways (BA): BA CitiExpress [BrymonAirways, British Regional Airlines or BRAL (wef 1st

Apr 2002), Manx Airlines (wef 1st Sept 2002)] andCityFlyer Express (incorporated in BA mainline).

• bmi (BD): British Midland Regional.• Icelandair (FI): Icelandair Cargo, Icelandair Charter

& Lease.• Spanair (JK): AeBal (Aerolineas de Baleares).• KLM (KL): KLM CityHopper, KLM cityhopper uk.• Lufthansa (LH): Lufthansa Cargo, LH Regional

(Augsburg Airways, Contact Air, Eurowings, LHCitylLine, Air Dolomiti).

• LOT (LO): wetlease operations on Eurolot.• Malev (MA): Malev Express.• SAS (SK): Snowflake, SAS Commuter• SN Brussels Airlines (SN): wetlease operations on

Birdy.• SWISS (LX): Europe Continental Airways. (ECA).

Scheduled Services: Flights scheduled and performedfor remuneration according to a published timetable, orso regular or frequent as to constitute a recognisablysystematic series, which are open to direct booking bymembers of the public. Extra flights occasioned byoverflow traffic from scheduled flights and preparatoryrevenue flights on planned air services are alsoconsidered to be scheduled services.

Non-scheduled services: Are defined as ‘Non-scheduled services’: charter flights and special flightsperformed for remuneration on an irregular basis,including empty flights and blocked-off charters, otherthan those reported under scheduled services.Blocked-off charters: when the whole capacity of anaircraft is reserved for charter sale on flights publishedas scheduled but carried out as charter flights on thesame or similar routing and timetable.

Revenue Passengers Carried: A passenger forwhose transportation an air carrier receives commercialremuneration. This includes, for example, (i)passengers travelling under publicly availablepromotional offers (for example “two-for-one”) or loyaltyprogrammes (for example redemption of frequent flyerpoints); (ii) passengers travelling as compensation fordenied boarding; (iii) passengers travelling at corporatediscounts; (iv) passengers travelling on preferentialfares (government, seamen, military, youth, studentetc). Are excluded, for example, (i) persons travellingfree; (ii) persons travelling at a fare or discountavailable only to employees of air carriers or theiragents or only for travel on the business of the carriers;(iii) infants who do not occupy a seat.

Revenue Freight: All freight counted on a point-to-point basis (in metric tonnes) covered by air waybills forwhich remuneration is received. Freight carried ontrucking services is not included.

Distances: Airport-to-Airport great circle distances areused.

Revenue Passenger-Kilometres (RPK): One fare-paying passenger transported one kilometre. RPK'sare computed by multiplying the number of revenuepassengers by the kilometres they are flown.

Available Seat-Kilometres (ASK): The total number ofseats available for the transportation of revenuepassengers multiplied by the number of kilometreswhich those seats are flown.

Passenger Load Factor %: The percentage of seatingcapacity which is actually sold and utilised. Computedby dividing revenue passenger-kilometres flown byavailable seat-kilometres flown on revenue passengerservices.

Revenue Tonne-Kilometres (RTK): One tonne ofrevenue traffic transported one kilometre. Revenuetonne-kilometres are computed by multiplying metrictonnes of revenue traffic (passenger, freight and mail)by the kilometres which this traffic is flown. Passengertonne-kilometres are calculated using standard weights(including baggage) which may differ between airlinesand between domestic/short/long-haul.

Available Tonne-Kilometres (ATK): The total numberof metric tonnes available for the transportation ofpassengers, freight and mail multiplied by the numberof kilometres which this capacity is flown.

Overall Load Factor %: The percentage of totalcapacity available for passengers, freight and mailwhich is actually sold and utilised. Computed bydividing total revenue tonne-kilometres actually flownby total available tonne-kilometres.


Yield: The average amount of revenue received perrevenue tonne-kilometre. Passenger yield: passengerrevenue per RPK.

Unit Cost: The average operating cost incurred peravailable tonne-kilometre.

Operating Ratio: The relationship between operatingrevenues and operating expenses. The latter may beinclusive or exclusive of net interest.

Breakeven Load Factor: The load factor at whichoperating revenues will cover operating costs. Unitcost divided by yield.

AIR FREEDOM RIGHTS

1st freedom: to overfly one country en-route toanother.

2nd freedom: to make a technical stop in anothercountry.

3rd freedom: to carry passengers from the homecountry to another country.

4th freedom: to carry passengers to the home countryfrom another country.

5th freedom: to carry passengers between twocountries by an airline of a third on a route withorigin/destination in its home country.

6th freedom: to carry passengers between twocountries by an airline of a third on two routesconnecting in its home country.

7th freedom: to carry passengers between twocountries by an airline of a third on a route outside itshome country.

8th freedom or cabotage: to carry passengers withina country by an airline of another country on a routewith origin/destination in its home country.

9th freedom or Stand-Alone cabotage: to carrypassengers within a country by an airline of anothercountry.

True domestic: to carry passengers by an airline in itshome country.

