Winning Strategies for African Airlines:

Winning Strategies for African Airlines: Aligning Governments with the Industry Agenda Thomas S. Windmuller Cairo, November 6, 2006

Air transport is critical to the global economy

Airlines are the US$450 billion heart of a value chain that supports US$2.9 trillion in economic activity

28 million jobs 471,000 jobs in Africa

Air transport is a critical industry Correct policy decisions essential for growth

Governments aligned with the industry agenda

We are an industry in crisis

We are an industry in crisis Since 9/11 airlines have lost over US$40 billion

We are an industry in crisis Since 9/11 airlines have lost over US$40 billion African carriers losing $800 billion in 2006; $900 million in 2007

We are an industry in crisis Change has never been more important

Airlines responded with efficiency Labour productivity increased 33%

Airlines responded with efficiency Sales/distribution costs dropped 10%

Airlines responded with efficiency Non-fuel unit costs reduced 13%

eaten by a rising fuel price

eaten by a rising fuel price 2001 fuel bill: US$43 billion 13% operating costs

eaten by a rising fuel price 2001 fuel bill: US$43 billion 13% operating costs 2006 fuel bill: US$115 billion 26% operating costs

eaten by a rising fuel price 2001 fuel bill: US$43 billion 13% operating costs 2006 fuel bill: US$115 billion 26% operating costs Increase from 2005 = US$24 billion

% sales US$ billion Moving back into profit as revenues boom 10.0 8.6 8.2 8.5 10 5.0 3.7 5 Operating margin (LHS) 1.9 0.0 0-1.7-5.0-10.0-7.6-3.2-5.6 Net losses (RHS) -5-10 -15.0-13.0-11.3 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006F 2007F -15 Source: ICAO / IATA AFRAA AGA 19 6 November 2006

One key uncertainty concerns oil prices $/b 100.0 Jet Fuel and Crude Oil Price ($/barrel) Jet fuel price 80.0 60.0 Crude oil price (Brent) 40.0 20.0 Jan03 May03 Sep03 Jan04 May04 Sep04 Jan05 May05 Sep05 Jan06 May06 Sep06 Source: Platts, RBS AFRAA AGA 20 6 November 2006

$ million % operating costs Fuel bills likely to remain high in 2007 140 000 120 000 100 000 Fuel bill, % opex 30 25 20 80 000 15 60 000 40 000 Fuel bill, $ million 10 20 000 5 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006F 2007F 0 Source: IATA AFRAA AGA 21 6 November 2006

Increase Safety Reduce airline costs Intelligent Regulation

Safety Fuel Efficiency Liberalization Security External Costs Training

Safety - our top priority 2005 accident rate was the lowest ever

Accident Rate Accident Rate Reduction 1.60 1.40 IATA Member Hull Loss Rate Industry Rate IATA Rate Trend Industry rate at 0.76 per million flights in 2005 1.20 1.00 0.80 0.60 0.40 0.70 1.07 0.76 1.06 0.97 0.70 0.75 0.68 0.57 0.76 IATA member accident rates 53% better than industry average at 0.35 per million flights 0.35 0.20 0.30 0.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Q3 2006 Estimate AFRAA AGA 25 6 November 2006

Accident Rate Target AFRAA AGA 26 6 November 2006

Regional Safety AFRAA AGA 27 6 November 2006

2004 Western-built Jet Hull Loss Rate by Region 0.29 1.3 0.52 5.2 5.3 0.94 Hull losses per million departures by region of operator, Western-built Jets 2004 World 0.78 AFRAA AGA 28 6 November 2006

2005 Western-built Jet Hull Loss Rate by Region North America 0.2 Europe North Asia 0.3 Mid-East/North Africa Asia-Pacific 3.8 Latin America/ 1.3 Caribbean 2.6 Africa 9.2 0.0 Hull losses per million departures for operators based in the IATA region, western-built jets 2005 World 0.76 AFRAA AGA 29 6 November 2006

