PREPARED EXCLUSIVELY FOR DELTA AIRLINES BY

Delta Airlines in Africa PREPARED EXCLUSIVELY FOR DELTA AIRLINES BY

BACKGROUND Pliny the Elder, the great first century Roman philosopher is quoted as saying There is always something new out of Africa. That statement certainly holds true today. With over a billion people, Africa is the second most populous continent and, according to a McKinsey and Company report, Africa will boast the world s youngest and largest working age population by 2040. Africa s growth acceleration is widespread, with 27 of its 30 largest economies expanding more rapidly after 2000. All sectors contributed, including resources, finance, retail, agriculture, transportation and telecommunications. Natural resources directly accounted for just 24 percent of the continent s GDP growth from 2000 through 2008. A recent analysis by The Economist found that in the first decade of this century, six of the world s ten fastest growing economies were in Sub-Saharan Africa. Economists expect these trends to deepen, with some predicting 7 percent average growth for the continent over the next 20 years, which is more even than what is projected for China. Key to Africa s growth surge were improved political and macroeconomic stability and microeconomic reforms. Africa s rising demand for commodities is driving buyers around the world to pay dearly for the continent s natural riches and to forge new types of partnerships with resource producers. And Africa is gaining greater access to international capital; total foreign capital flows into Africa rose from $15 billion in 2000 to a peak of $87 billion in 2007. Africa s economic growth is creating substantial new business opportunities that are often overlooked by global companies. Recordable Media Group International (RMGI) projects that at least four groups of industriesconsumer-facing industries, agriculture, resources, and infrastructure-together could generate as much as $2.6 trillion in revenue annually by 2020, or $1 trillion more than today. McKinsey & Company estimates that in Africa there will be 128 million households with discretionary income by 2020 with $1.4 trillion in consumer spending by the same year. The current rate of return on foreign investment in Africa is higher than in any other developing region. Early entry into African economies provides opportunities to create markets, establish brands, shape industry structure, influence customer preferences, and establish long-term relationships. Business can help build the Africa of the future. Today, 40 percent of Africans live in urban areas, a portion close to China s and continuing to expand. The number of households with discretionary income is projected to rise by 50 percent over the next 10 years, reaching 128 million. By 2030, the continents top 18 cities could have a combined spending power of $1.3 trillion. These bullish economic trends have spawned tremendous growth in the corporate, retail and scholastic travel markets and carriers providing much needed service to the continent are the beneficiaries. African carriers were the only region to show an increase in air travel in 2010 with growth rates from October (12.6%) to November (16.4%), according to the International Air Transport Association (IATA). The region s carriers moved 11% more travellers in November than they did at the pre-recession peak in early 2008. At the international level, air travel is now 4% above the pre-recession peak of early 2008. All regions, except Africa, reported a slowing in year-on-year growth rates from October to November.

IATA said international scheduled traffic results for November showing 8.2% year-on-year passenger traffic growth and a 5.4% increase for freight. The passenger load factor for November averaged 75.6%, while the freight load factor stood at 55.2% for the month. November saw traffic growth slow from the 10% increase recorded in the passenger business and the 14.5% growth in freight in October. The slowdown in 2010 is partially skewed because of the exceptionally rapid rise in traffic volumes recorded during the fourth quarter of 2009. However, when viewed in absolute terms, air travel fell by 0.8% and, airfreight fell by 1.1% between October and November 2010. This slower growth does not necessarily signal a negative trend. Even with the decline in November, passenger and freight traffic are still expanding at annualized rates of between 5-6%, which is in line with the industry s historical growth trend. IATA added that of note was the expansion developing in a number of African travel markets in 2010. Increasing trade and investment links with Asia helped to boost the Africa to Far East market, with growth of 17% in premium travel during the year and 21% growth in economy travel. China has become a major investor in Angola, Uganda and South Africa. The Chinese are traveling to Africa in unprecedented numbers as they develop and build infrastructure in the hope of garnering control of the regions natural resources. This trend is expected to increase steadily over the next 20 years. Sino- African cooperation will ultimately require strong air service. Any carrier looking to generate strong market share internationally will have to address the need for service between Asian and Africa. Airport expansion and development is on the rise in Africa as well. Africa s airport hubs play a vital role in the global aviation sector as they connect America to Asia, and numerous passengers fly from Asia via Africa to get to North America. Johannesburg in the south, Cairo in the north, Lagos and Nairobi to the west and east are Africa s most important airport hubs in each region. The 10 busiest international airports in Africa are Johannesburg (South Africa), Cairo (Egypt), Cape Town (South Africa), Sharm el-sheikh (Egypt), Hurghada (Egypt), Mohammed V International (Morocco), Jomo Kenyatta (Kenya), Durban (South Africa), Murtala Mohammed (Nigeria), and Monastir (Tunisia). has does an internal analysis of its own account base. 21% of our accounts had African city pairs with passenger loads totaling more than 68,000 producing more than $210,000,000.00 in revenue. Johannesburg, Cape Town and Nairobi generated the highest traffic. Most of the companies we surveyed for this analysis were in the banking/ financial services, agricultural, insurance, pharmaceutical and contracting industries. Universities and colleges with medical schools also accounted for a significant number of passengers heading into the central African markets. Any major carrier looking to retain or generate hegemony as a global leader in international travel will certainly require a robust and aggressive strategy for penetrating the African market. is uniquely positioned to provide such a strategy and can be on hand to execute any tactical and operational initiatives for the region.

THE APPROACH Delta s approach to the Africa will require a twomarket approach: one for South Africa and one for the remainder of the continent. In both scenarios recommends a three-pronged strategy targeting separately the corporate, retail and scholastic markets. SOUTH AFRICA The 2010 World Cup was a game-changing event for the corporate and tourist markets in South Africa. The event drew nearly 310,000 foreign travelers and generated more than a half billion dollars for the local markets. The World Cup went a long way toward branding South Africa as a viable tourist and business destination. South Africa s Bureau for Economic Research raised its forecast for economic growth this year to 3.8 percent from 3.4 percent. Growth will probably reach 3.9 percent in 2012, according to the bureau. South Africa is the gateway for air travel in the Southern African region. The country is located on the most southerly tip of Africa, and is surrounded by the Indian Ocean to the east and the Atlantic Ocean to the west. It is and bordered to the north by Botswana, Mozambique, Namibia, Swaziland and Zimbabwe. South Africa has three capital cities; Bloemfontein capital of the judiciary, Pretoria administrative capital and Cape Town legislative capital, while Johannesburg and Durban are actually the largest cities. South Africa has airports in all of its major towns, each with an excellent infrastructure. The three main airports in South Africa are Johannesburg International Airport, Cape Town International Airport and Durban International Airport. South African airports handle flights by numerous international airlines from destinations throughout Europe, North America and other parts of the world. South Africa is a 12 hours and 12.5 hours direct flight from London to Cape Town and Johannesburg respectively. Johannesburg International Airport, also known as O.R. Tambo International Airport (ORTIA), is the major gateway to South Africa offering international arrivals and departures, domestic flights and connections to the rest of Africa. With over 50 airlines, the airport is the busiest hub in Africa and it handles 130,000 flights and over 20 million passengers annually. A good number of people from Asia and Australia fly through Johannesburg on their way to America. Located 22 km east of Johannesburg city center, Johannesburg International Airport has six terminals housed in one enormous airport building, with Terminal 1 and 2 being dedicated to international flights into South Africa. Terminal 3 handles South African Airways (SAA) and South African Express Airways domestic arrivals, and Terminal 4 handles non-saa domestic arrivals. Terminal 5 and 6 are for domestic departure and international departures respectively. Many flights to South Africa are also available direct to Cape Town International Airport, and a few direct cheap flights to South Africa are available to Durban International Airport. Cape Town International Airport is the second largest airport in South Africa, and is the gateway to the Western Cape. The airport handles over 6 million passengers annually, and is a major gateway for South Africa tourist traffic. It was until the mid-1990s

named DF Malan Airport after apartheid era Prime Minister Daniel François Malan. Cape Town International Airport, located 22km east of Cape Town s city center on the N2 highway has experienced massive expansion and renovation over the past decade and its modern design, clean and efficient interior and extensive facilities have earned it many awards. The airport offers direct flights to a number of destinations worldwide, including London, Frankfurt, Amsterdam, Buenos Aires and Windhoek. Domestic flights to Johannesburg, Durban, Port Elizabeth, East London and Bloemfontein also depart from Cape Town International Airport. Durban International Airport is, on the other hand, the gateway to the alluring beaches of Durban and the surrounding areas. During the festive and holiday seasons, local and foreign tourists flock to the beaches of Durban and surrounding destinations. Durban airport is located 16 km from Durban city center and it serves about 2.5 million passengers annually. There are several low cost airline companies in South Africa operating regionally to countries such as Botswana, Namibia, Zambia, and Madagascar. There are also many charter flight companies operating within South Africa offering cheap flights for private trips, Africa game viewing and to the numerous South Africa safari and game lodges. Most of the major international airlines offer flights to South Africa terminating at Johannesburg International Airport and Cape Town International Airport; domestic carriers connect to other cities of South Africa. Some of the major airlines currently offering flights to South Africa are Air France, American Airlines, British Airways, Delta, Emirates, Kenya Airways, KLM, South African Airways and Virgin Atlantic among many others. The chief tourist destinations in South Africa are the Cape Winelands, the Table Mountain, Durban, and Gauteng among other South Africa safari destinations. South Africa Tourism Board will be organizing the annual trade show INDABA this year from May 6-11 at Durban s Albert Luthuli Convention Centre. As per the release, the trade show will pay tribute to the role played by the South African tourism industry in achieving 15.1 per cent growth and an all-time high of over eight million tourists in 2010. The theme of the event is Playing Globally, Winning Locally. More than 13,000 visitors, 1,300 exhibitors, over 170 international hosted buyers and hundreds of local and international media are expected to attend the event this year. strongly recommends that we represent Delta at this conference. recommends that Delta expand service to Johannesburg and Cape Town departing out of JFK, MSP, DTW and STL. Increased routes from those departure points would enable Delta to capture the banks and financial service companies, agricultural, contracting, pharmaceutical, insurance companies and universities that are expanding travel to the regions. Likewise, these recommended route expansions would enable Delta to capture significant market share in the safari retail markets. There are presently more than 50 study abroad programs in South Africa servicing American colleges and universities. There are nearly as many European universities currently sending students to South Africa for long-term study and travel. These students represent the future of business and retail. Delta will need to develop and execute a targeted marketing program in order to procure this valuable business. can help.

CORPORATE With corporate travel on the rise in Africa and with increased travel between Asia and Africa, Delta would be well served developing additional routes that enable reach and expansion into the South African, Egyptian, Nigerian, Algerian, Moroccan, Angolan, Libyan, Sudanese, Tunisian, Kenyan, Tanzanian, Zambian, Liberian and Ugandan markets. (These markets are listed in order of importance in the corporate markets. Analysis is based on traffic, GDP, international investment and international development projects.) Wall Street is sending legions of executive every quarter to these growing markets. Likewise, has observed an significant increase in travel to these markets by agricultural, engineering, contracting and consulting firms based in the mid-west and Texas. Delta will need to provide meaningful and efficient service out of DFW, HOU, STL, SLC, MSP, and ORD in order to capture this business. RETAIL It was reported by the WTO that Africa received 36 million visitors in 2010 and is expected to attract 57 million visitors by 2020. Tourism is the only service where there is a positive balance of trade flowing from the developed world to third world countries. Specifically, tourism s economic activities effectively improve the livelihoods of the people through income generation, employment creation, improved infrastructure, increased standard of living and increased government revenue. The World Bank points out that even though Africa started from a lower base of investor arrivals, the continent now enjoys the highest growth rates of 7.2 per cent. As noted, even though Africa is relatively not known to the main generating markets in Europe, that is Spain, Germany, France, Holland, Sweden, Norway, U.S. etc., the UNWTO estimates that 45 million international tourists will visit African by the end of 2011. North Africa attracts 35 percent of the continent s traffic; Southern Africa 35 percent while East Africa receives 23 percent, West Africa attracts only 10 percent with Central Africa contending with three percent. The top tourist destinations in Africa, driven largely by the safari markets, were Kenya, Tanzania, South Africa and Zambia. There are presently over 500 registered tour operators managing retail travel in the safari excursion markets. recommends a concerted and targeted marketing program and newly developed partnerships among tour operators servicing Africa in order to capture this lucrative market. Delta will also need to develop additional routes into South Africa, Tanzania, Kenya and Zambia as well as Morocco and Egypt in order to gain hegemony in the African retail markets. SCHOLASTIC With more than 100 accredited study-aboard programs and scores of medical schools flocking to the continent to do research, Africa is one of the fastest growing destinations for scholastic travelers. recommends Delta increase routes to North Africa, South Africa and East Africa in order to capture this growing market. Likewise a targeted university and college program will be required to capture these customers. and develop and execute that sales and business development cycle.