airline industry profile

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Global - Airlines 0199 - 0756 - 2010

© Datamonitor. This profile is a licensed product and is not to be photocopied

INDUSTRY PROFILE

Global Airlines

Reference Code: 0199-0756

Publication Date: December 2011

EXECUTIVE SUMMARY

Global - Airlines 0199 - 0756 - 2010


EXECUTIVE SUMMARY

Market value

The global airlines industry grew by 11.9% in 2010 to reach a value of $501.2 billion.

Market value forecast

In 2015, the global airlines industry is forecast to have a value of $713.6 billion, an increase of 42.4%

since 2010.

Market volume

The global airlines industry grew by 5.7% in 2010 to reach a volume of 2,373.1 million passengers.

Market volume forecast

In 2015, the global airlines industry is forecast to have a volume of 3,046.4 million passengers, an

increase of 28.4% since 2010.

Market segmentation I

Domestic is the largest segment of the global airlines industry, accounting for 64% of the industry's total

volume.

Market segmentation

Americas accounts for 44.4% of the global airlines industry value.

Market rivalry

Rivalry in the global airlines industry is strong, due in part to the sheer size of competitors and the

difficulties in exiting the industry.

CONTENTS

Global - Airlines 0199 - 0756 - 2010


TABLE OF CONTENTS

EXECUTIVE SUMMARY 2

MARKET OVERVIEW 7

Market definition 7

Research highlights 8

Market analysis 9

MARKET VALUE 10

MARKET VOLUME 10

MARKET SEGMENTATION I 12

MARKET SEGMENTATION II 13

FIVE FORCES ANALYSIS 13

Summary 14

Buyer power 15

Supplier power 16

New entrants 18

Substitutes 20

Rivalry 22

LEADING COMPANIES 24

Air France KLM 24

British Airways Plc 28

Deutsche Lufthansa 32

MARKET FORECASTS 36

Market value forecast 36

Market volume forecast 36

APPENDIX 38

Methodology 38

Industry associations 39

Related Datamonitor research 39

Disclaimer 40

CONTENTS

Global - Airlines 0199 - 0756 - 2010


ABOUT DATAMONITOR 41

Premium Reports 41

Summary Reports 41

Datamonitor consulting 41

CONTENTS

Global - Airlines 0199 - 0756 - 2010


LIST OF TABLES

Table 1: Global airlines industry value: $ billion, 2006–10 10

Table 2: Global airlines industry volume: million passengers, 2006–10 11

Table 3: Global airlines industry segmentation I:% share, by volume, 2010 12

Table 4: Global airlines industry segmentation: % share, by value, 2010 13

Table 5: Air France KLM: key facts 24

Table 6: Air France KLM: key financials ($) 26

Table 7: Air France KLM: key financials (€) 26

Table 8: Air France KLM: key financial ratios 26

Table 9: British Airways Plc: key facts 28

Table 10: British Airways Plc: key financials ($) 29

Table 11: British Airways Plc: key financials (£) 29

Table 12: British Airways Plc: key financial ratios 30

Table 13: Deutsche Lufthansa: key facts 32

Table 14: Deutsche Lufthansa: key financials ($) 33

Table 15: Deutsche Lufthansa: key financials (€) 34

Table 16: Deutsche Lufthansa: key financial ratios 34

Table 17: Global airlines industry value forecast: $ billion, 2010–15 36

Table 18: Global airlines industry volume forecast: million passengers, 2010–15 37

CONTENTS

Global - Airlines 0199 - 0756 - 2010


LIST OF FIGURES

Figure 1: Global airlines industry value: $ billion, 2006–10 10

Figure 2: Global airlines industry volume: million passengers, 2006–10 11

Figure 3: Global airlines industry segmentation I:% share, by volume, 2010 12

Figure 4: Global airlines industry segmentation: % share, by value, 2010 13

Figure 5: Forces driving competition in the global airlines industry, 2010 14

Figure 6: Drivers of buyer power in the global airlines industry, 2010 15

Figure 7: Drivers of supplier power in the global airlines industry, 2010 16

Figure 8: Factors influencing the likelihood of new entrants in the global airlines industry, 2010 18

Figure 9: Factors influencing the threat of substitutes in the global airlines industry, 2010 20

Figure 10: Drivers of degree of rivalry in the global airlines industry, 2010 22

Figure 11: Air France KLM: revenues & profitability 27

Figure 12: Air France KLM: assets & liabilities 27

Figure 13: British Airways Plc: revenues & profitability 30

Figure 14: British Airways Plc: assets & liabilities 31

Figure 15: Deutsche Lufthansa: revenues & profitability 35

Figure 16: Deutsche Lufthansa: assets & liabilities 35

Figure 17: Global airlines industry value forecast: $ billion, 2010–15 36

Figure 18: Global airlines industry volume forecast: million passengers, 2010–15 37

MARKET OVERVIEW

Global - Airlines 0199 - 0756 - 2010


MARKET OVERVIEW

Market definition

The airlines industry comprises passenger air transportation, including both scheduled and chartered, but

excludes air freight transport. Industry volumes are defined as the total number of revenue passengers

enplaned (departures) at all airports within the country or region, excluding transit passengers who arrive

and depart on the same flight code. For the US and Canada, transborder passengers departing from

either country are considered as part of the international segment. Industry value is defined as the total

revenue obtained by airlines from transporting these passengers. This avoids the double-counting of

passengers. All currency conversions in this profile were carried out using constant 2010 average annual

exchange rates.