2006 Western-built Jet Hull Loss Rate by Region (Q1-Q3) North America 0.58 Europe 0.84 North Asia 0.0 Mid-East/North Africa 0.0 Asia-Pacific Latin America/ 0.0 Caribbean 0.82 Africa 0.0 Hull losses per million departures for operators based in the IATA region, western-built jets - Projected 2006 Q1-Q3 World 0.53 AFRAA AGA 30 6 November 2006

2006 Western-built Jet Hull Loss Rate by Region (Q3 2006 & 10-Year Rate) North America 0.58 0.39 Latin America/ Caribbean 0.82 2.10 Europe 0.84 0.53 Mid-East/North Africa 0.0 2.29 Africa 0.0 9.65 Russia 2 HL 0 HL Asia-Pacific 0.0 1.17 North Asia 0.0 0.40 Hull losses per million departures for operators based in the IATA region, western-built jets - Projected 2006 Q1-Q3 AFRAA AGA 31 World 0.53 2006 rate (thru Q3) Rates 0.96 10 year rate 6 November 2006

Q3 2006 Hull Loss Rate by Region (All Aircraft Types) North America 1.9 Europe 1.5 Russia 5.9 North Asia 1.0 Mid-East/North Africa Asia-Pacific 6.5 Latin America/ 1.5 Caribbean 3.4 Africa 6.0 Hull losses per million departures for operators based in the IATA region, all aircraft types (eastern/western, jet and turboprop) - Projected 2006 Q1-Q3 World 2.1 AFRAA AGA 32 6 November 2006

Six-point Safety Programme AFRAA AGA 33 6 November 2006

The IATA Operational Safety Audit (IOSA) is at the core of our efforts to further improve safety

The IATA Operational Safety Audit (IOSA) is the 1 st global standard for airline safety management

The IATA Operational Safety Audit (IOSA) will be a condition of IATA membership from 2008

Number of IAR Requests Audits Completed & Saved As at October 31, 2006 400 350 300 250 200 150 100 50 0 Sep-03 Nov-03 Jan-04 Mar-04 May-04 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Completed Audits Registrations AFRAA AGA 37 6 November 2006

AFRAA AGA 38 6 November 2006

Partnership for Safety Systematic approach towards safety improvement

IATA s Partnership for Safety 17 IOSA Awareness Workshops 22 gap analyses

IATA s Partnership for Safety 17 IOSA awareness workshops 22 gap analyses Non-Member airline participation

IATA s Partnership for Safety

AFRAA AGA 43 6 November 2006

NO FLAGS OF CONVENIENCE AFRAA AGA 44 6 November 2006

The IATA Operational Safety Audit (IOSA) is at the core of our efforts to further improve safety Many governments are incorporating IOSA in their safety oversight

Many governments are incorporating IOSA in their safety oversight Egypt Madagascar South Africa Ghana Nigeria Ethiopia Kenya ACAC

All governments should incorporate IOSA in their safety oversight AOCs Foreign Operators Codeshares

All governments should incorporate IOSA in their safety oversight AOCs Foreign Operators Codeshares No cost for governments

Security is a top priority

We are a much more secure industry since 2001

01 The failure of BAA to handle capacity is not acceptable All airports must look at their contingency plans Ensure the goal is continued operations

02 We need standardisation and harmonisation Governments improved security after 2001 but missed the boat on harmonisation

03 Funding

03 Funding terrorism is a national security issue

03 Funding terrorism is a national security issue It is a government responsibility to protect its citizens and to pay the bill

03 Funding added measures since 2001 now cost airlines and passengers US$5.6 billion [a year]

we must also improve efficiency

Simplifying the Business

Simplifying the Business Make travel and shipping more convenient > Save US$6.5 billion

Simplifying the Business Bar coded boarding passes RFID for aviation E-freight 100% e-ticketing by 2007 Common use self-service kiosks > Save US$6.5 billion

