Presentation IACA Agm Dec 2 2009

“Setting the scene : the current crisis and beyond…”

A.T. Kearney introduction

December 2nd, 2009

Hugo Azerad

Principal, A.T. Kearney Paris

DRAFT

2A.T. Kearney 18/IACA 2009

Setting the scene…

Global Economic Environment

Aviation Industry Leisure Industry

Conjuncture

Rebound

3A.T. Kearney 18/IACA 2009

Global economy is witnessing one of the largest crises since 1929

Evolution of unemploymentUnemployment rate, in % of total labor force, 2000-2009

Evolution of stock performanceDow Jones, Euro Stoxx 50, by month, 2002-2009, index 100

 0 %

 2 %

 4 %

 6 %

 8 %

 10 %

 12 %

2004 2005 2006 2007 2008 2009

Japan

US

Germany

France

 0

 20

 40

 60

 80

 100

 120

 140

 160

Jan. 10Jan. 08Jan. 06Jan. 04Jan. 02

Euro Stoxx 50

Dow Jones

Sources: Press search, IMF, financial reports, A.T. Kearney analysis

GDP Growth in 2009

Russia

Japan

China

India

Brazil

France

USA

EU

Qatar

4A.T. Kearney 18/IACA 2009

For the airline industry, this is coupled with a dramatic recent surge in oil prices and airport / route charges

Sources: AEA, IATA, ICAO, broker reports, A.T. Kearney analysis

Evolution of Jet fuel pricesIn $/bbl, 2000-2009

 0

 10

 20

 30

 40

 50

 60

 70

 80

 90

 100

 110

 120

 130

Jan 08Jan 06Jan 04Jan 02Jan 00

Start of the 2008 crisis

2009

31,7 %

23,3 %

2003

18,2 %

10,7 %

Low Cost Carriers

Flag Carriers

Fuel as a % of total costsOn average; 2003; 2009

Costs per passengerIn $/passenger, 2003-2007

8,88,6

7,67,77,6

5,45,0

4,74,9

4,5

20072006200520042003

Route charges/pax

Landing and airport charges/pax

Oct 09

5A.T. Kearney 18/IACA 2009

The resulting deterioration in global travel demand has led to airline carriers reducing capacity and cutting fares

Global capacity and passenger revenues evolutionGrowth in scheduled ASK and in Passenger RPKs, in % change over year

Sources: IATA, SRS Analyser, A.T. Kearney analysis

- 15 %

- 10 %

- 5 %

 0 %

 5 %

 10 %

 15 %

RPKs

ASKs

- 15 %

- 10 %

- 5 %

 0 %

 5 %

 10 %

 15 %

- 15 %

- 10 %

- 5 %

 0 %

 5 %

 10 %

 15 %

% c

han

ge

ove

r ye

ar

Economy fares

Economy fares on international marketsIn % change over year, from September 2007 to March 2009

Jul07

Oct07

Jan 08

Apr08

Jul08

Oct08

Jan 09

Apr 09

Jul 09

Jul08

Oct08

Jan09

Mar09

6A.T. Kearney 18/IACA 2009

However, there are good long term prospects for the airline industry players...

Note: RPKs = Revenue passengers kilometres = number of passengers x route lengthSources: Airbus, IATA, LH, AT Kearney analysis

Worldwide passenger long term traffic evolutionWorld annual traffic, in trillions RPKs(1)

 0,0

 0,5

 1,0

 1,5

 2,0

 2,5

 3,0

 3,5

 4,0

 4,5

2003199719921987198219771972 2009

OilCrisis

OilCrisis

GulfCrisis

AsianCrisis

WTCAttack

SARS

6000

5000

4000

3000

2000

1000

0

-5 y -4 y -3 y -2 y -1 yCyclepeak

+1 y+2 y +3 y +5 y+4 y +6 y +7 y +8 y +9y

2008 peak

2000 peak

1990 peak

1979 peak

3 years oflow growth

4.7% pa

2000 trend

4.8% pa

1999 trend

5.4% pa

1980 trend

9.7% pa

1970 trend

IATA Forecast

Worldwide air traffic development after cyclic peaksIn billion PKT

 0,0

 0,5

 1,0

 1,5

 2,0

 2,5

 3,0

 3,5

 4,0

 4,5

2003199719921987198219771972 2009

Financial crisis

7A.T. Kearney 18/IACA 2009

… that will have the financial stability to overcome the crisis

Sources: IATA reports September 2009 , press search, A.T. Kearney analysis

Evolution of global airlines profitabilityOperating Profit in bn$, 2000-2009

Overview of airline failures since 2008

-3,9-3,8

19,7

15,0

4,33,3

-1,4

-4,8

-11,8

10,7

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

Non exhaustive

8A.T. Kearney 18/IACA 2009

Leisure / Economy

Jun SepJul Aug Jun SepJul Aug

4,42 m 6,11 m

Low Cost Carriers have proven to be more resistant to the global downturn

Sources: Press researchn Company data, A.T. Kearney analysis

Business / Premium

-5,3 %

-3,8 %-4,5 %

-7,0 %

-2,0 %

0,4 %0,3 %

-5,5 %

-1,7 %-1,7 %-1,2 %

-4,9 %

Jul Aug

JunJun SepJul Aug Sep

5,3 %4,7 %4,3 %

0,8 %

14,4 %15,9 %15,8 %

11,4 %

Jun SepJul Aug

Evolution of number of passengers(% change vs. same period in 2008)