For the purposes of this report, the global market consists of North America, South America, Western

Europe, Eastern Europe, MEA, and Asia-Pacific.

North America consists of Canada, Mexico, and the United States.

South America comprises Argentina, Brazil, Chile, Colombia, and Venezuela.

Western Europe comprises Belgium, Denmark, France, Germany, Greece, Italy, the Netherlands,

Norway, Spain, Sweden, Switzerland, Turkey, and the United Kingdom.

Eastern Europe comprises the Czech Republic, Hungary, Poland, Romania, Russia, and Ukraine.

Asia-Pacific comprises Australia, China, India, Indonesia, Japan, New Zealand, Singapore, South Korea,

Taiwan, and Thailand.

Middle East-Africa (MEA) comprises Egypt, Israel, Nigeria, Saudi Arabia, South Africa, and United Arab

Emirates.

MARKET OVERVIEW

Global - Airlines 0199 - 0756 - 2010


Research highlights

The global airlines industry had total revenue of $501.2 billion in 2010, representing a compound annual

growth rate (CAGR) of 4.2% between 2006 and 2010.

Industry volumes increased with a CAGR of 2.6% between 2006-2010, to reach a total of 2,373.1 million

passengers in 2010.

The performance of the industry is forecast to accelerate, with an anticipated CAGR of 7.3% for the five-

year period 2010 - 2015, which is expected to drive the industry to a value of $713.6 billion by the end of

2015.

MARKET OVERVIEW

Global - Airlines 0199 - 0756 - 2010


Market analysis

The moderate annualized growth figures for the global airline market 2007-2010 masks a more volatile

yearly performance, with strong growth in value up to 2008 followed by a sharp decline in 2009, then

recovery in 2010.

The global airlines industry had total revenue of $501.2 billion in 2010, representing a compound annual

growth rate (CAGR) of 4.2% between 2006 and 2010. In comparison, the European and Asia-Pacific

industries grew with CAGRs of 5% and 3.3% respectively, over the same period, to reach respective

values of $165.9 billion and $89 billion in 2010.

Industry volumes increased with a CAGR of 2.6% between 2006-2010, to reach a total of 2,373.1 million

passengers in 2010. The industry's volume is expected to rise to 3,046.4 million passengers by the end of

2015, representing a CAGR of 5.1% for the 2010-2015 period.

Domestic sales had the highest volume in the global airlines industry in 2010, with total sales of 1,518.3

million passengers, equivalent to 64% of the industry's overall volume. In comparison, sales of

International had a volume of 854.9 million passengers in 2010, equating to 36% of the industry total.

The performance of the industry is forecast to accelerate, with an anticipated CAGR of 7.3% for the five-

year period 2010 - 2015, which is expected to drive the industry to a value of $713.6 billion by the end of

2015. Comparatively, the European and Asia-Pacific industries will grow with CAGRs of 8.6% and 7.2%

respectively, over the same period, to reach respective values of $251.1 billion and $126.1 billion in 2015.

MARKET OVERVIEW

Global - Airlines 0199 - 0756 - 2010


MARKET VALUE

The global airlines industry grew by 11.9% in 2010 to reach a value of $501.2 billion.

The compound annual growth rate of the industry in the period 2006–10 was 4.2%.

Table 1: Global airlines industry value: $ billion, 2006–10

Year $ billion € billion % Growth

2006 424.5 319.7

2007 471.1 354.8 11.0%

2008 522.7 393.6 10.9%

2009 447.8 337.2 (14.3%)

2010 501.2 377.4 11.9%

CAGR: 2006–10 4.2%

Source: Datamonitor D A T A M O N I T O R

Figure 1: Global airlines industry value: $ billion, 2006–10


MARKET VOLUME

Global - Airlines 0199 - 0756 - 2010


MARKET VOLUME

The global airlines industry grew by 5.7% in 2010 to reach a volume of 2,373.1 million passengers.

The compound annual growth rate of the industry in the period 2006–10 was 2.6%.

Table 2: Global airlines industry volume: million passengers, 2006–10

Year million passengers % Growth

2006 2,144.9

2007 2,283.5 6.5%

2008 2,277.1 (0.3%)

2009 2,244.7 (1.4%)

2010 2,373.1 5.7%

CAGR: 2006–10 2.6%


Figure 2: Global airlines industry volume: million passengers, 2006–10


MARKET SEGMENTATION I

Global - Airlines 0199 - 0756 - 2010



Domestic is the largest segment of the global airlines industry, accounting for 64% of the industry's total

volume.

The international segment accounts for the remaining 36% of the industry.

Table 3: Global airlines industry segmentation I:% share, by volume, 2010

Category % Share

Domestic 64.0%

International 36.0%

Total 100%


Figure 3: Global airlines industry segmentation I:% share, by volume, 2010



Global - Airlines 0199 - 0756 - 2010


MARKET SEGMENTATION II

Americas accounts for 44.4% of the global airlines industry value.

Europe accounts for a further 33.1% of the global industry.

