Global Industry Overview

Global Industry Overview
Kye Johanning Air Line Pilots Association, Intl. Utrecht, Kingdom of the Netherlands October 5, 2011

ALPA - Economic & Financial Analysis
Key Points 1H 2011 Industry impacted by natural disasters, political upheaval, an unstable economic environment and fuel price volatility 2H 2011 Increasing downside risks, but still a profitable year 2012 Profitable, but lower than 2011 October 5, 2011 ALPA - Economic & Financial Analysis

Global Economic Overview
ALPA - Economic & Financial Analysis

Global Growth Moderately Revised, Increased Risks More Apparent
World economic growth forecast revised to an estimated 4.0% in both 2011 and 2012 Global activity has weakened and become more uneven, consumer confidence has fallen sharply, and downside risks are growing Assumptions to growth forecast depend on several factors: European policymakers will be able to contain the euro area crisis U.S. policymakers can strike a balance between support for the economy and medium-term fiscal consolidation Volatility in global financial markets stabilizes Advanced economies facing anemic growth of only 1.6% in 2011 Shocks including the earthquake and tsunami in Japan and social unrest in some oil-producing countries, major financial turbulence in the euro area, and sell-off of risky assets in global markets all contribute to lower estimate for advanced economies Emerging economies projected to grow 6.4% growth in 2011 Economic growth remains robust, but concerns over inflation and overheated economies Source: IMF, Wall Street Journal, The Economist, OECD, IATA October 5, 2011 ALPA - Economic & Financial Analysis

Global Economic Recovery Slowing; Downside Risks Growing
Real GDP Growth and Forecasts (as of September) 2009 2010 2011P 2012P World -0.7% 5.1% 4.0% Advanced Economies -3.7% 3.1% 1.6% 1.9% Euro Area -4.3% 1.8% 1.1% Canada -2.8% 3.2% 2.1% United States -3.5% 3.0% 1.5% Japan -6.3% -0.5% 2.3% Emerging & Developing Economies 2.8% 7.3% 6.4% 6.1% Emerging Asia 7.2% 9.5% 8.2% 8.0% Sub-Saharan Africa 5.4% 5.2% 5.8% Commonwealth of Independent States -6.4% 4.6% 4.4% Middle East /North Africa 2.6% 3.6% Latin America -1.7% 4.5% Central & Eastern Europe -3.6% 4.3% 2.7% Source: IMF World Economic Outlook Update (September 20, 2011) Note: (P) Projected October 5, 2011 ALPA - Economic & Financial Analysis

Global Composite Leading Indicators Signal Widespread Slowdown in 2011
These are composite leading indicators and 100 is the long-term trend for each individual area. Thus, 100 for Brazil is not the same as 100 for the U.S. Therefore, the important thing here is the trend, not necessarily the actual number. Source: OECD October 5, 2011 ALPA - Economic & Financial Analysis

Current Airline Industry Trends & Performance
ALPA - Economic & Financial Analysis

Continued Passenger Demand Strength Buoys the Industry…But How Long Will It Last? Strong passenger demand, driven by economic optimism earlier in the year, will push revenues up by 9% YOY to $594 billion YTD capacity growth is outpacing demand – a troubling sign From January-July, total passenger traffic grew 6.4% and capacity grew 6.8% YOY, with international passenger traffic growing 7.8% and capacity growing 9.2% Meanwhile, from January-July, total cargo traffic grew 1.0% and capacity rose 5.6% YOY, with international cargo traffic growing 1.5% and capacity rising 7.3% Premium passenger traffic has increased 8.2% YOY, for January-July Premium & economy trends (after weakness at the end of 1Q and beginning of 2Q) rebounded to levels close to average growth trends for the past 20 years Global airlines to post $6.9b in net profits for 2011, down from $15.8b in 2010 as a result of economic uncertainty and volatile fuel Source: IATA “Financial Forecast “ (September 2011), Premium Traffic Monitor October 5, 2011 ALPA - Economic & Financial Analysis

World Traffic Growth, % Change YOY
Passenger Traffic Slows, But Remains Positive, While Cargo Traffic Declines World Traffic Growth, % Change YOY Cargo traffic trends declined, due to the end of the “restocking period” and recent declines in world trade Source: IATA Monthly Traffic Reports October 5, 2011 ALPA - Economic & Financial Analysis

