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Opening Plenary

WORLD PASSENGER SYMPOSIUM October 15 – 17, 2014

San Diego, CA, USA

IATA Opening Remarks Aleks Popovich Senior Vice President, Financial and Distribution Services (FDS), IATA

Opening Plenary

Welcome Address by Principal Airline Sponsor Keeping on Course Jerry Foran Head of Product Delivery, Revenue Management, British Airways

Opening Plenary

Video Name: 2b.Foran.Jerry.Welcome Address by

Principal Airline Sponsor

100 years of commercial aviation, what’s next? Tony Tyler Director General and CEO, IATA

Opening Plenary

Economic outlook: Where does the industry come from? Where is it going? Julie Perovic Senior Economist, IATA

Opening Plenary

Key trends

The demand cycle has been turning up

Source: CPB Netherlands, Markit

Source: Thomson Reuters Datastream

Global industrial production, trade and business confidence

04 05 06 07 08 09 10 11 12 13 1430

35

40

45

50

55

60

65

70

-20%

-10%

0%

10%

20%

International Trade Industrial ProductionPMI Business Confidence

Source: CPB Netherlands, Markit PMI

PMI index level, 50=no change % change o

Air travel growth has been robust

-15%

-10%

-5%

0%

5%

10%

15%

2008 2009 2010 2011 2012 2013 2014

World industrial production and RPK growth

RPK growth

Industrial production

growth

Source: IATA, Netherlands CPB

Variation among regions, but solid overall

Source: IATA

80

90

100

110

120

130

140

150

160

170

2010 2011 2012 2013 2014

Inde

xed

to 1

00 in

May

201

0RPKs by region of airline registration

Middle East

Cycle peak for market total

Middle East

Africa

EuropeAsia Pacific

North America

Cycle peak for market total

Latin America

Passenger business has supported industry revenues

30

40

50

60

70

80

90

150

200

250

300

350

400

450

500

550

600

650

2000 2002 2004 2006 2008 2010 2012 2014

US$

billio

n

US$

billio

nRevenues from passengers and cargo

Passenger revenue

Cargo revenue

Source: IATA, ICAO

But financial performance has been mixed

Source: IATA, Airline Analyst

-15% -10% -5% 0% 5% 10% 15% 20%

ThaiGaruda

Korean AirLan Airline

SIAGOL

Air France - KLMAvianca

LufthansaJapan Airlines

Air CanadaBritish airways (IAG)THY - Turkish Airlines

AirAsiaUnited Airlines

Jet BlueAmerican Airlines

Delta Air LinesRyanair

Southwest AirlinesCOPA Airlines

Operating margins

2014Q2

2013Q2

Part of the difference is capacity

Source: IATA

120

130

140

150

160

170

180

190

200

210

2008 2009 2010 2011 2012 2013 2014

ASKs

billio

nASKs by region of airline registration

Asia Pacific airlines+38%

European airlines+18%

N America airlines+2%

Ancillaries are also making a difference

Source: IdeaWorks, Airline Analyst, IATA

0%

5%

10%

15%

20%

25%

-10% -5% 0% 5% 10% 15% 20%

Ancil

laries

as a

% of

reve

nues

Operating margin, % revenue

Ancillaries and operating profits as a % of revenues

Ryanair

Southwest

DeltaAmerican

Garuda

AirAsia

United

JetBlue

Turkish

Air Canada

JAL

Lufthansa

AF-KLMKorean

LAN

GOL

Overall the picture is improving

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2000 2002 2004 2006 2008 2010 2012 2014F

% o

f inve

sted

capit

alReturn on capital invested in airlines and their cost of capital

Inadequate returns

Cost of capital (WACC)

Return on capital (ROIC)

Source: IATA

Source: IATA, ICAO

Our passenger forecast service

Source: IATA, Tourism Economics

A joint partnership between:

www.iata.org/pax-forecast

Forecast overview: 2014 - 2034

Source: IATA, Tourism Economics

What are the downside risks?