Table 4: Global airlines industry segmentation: % share, by value, 2010

Category % Share

Americas 44.4

Europe 33.1

Asia-Pacific 17.8

Middle East & Africa 4.7

Total 100%


Figure 4: Global airlines industry segmentation: % share, by value, 2010


FIVE FORCES ANALYSIS

Global - Airlines 0199 - 0756 - 2010



The airlines market will be analyzed taking airline companies as players. The key buyers will be taken as

leisure and business travelers, the latter considered as business-to-business (b2b), and fuel suppliers,

aircraft manufacturers, and skilled employees as the key suppliers.

Summary

Figure 5: Forces driving competition in the global airlines industry, 2010


Rivalry in the global airlines industry is strong, due in part to the sheer size of competitors and the

difficulties in exiting the industry.

Despite the large number of buyers, their power is strengthened by high price sensitivity as product

differentiation tends to be minimal, with negligible switching costs. Budget airlines can compete intensely

on price with the legacy carriers. Supplier power is strong as airlines must enter into contracts with aircraft

suppliers. Boeing and Airbus dominate the jetliner market; the relative lack of alternatives increases their

power. Changing fuel prices could make it difficult to maintain margins and discourage new players to

enter the market. Strong rivalry results from factors such as low switching costs for buyers, and a focus

on passenger transport that leaves carriers vulnerable to declines in demand in an industry that is highly

sensitive to the state of the wider economy.


Global - Airlines 0199 - 0756 - 2010


Buyer power

Figure 6: Drivers of buyer power in the global airlines industry, 2010


Airlines generally have a large number of buyers. Many of these are individual consumers purchasing

flights directly from the airline, although there are B2B sales to charter companies, discounters, and

similar buyers. Price sensitivity is high; a result of factors such as the growth of online price comparison

sites, corporate travel expense policies for business flyers, and, for the legacy airlines like British Airways,

Lufthansa, and Cathay Pacific competition from low-cost carriers such as Ryanair and Jetstar. This tends

to strengthen buyer power in the airlines market. However, airlines can defend themselves against this by

differentiating their service in several ways. A common strategy for easing price competition is to focus on

the additional features available on higher-priced flights, such as extra leg room, in-flight entertainment,

and so on. The inherent switching costs for buyers in the airline market are negligible, which strengthens

buyer power. In response, airlines often use loyalty schemes. BA Miles are offered to flyers with BA and

can also be gained through purchases of goods and services, such as hotel stays, from partner

companies; they can be redeemed for free flights and other incentives. United Airlines has Mileage Plus,

and Japanese carrier JAL has Mileage Bank. The air miles lost should a buyer choose to travel with

another airline can be viewed as a switching cost. Where the buyers are individual travelers, whether

leisure or business, there is no opportunity for them to integrate backwards or for the airlines to integrate

forwards; however, vertical integration is more feasible between airlines and companies such as travel

agents. Overall, buyer power is moderate.


Global - Airlines 0199 - 0756 - 2010


Supplier power

Figure 7: Drivers of supplier power in the global airlines industry, 2010


Airlines must enter into contracts when buying or leasing aircraft from suppliers. Breaking these contracts

can often imply a heavy financial cost. Furthermore, Boeing and Airbus effectively form a duopoly of

suppliers of new jetliners, especially in the large jetliner category, with planes such as the 747 and A380.

In the market for lower-capacity regional jets and propeller-driven aircraft, companies such as Embraer,

ATR, and Bombadier are significant suppliers. The relative lack of alternative manufacturers or substitute

inputs increases supplier power. In an industry where reliability and safety are critical, the quality of the

planes and their maintenance are highly important; another factor that boosts supplier power. Staffing

costs for an airline are substantial, with large numbers of flight and ground personnel, including

mechanics, reservation and transportation ticket agents required for an efficient service. Aviation fuel is

another vital input. International Air Transport Association (IATA) data indicates that for the global

industry, the high price of crude oil and its derivatives in 2008 meant that fuel accounted for 33% of total

airline costs, compared to less than 18% before 2005. The IATA estimates fuel costs to now represent

29% of the total operating costs in 2011, up from 26% in 2010. Relatively few companies supply aviation

fuel, strengthening supplier power, although airlines generally defend against price rises using hedging

strategies. Supplier power is restricted by the improbability of these suppliers integrating forwards into the

airline business. In addition, although a company like Boeing has alternative sources of revenue, notably

defense aerospace, civil aviation remains a very significant part of its business. In 2010, Boeing

generated around 50% of total revenues from its global commercial airplanes division.


Global - Airlines 0199 - 0756 - 2010


Airbus itself is dominated by its passenger jetliner business, although parent company EADS is more

diversified, with space, helicopter, and defense divisions. If a supplier lacks diversity, it is more dependent

on airlines as customers, weakening its supplier power. Commonly, airlines are forming alliances with one

another, not only to achieve network size economies through code sharing, but also to achieve scale

economies in the purchase of fuel, and even of aircraft. Combining forces to make purchases serves to

increase the industry players' bargaining power and therefore reduce supplier power. It is currently

virtually impossible to find substitutes for the inputs required for airlines to operate – an airline must have

aircraft, a supply of aviation fuel and a sufficient workforce before it can offer flights. Unlike other modes

of transport, airlines have no alternative source of energy. Overall, supplier power is assessed as strong.


