October

AIRLINES FINANCIAL MONITOR
KEY POINTS
September-October 2010

Second leg of the share price recovery well underway reaching a level twice 2009’s low;

US Q3 “results season” better than expectations – aggregate operating profit approaching 2007’s levels;

Fuel still within a relatively narrow band – OPEC remains “comfortable” with the current oil price;

Whilst headline rates of traffic growth are inevitably slowing they remain above historical trend rates;

Despite capacity control the recovery in US domestic yields and international fares appears to have
stalled.
Financial indicators
Still on the way up as the main results season approaches
Bloomberg Airlines Index
300

In broad terms share prices in
September continued the trend from
August; The Bloomberg global airline
share price index has doubled from its
2009 low point.

However there are not only differences
between regions but within regions too.
US share prices are 2.4 times higher
than their recession low. Analysts have
upgraded assessments for the 2010
outcome. The anticipation of stronger
than expected results from US airlines
drove share prices higher.

Whilst only a very small number of
airlines (predominantly US) have
announced their results for the JulySeptember quarter the outcome has
been dramatic. Against a weak
economic background these US
airlines in aggregate have reported
operating profits similar to those at the
peak
of
the
cycle
in
2007
demonstrating the extent of the
structural changes that have occurred.
Early results from European airlines
also look encouraging. The “mood
music” for most of those yet to report
from these and other regions suggests
a widespread recovery in profits
Source: Bloomberg
250
Asia Airlines
US $
200
European Airlines
150
100
Worlwide Airlines
50
US Airlines
Ju
n-
0
Se 5
p05
D
ec
-0
M 5
ar
-0
Ju 6
n0
Se 6
p06
D
ec
-0
M 6
ar
-0
Ju 7
n0
Se 7
p07
D
ec
-0
M 7
ar
-0
Ju 8
n0
Se 8
p08
D
ec
-0
M 8
ar
-0
Ju 9
n0
Se 9
p09
D
ec
-0
M 9
ar
-1
Ju 0
n1
Se 0
p10
0
More of the same?
In US $ Million
# Airlines
9
1
4
14
North America
Asia-Pacific
Europe
Latin America
Other
Sample total
Q3 2009
Operating Net post-tax
421
-771
-23
1
246
122
644
-648
British Airways and Iberia operating results not included
IATA Economics www.iata.org/economics
Q3 2010
Operating Net post-tax
2222
1903
202
n/a
1306
1353
3730
3256
1
Airlines financial monitor – September-October 2010
Fuel costs
Little fundamental upward pressure in prospect
Jet Fuel and Crude Oil Price ($/barrel)
200

The fuel price appears to remain in a
band between $80 and $100 a barrel –
the decline in the $ has been helpful in
local currency terms.

The latest indications from OPEC,
where production is some 2m bpd
above the 26.8m quota, is that they are
“comfortable” with current prices –
although concerned by $ weakness
and the prospect of an economic
slowdown

Other than the seasonal effects of
winter there appear few risks to the fuel
price on the upside.

Almost
inevitably
the
annual
comparisons are becoming less
favorable; however passenger traffic in
September 2010 was 10.5% higher
than a year ago and 4% higher than
the pre-recession peak of early 2008.
The growth trend remains above
historical rates.

Cargo growth in September slowed to
an increase of 14.8% over September
2009, just before the sector’s turning
point; however volumes have slipped
back to pre-recession peak levels.

Statistically as well as fundamentally,
the outlook is for slower growth.
Source: Platts, RBS
180
160
140
120
Jet fuel price
100
80
60
40
Crude oil price (Brent)
Ja
n0
M 3
ay
0
Se 3
p0
Ja 3
n0
M 4
ay
0
Se 4
p0
Ja 4
n0
M 5
ay
0
Se 5
p0
Ja 5
n0
M 6
ay
0
Se 6
p0
Ja 6
n0
M 7
ay
0
Se 7
p0
Ja 7
n0
M 8
ay
0
Se 8
p0
Ja 8
n0
M 9
ay
0
Se 9
p0
Ja 9
n1
M 0
ay
1
Se 0
p1
0
20
Demand
Future outlook more important than historic figures
International Passenger and Freight Tonne Kilometers
Source: IATA
40%
% Change over Year
30%
20%
Passenger RPKs
10%
0%
-10%
-20%
Air Freight FTKs
Ju
l
-0
O 5
ct
-0
Ja 5
n0
Ap 6
r-0
6
Ju
l -0
O 6
ct
-0
Ja 6
n0
Ap 7
r-0
7
Ju
l-0
O 7
ct
-0
Ja 7
n0
Ap 8
r-0
8
Ju
l -0
O 8
ct
-0
Ja 8
n0
Ap 9
r-0
9
Ju
l-0
O 9
ct
-0
Ja 9
n1
Ap 0
r-1
0
Ju
l -1
0
-30%
Capacity
Discipline continues to pay dividends but the real test is ahead
Capacity Growth on International Markets
Source: IATA

Capacity discipline was again evident
in September and both passenger and
cargo capacity lagged traffic growth.

