AIR TRANSPORT MARKET ANALYSIS JULY 2011

AIR TRANSPORT MARKET ANALYSIS JULY 2011 KEY POINTS Despite an increasingly gloomy economic outlook, air travel continued to expand at a pace close to trend in July, to a level 5.9% higher than a year earlier. However, air freight markets stagnated as world trade stopped growing. Air freight volumes were 0.4% lower than a year ago in July; International markets remain stronger on average than domestic air transport markets. Air travel expanded by 7.3% in July on international markets, compared to growth of just 3.5% on domestic markets. The stagnation of air freight is apparent on both international and domestic markets; Performance continues to differ across international markets. One of the weakest regions was the Asia-Pacific, largely due to the situation in Japan. North n airlines also saw relatively weak growth in July. The strongest region continues to be Latin, where airlines continue to see double figure growth. Despite the crisis in some European economies, airlines from the region have experienced one of the strongest expansions. Domestic air travel markets show the biggest differences. Japan s domestic market is recovering slowly from the shock of the March earthquake and tsunami, but remained 16% lower than in February. China s market continued to go through a softer expansion phase, slowed by the impact of economic policies aimed at restraining inflation. By contrast the domestic markets in India and Brazil continue to expand fast, up 20.6% and 17.8% respectively in July. Monthly RPK (Billions) 430 410 390 370 350 RPK Total Air Freight and Passenger Volumes FTK 17 16 15 14 13 12 Monthly FTK (Billions) Index of business confidence 65 60 55 50 45 40 35 Worldwide growth in air travel and business confidence Growth in RPKs (right scale) Business confidence (left scale) 15% 5% -5% - % change over year 330 11 30-15% Our analysis suggests the expansion of air travel in Q2 and the start of Q3 was propelled by stronger economic growth and confidence at the start of the year. The recent fall in business and consumer confidence, the stagnation of international trade, and the still high level of the jet kerosene price, removes a lot of the positive support for air travel growth. We would expect to see air travel growth slowing in the next few months. Now that international trade has stopped growing a strong near term renewal in air freight growth seems unlikely.. Year on Year Comparison vs. July 2010 YTD 2011 vs. YTD 2010 RPK ASK PLF FTK AFTK FLF RPK ASK PLF FTK AFTK FLF International 7.3% 7.2% 83.1% -0.4% 4.6% 49.8% 7.8% 9.2% 77.1% 1.5% 7.3% 51.2% Domestic 3.5% 2.3% 82.9% -0.4% -0.2% 27.6% 4. 2.7% 78.9% -1.9% 0.1% 28. Total Market 5.9% 5.4% 83.1% -0.4% 3.6% 45. 6.4% 6.8% 77.7% 1. 5.6% 46.2% RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor; All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the specific month. IATA Economics www.iata.org/economics 1

Airlines have been keeping the expansion of seat capacity growing at a relatively steady pace throughout the past year. That led to load factors falling sharply when demand was hit by a number of shocks earlier this year. The stronger traffic seen during Q2 and July has allowed the average load factor on passenger markets to recover to its peak of Q3 last year; The picture differs on air freight markets. Growth in capacity coupled with stagnating air freight markets has led to a steady deterioration in the average air freight load factor, which has fallen 4 percentage points since early 2010 and is now back to the level prevailing before the recession. COMPARING JULY TO JUNE Month on Month Comparison vs. June 2011 RPK ASK PLF pt FTK AFTK FLF pt International 2. 0.6% 1.1% 0.6% 0.6% 0. Domestic 1.2% 0.4% 0.6% -0.1% 0.9% -0.3% Total Market 1.7% 0.6% 0.9% 0.5% 0.7% -0.1% Data are seasonally adjusted. All figures are expressed in % change month on month except, PLF pt and FLF pt which are the percentage point difference between load factors of two consecutive months. PASSENGER MARKET International Market The month-on-month comparison gives a similar broad picture to the year-on-year comparison shown on page 1, because there was no major disruption in July last year to distort the growth rates; The figures clearly show the relative strength of international air travel, the improvement in passenger load factors, the weakness of air freight demand and the deterioration of load factors in these markets. International Passenger Market International Passenger Growth by Region Monthly RPKs (Billion) 300 280 260 240 220 200 180 % Growth in RPKs 12% 8% 6% 4% 2% -2% -1.9% 6.6% 3.9% 4.9% 9.1% 9.3% 8.2% 10.3% 7. 9.7% 2.4% 3.9% 7.3% 6. 160-4% Africa Asia/Pacific Europe Latin Middle East North July (and August) are always the seasonal high points for air travel due to the timings of holidays in the North. But even after adjusting for this seasonal boost the chart above shows that there was a further underlying expansion in air travel in July. By July the level of international air travel markets was up 7% so far this year and was 12% higher than the prerecession peak in early 2008. This has been an encouraging performance. However, to put this in perspective, if air travel had continued to grow at the 8% pace seen before the recession the size of the market would have been an additional 14% higher than today s () level. Air travel markets have recovered above the prerecession level but it looks as though 2 years of growth were permanently lost as a result of the recession; As the chart below shows there has been an encouraging recovery of load factors on international air travel markets, following the sharp decline earlier this year. This has not been due to cutbacks in capacity in fact there has been a moderate acceleration in capacity growth but because of the rebound in demand. IATA Economics www.iata.org/economics 2