Global - Airlines 0199 - 0756 - 2010


New entrants

Figure 8: Factors influencing the likelihood of new entrants in the global airlines industry, 2010


The economic entrance barriers to the airlines industry are relatively high. For an entirely new company,

they include the considerable up-front outlay needed to obtain planes, although this may not be an issue

for an existing airline beginning to offer flights to a new country or region. Distribution is not particularly

easy, as new players need to establish an online booking system, and relationships with travel agents

and other sales intermediaries. It is also vital to obtain airport ‘slots’ for take-off and landing. There has

been a growth in air traffic over recent years which mean that congestion at airports in many countries is

expected, especially the major hubs. The time slot given to an airline is important, and is something all

airlines negotiate with airports. Established airlines will already hold the monopoly over slots at certain

airports, making it harder for new airlines to infiltrate. This creates difficulties for a new airline aiming to

negotiate prime slots at busy airports and can result in it being restricted to offering flights only at off-peak

times, or having to fly to airports further away from popular destinations. This can be a deterrent to new

airlines, as customers may seek more convenient alternatives. While there is some debate as to whether

traditional scale economies are significant in this industry, it seems likely that being able to offer a wide

range of routes is advantageous. The larger airlines achieve this not only through their own fleet, but

through code sharing agreements with other carriers in alliances; however, a new entrant will not

necessarily be approved for membership. The compound annual growth rate (CAGR) for the 2006-2010

period was a moderate 2.3% and forecast growth is expected to be stronger, which should attract new

entrants.


Global - Airlines 0199 - 0756 - 2010


However, with changing fuel prices, it may be difficult to maintain margins, thus discouraging new players.

Regulation forms an additional barrier. The various national civil aviation authorities in Europe, such as

Direction Générale de l’Aviation Civile (DGAC) in France and the Federal Aviation Authority in the US,

regulate areas such as safety, environmental impact, airspace usage, and passenger rights; compliance

raises the cost of entry for a new company. For airline markets, there is an additional regulatory issue to

consider. Cabotage is the provision of domestic transport services in a country by companies based in a

different country. Airline cabotage is generally forbidden, unless explicitly permitted by an agreement

between two or more countries. Cabotage by any EU-based carriers is permitted in any other EU-country;

also, the Open Skies agreement, finalized in mid-2010, accords cabotage rights to US carriers in the EU.

This liberalization should increase the opportunities for market access in this region. However, in other

countries, cabotage is generally not possible, and in some cases foreign ownership of domestic airlines is

also restricted to a certain percentage. Overall, there is a moderate likelihood of new entrants to this

industry.


Global - Airlines 0199 - 0756 - 2010


Substitutes

Figure 9: Factors influencing the threat of substitutes in the global airlines industry, 2010


Other forms of transport such as road, rail and marine travel are considered as substitutes to airline

travel. Buyers take into account not only the cost of travel but also how long the journey will take on

corresponding forms of transportation. In larger countries, air travel makes it easier to overcome long

distances and has certain benefits such as shorter travel time than rail travel, even including the time to

check in. However in smaller countries, domestic air travel may not be so appropriate, and rail and road

transportation become more attractive alternatives. Furthermore, many consumers are now aware of the

environmental impact of air travel, and are turning to rail travel instead. It is possible to travel around

much of the world by long-distance bus or train, although levels of service vary and some border

crossings may present a difficulty. Other than cross-border land transport to Canada and South America,

there are few substitutes for international air travel in the US. Its geography isolates it from Europe and

Asia-Pacific, and marine passenger transportation is essentially restricted to leisure cruises. Domestic

flights, which account for almost 87.1% of US passenger volumes can be substituted by car, bus, or rail.

Rail track density is lower in the US than in most major Western European countries. This suggests that

rail travel is not as strong a threat to domestic travel in the US as it might be in some comparable

countries or regions. Bus travel, however, is popular in the US with Greyhound Lines providing an

extensive bus network which links most US cities and also runs services to Canada and Mexico. Fares

are considerably lower than both air and train travel, but these services are more time consuming. Most of

Europe has well-developed land transport infrastructure.


Global - Airlines 0199 - 0756 - 2010


Domestic flights, defined as flights beginning and ending in the same country, account for just under one-

third of European air passenger volumes, and can easily be substituted by car, bus, or rail. Cross-border

land transport, including high speed trains in several countries, means that many international flights

within Europe can also be substituted. The Channel Tunnel allows Eurostar to operate trains connecting

the UK to France and beyond. Long distance bus travel is available from companies such as Eurolines,

Busabout, and National Express. Eurolines services are focused on international travelers, and connect

more than 40 European cities. Fares are considerably lower than both air and train travel, but these

services are more time consuming. In Asia-Pacific, domestic flights, which account for 77.4% of air

passenger volumes for the region as a whole, can be substituted by car, bus, or rail. International air

travel is generally less vulnerable to road and rail substitution in this region. Japan, Australia, and Taiwan

are islands with no links to mainland Asia, and land access from the South Korean peninsula to the rest of

the continent is complicated by the need to travel via North Korea. Singapore is connected by a road and

rail bridge to Malaysia. Travel from the more developed regions of China to the west is technically

possible over land, but the distances make this impractical. In contrast, international land travel in Europe

is favored by a dense road and rail infrastructure, and is a more significant substitute to air travel in that

region. For business travel, alternatives include ‘virtual meetings’ via videoconferencing and similar

technologies. The switching costs here are the cost of the equipment required. At present it is not clear

how completely such technologies will replace face-to-face meetings. Overall, the threat from substitutes

is assessed as moderate.