Whilst part of the increase in capacity
offered appears to be the result of a
recovery in utilization rates, a number
of airlines have already announced
what appear to be significant capacity
increases.
Overall
capacity
for
November is expected to be some
8.4% higher with just under 5% more
flights compared to a year ago.
40%
% Change over Year
30%
20%
Passenger ASKs
10%
0%
-10%
Air Freight AFTKs
-20%
Ju
l -0
O 5
ct
-0
Ja 5
n0
Ap 6
r-0
6
Ju
l -0
O 6
ct
-0
Ja 6
n0
Ap 7
r-0
7
Ju
l-0
O 7
ct
-0
Ja 7
n0
Ap 8
r-0
8
Ju
l-0
O 8
ct
-0
Ja 8
n0
Ap 9
r-0
9
Ju
l-0
O 9
ct
-0
Ja 9
n1
Ap 0
r-1
0
Ju
l -1
0
-30%
IATA Economics: www.iata.org/economics
2
Airlines financial monitor – September-October 2010
Passenger load factors – now a more normal trend
Passenger Load Factor on International Markets

After a period of monthly record load
factors, passenger load factors have
begun to move back to what may be
more comfortable levels; in the summer
months the average for North America
was in excess of 86%.

The key issue is whether the capacity
introductions exacerbate the seasonal
trend – and here there is likely to be a
wide range of experience.

Passenger load factors are now
tracking those experienced in the last
peak year of 2007.
Source: IATA
84%
82%
80%
2009
78%
2010
76%
2007
74%
2008
72%
70%
68%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Slowing growth evident on cargo load factors
Freight Load Factor on International Markets
Source: IATA
58%
56%
2009
2010
54%
52%
50%
 After a period of out performance
reflecting the initial phase of the
recovery from the downturn from the
last quarter of 2009, September saw
freight load factors return to what might
be considered more normal levels.
2007
 Asia Pacific which accounts for some
37% of industry international cargo
capacity, and 44% of traffic, also saw
capacity grow faster than demand.
48%
46%
44%
2008
42%
40%
38%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
The recovery in fares and yields appears to have stalled
Average international one-way fare and US passenger yields
seasonally adjusted
15.0

Leaving on one side issues of seasonal
variation the main conclusion from the
data and chart is that the recovery in
US domestic yields and international
fares
has
stalled.
Furthermore
compared to the corresponding months
in 2008, yields are 7% or so lower and
international fares some 12% down.

Whilst planned capacity increases in
North America would appear to be
modest for winter 2010, the greater
challenge is to hold the improvement
achieved so far against the background
of a still weak economy.
410
14.5
US airline yield
(left scale)
Yiled ($/RPM)
13.5
370
13.0
12.5
350
12.0
330
11.5
11.0
Average international one-way fare
(right scale)
310
10.5
10.0
2006
290
2007
2008
2009
IATA Economics: www.iata.org/economics
2010
Fare (US$/passenger)
390
14.0
3
Airlines financial monitor – September-October 2010
New deliveries, the major influence on the in-service fleet
Aircraft Retirements and Deliveries

September saw a small reduction in
the number of aircraft in storage and an
increase in the number of new aircraft
delivered. Retirements remain at a low
level

The changes in September were more
or less around the margin; Whilst a
number of airlines have announced
that they will be binging aircraft out of
storage, events which we will see
reflected in the statistics from
November, the greatest source of
capacity increase in the near term
remains the restoration of flying
programs with previous levels of
utilization.
Source: Ascend
Deliveries
Retirements
Storage
130
Aircraft per month
90
50
10
-30
-70
Monthly
Average
20
09
Ju
n09
Ju
l-0
9
A
ug
-0
9
Se
p09
O
ct
-0
9
N
ov
-0
9
D
ec
-0
9
Ja
n10
Fe
b10
M
ar
-1
0
A
pr
-1
0
M
ay
-1
0
Ju
n10
Ju
l -1
0
A
ug
-1
0
Se
p10
20
07
20
08
20
06
-110
Data tables
Year on Year
Comparison
September 2010 vs. September 2009
YTD 2010 vs. YTD 2009
RPK
ASK
PLF
FTK
AFTK
FLF
RPK
ASK
PLF
FTK
AFTK
FLF
Africa
16.0%
10.1%
69.8%
16.5%
16.4%
25.0%
13.1%
9.3%
68.9%
35.4%
13.6%
27.1%
Asia/Pacific
8.6%
6.9%
77.2%
15.0%
16.6%
63.3%
10.4%
3.0%
77.9%
30.0%
16.4%
65.6%
Europe
8.4%
5.9%
82.6%
11.1%
7.2%
50.3%
4.4%
1.4%
79.8%
12.1%
-1.4%
51.7%
Latin America
6.6%
0.5%
78.2%
21.3%
0.9%
48.8%
10.5%
4.6%
76.0%
38.5%
19.2%
42.7%
Middle East
23.9%
15.3%
76.8%
24.0%
17.5%
46.1%
18.7%
13.2%
76.1%
30.8%
15.7%
46.3%
North America
11.1%
7.2%
84.1%
13.0%
8.2%
42.9%
6.7%
2.1%
82.8%
27.6%
4.6%
43.2%
Industry
10.5%
7.3%
80.0%
14.8%
11.9%
52.4%
8.3%
3.6%
78.7%
25.1%
8.9%
53.5%
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
1 November 2010
IATA Economics: www.iata.org/economics
4