AFRAA AGA 61 6 November 2006

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% ET progress by airlines September 2006 Global United States Europe North Asia The Americas Africa Asia Pacific MENA CIS Targets 40.0% 30.0% 20.0% 10.0% 0.0% 2004 2005 2006 AFRAA AGA 62 6 November 2006

African airlines issuing ET in BSPs 100.00 % 90.00 % 80.00 % 70.00 % 10 airlines with ET Nationwide Airlines SAA Air Austral 60.00 % 50.00 % 40.00 % Kenya Airways Air Namibia Ghana International Air Seychelles 30.00 % 20.00 % 10.00 % 0.00 % Sep- 05 Oct- 05 Nov- 05 Dec- 05 Jan- 06 Feb- 06 Mar- 06 Apr- 06 May- 06 Jun- 06 Jul- 06 Aug- 06 Sep- 06 Air Mauritius Precision Air Services Ethiopian Airlines and 31 airlines still to start ET AFRAA AGA 63 6 November 2006

AFRAA AGA 64 6 November 2006

AFRAA AGA 65 6 November 2006

Why is Interline ET difficult? With ET the systems do all the work Systems must be synchronised or the ET fails Each interline partnership is a separate task How to proceed faster Sign contracts for all IETs needed Use IATA MatchMaker and GBR Generator agent Pax Airline ET database Handlers Rely upon your System provider Partner airlines AFRAA AGA 66 6 November 2006

Why is Ground handling difficult? DCS system must be aligned with Airline s ETS But Ground Handlers often use other DCSs Airline must link its ETS to all the DCS systems they use This link is different according to the ET method Interactive mode Working Copy ETL Again give your System Provider the complete task Operating Carrier (ZZ) GH agreement (722h) AFRAA AGA 67 Ground Handler (XYZ) 6 November 2006

AFRAA AGA 68 6 November 2006

The Africa Challenge Can ET really work? No power/no telecoms Power/telecoms outages Completely manual stations AFRAA AGA 69 6 November 2006

The Africa Challenge Can ET really work? No power/no telecoms Power/telecoms outages Completely manual stations No more dependent with ET Use the PNL Have a contingency plan AFRAA AGA 70 6 November 2006

The Africa Challenge Can ET really work? No power/no telecoms Power/telecoms outages Completely manual stations No more dependent with ET Use the PNL Have a contingency plan No excuses - ET works everywhere AFRAA AGA 71 6 November 2006

Airlines are confident of ET Airlines with ET confident of reaching 100% In April they forecast Reaching 98% ET Having 2500 IET agreements Major airlines without ET say they too will make it But should they be so confident? AFRAA AGA 74 6 November 2006

Reality Check 65% ET (Sep) 30% of Interline coupons ET (Aug) 111 of 171 airlines w/o ET will issue ET Of 130 airlines with ET in Feb 2006 60 are increasing fast enough to exceed 99%, 29 are within 90-99%, 22 within 70-99% and 19 below 70% Will be well over 90% ET at end 2007 Time to stop paper or find alternative AFRAA AGA 75 6 November 2006

So what is IATA doing? Keep pressure to get to 100% Alerting CEOs to dangers Working with ET managers at airlines Warn of impact not having 100% ET on time Pressing Interline ET capability IET Workshops, MatchMaker, Super-Hub Capability, GBR Generator and examining a solution to the Residual (20%) Interline Problem Need cooperation of System Providers, GDSs, Ground Handlers to offer ET capability now Lobby Regulators to overcome ET hurdles Any other ideas? AFRAA AGA 76 6 November 2006

Fuel efficiency GO Teams Maximise fleet s fuel efficiency Flight operations Ground operations Engineering and maintenance AFRAA AGA 77 6 November 2006