Premium Volumes & Revenues Recover
Premium Ticket Volume & Revenue Growth Premium travel continues to rebound, but is still 6% below its pre-recession peak Source: IATA Premium Traffic Monitor October 5, 2011 ALPA - Economic & Financial Analysis

Global Passenger and Cargo Revenues Trends Shrink, But Remain in Positive Territory Breaks revenue improvement down between passenger and cargo Source: IATA “Financial Forecast” (September 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Jan-July 2011 Int’l Premium Traffic YOY % Change
Premium Traffic Improving in Most Regions, But Still Below Pre-Recession Highs Jan-July 2011 Int’l Premium Traffic YOY % Change 12.4% 8.8% 10.2% -9.1% 10.8% 2.9% 3.3% 7.6% -58.8% Premium travel is still 6% below its pre-recession peak, but economy travel is 6% above its previous high point. As of July, there was no sign yet of the deepening economic gloom discouraging air travel. 16.3% 14.7% 4.2% 15.4% 9.3% Total Int’l Premium Traffic: 8.2% Source: IATA Premium Traffic Monitor October 5, 2011 ALPA - Economic & Financial Analysis

2011 Expected to Yield Profitable Results, Despite Industry Challenges
Distribution Of Forecasted Global Net Profits of $6.9 Billion In 2011 Latin America $0.6 billion North America $1.5 billion Middle East $0.8 billion Africa to breakeven Europe $1.4 billion Asia-Pacific $2.5 billion Source: IATA “Financial Forecast” (September 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Industry Challenges ALPA - Economic & Financial Analysis

Economic Uncertainty Expected to Challenge Passenger Airlines in the Coming Months Passenger market is running on fumes of earlier economic optimism Strong passenger demand, driven by economic optimism from earlier this year, was met by increased capacity and intense aircraft utilization Premium travel remains strong, most likely due to travel plans made earlier in the year as well as travel budgets being set Fourth quarter and early 2012 may be the weakest time Weakness in 2H11, but tighter supply/demand conditions will help offset Economic challenges may catch up to premium travel and cause a slowdown in 4Q11/1Q12 Slippage in load factors expected in 2012, as traffic will struggle to match capacity Historically, the industry has lost money when GDP dips to 2% Strong passenger demand, driven by economic optimism from earlier this year, was met by increased capacity and intense aircraft utilization After shocks to demand, brought on by natural disasters and political turmoil, passenger load factors returned to 2010 highs These trends have limited the impact of economic uncertainty on 2011’s profitability, but will extend the period of weak profitability into 2012 Historically, the industry has lost money when GDP dips to 2% IATA’s current GDP estimates (2.5% growth in 2011 and 2.4% in 2012), put the industry on edge – any shock could potentially push the industry into the red October 5, 2011 ALPA - Economic & Financial Analysis

Passenger Load Factors Rise to 2010 Highs
Passenger Load Factor on Total Market Seasonally Adjusted Source: IATA “Air Transport Market Analysis” (July 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Total Passenger Growth by Region
Despite an Increasingly Gloomy Economic Outlook, Air Travel Continued to Expand at a Pace Close to Trend in July Total Passenger Growth by Region Passenger traffic up 5.9% in July. Strong domestic air travel in Brazil added to the leading international growth performance of airlines from Latin America in July. The total RPKs carried by these airlines rose 12.1% above a year earlier in July. However, weakness in Japan and sub-par growth in China offset strong Indian domestic growth and depressed the growth of total RPKs carried by airlines based in the Asia-Pacific region. North American airlines’ performance was also weakened by domestic markets, which represent two-thirds of total RPKs for these airlines. European airlines, with just 10% of their total RPKs coming from domestic markets, are benefiting from their stronger international performance. Source: IATA “Air Transport Market Analysis” (July 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Cargo Already Experiencing the Weight of Economic Challenges
Indicators show economic uncertainty looming International trade essentially stopped growing at the end of 2010 Business confidence in manufacturing (a leading indicator for premium travel) has steadily declined and now shows signs that growth is expected to plateau Air cargo seeing stagnation as a result of economic challenges Restocking cycle drove air cargo’s post-recession peak in May 2010 Since the end of the restocking period, shippers have used more ground transportation – causing a decline in air cargo demand Cargo load factors are still reasonable by historic standards, but have fallen 4 to 5 percentage points since 2010 Second leg of air cargo recovery is not expected until 2012 Cargo represents about 12% of airline revenues Cargo load factors are still reasonable by historic standards, but have fallen 4 to 5 percentage points since 2010 Growing passenger capacity over 2011 came with increased belly space for cargo, which pushed cargo load factors down Falling load factors will weaken supply/demand conditions and unit revenues, making it more difficult to weather volatile fuel October 5, 2011 ALPA - Economic & Financial Analysis