ABBREVIATIONS

AAPA: Association of Asia Pacific Airlines, withheadquarters in Kuala Lumpur.

ATC: Air Traffic Control

CAA: Civil Aviation Authority.

CFMU: Central Flow Management Unit, of Eurocontrol.

CODA: Central Office for Delay Analysis.

DGCA: Directorate General of Civil Aviation.

ECAC: European Civil Aviation Conference, withheadquarters in Paris.

EIA: Energy Information Administration of the USgovernments’s Department of Energy.

EU: European Union: (from 1958) Belgium, France,Germany (west), Italy, Luxembourg, Netherlands, (from1973) Denmark, Ireland, United Kingdom, (from 1981),Greece, (from 1986) Portugal, Spain, (from 1995)Austria, Finland and Sweden, Cyprus, the CzechRepublic, Estonia, Hungary, Latvia, Lithuania, Malta,Poland, the Slovak Republic and Slovenia. (1st May2004) Membership of Bulgaria and Romania isexpected in 2007.

Eurocontrol: European Organisation for the Safety ofAir Navigation.

IACA: International Air Carrier Association: worldwidemembership of leisure (non-scheduled) air carriers.

IATA: International Air Transport Association, withheadqarters in Geneva and Montreal.

ICAO: International Civil Aviation Organisation, withheadquarters in Montreal, Canada.

OAG: Official Airline Guide, of the Reed Elsevier plcGroup.

OECD: Organisation for Economic Co-Operation &Development

DIRECTORATES GENERALOF THE EUROPEAN COMMISSION** valid until 1st November 2004

AgricultureCompetitionEconomic and Financial AffairsEducation and CultureEmployment and Social AffairsEnergy and Transport (DG Tren)EnterpriseEnvironmentFisheriesHealth and Consumer ProtectionInformation SocietyInternal MarketJoint Research CentreJustice and Home AffairsRegional PolicyResearchTaxation and Customs Union

01 Adria Airways - Founded in 1961. AEA member since 1995.

02 Aer Lingus - Founded in 1936. Logo dated 1940s. AEA member since 1956.

03 Air France - Founded in 1933. AEA member since 1954.

04 Air Malta - Founded in 1973. AEA member since 1988.

05 Alitalia - Founded in 1947. AEA member since 1955.

06 Austrian - Founded in 1957. AEA member since 1964.07 bmi - Founded in 1938, as Air Schools Ltd, later Derby Airways until renamed in 1964 as British Midland Airways. Logo dated 1960s. AEA member since 1993.

08 British Airways - Founded in 1935

British European Airways (BEA, logo dated 1940s) and British Overseas Airways Corporation (BOAC, logo dated 1930s), members since respectively 1954 and 1958, merged into British Airways in 1973.

09 Cargolux - Founded in 1970. AEA member since 1996.

10 Croatia Airlines - Founded in 1989. AEA member since 1998.

11 CSA Czech Airlines - Founded in 1923. AEA member since 1991.

12 Cyprus Airways - Founded in 1947. Logo dated 1960s. AEA member since 1992.

13 Finnair - Founded in 1923 as Aero o/y. Logo dated 1940s. AEA member since 1957.

14 Iberia - Founded in 1927. AEA member since 1956.

15 Icelandair - Founded in 1937. In 1973 Flugfélag Íslands and Loftleidir were merged and named Flugleidir, later renamed Icelandair. AEA member since 1957.

16 Jat Airways - Founded in 1927. AEA member since 1971.

17 KLM - Founded in 1919. AEA member since 1954.

18 LOT - Founded in 1929. AEA member since 2002.

19 Lufthansa - Founded in 1926. AEA member since 1955.

20 Luxair - Founded in 1948. Logo from 1960s. AEA member since 1981.

21 Malev - Founded in 1954. Logo dated 1990s. AEA member since 1987.

22 Meridiana - Founded in 1963 as Alisarda, renamed Meridiana in 1991. Logo dated 1990s. AEA member since 2002.

23 Olympic Airlines - Founded in 1957 as Olympic Airways. AEA member since 1960.

24 SAS - Founded in 1946. AEA member since 1954.

25 SN Brussels Airlines - Founded in 2002. AEA member since 2002.

26 Spanair - Founded in 1986. AEA member since 2000.

27 Swiss International Airlines - Founded in 2002. AEA member since 2002.

28 TAP - Founded in 1945. AEA member since 1961.

29 TAROM - Founded in 1954. AEA member since 2000.

30 Turkish Airlines - Founded in 1933. Logo from 1950s. AEA member since 1967.

31 Virgin Atlantic Airways - Founded in 1984. AEA member since 2003.

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Association of European AirlinesAvenue Louise 350

1050 Brussels, BelgiumTel. + 32 (0)2 639 89 89Fax + 32 (0)2 639 89 [email protected]

www.aea.be

Documents

Yearbook 2004 - AssaereoYearbook 2004 Association of European Airlines 50 years 1954-2004. Disclaimer Any views or opinions presented in this Yearbook are solely those of the AEA and