Fuel efficiency GO Teams Maximise fleet s fuel efficiency Flight operations Ground operations Engineering and maintenance Savings of 3-8% of an airline s total fuel bill 4 African airlines completed 3 African airlines committed AFRAA AGA 78 6 November 2006

There is a role for Governments

Introducing new, shorter, direct routes ORAN UM998 Algiers MAIDUGURI NODJAMENA Red Carpet express North-South route saves the industry US$7.6 million total savings UM731 GBV RUDAS Pretoria

Supporting continuous descent approaches

Ensuring there is sufficient airport and airspace capacity

AFRAA AGA 83 6 November 2006

Airport and ATC Charges in Africa: Agenda for Change Meaningful consultation Non-discrimination Transparency Cost related charges Better Cost efficiency Global Press Briefing 84 14 December 2004

The Reality in Africa Global Press Briefing 85 14 December 2004

ANSPs $2,000 $1,500 European Average ASECNA African En-route Charges for a B767-600 $1,000 Nav Canada $500 $0 Sudan Nigeria European Avg. ASECNA South Africa Roberts Morocco Angola Algeria DR Congo Namibia Cape Verde Ghana Tunisia NavCanada Mauritius Botswana Libya Seychelles Kenya Egypt Zimbabwe Mozambique Uganda Somalia Tanzania Zambia Rwanda Ethopia Eriterea Malawi Djibouti Source Data: IATA En-route Charges Manual AFRAA AGA 86 6 November 2006

B747-400 Charges in USD Airports Benchmark of African Airports: Landing and Passenger Charges 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 WDH LOS, KAN, PHC, ABV EBB NBO JNB, DUR, CPT HRE DKR CMN, CAS KRT LUN MRU Algeria (All Apts) Source Data: IATA En-route Charges Manual AFRAA AGA 87 6 November 2006

The Reality in Africa Global Press Briefing 88 14 December 2004

Training AFRAA AGA 89 6 November 2006

International Airlines Training Fund AFRAA AGA 90 6 November 2006

International Airlines Training Fund 20 courses in 2006, including 17 safety-related Close partnership with AFRAA AFRAA AGA 91 6 November 2006

International Airlines Training Fund 20 courses in 2006, including 17 safety-related Close partnership with AFRAA 29 African airlines 429 airline staff trained, 63 on scholarships AFRAA AGA 92 6 November 2006

We need a vision for a liberalised industry

2003 ICAO Fifth Air Traffic Conference agreed to a vision of progressive liberalisation

The agreement was a landmark 2003 Air Traffic Conference 5 agreed to a vision of progressive liberalisation

but the results were few 2003 Air Traffic Conference 5 agreed to a vision of progressive liberalisation

Yamoussoukro Declaration

Air transport is stuck with a 60 year-old bilateral system

Wake up to

We are a mass transport for 2.2 billion passengers

It is a different world

It is a different world and the rules must change

Governments have an essential role Safety Security Regulating monopolies where markets don t work

Governments have an essential role Safety Security Regulating monopolies where markets don t work

We don t need governments to determine markets Passenger demand should decide

Airlines are businesses

Airlines are businesses But the flag on the aircraft tail is so heavy

Airlines are businesses But the flag on the aircraft tail is so heavy it is sinking the industry

Freedom to run our business like a business

Africa must accelerate liberalisation AFRAA AGA 110 6 November 2006

Only path to economic prosperity cxcxcxz AFRAA AGA 111 6 November 2006

Airlift strategy of South Africa AFRAA AGA 112 6 November 2006

Air transport is the most exciting industry in the world

African carriers have come a long way in difficult circumstances

We stand ready to assist you

AFRAA AGA 117 6 November 2006

Drive the pace of change AFRAA AGA 118 6 November 2006

We need your help

We need the leadership and support of you the CEO s AFRAA AGA 120 6 November 2006

Without your drive and direction There is little we can achieve

With your commitment there is little that can stop us

AFRAA AGA 123 6 November 2006