Growth in air travel depends on Asia-Pacific

Source: OECD, Standard Chartered Research

Middle Class in 2009 and projected for 2030

The outlook for China is fragile

Source: IMF

• The IMF still expects the Chinese economy to expand by 7.4% in 2014

• But there are concerns over:

• Sharp decline in house prices • Unregulated borrowing

• A slowdown in China will impact the entire region

The Eurozone economy is waning

Source: Markit, Eurostat

Trade and economic openness is important

100

200

300

400

500

600

700

800

900

1000

1100

1200

1300

1400

1500

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Inde

xed

to e

qual

100

in 1

970

Air cargo, air travel, world GDP and world trade

World trade

World air travel (RPK)

World GDP

World air cargo (FTK)

Source: ICAO, Haver, IATA

And impacts business travel growth

Source: IATA, CPB Netherlands

Source: Thomson Reuters Datastream

Premium Passengers and World Trade Growth% Change over year

2008 2009 2010 2011 2012 2013 2014-30%

-20%

-10%

0%

10%

20%

Premium Passengers GrowthWorld Trade Growth

Source: IATA, Netherlands CPB

Trade was expanding faster than local output

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

% ch

ange

over

year

World trade and domestic industrial production growth

World trade

Industrial production

Source: Netherlands CPB, IATA

But the relationship has broken down

Source: Netherlands CPB, IATA

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Ratio of World Trade to Domestic Industrial Production

Trade barriers need to be resisted

Source: World Trade Organization, Global Trade Alert, B20

Rising geopolitical risks

Source: Deutsche Bank Research

The event for a century of aviation and beyond Eric Leopold Director, Transformation, IATA

Opening Plenary

Simplifying the Business StB

Digital Transformation World Passenger Symposium WPS

Digital Transformation

Mobile transformation

First international iTunes in 2004 Apple Pay launched in 2014

Media transformation

First Facebook homepage in 2004 More than 1bn users in less than 10 years

Personal transformation

Disruptions ahead?

Towards value-add services?

More choice and transparency?

Non-Air Air Air Air core

Air un-bundled

Air Value-add

Non-Air

Preferred seating

In-flight meals

Air examples

Early boarding

Checked bags Hotel revenue & commissions

Car rental commissions

Non-Air examples

FFP miles sales

Towards door-to-door?

Door Door

Flight(s) Bus - Train

Bike - Car

Bus - Train

Bike - Car

to

Trip planning Fulfillment – intermodal Delivery – Pax & Bag Real-time

information

Relevance today?

Years of travel history

FFP preferences

Shopping behavior

Business & leisure patterns

Towards life experiences?

The first 10 years of StB

Enhancing passenger end-to-end journey

Shopping Departure Flight Arrival

Tickets

Boarding passes

Bags

Check-in kiosks

Airline self-service

Receipt for misc. orders

Security check-point

Product differentiation

Paper tickets Electronic tickets

Tickets

Boarding passes

Paper boarding passes Electronic and mobile boarding passes

Self-service check-in kiosks

Airline dedicated kiosk Shared common-use kiosks

Fast Travel

Manual boarding gate Self-boarding gate

Border Control

Manual Border Control Automated Border Control

Customer Order Transformation

World Passenger Symposium WPS

2011

2012

2013

2014

The Invisible Highway

The 1st Passenger innovation award

Welcome Reception & Gala Dinner

#iatawps http://eventmobi.com/wps2014


Digital Transformation World Passenger Symposium WPS

Thank you

100 years of flying; 50 years of reservation and customer service systems Gary Doernhoefer Consultant, former IATA General Counsel Bryan Wilson Director, Industry Architect, Transformation, IATA

Opening Plenary

74

Pan-Am Res. Center 1952

AA’s Magnetronic

Reservisor

1952

1929 First US guide is

24 pages

1954 Global guide is

528 pages

1962 Begins feed to

CRSs

Pan Am teletype operators in 1940’s SITA founded 1949

Aeronautical Radio Incorporated founded 1929

ATL 1956

1994 A great year

But quickly followed…

First OTA 12 March 1996

Feb 21, 2005

G2 SwitchWorks to sell final asset, its res system April 17, 2008

1. First computer reservations systems 2. Expansion of reservation systems to travel agency desktops 3. Failure of joint industry efforts leading to the ‘arms race’ fueled by

deregulation 4. Use of CRSs as competitive weapons which attracted government

regulation 5. CAB’s choice not to follow DOJ’s advice on who should pay for CRS use 6. Expansion of CRSs into Global GDSs 7. Combination of ETs and the Internet leading to Direct Sales 8. OTAs to support industry shoppers 9. “Full Content” negotiations

Summary of last 50 years

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