Cargo Load Factors Fall But Remain Historically Respectable
Freight Load Factor on Total Market Seasonally Adjusted Source: IATA “Air Transport Market Analysis” (July 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Total Freight Growth by Region
Airlines from Most Regions Have Experienced Weak Air Freight Businesses So Far This Year Total Freight Growth by Region During the first seven months of 2011 only airlines in the Latin American and Middle East regions have seen volumes grow at a high single figure pace Source: IATA “Air Transport Market Analysis” (July 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Volatile Fuel Still an Industry Challenge
Economic uncertainty led to a decrease from jet fuel’s 2011 highs On September 20, jet fuel prices ($123.73/bbl) decreased 12.7% from 2011’s high on April 8 ($141.75/bbl) Increasing crack spreads have stopped jet fuel from falling as much a crude oil From January 1 to September 20, crack spreads increased about 2.5 times From January 1 to September 20, NYMEX crude decreased 5.1% Brent has been more volatile due to North Sea supply and turmoil in MENA From January 1 to September 20, Brent increased 19.4%. But, as of September 20, Brent decreased 10.7% from 2011’s high Japan’s nuclear outages, geopolitical threats, and absence of Libyan oil could pressure the current trend of falling crude and jet fuel prices 2011 fuel costs to rise 27% YOY to $176b, about 30% of expenses Fuel hedging expected to delay the benefits of falling fuel prices, as 2012 industry fuel costs are expected to grow 14% YOY However, average jet fuel prices for September are still up about 42% YOY Prices have been volatile, swinging +/- 10% around the recent downward trend Source: IATA Airlines Financial Monitor, IATA “Financial Forecast” (September 2011), IATA Press Releases, EIA, NYMEX

Fuel & Revenue To Grow In 2011 & But, Unlike 2010, Fuel Prices Will Grow Faster +15% +9% +27% +6% +14% +11% (Numbers are year-over-year change) In 2010, revenue up 15%, fuel up 11% In 2011, revenue up 9%, fuel up 27% In 2012, revenue up 6%, fuel up 14% Source: IATA Industry Financial Forecast (September 2011) September 15, 2010 ALPA - Economic & Financial Analysis

From Jan. 1 to Sept. 20, Crude Oil Prices Fell 1.8%, While Jet Fuel Prices Rose 14.3% Jet fuel on Sept. 20 at $2.95/gallon Source: EIA, NYMEX October 5, 2011 ALPA - Economic & Financial Analysis

Higher Crack Spreads Have Stopped Jet Fuel Prices from Falling as Fast as Crude Oil From January 1 to September 20, crack spreads for Gulf Jet Fuel increased 84.7% and Gulf Jet Fuel prices increased 14.3% Source: Calculations based on NYMEX Crude Oil, Gulf Coast Jet Fuel (EIA) October 5, 2011 ALPA - Economic & Financial Analysis

Regional Focus ALPA - Economic & Financial Analysis

Gyrating Profit Forecasts Tell the Story of Uncertainty and Shocks
Can see how the 2011 forecast for industry has changed over time. Global profit forecast has gone from $5.3 to $9.1 to $8.6 to $4.0 to $6.9 Biggest improvement from beginning of year is for Europe Source: IATA, September 2011, CAPA October 5, 2011 ALPA - Economic & Financial Analysis

European Trends Slightly Up, But Comparisons to a Difficult 2010 Misleading European airlines now forecast profits of $1.4 billion, up from $500m earlier this year European airlines doing better than expected in recent months, despite weakening economy and being the source of global economic problems A weak Euro has stimulated more inbound travel and boosted exports Current improvement is not considered sustainable and 2012 profits forecasted to drop to only $300m Traffic up compared to depressed 2010 levels, expect some slowdown in months ahead Traffic was up nearly 10% in the first five months, while capacity grew 10.9% Capacity cuts have been announced for Lufthansa and Air Berlin, while IAG is studying reductions for the winter Air France expects its long haul capacity to be slightly less this winter than originally planned Profits profits at European airlines will also be impacted by the Emissions Trading Scheme (ETS) to be implemented in Jan 2012. Traffic growth skewed by YOY comparison due to volcanic ash effects last year. Stripping out effects of volcanic ash, traffic growth is more realistically 6% Source: AEA, IATA, Morgan Stanley, UBS, Wall Street Journal, Airline Business, ATW, Aviation Daily, ATI, BAA, ACI October 5, 2011 ALPA - Economic & Financial Analysis

