Cargo: Diversifying Airline Revenue Streams

Cargo: Diversifying Airline Revenue Streams

Welcome to Delta Cargo Combination Air Carriers US airlines - Cargo has been the undiscussed topic European and Asian airlines Cargo has been an important strategic component of their business models Non-US airlines have the correct approach Companies who are able to maintain profitability are the ones that leverage their capabilities in more stable B2B business markets as well as the passenger B2C market. Today I offer a perspective of US combination carries, and thoughts about the potential that Cargo brings to all of us. 2 3/16/2009

Delta s Perspective Compared to US Industry Wisdom US US Industry Industry Wisdom Wisdom 1. 1. Freight Freight traffic traffic is is ancillary ancillary revenue revenue for for combination combination carriers. carriers. 2. 2. Cargo Cargo competes competes with with passenger passenger bags bags for for lift, lift, and and will will therefore therefore always always loses. loses. 3. 3. Cargo Cargo boards boards if if there there is is time time to to load load it, it, and and frequently frequently after after non-revs. non-revs. Delta s Delta s Perspective Perspective 1. 1. Freight Freight is is a serious serious business business with with revenue revenue performance performance worth worth seeking seeking Investing Investing in in state-of-the-art state-of-the-art ecommerce ecommerce and and revenue revenue management management tools tools 2. 2. Investment Investment in in Cargo Cargo tools tools & processes processes has has payback payback Restructured Restructured operations operations State-of-the-art State-of-the-art cool cool chain chain New New facilities, facilities, people people Cargo has been a key enabler of Delta s international expansion. 3. 3. Cargo Cargo & passenger passenger traffic traffic can can co-exist co-exist in in a complimentary complimentary fashion fashion Investing Investing in in payload payload planning planning initiatives initiatives Investing Investing in in fleet fleet capabilities capabilities 4. 4. Continue Continue to to invest invest in in informing informing employees employees about about the the value value Cargo Cargo brings brings 3 3/16/2009

Typical airline revenue distribution Cargo 4% Other 9% US Airlines Cargo: ~4% US carriers have not taken an active role in the market, even though the US remains the largest freight market in the world. Passenger 87% Cargo 15% Other 10% European Airlines Cargo: ~15% International carriers have a more balanced approach to their revenue streams. Diversifies portfolio risk. Passenger 75% Passenger 55% Cargo 35% Asian Airlines Cargo: ~35% Better able to whether geopolitical events & crises. (e.g, SARS) Source: ATA reports Other 10% 4 3/16/2009

Key Market Growth Rate Forecast Key industry forecasting models predict that the average growth for all air traffic is expected to continue to outpace the world GDP. 6.00% 5.00% 4.00% 3.00% 2.00% 3.2% 4.0% 5.0% 5.8% The greatest growth is expected in the Air Cargo market. 1.00% 0.00% World Economy GDP World Passenger Growth Passenger Traffic (RPKs) Cargo Traffic (RTKs) Source: The Boeing Company 5 3/16/2009

Cargo Market Economics: Highly Leveraged Business Delta analyzes flight profitability for every flight and market every month. For the purpose of this analysis we will look the month of August. High passenger volume month Low cargo volume month Four market examples International, long-haul market (ATL-TLV-ATL) International niche (JFK-KBP-JFK) Domestic trunk market (ATL-LAX-ATL) Domestic niche (LAX-SLC-LAX) 6 3/16/2009

Strategic International Market Example: ATL-TLV-ATL ATL TLV ATL 75 Flight Profitability Index 50 25 0 (25) 93 (17) 32 (50) (44) (75) Segment Profit/Loss w/o Cargo Cargo Revenue Cargo Cost Segment Profit/Loss w/cargo Cargo makes a key strategic international market viable. Source: Delta FPS, August 2008 7 3/16/2009

International Niche Market Example: JFK-KBP-JFK JFK KBP JFK 50 Flight Profitability Index 40 30 20 10 0 (10) (20) (30) (11) 43 (8) 25 (40) (50) Segment Profit/Loss w/o Cargo Cargo Revenue Cargo Cost Segment Profit/Loss w/cargo Cargo enables the passenger market to pioneer international destinations that may not seem to be naturally profitable Source: Delta FPS, August 2008 8 3/16/2009

Domestic Trunk Market Example: ATL-LAX-ATL ATL LAX ATL 100 141 Flight Profitability Index 50 0 (50) (40) (46) 55 (100) Segment Profit/Loss w/o Cargo Cargo Revenue Cargo Cost Segment Profit/Loss w/cargo Cargo helps a domestic passenger market that must be flown for network and competitive reasons. Source: Delta FPS, August 2008 9 3/16/2009

Domestic Niche Market Example: LAX-SLC-LAX LAX SLC LAX 8 Flight Profitability Index 4 0 (4) 9 (1) 3 (5) (8) Segment Profit/Loss w/o Cargo Cargo Revenue Cargo Cost Segment Profit/Loss w/cargo Cargo provides profitability opportunities even in markets that would seem to offer limited profitability opportunities. Source: Delta FPS, August 2008 10 3/16/2009

Delta s Experience: YOY Cargo Revenue Performance (3Q08) (30% CAGR) 42 64 $456M $350M 2007 Freight Domestic/ US Export Freight US Import 2008 Source: Delta Delta, through dedication and focused investment on Cargo has seen significant benefits in the short term. We ve seen the highest growth rates in revenue, volume and yield within our competitive set. We believe we have only scratched the surface, and that there is significant, untapped revenue potential yet to be realized. 11 3/16/2009

Implications for the Airline Business Model Cargo has not previously been a key consideration in fleet and network decisions for US carriers. Until now. Example: Cargo capability makes the difference between ordering the B-777-200ER and the -200LR. The Cargo revenue potential helps justify the 15% additional cost to purchase and operate the aircraft. 12 3/16/2009

Merger With Northwest On Track To Close By End Of Year Key Milestones Unprecedented 4-year pre-merger joint pilot agreement approved by both pilot groups European Commission merger approval / continued cooperation with DOJ analysis Merger overwhelmingly approved by stockholders of both companies Integration planning teams working diligently Credit agreements aligned facilitating the close Officer leadership team named Announced core IT systems Plan for single operating certificate approved by FAA 13 3/16/2009

Integration Timeline 2009 2010 Full Code Share Onboard Product SkyMiles RM System delta.com & kiosks Res System Cutover Uniforms Cross- Fleeting Representation Elections Common Pass Policy Single Operating Certificate Benefits Aligned Single OCC Combined Crew Systems Aircraft painted Domestic Airports Integrated International Airports Completed 14 3/16/2009

Flying Solo Japan NW #1 Japan DL #5 Asia NW #2 Asia DL #5 Domestic DL #3 Domestic NW #7 Latin America DL #2 Transatlantic DL #1 Transatlantic NW #5 Africa DL #1 Latin America NW #10 Regional strengths, but globally weak 15 3/16/2009

Flying Together Japan #1 Domestic #1 Transatlantic #1 Asia #1 Africa #1 Latin America #2 Australia #2 Leading presence across the globe 16 3/16/2009