6,23 m 5,07 m 2,9 m

9A.T. Kearney 18/IACA 2009

In prosperous times, Travel & Tourism demand has been outperforming global growth indicators

Compared evolution of GDP and Travel & Tourism Demand(1)

Growth in %;1989-2012f; in the European Union

- 5%

- 4%

- 3%

- 2%

- 1%

 0%

 1%

 2%

 3%

 4%

 5%

 6%

 7%

 8%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

GDP

Note ; (1)Travel & Tourism demand encompasses all components of Travel & Tourism consumption, investment, government spending and exportsSources: World Travel & Tourism Council, Oxford economics, EIU, Eurostat, A.T. Kearney analysis

Travel & Tourism demand

WTC Attack

SARSGlobal Financial

Crisis

?

10A.T. Kearney 18/IACA 2009

There is furthermore a strong unveiled potential and good long term prospects for global travel & tourism

Trips and real GDP per CapitaIn number of trips, in US$ per Capita, 2008

Sources: Airbus, IATA, PaxIS, Global Insight, European Travel Monitor, A.T. Kearney analysis

Trips per Capita

2008 Real GDP per Capita

Outbound travel expenditure per capitaIn % of GDP per capita, 2008

4%

3%

3%

1%

2%

2%

2%

2%

3%

3%

3%

3%

4%

4%

4%

5%

5%

6%

Italy

Finland

Netherlands

Belgium

Portugal

Germany

Czech Republic

Poland

Hungary

Norway

Estonia

UK

Ireland

Austria

Switzerland

Denmark

Spain

France

11A.T. Kearney 18/IACA 2009

Travel & tourism will however have to take into account the crisis-driven evolution of customers’ behavior

Holiday organizationIn % of respondents; Germany;2006-2009

Sources: World Travel Trends Report, European Travel Monitor, Reisemonitor 2009, ADAC, A.T. Kearney analysis

Holiday makers selecting lower-price destinationsIn % of respondents; Germany;

38%

35%

32%

200920082006

Savings on holiday budgetIn % of respondents; Europe; 2008

10%

15%

19%

26%

29%

Type of transportation

Timing of booking

Accommodation

Destination

Timing of holidays

32%30% 31%

30%

10%14% 11% 14%

Self

Organised

Complete

Package

Partial

Booking

2009

55%

2008

58%

2007

57%

2006

58%

12A.T. Kearney 18/IACA 2009

To overcome the crisis there is still potential to develop revenues with ancillary services…

 0 %  5 %  10 %  15 %  20 %

Alaska

Aer Lingus

United

Austrian

Korean

Alitalia

Emirates

SAS

Ryanair

Easyjet

Vueling

Allegiant

Air Deccan

Sky

Air Asia

West Jet

LTU

Norwegian

Spanair

Air Berlin

Frontier

Air Arabia

Spice Jet

Ancillary revenues for Airline CarriersIn % of total revenues, 2008

LCC

Legacy

Sources: Air Transport World, A.T. Kearney analysis

On-board Duty free

ILLUSTRATIVE

Checking Facility /Luggage

On-board Duty Free Shopping

On-board Food

In-flight Entertainment

13A.T. Kearney 18/IACA 2009

… and there is urgency to get to the next level in cost structure optimization

Source: A.T. Kearney analysis

Incre

as

ing

e

as

e o

f o

pti

miz

ati

on

im

ple

me

nta

tio

n

Airline Cost structure

Fuel

Airport charges

Route charges

Fleet rent

Crews

Maintenance

Handling

Catering

Bes

t p

rac

tice

s im

ple

me

nta

tio

n

Insource/outsource

Labor costs/ team structure

Service level

Route optimization

Airport management

Hedging

Pe

rfo

rma

nce m

an

ag

em

en

t Pu

rch

as

ing

op

tim

iza

tio

n

Consolidate suppliers / renegotiate

Redesign processes

Joint improvement process

Benefit sharing…

Purchasing Chess Board ®

A.T. Kearney value proposition for overcoming the crisis

Global Cost Benchmark for Airlines

GCBG l o b a l C o s t B e n c h m a r k i n g

Airlines cost structure optimization levers

14A.T. Kearney 18/IACA 2009

There are some macroeconomic signs of a potential recovery in 2010, but still much uncertainty…

- 40

- 35

- 30

- 25

- 20

- 15

- 10

- 5

 0

 5

 10

 15

 20

 25

Services Confidence

Industrial Confidence

September 2009

2006 2007 2008 2009

Start of the 2008 crisis

Sources: European Commission surveys, Eurostat, WTO barometer, A.T. Kearney analysis

Industrial and Services confidence indicators

Global Downturn (W)

Return to Normalcy (U)

Recovery scenarios

or ...

Tourism confidence indexTourism panel experts, 2008-2009

28%

27%

45%

9%

66%

10%

62%

42%

Worse

Better

Sep 08- Dec 08

Sep 09 - Dec 09

May 09 - Aug 09

Jan 09- Apr 09

15A.T. Kearney 18/IACA 2009

THANK YOU !

16A.T. Kearney 18/IACA 2009

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© A.T. Kearney S.A.S. 2009