North American 2011 Profitability Dependent on Interplay Between Fuel and Capacity North American airlines expect profits of $1.5 billion in 2011 and $1.2 billion in 2012 Renewed risks of recession as global economy softens Revenue levels will slow as output contracts Risks to profitability include rising fuel prices, capacity growth, and high unemployment rates Capacity discipline will be vital to profitability Thru July YTD, system passenger traffic was up 3.5% and capacity up 4.1% Revenue growth has subsided slightly in recent months, but the nine fare increases early in the year, coupled with a two week tax benefit (for most carriers), has helped offset the fuel increases earlier in the year Several carriers have again cut capacity for the 4th quarter and into 1Q2012 due to softening economic situation Softer revenue trends believed to be caused by weaker Consumer Confidence Int’l travel was up 6.0% thru July with an 8.6% capacity increase Sources: IATA, ATA, JP Morgan, UBS, Morgan Stanley, Bank of America, Barclays, CAPA October 5, 2011 ALPA - Economic & Financial Analysis

Asia Pacific Airlines Expected to Contribute 46% of the Total Industry Profits Asia Pacific airlines forecast $2.5b in profits for 2011, down from profits of $7.6b in 2010 2011 profitability to decrease due to higher fuel costs as well as inflation controlling measures in China which are owing trade and cargo demand Despite current challenges, optimism about future growth opportunities remains positive Growth to continue but seemingly at a slower pace Thru July, passenger traffic was up 4.1% YOY, with capacity jumping 6.8% Thru July, air freight markets were down 3.5% YOY and remain about 10% lower than pre-recession levels India's airlines reported continued strong domestic pax growth of 22.3% in Jul-2011, following on from an 18% expansion in 1H11 While India is now the 9th largest and fastest growing domestic market in the world, its carriers struggle financially Reasons for optimism - ambitious fleet expansion plans, as well as the establishment of int’l partnerships and JVs India - Since the start of the year, high fuel prices and fare discounting in the domestic market (led by Air India) have combined to weaken financial performance Sources: IATA, AAPA, Wall Street Journal, ATW, Airline Business, Reuters, AP, Air Transport Intelligence, International Business Times, Aviation Daily, BusinessWeek, Bloomberg Businessweek, CAPA October 5, 2011 ALPA - Economic & Financial Analysis

Latin America to Generate the Highest Profit Margin in 2011
Latin American carriers to post $600m in profits in 2011 and $500m in 2012 Net profit margin expected to be 3.5% in 2011, compared to 2.5% for global Demand growth to continue in Latin America, driven by economic activity, income growth, and less exposure to volatility Delta invests in Aeromexico – $65m for Board seat and 3.5% stake Aeromexico and Delta will expand existing codeshares to include all trans-border flights as well as some additional domestic and int’l flights Strong domestic air travel in Brazil Domestic passenger traffic up 18% on 11% additional capacity thru July Intense competition led to a sharp drop in yields in 2Q2011 LAN/TAM merger – Approval with conditions For LatAm market, thru July, traffic was up 5.3% YOY, on just 0.3% increase in capacity (figures are not adjusted for Mexicana’s exit, which would put increases even higher); load factors have jumped 3.6 percentage points to 75.6% Lan/Tam merger - 11 mitigation measures the TDLC is requiring include "exchanging four pairs of daily slots" at the Guarulhos int’l airport in Sao Paulo, Brazil with other "airlines that are interested in starting or increasing regular air transport service on the Santiago-Sao Paulo route Sources: ALTA, IATA “Financial Forecast”, CAPA, Bank of America, Airline Business October 5, 2011 ALPA - Economic & Financial Analysis

