© Oliver Wyman

Phoenix Sky Harbor International Aviation Symposium Pre-panel Charts May 6 – 8, 2015

• Who pays the bills? The importance of the industry’s best customers

• Evolving loyalty programs: No more mileage runs • The customer experience for different segments

Panel 1

Customer Segmentation –

Where’s My Limo?

2 © Oliver Wyman 2

Oliver Wyman surveyed 450 global frequent travelers asking where frustrations lie in the travel experience.

Frequency of response

Air Travel Irritants of Global Frequent Travelers

3 © Oliver Wyman 3

Airline loyalty program membership is spread across alliances. Oneworld and SkyTeam have similar overall participation.

0%

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S7 AB UL CX AR ST FB RJ QR QF AA MU FY GA VN OW CI AM ME MF JL OK KE LA DL SU SV CZ BA AZ

Loya

lty P

rogr

am R

atio

MH

Ratio of airline loyalty program members to annual passengers SkyTeam and oneworld, 2014

1 2 3

Notes: 1. OW = oneworld; 2. ST = SkyTeam; 3 = Flying Blue, which includes AirEuropa, Air France, Kenya Arways, KLM, and Tarom; Star does not report loyalty numbers. Source: Company reports

• Aircraft technology: How are aircraft needs changing over time?

• Network trends: Outsourcing short-haul feed, long-haul LCCs, and the future of regionals

• Where are the new entrants? • US airlines as a case study for the benefits of industry

rationalization

Panel 2

The Evolving Industry

5 © Oliver Wyman 5

World Total

Africa

Asia

Canada

Caribbean

Central America

Europe

Middle East

Oceania

South America

US

120 Seats 136 Seats +11.5%

2009 2015 2015

120 Seats 122 Seats +1.7%

164 Seats 164 Seats 0.0%

72 Seats 81 Seats +12.5%

80 Seats 90 Seats +12.5%

99 Seats 101Seats +2.0%

127 Seats 143 Seats +12.6%

171 Seats 182 Seats +6.4%

108 Seats 124 Seats +14.8%

124 Seats 139 Seats +12.1%

98 Seats 109 Seats +11.2%

More Seats

Source: PlaneStats.com

Since 2009, airlines have increased their average seats per departure 11.5 percent.

6 © Oliver Wyman 6

Airlines are replacing 50-seat regional aircraft with 75- to 100-seat regional aircraft.

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2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005

More than 100 seats

75 seats 50 seats Fewer than 45 seats

100 seats

Weekly operations by aircraft size May 2005 – 2015

Note: 50 seats = aircraft ranging from 46 to 55 seats; 75 seats = aircraft ranging from 56 to 80 seats; 100 seats = aircraft ranging from 81 to 100 seats Source: PlaneStats.com > schedule > weekly operations May 2005 – 2015

• Shortages, real or not: The latest on pilots and mechanics

• Executive and management career trends • Labor cost restructuring: Issues and status, US vs.

Europe • Management and labor relations: Sharing the benefits

of financial success

Panel 3

The Workforce of Tomorrow

8 © Oliver Wyman 8

US airline employee productivity rose in the last two decades.

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Passenger per employee

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iles,

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2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000

Passengers per employee ASMs (millions) per employee

Available seat miles and passengers per employee 1995 – 2013, ASMs in millions

Sources: BTS employee statistics; MIT Airline Data Project

9 © Oliver Wyman 9

Total US airline employment declined in the last two decades.

Total employees and average wages or salaries 1995 – 2013

Sources: BTS employee statistics; MIT Airline Data Project

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Average wages/salaries

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Management/other Maintenance (in-house) Passenger, cargo, and aircraft handling

Flight attendants Pilots/co-pilots

Average annual wages/salaries

10 10 © Oliver Wyman

Asia Pacific has seen the strongest demand for new pilots and technicians.

New pilots by region 2014-2033

New technicians by region 2014-2033

Pilot and technician outlook 2014-2033

Source: Boeing Current Market Outlook (2014-2033)

41%

18%

17%

10%

8%

3% 3% Region Pilots

Asia Pacific 216,000

Europe 94,000

North America 88,000

Middle East 55,000

Latin America 45,000

Commonwealth of Independent States (CIS)

18,000

Africa 17,000

Total = 533,000

38%

17%

19%

11%

8%

4% 3% Region Technicians

Asia Pacific 224,000

Europe 102,000

North America 109,000

Middle East 62,000

Latin America 44,000

Commonwealth of Independent States (CIS)

24,000

Africa 19,000

Total = 584,000

• Growing the ancillary revenue slice of the pie • Increasing seat density and aircraft size to reduce unit

costs and increase revenue • Distribution costs: Where do we go from here? • Deploying technology to replace labor

Panel 4

Increasing Revenues and Reducing Costs:

What Levers Remain?

12 © Oliver Wyman 12

Ancillary revenue per passenger segment ranges from $4.54 to $48.73.

$0$20$40$60$80

$100$120$140$160$180$200$220$240$260$280

Rev

enue

per

pas

seng

er s

egm

ent

Delta United American Virgin America

Alaska US Airways

jetBlue Spirit Allegiant Hawaiian Frontier Southwest

Ticket revenue Miscellaneous Baggage fees Reservation change fees

Note: Adjustment made to Allegiant miscellaneous revenue, which is reported differently than other airlines. Source: PlaneStats.com > form 41 financials > P1.2 income statement

Service fees and ticket revenue YE Q3 2014

13 © Oliver Wyman 13

Distribution costs for the top three US airlines1 have been flat since 2011.

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t per

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in U

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nts

Distribution costs per ASM 2011 – 2014, cents

Note: (1) Top Three US Airlines = American / US Airways, Delta Air Lines, and United Airlines Source: PlaneStats.com > form 41 financials > P1.2 income statement

14 © Oliver Wyman 14

-8.9%

-20.0%

-12.2%

Airline A 144 seats 12 first 132 coach

Airline B 158 seats 4 first 150 coach

Airline C 180 seats 0 first 180 coach

CASM 14.1 cents 12.9 cents 11.3 cents

Fare requirement $206 $188 $165

Note: Mainline operations only. Source: PlaneStats.com

Fare requirement change

A320 seat density comparison Based on average cost and revenue for US carriers, YE Q2 2014

See Oliver Wyman’s seat density tool at: http://www.oliverwyman.com/insights/publications/2014/nov/airline-economic-analysis-2014.html#.VTfGV2MuN8E

• Open skies revisited: Who is unhappy and why? The Norwegian Air Shuttle case

• The equity-stake-and-partnership model and its impact on the alliances

• What’s new in the alliance world? • Pre-clearance and other forms of government-

sponsored international competition

Panel 5

The International Panel:

Free Trade, Fair Trade

16 © