CAPA Aviation Market Outlook Big Picture Keynote CAPA Aviation Market Outlook Peter Harbison Executive Chairman, CAPA – Centre for Aviation Houston, 16/17 April 2018

Oil price/pax/fares index in 2017 145 140 135 130 125 120 115 Oil price/pax/fares index in 2017 10% 8% 6% 4% Airline operating profit (EBIT) 140 120 100 80 60 40 20 110 105 100 95 90 85 80 Passenger yield / Load Factor / Passenger growth $ Passenger growth Profit Load factor Average ticket price Oil barrel price Barrel price ($) $ January 2011 = Index 100 2017 was a fairytale year It was not a normal year 2011 2012 2013 2014 2015 2016 2017 Source: IATA Air Transport.

The growing impact of oil Source: oil-price.net Jet fuel prices have risen almost 50% since their 2017 lows Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth

International markets Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth

US-Asia Markets Route growth 2008-2018 46.2% 236.4% -1.0% 52.0% Carriers Routes Seats 2008 25 71 26.9m 2009 26 73 24.8m 2010 75 25.3m 2011 84 27.3m 2012 86 28.0m 2013 89 28.9m 2014 23 91 30.8m 2015 21 101 32.8m 2016 117 35.4m 2017 30 125 37.9m 2018 121 39.3m South Korea Carriers Routes Seats 2008 5 10 4.1m 2009 4.4m 2010 11 4.6m 2011 6 12 5.1m 2012 7 5.3m 2013 8 2014 5.6m 2015 13 5.8m 2016 5.9m 2017 6.3m 2018 6.2m China Carriers Routes Seats 2008 9 13 3.1m 2009 10 15 3.0m 2010 14 3.4m 2011 8 17 4.1m 2012 4.3m 2013 7 18 5.0m 2014 24 6.0m 2015 29 7.5m 2016 11 40 8.9m 2017 47 9.7m 2018 46 10.4m Japan Carriers Routes Seats 2008 13 22 11.9m 2009 12 10.6m 2010 24 10.5m 2011 11 27 10.8m 2012 33 11.3m 2013 10 35 12.0m 2014 31 11.4m 2015 9 11.1m 2016 2017 14 34 11.5m 2018 11.8m USA-Asia 46.2% USA-China 236.4% USA-Japan -1.0% USA-Korea 52.0% * Two way seats. Source: CAPA – Centre for Aviation & OAG.

US-Asia Markets Top 6 airlines (by seats), Apr-2018 Asia overall United Airlines – 5.6m Delta Air Lines – 3.6m Korean Air – 3.2m American – 2.7m Japan Airlines – 2.7m All Nippon – 2.6m China Air China – 2.1m United Airlines – 1.8m China Eastern – 1.6m Hainan Airways – 1.1m American – 1.1m Japan Japan Airlines – 2.7m All Nippon – 2.6m United Airlines – 2.0m Delta Air Lines – 1.9m American Airlines – 1.0m South Korea Korean Air – 3.0m Asiana Airlines – 1.8m Delta Air Lines – 0.6m American Airlines – 0.2m Singapore Airlines – 0.2m * Two way seats. Source: CAPA – Centre for Aviation & OAG.

US-Asia Markets Premium seats 2008-2018 Hong Kong 0.8m 17.9% 0.4% Singapore .09m 35.4% Hong Kong 0.5m 17.5% South Korea 13.3% Japan 1.5m 12.8% China 0.6m 17.8% India 0.2m 19.2% Taiwan 0.4m 14.1% Philippines .07m 15.2% US-Asia Markets Premium seats 2008-2018 2018 Premium Seats % of total % proportion change Singapore 0.1m 18.2% -17.2% Hong Kong 0.8m 17.9% 0.4% S Korea 1.1m 17.1% 3.8% Japan 2.0m 16.9% 4.1% China 1.6m 14.9% -2.9% India 0.2m 14.4% -4.8% Taiwan 0.4m 11.7% -2.4% Philippines .09m 10.0% -5.2% * Over 100,000 Premium Seats, Two way seats. Source: CAPA – Centre for Aviation & OAG.

US-Europe Markets Route growth 2008-2018 +27.4% 19.5% -0.4% 13.2% Airlines Routes Seats 2008 57 281 70.2m 2009 53 267 64.3m 2010 50 263 65.4m 2011 47 264 68.0m 2012 46 270 66.2m 2013 45 303 66.4m 2014 298 2015 315 74.1m 2016 352 79.4m 2017 390 84.0m 2018 52 442 89.4m France Airlines Routes Seats 2008 11 22 8.2m 2009 23 7.5m 2010 10 25 7.7m 2011 8.0m 2012 24 7.4m 2013 8 7.8m 2014 9 2015 8.4m 2016 8.8m 2017 27 9.1m 2018 12 32 9.8m Germany Carriers Routes Seats 2008 12 50 12.8m 2009 43 11.9m 2010 11 46 13.4m 2011 9 12.4m 2012 48 2013 8 47 12.3m 2014 49 12.6m 2015 53 12.5m 2016 58 13.2m 2017 66 13.5m 2018 7 60 12.7m U.K. Carriers Routes Seats 2008 22 64 23.4m 2009 15 56 21.1m 2010 48 20.6m 2011 14 51 21.9m 2012 54 22.2m 2013 12 53 2014 13 59 22.1m 2015 65 23.5m 2016 16 76 24.8m 2017 85 25.4m 2018 87 26.5m US-Europe +27.4% US-France 19.5% US-Germany -0.4% US-UK 13.2% * Two way seats. Source: CAPA – Centre for Aviation & OAG.

US-Europe Markets Top 6 airlines (seats) Europe overall Delta Air Lines – 11.4m United Airlines – 10.3m American – 9.6m British Airways – 9.3m Lufthansa – 7.5m Virgin Atlantic – 4.9m JVs DL/VA/AF – 20.7m BA/AA – 18.9m LH/UA – 17.8m France Air France – 4.4m Delta Air Lines – 2.2m American Airlines - 1.0m Norwegian AS - 0.8m United Airlines - 0.7m Germany Lufthansa – 7.5m United Airlines – 2.5m Delta Air Lines – 1.1m American Airlines - 0.7m Condor Fludgdienst - 0.4m United Kingdom British Airways – 9.2m Virgin Atlantic – 4.9m American Airlines – 4.2m United Airlines – 3.2m Delta Air Lines – 1.6m * Two way seats. Source: CAPA – Centre for Aviation & OAG.

US-Europe Markets Premium seats 2008-2018 2008 Premium Seats % Switzerland 449,733 21.3% Germany 2,300,662 18.0% U.K. 4,106,888 17.6% France 1,240,096 15.2% Denmark 106,692 14.4% Turkey 51,222 12.2% Belgium 237,218 14.8% Italy 403,448 10.2% 2018 Premium Seats % % proportion change Switzerland 580,260 19.4% -1.9% Germany 2,145,091 16.9% -1.1% U.K. 4,460,914 16.8% -0.8% France 1,338,371 13.6% -1.6% Denmark 173,332 13.1% -1.3% Turkey 294,586 12.5% 0.3% Belgium 146,905 12.1% -2.7% Italy 589,044 12.0% 1.8% * Over 100,000 Premium Seats, Two way seats. Source: CAPA – Centre for Aviation & OAG.

US-Latin America Markets Route growth 2008-2018 Latin America Carriers Routes Seats 2008 57 658 80.9m 2009 51 612 77.4m 2010 47 603 80.0m 2011 48 79.7m 2012 50 627 82.8m 2013 52 649 87.3m 2014 684 93.6m 2015 54 721 100.3m 2016 58 739 104.7m 2017 748 109.8m 2018 718 110.2m Dom. Rep. Carriers Routes Seats 2008 14 37 4.5m 2009 13 36 4.8m 2010 34 5.1m 2011 5.0m 2012 15 39 5.4m 2013 40 6.1m 2014 42 7.0m 2015 49 7.4m 2016 16 2017 11 7.6m 2018 7.8m Mexico Carriers Routes Seats 2008 21 235 25.4m 2009 20 206 23.0m 2010 19 204 23.4m 2011 201 23.6m 2012 2013 18 216 26.0m 2014 227 28.3m 2015 232 32.3m 2016 224 34.5m 2017 16 246 37.6m 2018 233 38.1m Puerto Rico Carriers Routes Seats 2008 9 30 9.4m 2009 10 27 8.5m 2010 8.7m 2011 2012 28 8.8m 2013 8.6m 2014 8 29 2015 2016 34 2017 32 2018 US-LATAM 49.7% US-Mexico 49.6% US-Puerto Rico -9.9% US-Dom. Rep. 71.4% * Two way seats. Source: CAPA – Centre for Aviation & OAG.

US-Latin America Markets The 6 top airlines (seats) Latin America American Airlines – 27.3m United Airlines – 15.0m Delta Air Lines – 13.5m JetBlue Airways – 12.7m Southwest Airlines – 5.8m Aeromexico – 5.0m Mexico American Airlines – 7.4m United Airlines – 7.0m Aeromexico – 5.0m Delta Air Lines – 4.4m Volaris – 3.8m Puerto Rico JetBlue Airways – 3.2m American Airlines – 1.7m Southwest Airlines – 1.1m Delta Airlines – .82m United Airlines – .76m Dominican Republic JetBlue Airways – 2.7m American Airlines – 1.7m Delta Air Lines – 1.6m United Airlines – .86m Southwest Airlines – .38m * Two way seats. Source: CAPA – Centre for Aviation & OAG.