Mideast and African Markets to Grow in 2011, But Carriers Will Struggle With Unrest and Competition Middle East forecasts holding steady, still expecting to post profits of $700m in 2011 Traffic was up 8.3% thru July, while capacity was up 9.0% Traffic holding up better than expected in the aftermath of political unrest Some Middle East airlines will benefit from economic growth and a growing share in long-haul markets in 2011, while others are hurt by political unrest African Airlines expect to breakeven in 2011 Traffic levels were down during the summer, compared to a year-ago, when the World Cup boosted traffic results Thru July, total passenger traffic was slightly down compared to last year, with capacity up 2.5%. International passenger traffic was up 1.0%, with a 4.7% increase in capacity. Real opportunity for African airlines to grow the intra-African market Africa - Tourism and business traffic is down as foreign carriers have not brought back all their African capacity taken down during the conflict Sources: IATA “Financial Forecast”, IATA Traffic Releases, Yahoo Finance, CAPA, Airline Business, Arab Air Carriers Association, Wall street Journal October 5, 2011 ALPA - Economic & Financial Analysis

Global Alliances ALPA - Economic & Financial Analysis

Alliance Overview 2011 marks the 14th year of major global airline alliances Alliances comprise 63% of global airline traffic and roughly 55% of passengers travel on an alliance carrier Structure of alliances change as airlines move toward greater cooperation Expanding cooperation with ATIs and JVs Anti-trust immunity allows carriers to form joint ventures as well as coordinate schedules, pricing, yield management and other functions JVs allow carriers to gain merger-like benefits while keeping separate operations: revenue/profit sharing and cost cutting measures Due to ATIs and JVs, alliances become an alternative to cross-border mergers Consolidation trends impact alliance membership ATIs and JVs allow carriers to work around foreign ownership restrictions that hamper int’l mergers Source: Star, SkyTeam, oneworld , UBS Global Aviation October 5, 2011 ALPA - Economic & Financial Analysis

“Big 3” Alliances Continue to Expand Membership
Star Alliance SkyTeam oneworld Adria Airways Singapore Aegean Airlines South African Air Canada Spanair Air China Swiss Air New Zealand TAM All Nippon TAP Air Portugal Asiana Airlines Thai Airways Austrian Air Group Turkish Blue1 United Airways Bmi US Airways Brussels Airlines Ethiopian (2012) Continental Avianca-TACA (2012) Croatia Airlines Copa (2012) EgyptAir Shenzhen (2012) LOT Polish Lufthansa Air India (suspended) Scandinavian Aeroflot Aeromexico Air Europa Air France/KLM Alitalia China Airlines China Eastern China Southern CSA Czech Airlines Delta Kenya Airways Korean Air Tarom Vietnam Airlines Aerolineas Argentinas (2012) Garuda Indonesia (2012) Saudi Arabian (2012) Middle East Airlines American Airlines British Airways Cathay Pacific Click Mexicana Dragonair Finnair Iberia Japan Airlines LAN Airlines Malev Mexicana Qantas Royal Jordanian S7 Airlines Air Berlin (2012) Kingfisher Airlines (2012) Malaysia Airlines (2012) Unaligned News: Air India integration into Star suspended, now eyed by SkyTeam. Virgin Atlantic eyes alliance membership Note: Green indicates airlines that are possible future members/members elect. Source: Airline Business, Aviation Daily, ATW, Air Transport Intelligence News, Star Alliance, oneworld, SkyTeam October 5, 2011 ALPA - Economic & Financial Analysis

Alliance Financial Summary
Alliance Financials For Existing Members, 2010* Alliance Revenue ($M) Operating Profit ($M) Net Profit ($M) Star 174,368 10,108 6,839 SkyTeam 112,043 5,808 3,839 oneworld 91,933 5,576 2,022 Star – operating margin = 5.8%; pre-tax margin = 3.9% Sky – operating margin = 5.2%; pre-tax margin = 3.4% (not updated for China Air – would boost revenues to $116.4B) One – operating margin = 6.1%; pre-tax margin = 2.2% *Financial detail does not include future members Source: Airline Business (September 2011), Figures based on Airline Business World Airline Rankings October 5, 2011 ALPA - Economic & Financial Analysis

Alliances Comprised About 63% of Global Traffic in 2010
2010 World Share of Passenger Traffic (RPKs) *Adjusted For Future Confirmed Members Source: Airline Business (September 2011), Figures based on Airline Business World Airline Rankings October 5, 2011 ALPA - Economic & Financial Analysis

Aligned Carriers Accounted for 69% of Revenues in 2010
2010 World Share of Revenues *Adjusted For Future Confirmed Members Source: Airline Business (September 2011), Figures based on Airline Business World Airline Rankings October 5, 2011 ALPA - Economic & Financial Analysis