Global - Airlines 0199 - 0756 - 2010


Rivalry

Figure 10: Drivers of degree of rivalry in the global airlines industry, 2010


The competitive landscape has several large companies, such as, JAL, Air France-KLM and British

Airways, alongside smaller competitors. Rivalry is increased by the presence of low-cost carriers in the

market, as these companies can compete more intensely on price. Switching costs for buyers are low,

which means that it is easy for them to change to a competitor. In this market, ‘storage costs’ are actually

the costs associated with unsold seats on a flight. Given the cost of fuel, staffing and so on associated

with operating a flight, it is important to maximize the number of seats sold, hence the common policy of

selling slightly more tickets than there are available seats on the understanding that some buyers will not

make their plane. Where storage costs are high, rivalry is intensified. Diversification in the passenger

airlines industry ranges from moderate to little. Most carriers generate additional revenues through freight,

but this is often a small proportion of their total sales. A lack of diversity forces players to compete more

intensely in their single core business. Exit costs are moderate. Planes are important assets with a high

purchase price, which depreciate in value with time and require frequent maintenance expenses. The

difference between the outlay on them and the amount they can be sold for represents a sunk cost for an

airline exiting the market. However, they are mobile. If conditions become tough in the airlines market in

one country, a carrier that wishes to exit is not obliged to try to sell these assets where other companies

are trying to do the same thing. It could sell them in a location where there is high demand for second-

hand planes.


Global - Airlines 0199 - 0756 - 2010


However, the airline industry is quite labor-intensive; thus large numbers of employees may need to be

offered severance pay should a company lay them off on exiting this market. Rivalry in the global airline

industry is assessed strong.

LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


LEADING COMPANIES

Air France KLM

Table 5: Air France KLM: key facts

Head office: 45 rue de Paris, 95747 Roissy CDG Cedex, FRA

Telephone: 33 1 41 56 7800

Website: www.airfranceklm-finance.com

Financial year-end: March

Ticker: AF

Stock exchange: Paris

Source: company website D A T A M O N I T O R

Air France-KLM (or the group) is a combined entity of two airlines which include Air France and KLM

Royal Dutch Airlines. The group's main business activity is passenger transportation. The groups is also

involved in other business activities such as cargo transportation, aeronautics maintenance and overhaul

services, and other air-transport related activities, including catering and air transport services. The group

has its operations across Europe, North America, South America, Africa, the Asia Pacific and the Middle

East. Air France-KLM serves 244 destinations in 105 countries world-wide.

In FY2010, the group's fleet comprised 625 aircraft, of which 594 were in operation. The main fleet

consisted of 168 long-haul aircraft, 26 cargo aircraft and 232 medium-haul aircraft. The regional fleet

comprises 199 aircraft. These 168 long-haul aircraft included 13 Boeing 747-400s, 30 Boeing 777-300s,

25 Boeing 777-200s, 18 Airbus 340-300s, 15 Airbus 330-200s, and two Airbus 380-800. In the freighter

aircraft portfolio, the group has five Boeing 747-400 cargo aircrafts, four Boeing 747-200 cargo flights,

and two Boeing 777-cargo flights. In the medium-haul segment, the group has 61 Airbus 320s, 45 Airbus

319s, 24 Airbus 321s, and 18 Airbus 318s.

The group operates its business through four business divisions: passenger, cargo, maintenance and

other.

Passenger business division's operations primarily include passenger transport services, on scheduled

flights that have the group's air code. It also operates passenger transport services, on scheduled flights

which are operated by other airlines under code-sharing agreements. The group primarily operates

through six hubs which include Paris, Amsterdam, Atlanta, Detroit, Minneapolis and New York. In

FY2010, the group carried 71.4 million passengers with a load factor of 80.7%. For the same period the

group generated a total of 251 billion available seat kilometers (ASKs) and 202.4 billion revenue

passenger kilometers (RPKs).

LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


The cargo business division is primarily involved in freight transport through its own flights and by other

partner airlines under code-sharing agreements. The revenue for this division is also derived from sales of

cargo capacity to third parties. In FY2010, the group transported approximately 1.46 million tons of freight

with a load factor of 66.5%. For the same period, the group generated total revenue tonne kilometers

(RTKs) of 11.2 billion and available tonne kilometers (ATKs) of 16.8 billion. In FY2010, the group carried

cargo to 350 destinations in 175 countries.

Air France-KLM is a founding member of SkyTeam since its inception in 2000. SkyTeam brings together

13 member airlines including Aeroflot, AeroMexico, Air Europa, Air France, KLM, Alitalia, China Southern,

CSA, Delta Airlines, Kenya Airways, Korean Airlines, Tarom and Vietnam Airlines. The alliance operates

in countries world-wide with more than 13,133 daily flights to 898 destinations in 169 countries. In

addition, the group is also a member of SkyTeam Cargo. This global alliance dedicated to cargo has

seven airline members including AeroMexico Cargo, Air France Cargo, KLM Cargo, Korean Air Cargo,

CSA Cargo, Delta Air Logistics and Korean Air Cargo. SkyTeam Cargo operates cargo services to 728

commercial destinations in 149 countries with more than 15,000 daily flights.

In addition, the group also offers a frequent flyer loyalty program named Flying Blue that offers rewards to

passengers travelling on certain types of tickets on Air France-KLM or with other partner companies.

Maintenance business division operations include maintenance, repair and overhaul services provided to

airlines within the group and other clients around the world. The maintenance activities are known under

the Air France Industries (AFI) brand and KLM Engineering and Maintenance (KLM E&M). During

FY2010, the group worked and maintained over 1,260 aircraft. The principal activities of the maintenance

division are aircraft maintenance, component overhaul and engine overhaul.

The other division consists primarily of catering supplied by the group to third-party airlines through

Servair and leisure activities and charter flights operated primarily by Transavia.

Cityjet, a subsidiary of Air France, brought Belgian airline VLM in 2007.

Key Metrics

The company recorded revenues of $27,818 million in the fiscal year ending March 2010, a decrease of

12.4% compared to fiscal 2009. Its net loss was $2,065 million in fiscal 2010, compared to a net loss of

$1,078 million in the preceding year.

LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


Table 6: Air France KLM: key financials ($)

$ million 2006 2007 2008 2009 2010

Revenues 28,417.8 30,570.4 31,944.2 31,760.0 27,817.7

Net income (loss) 1,209.5 1,180.3 990.9 (1,078.3) (2,065.2)

Total assets 35,077.1 35,330.1 40,655.5 38,116.0 36,793.9

Total liabilities 24,674.1 24,186.6 26,595.0 30,668.5 29,689.5

Employees 102,422 103,050 104,659 104,721 106,933

Source: company filings D A T A M O N I T O R

Table 7: Air France KLM: key financials (€)

€ million 2006 2007 2008 2009 2010

Revenues 21,452.0 23,077.0 24,114.0 23,975.0 20,999.0

Net income (loss) 913.0 891.0 748.0 (814.0) (1,559.0)

Total assets 26,479.0 26,670.0 30,690.0 28,773.0 27,775.0



Table 8: Air France KLM: key financial ratios

Ratio 2006 2007 2008 2009 2010

Profit margin 4.3% 3.9% 3.1% (3.4%) (7.4%)

Revenue growth 13.0% 7.6% 4.5% (0.6%) (12.4%)

Asset growth 14.2% 0.7% 15.1% (6.2%) (3.5%)

Liabilities growth 8.5% (2.0%) 10.0% 15.3% (3.2%)

Debt/asset ratio 70.3% 68.5% 65.4% 80.5% 80.7%

Return on assets 3.7% 3.4% 2.6% (2.7%) (5.5%)

Revenue per employee $277,458 $296,656 $305,221 $303,282 $260,141

Profit per employee $11,809 $11,454 $9,468 ($10,297) ($19,313)


LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


Figure 11: Air France KLM: revenues & profitability


Figure 12: Air France KLM: assets & liabilities


LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


British Airways Plc

Table 9: British Airways Plc: key facts

Head office: Waterside, Harmondsworth, UB7 0GB, GBR

Telephone: 44 20 8738 5117

Website: www.britishairways.com

Financial year-end: BAY

Ticker: London


British Airways is one of the world's leading scheduled premium international airlines. At the end of March

2009, the company had 241 aircraft in service with 41 on order. The company serves more than 370

destinations worldwide.

The company operates through two business divisions: airline and non-airline.

The airline business comprises the company's main scheduled passenger and cargo operations. The

company's passenger transportation services include domestic and international air transport, and

scheduled as well as chartered services. In FY2009, the company carried more than 33 million

passengers.

The company's principal place of business is Heathrow, one of the world's premier airport locations, which

serves a large geographical area with a comparatively high proportion of point-to-point business. In

addition, the company has a second base of operations at Gatwick, London. The company operates

offices, maintenance hangars, and other support facilities at Heathrow, Gatwick and other UK airports.

The company also occupies space and desks under lease or license in airports throughout the UK,

including: Manchester, Birmingham, Newcastle, Edinburgh and Glasgow.

The company carried 777,000 tons of cargo to destinations in Europe, the Americas and throughout the

world during FY2009. A majority of the cargo is carried in the holds of passenger aircraft, while the

balance is carried on leased or part-chartered freighter aircraft, where market conditions allow their

deployment.

The company also provides a variety of services to other airlines, including: cargo handling at airports;

airframe maintenance; computer and communications services; and consultancy services. British Airways

has been at the centre of ongoing disputes with employees throughout 2010 as a result of the companies

cost cutting measures. Industrial action has taken place on several occasions.

LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


On November 12, 2009, British Airways confirmed that it had reached a preliminary agreement to merge

with Spanish airline giant Iberia. The merger between the two carriers is expected to create the world's

third-largest airline in terms of annual revenue and the second largest airline group in Europe. The merger

was confirmed on April 8, 2010, and it is expected to be completed by the end of the year under the newly

created Anglo-Spanish Holding Company, International Airlines Group.

Key Metrics

The company recorded revenues of $12,345 million in the fiscal year ending BAY 2010, a decrease of

11.1% compared to fiscal 2009. Its net loss was $656 million in fiscal 2010, compared to a net loss of

$553 million in the preceding year.