US-Latin America Markets Premium seats 2008-2018 2008 Premium Seats % Brazil 582,745 16.5% Argentina 245,697 15.6% Chile 129,296 14.8% Peru 128,637 8.2% Panama 158,538 9.6% Guatemala 144,866 9.7% Haiti 134,925 12.0% Ecuador 121,158 10.7% 2018 Premium Seats % % proportion Change Brazil 763,821 11.9% -12.8% Argentina 306,556 13.6% -27.9% Chile 167,948 11.3% -23.6% Peru 237,054 11.0% 34.1% Panama 427,248 10.0% 4.2% Guatemala 137,668 9.3% -4.1% Haiti 155,928 9.2% -23.3% Ecuador 127,760 8.6% -19.6% * Includes Mexico. Two way seats. Source: CAPA – Centre for Aviation & OAG.

US Airports, post-consolidation Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth

US Airports (routes) 2008-2018 Winners …..& Losers CLE CVG LAS MEM AZA Routes in 2018 10 year change SFB Orlando Sanford 77 48 DAL Dallas Love Field 58 40 DFW Dallas Fort Worth 172 34 PIE Tampa St. Pete 57 32 AZA Phoenix Mesa 43 30 CLE CVG LAS MEM AZA …..& Losers DFW IFP DAL SFB Airport Routes in 2018 10 year change IFP Bullhead City 1 -71 CVG Cincinnati Nth KY 51 -67 MEM Memphis 33 -55 CLE Cleveland Hopkins 44 -47 LAS Las Vegas McCarran 115 -23 PIE Source: CAPA – Centre for Aviation & OAG.

US LCC Airports Domestic & International Domestic Carriers Routes Seats LAS Las Vegas 6 109 14.6m DEN Denver 95 12.1m MCO Orlando 5 74 11.1m BWI Baltimore 65 11.0m MDW Chicago Midway 1 66 10.6m Overall Carriers Routes Seats LAS Las Vegas 11 121 14.9m FLL Fort Lauderdale 9 122 13.6m MCO Orlando 98 12.7m DEN Denver 105 12.5m BWI Baltimore 6 75 11.4m MDW Chicago Midway 2 76 11.0m LAX Los Angeles 13 99 10.5m JFK New York JFK 10 86 9.8m BOS Boston 7 74 9.6m PHX Phoenix 5 60 8.4m International Carriers Routes Seats FLL Fort Lauderdale 7 49 4.1m JFK New York JFK 9 41 3.8m LAX Los Angeles 26 1.7m MCO Orlando 10 24 1.6m BOS Boston 4 19 0.8m * Two way seats. Source: CAPA – Centre for Aviation & OAG.

The rise of international LCCs Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth

US-Europe ULCC growth Route growth 2008-2018 3.3m 1.4m 1.3m .6m Carriers Routes Seats 2008 2 .006m 2009 1 .005m 2010 .002m 2011 4 .003m 2012 2013 41 .144m 2014 3 25 .933m 2015 31 1.39m 2016 6 46 2.32m 2017 72 4.34m 2018 8 130 6.94m United Kingdom Carriers Routes Seats 2008 1 1,816 2009 - 2010 2 1,752 2011 4 2,748 2012 2013 5 3,712 2014 8 113,779 2015 9 323,564 2016 12 683,409 2017 3 22 1,315,587 2018 1,829,457 Norwegian AS 3.3m WOW Air 1.4m Norwegian UK 1.3m Norwegian .6m * Two way seats. Source: CAPA – Centre for Aviation & OAG.

The inevitable advance of long haul low cost: IAG plans to buy Norwegian Financial Times 12-Apr-2018 Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth

The $$ value of a liberal aviation policy An Open Skies Case Study The $$ value of a liberal aviation policy Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth

China-Australia vs China-Canada Australia-China and Canada-China Seat growth 2008-2018 China-Australia vs China-Canada 29.2% Difference in 2018 10.5% capacity Difference in 2008 Australia-China introduce open skies Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth

How Open skies in one market makes $2.5 billion difference p.a. Australia has open skies: No entry/capacity limit 1.2 million tourists = $5 billion expenditure Canada has bilateral limits: Entry/capacity controls 600,000 tourists = $2.5 billion expenditure Net loss to the Canadian economy due to bilateral ASA restrictions: $2.5 billion per annum Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth

In Summary 2017 was a fairy tale year. There will never be another like it Fuel price rises are starting to impact prices and profits International market growth has developed a much greater bias towards price sensitive travellers As the percentage of premium seats decreases, it becomes harder to raise yields when costs rise Narrow body long haul operations are reshaping markets like the N Atlantic The expansion of long haul low cost operations is leading to airline groups embracing LCC subsidiaries Despite economic benefits, open skies policies are under threat Ten Year Growth AU = 469% growth CA = 371% growth US = 338% growth UK = 205% growth