1. 1 Managing the Cargolux Network February 6, 2007 Propeller Club, Basel

2. 2 Contents  Cargolux  Airline & Cargo Specific Dynamics  Cargolux Network Management  Objectives  Resulting Characteristics  Conclusions

3. 3 Ownership structure 34.9 % Luxair 33.7 % SAir Lines 28.9 % Luxembourg Financial Institutions (BGL Investment Partners - BCEE SNCI) 2.5 % Others (including Lux-Avantage)

4. 4 USD million CAGR 18.6% Revenue 1 2004 and 2005 figures in new Lux GAAP standards 11

5. 5  2005/ 2004 Consolidated profit & loss account USD million Revenue EBITDA % of revenue EBIT % of revenue Net result % of revenue 2005 1,215.2 225.6 18.6% 128.7 10.6% 83.5 6.9% 2004 +19% -3% +7% 1,446.5 219.1 15.1% 137.5 9.5% 89.4 6.2%

6. 6 Cargolux destinations ** = in cooperation with Bluebird Cargo Komatsu Seoul Shanghai Taipei Singapore Kuala Lumpur Chennai Bangkok Hong Kong Karachi Baku Damascus Kuwait Abu Dhabi Dubai Sharjah Johannesburg Beirut Istanbul Accra Abidjan Luxembourg Prestwick New York Huntsville* Houston Guadalajara Mexico City Bogota Latacunga Sao Paulo Santiago Recife Calgary Seattle San Francisco Los Angeles AucklandMelbourne Maastricht Budapest Tehran* Nairobi Milan Curitiba Panama City* Kinshasa Fort-de-France* * = regular charter destinationAdditional destinations are served via interline and trucking Barcelona Lagos Lusaka Reykjavik** Chicago Helsinki N’Djamena Amman Doha Petrolina Dammam Beijing Xiamen Indianapolis

7. 7 Fleet & Investments  14 B747-400F’s  Launch customer (1993)  2 more on order (2007, 2008)  Launch customer of B747-8F  10 firm orders plus 10 options  First delivery in Fall of 2009  New hangar under construction  Operational early 2008

8. 8 Airline Specific Dynamics  High Fixed Costs per calendar period (aircraft depreciation/lease, salaries)  Aircraft (more than $150 million for a new B747-400F) is typically depreciated over 18 years)  High Fixed Costs per round-trip (aircraft depreciation/lease, salaries, fuel, landing, over-flying)  Global business  It does not mater whether one is China based or Europe based if it wants to fly between Europe and China  Constraints  Curfews – i.e. Luxembourg, aircraft utilization is constrained through 6 hour night curfew and possible penalties  Slots – parking positions, arrival and departure times are limited at many large airports (e.g. HKG, TPE, JFK)  Traffic rights - aviation is heavily regulated, in sharp contrast to ‘freedom of the seas’  Heavy and line maintenance – regular downtime on aircraft between day and several weeks depending on the type of check  Unforeseen delays – loading delays, strikes, breakdowns on aircraft can compromise utilization plan.

9. 9 It happens….

10. 10 Time again….

11. 11 Cargo Specific Dynamics  Cargo goes one-way  China-Europe is strong, whereas traffic is weak vice versa  Strong seasonality  In Q4, China market surges by typically 25-30%  Strong competition: cargo is more and more seen as ‘core business’ and a tool to develop an economy  Until early 90’s, cargo was a by-product for most carriers  It was dominated by Europeans (Lufthansa, KLM, Air France)  Since mid 90’s, there is a strong push coming from Asia (Singapore, Korean, China Airlines) ‘taking their share’  Cargo Airlines are seen as a tool to develop local infrastructure and trade (Emirates, Korean, Singapore)

12. 12 Hong Kong Air Cargo Terminal export and import 20052006 export import Source: HACTL

13. 13 Air Cargo Trade Flows in 2005 4 : 1 1 : 1 2.2 : 1 1.2 : 1 1 : 1.5 1.5 : 1 6.4 : 1 1 : 2.3 1.6 : 1 2.9 : 1 1 : 2 1 : 4.1 1 : 3.8 1 : 1.6 1 : 2.1 Explanation: e.g. US to South America, 1 : 2.1 – for every ton exported from USA, 2.1 tonnes are imported back via airfreight Selected Regional Markets, 2005 Export/Import Tonnage Ratio, Airfreight Only 1 : 3.4 Europe to East Africa 1 : 3.7 Europe to North Africa 1.7 : 1 Source: YDL 1.8 : 1

14. 14 Cargolux Network Management Objectives Main Objectives: 1.Maximize Operating Profit  Relentlessly select ‘best’ routes (revenues versus costs)  Maintain high aircraft utilization in order to spread fixed cost burden and to achieve variable contribution  Guarantee network interconnectivity (e.g. South America to Asia flights, US to Middle East)  Ensure flexibility [quick reaction speed to market changes and opportunities]. 2...but keep a close eye on Reducing Risk  Ensure flexibility [through use of external leased capacity with short term cancellation]  Focus on stability of revenues [add traffic stops even if impact on Operating Profit is at times close to ‘zero’].

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16. 16 Resulting characteristics of Cargolux network  Asia trade imbalance is “cured” via Middle East traffic stops  No daily departures and no fixed departure-time schedules  Good connectivity of North America flights to Middle East & Africa (ex Houston, Calgary) to counter imbalance on these routes  Maximum 5 th freedom traffic focus (i.e. MEX/JFK, MEL/AKL-LAX, SIN/MAA, HKG/HEL, HKG/BCN)  Relatively high amount of destinations across all continents, spreading risk both geopolitical and economical  Tackle peak-season requirements through wet-leasing

17. 17 Various Models Backup

18. 18 Various Models Backup

19. 19 Various Models Backup Multi-stop  Optimize load factor through extra stops  Aim for 5 th freedom traffic  Example: Cargolux Hub and Spoke  Fixed daily schedule  Hub is driving the system  Example: DHL, UPS, FedEx

20. 20 Overview Cargolux Network

21. 21 Results after direct operating costs (R1), results after indirect operating costs (R2) and overhead (R3) Determine the long term viability of a route or network Measuring Route Performance Source: Cargolux Sales and Marketing variable fixed All flights must cover direct operating costs in the short term to avoid burning cash. If a flight cannot cover indirect operating costs and overhead, then it either has a revenue or cost problem or both. Determine short term viability of a route FU

22. 22 Conclusions  Cargolux has a clearly defined network model balancing risk/return and will stick to it  Critical success factors:  Cost knowledge  Variable contribution approach (both per kg. as well as per flight); Network profitability sensitivity  Quick- and disciplined decision making  Team approach between commercial and operations (maintenance and flight operations)