Alliances Carried About 55% of Global Passengers in 2010
2010 World Share of Passengers Carried *Adjusted For Future Confirmed Members Difference between Sky and Star RPKs – Sky behind by 4.5 pts. Rev – Sky behind by 9.0 pts. Pax – Sky behind by 0.7 pts. Source: Airline Business (September 2011), Figures based on Airline Business World Airline Rankings October 5, 2011 ALPA - Economic & Financial Analysis

Alliances Continue to Focus on Gaining Market Share in “White Spot” Areas
Alliance Current Capacity Market Share of Existing Members, By Route (Based on September 2011 data) Differences in 2011 (2010 in parenthesis): Europe-Asia – Sky is behind Star by 14.4 pts. (17.2) and ahead of oneworld by 2.5 pts. (0.3) North America-Asia – Sky is behind Star by 13.5 pts. (16.6) and behind oneworld by 1.6 pts. (3.0) Europe-North America – Sky is behind Star by 13.8 pts. (12.8) and ahead of oneworld by 6.3 pts. (7.0) North America-Latin America – Sky is behind oneworld by 17.3 pts. (25.4) and behind Star by 12.3 pts. (12.7) Source: Airline Business (September 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Global Alliance Anti-Trust Immunities and Joint Ventures
Trans-Atlantic Star (Approved) SkyTeam (Approved) oneworld (Approved) Continental, United, BMI, Air Canada, Austrian, Lufthansa, LOT, SAS, Swiss, TAP Air France/KLM, Alitalia, CSA Czech Airlines, Delta American, British Airways, Finnair, Iberia, Royal Jordanian Transatlantic JV: Air Canada, Lufthansa, United, Continental *Trans-border JV: planned for United and Air Canada, but recently blocked by Canadian regulators Air France, KLM, Delta and Alitalia American Airlines, British Airways and Iberia Trans-Pacific Star (Approved) Delta-Virgin Blue (Approved) oneworld United, Continental, ANA create transpacific JV Delta and Virgin Blue Group, joint services between U.S. and Australia American and JAL create transpacific JV (approved) *Air Canada aims to establish a JV with Asiana American aims to create joint business agreement with Qantas (DOT hasn’t ruled on it yet) October 5, 2011 ALPA - Economic & Financial Analysis

Largest Unaligned Carriers
Main Bases RPK (m) Revenue ($m) Emirates UAE 146,134 14,807 Southwest USA 125,604 12,104 Ryanair UK, Germany, Italy, Ireland, Spain 83,700 4,807 EasyJet UK, Germany, Italy, Spain 56,128 4,632 Qatar 55,139 5,381 jetBlue 45,511 3,779 Air Berlin Germany 45,254 4,915 Virgin Atlantic UK 38,158 4,171 Malaysia 37,838 4,237 Saudi Arabian Saudi Arabia 34,060 5,300 Etihad 33,400 2,951 Alaska 32,750 3,832 Hainan Airlines China 32,161 3,211 GOL Brazil 31,367 3,972 Jet Airways India 26,972 2,844 Virgin Australia Australia 26,895 2,625 Transaero Russia 26,293 1,999 EVA Taiwan 23,625 3,327 Includes airlines that are future members of alliances, but are currently not in any alliance Of the carriers listed here, Air Berlin and Malaysia are future oneworld; Saudi Arabian is future SkyTeam. October 5, 2011 ALPA - Economic & Financial Analysis

Air France-KLM & Delta Account for About 50% of SkyTeam’s Revenues
Source: Airline Business (September 2011), Figures based on Airline Business World Airline Rankings October 5, 2011 ALPA - Economic & Financial Analysis

Industry Outlook ALPA - Economic & Financial Analysis

Cautious in the Short-Term, Growth Expected in the Long-Term
Volatile fuel costs, political upheaval in the Middle East and North Africa, and unresolved government debt in many industrialized economies create risk of a renewed downturn Although global airline profitability is expected to decline from last year’s record levels, it’s expected to still remain positive Airlines will need to maintain a close vigilance on capacity, by being able to quickly react to short-term shocks to the industry Source: IATA, analyst reports October 5, 2011 ALPA - Economic & Financial Analysis

Industry Challenges Over the Last Decade
Limited Windows of Industry Profitability Profitability Weaker Profitability Profitability October 5, 2011 ALPA - Economic & Financial Analysis