Table 10: British Airways Plc: key financials ($)

$ million 2006 2007 2008 2009 2010

Revenues 13,149.8 13,114.2 13,517.3 13,886.4 12,345.2

Net income (loss) 721.2 447.8 1,050.1 (552.9) (656.3)

Total assets 18,800.4 17,580.4 17,177.3 16,196.7 19,736.2



Table 11: British Airways Plc: key financials (£)

£ million 2006 2007 2008 2009 2010

Revenues 8,515.0 8,492.0 8,753.0 8,992.0 7,994.0

Net income (loss) 467.0 290.0 680.0 (358.0) (425.0)

Total assets 12,174.0 11,384.0 11,123.0 10,488.0 12,780.0



LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


Table 12: British Airways Plc: key financial ratios

Ratio 2006 2007 2008 2009 2010

Profit margin 5.5% 3.4% 7.8% (4.0%) (5.3%)

Revenue growth 9.6% (0.3%) 3.1% 2.7% (11.1%)

Asset growth 4.3% (6.5%) (2.3%) (5.7%) 21.9%

Liabilities growth 1.7% (1.0%) (22.4%) 9.5% (29.6%)

Debt/asset ratio 84.4% 89.4% 70.9% 82.4% 47.6%

Return on assets 3.9% 2.5% 6.0% (3.3%) (3.7%)


Figure 13: British Airways Plc: revenues & profitability


LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


Figure 14: British Airways Plc: assets & liabilities


LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


Deutsche Lufthansa

Table 13: Deutsche Lufthansa: key facts

Head office: Von-Gablenz-Strasse 2-6, 50679 Koln, DEU

Website: www.lufthansa.com

Financial year-end: December

Ticker: LHA

Stock exchange: Frankfurt


Lufthansa is a German aviation group which operates in several countries. It is also a holding company

which has presence in several segments of the aviation sector. Lufthansa operates through 400

subsidiaries and associate companies. Lufthansa is also the single largest operating company in the

group and, with the exception of its core business (passenger transportation), all the other business

segments are operated as separate companies.

The company has five business segments: passenger airline group; logistics; maintenance repair

overhaul (MRO); catering; and IT services.

The passenger airline group is the largest segment and the core business of Lufthansa; it encompasses

the services provided by other brands, including SWISS, Germanwings, Austrian Airlines, British Midland

Jet Blue and Brussels Airlines. The services are provided through multiple hubs in Frankfurt, Munich,

Zurich, Vienna and Brussels. Lufthansa, SWISS, Austrian Airlines, British Midland and Brussels Airlines

together serve 254 destinations in 101 countries. The passenger airline segment also includes Star

Alliance, which is a network of airlines and currently has about 24 member airlines, serving 916

destinations across 160 countries. The segment also actively invests in other airline companies attaining

either a majority or minority stake and also undertakes total acquisitions.

The logistics segment is operated by Lufthansa Cargo which is a wholly-owned subsidiary of the group

and is an airport-to-airport business. The operations of this segment are divided into three air freight

products: td.Pro which deals with general cargo; td.Flash for express shipments; and the Specials

segment which deals with temperature-sensitive shipments, live animals, airmail and valuable freight.

This segment uses its own fleet of freighters as well as the belly capacity of its passenger aircraft and

road services. The logistics segment serves 300 locations with Frankfurt as its air cargo hub.

Lufthansa Technik, a wholly-owned subsidiary of Lufthansa, operates the MRO segment.

LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


The activities of this subsidiary and its 56 subsidiary and associate companies are categorized into six

business units: maintenance, overhaul, engine services, component services, landing gear services and

completion. The range of services that the segment provides span from repair of individual components to

fully integrated maintenance of entire fleets with reserve engines and diverse components. The segment

caters to commercial aircraft, their engines and components. Lufthansa Technik's stations are located at

all principal German airports and 50 other locations in the world with primary centers located in Hamburg,

Frankfurt, Munich and Berlin.

The catering segment is operated by LSG Lufthansa Service Holding which offers airline catering as well

as in flight service solutions, which include the development, sourcing and logistics of onboard equipment

and the management of all processes that take place before, during, and after the onboard service. The

segment comprises 129 companies and over 200 facilities across 50 countries.

Lufthansa systems, a subsidiary, offers IT solutions to the aviation industry for all business processes like

passenger and cargo services through to flight operations, and the maintenance and overhaul of aircraft.

The segment focuses on integrated platforms with a service portfolio that encompasses the entire range

of IT services, such as consultancy, the development and implementation of industry solutions, as well as

operations of a company's own computer centre. The IT services segment caters to other industries as

well and operates in Germany and 16 other countries. Additionally, Lufthansa also provides flight training

services and business travel management solutions which specialize in dealing with corporate travel.

Key Metrics

The company recorded revenues of $29,499 million in the fiscal year ending December 2010, which was

within 0.1% of the revenue in fiscal 2009. Its net income was $1,498 million in fiscal 2010, compared to a

net loss of $132 million in the preceding year.

