The outlook for air transport markets and the industry

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

Airline cash flows down by Q3 but not bad

EBITDA as % revenues, seasonally adjusted 20 15 % revenues 10 5 0
Q3

Asia-Pacific airlines

US airlines European airlines

-5 2006

2007

2008

2009

2010

2011 Source: Bloomberg

Asset utilization underpinned profitability

Passenger load factor and aircraft utilization, seasonally adjusted 8.6 Average daily hours flown 8.5 8.4 8.3 8.2 8.1 8.0 7.9 7.8 7.7 7.6 2007 2008 2009 Single aisle aircraft utilization 2010 2011 Source: IATA 74% 73% 76% 75% 78% 77% % ASKs Passenger load factor 79% 80%

Fall of cargo: utilization hard to sustain

Total air travel and air freight volumes, seasonally adjusted 450 RPKs per month, billion 430 410 390 370 350 330 310 290 270 2007 2008 2009 2010 2011 Source: IATA FTKs RPKs FTKs per month, billion 16 15 14 13 12 11 17

Fragile EU foundation to air travel strength

Segment flow data, % growth year to September 15% 10% 5% 0% -5% Freight -10% -15% TransAtlantic Within Europe Europe-Asia TransPacific Within Asia Sources: IATA Passengers

International trade has stopped growing

Premium passengers and world trade growth 20 15 % change over year 10 5 0 -5 -10 -15 -20 -25 2008 2009 2010 2011 Premium passenger numbers International trade in goods

Sources: IATA, CPB Netherlands

Business confidence has slumped

Air freight and purchasing managers confidence (advanced 2 months) 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% 2008 2009 2010 2011 Sources: IATA, Haver Growth in air freight Growth in purchasing managers confidence

EU austerity budget measures increase

Change in non-interest Government deficit as a % of GDP 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 EU US OECD 2010 2011 2012

Airlines: slow or no growth markets in 2012

Growth in global air travel (RPK) and air freight (FTK) 40% 30% 20% 10% 0% -10% -20% -30% 2008 -10% 2009 2010 2011 2012 Source: IATA Air freight growth -5% 10% Air travel growth (right scale) 5% 15%

0%

Supply squeeze keeps fuel price relatively high

Brent oil price and world industrial production growth 140 130 120 US$ per barrel 110 100 90 80 70 60 50 40 2005 -15% 2006 2007 2008 2009 2010 2011 2012 Source: OECD -5% -10% 0% Industrial production growth (right scale) Oil price (left scale) 15% % change versus previous year 10% 5%

Airline profits forecast to fall further in 2012

Global commercial airline profitability 6.0 3.0 % revenues 0.0 -3.0 -6.0 -9.0 Net post tax losses (right scale) 2011F 2004 2003 2005 2006 2007 2008 2009 2012F 1999 2000 2001 2002 2010 EBIT margin (left scale) 20 15 10 5 0 -5 -10 -15 -20 -25 -30 US$ billion

Source: IATA

European airlines hit hardest in 2012

6% 5% 2010 4% % of revenue 3% 2% 1% 0% -1% Europe North America Asia Pacific Middle East Latin America 2011F 2012F Net post -tax profits as a % of revenues

Africa Source: IATA

Eurozone is still not out of trouble

10-year Government bond spreads over Germany, % points 6.0 5.0 4.0 3.0 2.0 1.0 0.0 -1.0 2008 France UK Sweden 2009 2010 2011 Italy Spain

Eurozone will need additional financing

Budget deficits and refinancing needs 600 500 billion 400 300 200 100 0 Budget deficit 2011 Italy & Spain Greece EFSF 'rescue fund' Sources: Bloomberg Refinancing need 2011

OECDs assessment of the downside risk

The OECD's assessment of the downside risk to GDP 10 2011 8 6 4 2 0 -2 -4 Eurozone US China World 2012 central forecast 2012 OECD scenario

Little chance of other markets escaping EU crisis

Passenger flows by major route area 140 Indexed to equal 100 in 2004 120 100 80 60 Great recession Volcanic ash cloud 9-11 dot.com bust SARS Europe-Asia Within Asia Within Europe N. Atlantic Pacific

40 2000

2002

2004

2006

2008

2010

OECD scenario would push airlines back into loss

6.0 3.0 % revenues 0.0 -3.0 -6.0 -9.0 Net post tax losses (right scale) 2004 2005 2006 2007 2008 1999 2000 2001 2002 2003 2009 Global commercial airline profitability EBIT margin (left scale) Central forecast 20 15 10 5 0 -5 Banking crisis scenario -10 -15 -20 -25 2011F 2010 2012F -30 US$ billion

Source: IATA