8 78% Passenger Load Factor on International Market 9 85% 8 International Passenger Load Factor by Region 80.9% 80.2% 84.8% 85.1% 80.3% 82.6% 80.8% 81.4% 87.2% 86.8% 83. 83.1% % of ASKs 76% % ASKs 7 71.9% 73.1% 74% 65% 72% 6 Africa Asia/Pacific Europe Latin Middle East North Domestic Market 190 180 170 Domestic Passenger Market 25% 2 15% 16. Domestic Passenger Growth by Country 17.8% 15.9% 20.6% Monthly RPKs (Billion) 160 150 140 130 120 % Growth in RPKs 5% -5% - -15% -2 1.5% 2.7% 4.9% 5.1% -20.3% -16.7% 1.3% 2.1% 2.4% 3.5% 110-25% Australia Brazil China, P.R. India Japan USA Domestic air travel in aggregate has been much more sluggish than air travel on international markets. There has been very little growth since the end of the third quarter of last year. This is partly because of mature US market and its sluggish economy. Domestic US markets have shrunk 2% over the same period and represent 5 of worldwide domestic air travel. China is the second biggest market. Growth in this domestic market slowed abruptly in the middle of 2010 from annual rates close to 2 to a pace of expansion of around 5%. These two markets represent almost 7 of domestic air travel. Coupled with the impact of the still unrecovered shock in Japan they have more than offset the strong growth still being seen on India and Brazil s domestic markets, which continues to be driven by strong economic growth and previous market liberalization. 8 Passager Load Factor on Domestic Market 9 Domestic Passenger Load Factor by Country 86.5% 87.1% 87.3% 79% 78% 85% 8 79.9% 83.6% 81.9% 82.9% 81.9% % of ASKs 77% 76% % ASKs 7 65% 6 69.3% 73.8% 71.8% 71.2% 63. 60.8% 74% 55% 73% 5 72% 45% Australia Brazil China, P.R. India Japan USA IATA Economics www.iata.org/economics 3

Total Market (Domestic + International) 530 Total Passenger Market 14% Total Passenger Growth by Region Monthly RPKs (Billion) 480 430 380 % Growth in RPKs 12% 8% 6% 4% 2% 4.3% 3.7% 4.7% 8. 8.5% 10.4% 12.1% 6.9% 9.8% 1.7% 2.8% 4.7% 5.9% 330-2% 280-4% -2.4% Africa Asia/Pacific Europe Latin Middle East North Strong domestic air travel in Brazil added to the leading international growth performance of airlines from Latin in July. The total RPKs carried by these airlines rose 12.1% above a year earlier in July. However, weakness in Japan and sub-par growth in China offset strong Indian domestic growth and depressed the growth of total RPKs carried by airlines based in the Asia-Pacific region. North n airlines performance was also weakened by domestic markets, which represent two-thirds of total RPKs for these airlines. European airlines, with just of their total RPKs coming from domestic markets, are benefiting from their stronger international performance. Average load factors on air travel markets have recovered to the highs of Q3 last year. North n and European airlines continue to achieve the highest load factors. Latin n airlines have seen the largest improvement. 8 Passager Load Factor on Total Market 9 Total Passenger Load Factor by Region 86.9% 86.9% 79% 78% 85% 8 79.9% 80.2% 83.8% 84.1% 79.6% 80.6% 81.5% 82.6% 83.1% % of ASKs 77% 76% % of ASKs 7 71.3% 72.7% 76.5% 74% 65% 73% 72% 6 Africa Asia/Pacific Europe Latin Middle East North FREIGHT MARKET International Market 15 International Freight Market International Freight Growth by Region 14 8% 8.4% 7.4% 8.4% Monthly FTKs (Billion) 13 12 11 10 9 % Growth in FTKs 6% 4% 2% -2% -4% -6% -0.1% -6.2% -3.9% -0.5% -1.2% 2.5% 3.5% -0.5% 2. -2.7% -0.4% 8-8% Africa Asia/Pacific Europe Latin Middle East North IATA Economics www.iata.org/economics 4