Table 14: Deutsche Lufthansa: key financials ($)

$ million 2006 2007 2008 2009 2010

Revenues 26,294.2 29,700.1 32,945.6 29,518.6 29,498.7

Net income (loss) 1,063.7 2,192.4 806.8 (132.5) 1,498.3

Total assets 25,780.3 29,567.6 29,684.2 34,961.8 38,840.6



LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


Table 15: Deutsche Lufthansa: key financials (€)

€ million 2006 2007 2008 2009 2010

Revenues 19,849.0 22,420.0 24,870.0 22,283.0 22,268.0

Net income (loss) 803.0 1,655.0 609.0 (100.0) 1,131.0

Total assets 19,461.0 22,320.0 22,408.0 26,392.0 29,320.0



Table 16: Deutsche Lufthansa: key financial ratios

Ratio 2006 2007 2008 2009 2010

Profit margin 4.0% 7.4% 2.4% (0.4%) 5.1%

Revenue growth 9.9% 13.0% 10.9% (10.4%) (0.1%)

Asset growth 1.0% 14.7% 0.4% 17.8% 11.1%

Liabilities growth (1.3%) 5.9% 0.4% 30.4% 3.9%

Debt/asset ratio 74.8% 69.1% 69.1% 76.5% 71.6%

Return on assets 4.1% 7.9% 2.7% (0.4%) 4.1%


LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


Figure 15: Deutsche Lufthansa: revenues & profitability


Figure 16: Deutsche Lufthansa: assets & liabilities


LEADING COMPANIES

Global - Airlines 0199 - 0756 - 2010


MARKET FORECASTS

Market value forecast

In 2015, the global airlines industry is forecast to have a value of $713.6 billion, an increase of 42.4%

since 2010.

The compound annual growth rate of the industry in the period 2010–15 is predicted to be 7.3%.

Table 17: Global airlines industry value forecast: $ billion, 2010–15

Year $ billion € billion % Growth

2010 501.2 377.4 11.9%

2011 540.4 406.9 7.8%

2012 574.6 432.7 6.3%

2013 617.9 465.3 7.5%

2014 664.3 500.3 7.5%

2015 713.6 537.4 7.4%

CAGR: 2010–15 7.3%


Figure 17: Global airlines industry value forecast: $ billion, 2010–15


MARKET FORECASTS

Global - Airlines 0199 - 0756 - 2010


Market volume forecast

In 2015, the global airlines industry is forecast to have a volume of 3,046.4 million passengers, an

increase of 28.4% since 2010.

The compound annual growth rate of the industry in the period 2010–15 is predicted to be 5.1%.

Table 18: Global airlines industry volume forecast: million passengers, 2010–15

Year million passengers % Growth

2010 2,373.1 5.7%

2011 2,498.6 5.3%

2012 2,631.4 5.3%

2013 2,758.1 4.8%

2014 2,896.3 5.0%

2015 3,046.4 5.2%

CAGR: 2010–15 5.1%


Figure 18: Global airlines industry volume forecast: million passengers, 2010–15


APPENDIX

Global - Airlines 0199 - 0756 - 2010


APPENDIX

Methodology

Datamonitor Industry Profiles draw on extensive primary and secondary research, all aggregated,

analyzed, cross-checked and presented in a consistent and accessible style.

Review of in-house databases – Created using 250,000+ industry interviews and consumer surveys

and supported by analysis from industry experts using highly complex modeling & forecasting tools,

Datamonitor’s in-house databases provide the foundation for all related industry profiles

Preparatory research – We also maintain extensive in-house databases of news, analyst

commentary, company profiles and macroeconomic & demographic information, which enable our

researchers to build an accurate market overview

Definitions – Market definitions are standardized to allow comparison from country to country. The

parameters of each definition are carefully reviewed at the start of the research process to ensure they

match the requirements of both the market and our clients

Extensive secondary research activities ensure we are always fully up-to-date with the latest

industry events and trends

Datamonitor aggregates and analyzes a number of secondary information sources, including:

- National/Governmental statistics

- International data (official international sources)

- National and International trade associations

- Broker and analyst reports

- Company Annual Reports

- Business information libraries and databases

Modeling & forecasting tools – Datamonitor has developed powerful tools that allow quantitative

and qualitative data to be combined with related macroeconomic and demographic drivers to create

market models and forecasts, which can then be refined according to specific competitive, regulatory

and demand-related factors

Continuous quality control ensures that our processes and profiles remain focused, accurate and

up-to-date

APPENDIX

Global - Airlines 0199 - 0756 - 2010


Industry associations

International Air Transport Association (IATA)

Travel Industry Designator Service, 800 Place Victoria, P.O. Box 113, Montreal, Quebec, H4Z 1M1,

Canada

Tel.: 1 514 874 0202

Fax: 1 514 874 1753

www.iata.org

International Air Carriers Association

Rue Montoyer, 23, BE-1000 Brussels Belgium

Tel.: 32 2 546 1060

Fax: 32 2 546 1070

www.iaca.be

Association of European Airlines

Avenue Louise 350, B-1050 Brussels, Belgium

Tel.: 32 2 639 8989

Fax: 32 2 639 8999

www.aea.be

Related Datamonitor research

Industry Profile

Airlines in Europe

Airlines in Asia-Pacific

Airlines in the United States

Airlines in the United Kingdom

Airlines in Japan

APPENDIX

Global - Airlines 0199 - 0756 - 2010


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Global - Airlines 0199 - 0756 - 2010


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