Industry Expected To See Profits In 2011 and 2012 …
Global Industry Net Profits (Losses) 2000 Actual – 2012 Forecast Source: IATA “Financial Forecast” (September 2011) October 5, 2011 ALPA - Economic & Financial Analysis

…But Regions Will See Varying Degrees of Profitability
Source: IATA “Financial Forecast” (September 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Capacity Is Re-entering the Market and Is Forecasted to Outpace Demand in 2011 Increasing fuel prices have already caused some airlines to decrease capacity plans in 2H11 – continued pressure from volatile fuel could lead to additional capacity discipline Source: IATA “Financial Forecast” (September 2011) October 5, 2011 ALPA - Economic & Financial Analysis

Despite Current Caution, Long Term Growth Expected in the Global Airline Industry New business models and rapid growth in emerging markets should contribute to continued expansion in the global industry 3.3% worldwide GDP growth expected for the next 20 years Worldwide passenger traffic expected to grow 5.1% annually, with cargo traffic expected to grow 5.6% annually Over the next 20 years, 78% of demand for new airplanes will come from outside North America, with about 34% of deliveries going to the Asia Pacific region Fastest growing market will be for twin-aisle airplanes The single-aisle fleet is forecast to more than double and will be 70% of the total fleet by 2030 Growth in air cargo will retreat toward the long-term trend in 2011 Single-aisle fleet growth – will be 70% of total fleet by 2030 (is about 62% of total fleet currently); largely reflecting the rapid expansion of air services in Asia, the rise of intraregional air travel in emerging economies, and the growth and geographic expansion of the low-cost-carrier model Cargo growth will revert back to the long-term trend rates, as moderating economic growth, rising fuel prices and supply chain disruptions from the Japan earthquake work affect the industry Source: 2011 Boeing Market Forecast October 5, 2011 ALPA - Economic & Financial Analysis

Forecasted Annual Traffic Growth Rates From For Passenger & Cargo World Passenger Cargo 5.1% 5.6% Europe Passenger Cargo 4.3% 4.7% Russia & Central Asia Passenger Cargo 4.3% 5.4% North America Passenger Cargo 2.9% 4.8% Middle East Passenger Cargo 6.6% 6.2% Asia Pacific Passenger Cargo 6.7% 6.3% Africa Passenger Cargo 5.1% 5.2% Growth rates are slightly lower than they were in Boeing’s outlook Latin America Passenger Cargo 6.9% 6.1% Source: Boeing Current Market Outlook ( ) , 2011 October 5, 2011 ALPA - Economic & Financial Analysis

Needed for Fleet Growth and Retirements
Expanding Global Fleet Could Lead to a Pilot Shortage – Difficult to Substantiate Pilot Hiring for Needed for Fleet Growth and Retirements Total Pilots 460,000 Pilots Source: 2011 Boeing Market Forecast, October 5, 2011 ALPA - Economic & Financial Analysis

Are Airlines Better Able to Deal with Challenges in this Decade?
Seems like some lessons have been adopted Restructuring has taken place at many mature airlines Engaging in more strategic fuel hedging strategies Managing cash better, resulting in stronger liquidity balances Taking a more conservative approach to capacity growth Focusing more on alliances, anti-trust immunity, joint ventures, and, where possible, consolidation Fare competition has diminished What about management??? Professional managers???? A wide disparity among global carriers exists: Mature markets of Europe and North America Developing industry of the Middle East and Asia Still focusing more on short-term outlook and cost controls October 5, 2011 ALPA - Economic & Financial Analysis

Are Pilot Groups Better Able to Deal with Challenges in this Decade?
We would hope so – but we need to do more Challenges to industry and profession will continue Some are challenges that we can deal with in partnership with managements Others – we have to tackle on our own Need to continue to be proactive Strategic planning is essential Need to focus beyond just the CLA Stay informed on industry and company trends Work together to deal with the many challenges to our profession FAAC and IATA Vision 2050 Need to take a long-term view and stay unified Need to recognize that you are not competitors and thus, by working together, become true advocates of the pilot profession IATA put together a group of industry leaders to focus on the industry in 2050 and their report lacked mention of two significant things: safety and labor. We have to make ourselves relevant in the world arena. Future of Aviation Advisory Committee – U.S. committee on aviation – it was hard to get labor issues heard and appreciated. October 5, 2011 ALPA - Economic & Financial Analysis

Questions ALPA - Economic & Financial Analysis

Global Industry Overview

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