International air freight markets were marginally stronger than domestic markets in July. The volume of air freight carried on international markets in July was up just over 1% from the start of the year. Now that air freight markets have shrunk 5% from the peak reached in early 2010 the size of these markets in July was just 3% higher than pre-recession levels. During the second half of 2010 the weakness of air freight was due to a loss of share of world trade to other modes, partly due to the composition of goods traded. World trade was expanding strongly during that period but other modes benefited. However, so far this year there has been no further growth in world trade in part because of the disruptions caused to electronics and automobile supply chains by the earthquake and tsunami in Japan, but also a sign of economic slowdown. While this environment persists there is little scope for further expansion in air freight volumes; Capacity continued to expand throughout the eighteen months to July. Since air freight demand shrank 5% in the past fourteen months load factors fell back to pre-recession levels. The regional divergence in load factors largely reflects the importance of the Asia-Pacific region as the major centre for manufacturing. Manufacturing, particularly industries such as electronics and capital goods, are key shippers by air. As a result the major flows of these goods are out from the Asia-Pacific region, while inward flows are much lower. Asia-Pacific airlines have the home carrier advantage in better utilizing their capacity and achieve by far the highest load factors. At the other extreme are airlines from Africa, where manufacturing is weak and the principle export commodities is mostly not shipped by air. % of AFTKs 58% 56% 54% 52% 5 48% 46% 44% Freight Load Factor on International Market % AFTKs 7 65% 6 55% 5 45% 4 35% 3 25% 25.1% 25.9% 65.4% International Freight Load Factor by Region 62.5% 50. 47.6% 43.2% 41.8% 45.8% 44.2% 41. 38.8% 52.2% 49.8% 42% 2 Africa Asia/Pacific Europe Latin Middle East North Total Market 17 16 Total Freight Market 8% 7.4% Total Freight Growth by Region 8.2% 8.4% Monthly RPKs (Billion) 15 14 13 12 % Growth in FTKs 6% 4% 2% -2% -4% -0.9% -3.6% -0.7% -1.3% 2.7% 3.5% -0.6% 1. -2.5% -0.4% 11 10-6% -8% -5.8% Africa Asia/Pacific Europe Latin Middle East North Air freight markets in total were depressed further by declines in domestic air freight, which in July was around lower than prior to the recession. Airlines from most regions have experienced very weak air freight businesses so far this year. During the first seven months of 2011 only airlines in the Latin n and Middle East regions have seen volumes grow at a high single figure pace. Airlines in the Asia-Pacific and Africa regions have seen the size of their air freight businesses decline; IATA Economics www.iata.org/economics 5

52% 5 Freight Load Factor on Total Market 7 6 60.2% Total Freight Load Factor by Region 58.1% % of AFTKs 48% 46% 44% 42% % of AFTKs 5 4 3 24.7% 25.5% 49. 46.8% 42.2% 39.9% 45.1% 43.6% 34.2% 33. 46.8% 45. 4 2 38% Africa Asia/Pacific Europe Latin Middle East North. IATA Economics www.iata.org/economics 6

ANNEX Year on Year Comparison vs. July 2010 YTD 2011 vs. YTD 2010 Air Transport Market Analysis RPK ASK PLF FTK AFTK FLF RPK ASK PLF FTK AFTK FLF Africa 6.6% 4.9% 73.1% 8.4% 5.1% 25.9% 1. 4.7% 65.9% -1.6% 2.9% 26.5% Asia/Pacific 4.9% 5.8% 80.2% -3.9% 0.5% 62.5% 4.1% 6.4% 76.2% -3.5% 2.4% 62.5% Europe 9.3% 8.9% 85.1% -0.5% 4.3% 47.6% 11. 11.7% 78.1% 4.2% 8.7% 50.3% Latin 10.3% 7.2% 82.6% 7.4% 4. 43.2% 12.2% 8.8% 77.9% 7. 4. 43. Middle East 9.7% 8.9% 81.4% 8.4% 12.4% 44.2% 8.9% 9.9% 75.2% 9.5% 14.1% 44.8% North 3.9% 4.4% 86.8% 2. 7.6% 38.8% 6. 8.6% 80.1% 5.3% 11.4% 41.4% International 7.3% 7.2% 83.1% -0.4% 4.6% 49.8% 7.8% 9.2% 77.1% 1.5% 7.3% 51.2% Australia 2.7% 0.2% 81.9% 4.3% 4.5% 77.9% Brazil 17.8% 10.7% 73.8% 18.3% 11. 70.4% China 5.1% 1.6% 86.5% 7.3% 2.8% 82.4% India 20.6% 21.7% 71.2% 18.2% 18.6% 75.5% Japan -16.7% -13.7% 60.8% -18.7% -12.4% 57.1% US 2.1% 2. 87.3% 2.4% 2. 82.8% Domestic 3.5% 2.3% 82.9% -0.4% -0.2% 27.6% 4. 2.7% 78.9% -1.9% 0.1% 28. Africa 4.3% 2.3% 72.7% 7.4% 3.8% 25.5% -0.2% 2.5% 66.4% -2.5% 2. 26.1% Asia/Pacific 4.7% 4.2% 80.2% -3.6% 0. 58.1% 4.5% 4.9% 76.6% -3.5% 1.9% 58. Europe 8.5% 8.1% 84.1% -0.7% 4. 46.8% 10.1% 10.7% 77.2% 4. 8.3% 49.3% Latin 12.1% 7.7% 79.6% 8.2% 2.4% 42.2% 14.4% 9.6% 75.5% 7.3% 2.3% 41.4% Middle East 9.8% 8.7% 81.5% 8.4% 12.1% 43.6% 8.3% 9. 75.4% 9.5% 13.5% 44.1% North 2.8% 2.7% 86.9% 1. 4.5% 33. 3.5% 4.1% 81.8% 2.5% 6.1% 34.5% Total Market 5.9% 5.4% 83.1% -0.4% 3.6% 45. 6.4% 6.8% 77.7% 1. 5.6% 46.2% RPK: Revenue-Passenger-Kilometers; ASK: Available-Seat-Kilometers; PLF: Passenger-Load-Factor; FTK: Freight-Tonne-Kilometers; AFTK: Available Freight Tonne Kilometers; FLF: Freight Load Factor; All Figures are expressed in % change Year on Year except PLF and FLF which are the load factors for the specific month. IATA Economics www.iata.org/economics 7

Month on Month Comparison vs. June 2011 Market Share RPK ASK PLF FTK AFTK FLF RPK FTK Africa 4.5% 1.9% 1.7% 1.7% 0.4% 0.3% 3.2% 1.3% Asia/Pacific 2. 1.2% 0.6% 1.7% 2. -0.2% 24.9% 43.3% Europe 1.2% 0.5% 0.5% -0.3% 0.1% -0.2% 41.5% 24.4% Latin 1.9% 2.5% -0.5% 2.4% 1.6% 0.4% 4.2% 3. Middle East 2. 1. 0.8% 4.2% 1.9% 1. 10.8% 11.4% North 1.3% 0.6% 0.5% 1.9% 0. 0.8% 15.4% 16.7% International 2. 0.6% 1.1% 0.6% 0.6% 0. 100. 100. Australia 0.8% 3.1% -1.8% 3.1% Brazil 5.4% 2.8% 1.7% 3.5% China 0.8% -0.2% 0.8% 18.1% India 0.5% 2.4% -1.5% 2.7% Japan 3.5% 1.3% 1.4% 2.7% US 0.3% 0. 0.3% 49.7% Domestic 1.2% 0.4% 0.6% -0.1% 0.9% -0.3% 100. Africa 3.8% 1.7% 1.4% 1.6% 0.3% 0.3% 2.3% 1.1% Asia/Pacific 1.6% 1.2% 0.3% 1.6% 2.1% -0.3% 26.9% 40.9% Europe 1.3% 0.6% 0.5% -0.3% 0.1% -0.2% 29.8% 21.6% Latin 2.9% 2. 0.6% 2.6% 3. -0.1% 5.1% 2.9% Middle East 2. 1. 0.7% 3.2% 1.9% 0.6% 7.3% 9.9% North 0.3% 0.2% 0.1% 1.1% 0.2% 0.3% 28.6% 23.6% Total Market 1.7% 0.6% 0.9% 0.5% 0.7% -0.1% 100. 100. Data are seasonally adjusted. All figures are expressed in % change month on month except, PLF pt and FLF pt which are the percentage point difference between load factors of two consecutive months. IATA Economics E-Mail: economics@iata.org 1 st September 2011 FURTHER ANALYSIS AND DATA Access data related to this briefing through the Route Tracker publication: www.iata.org/ps/publications/pages/ IATA Economics www.iata.org/economics carrier-tracker NEW RELEASE ALERTS To receive email notification of new analysis from IATA Economics, select Economic Briefings from: www.iata.org/optin 8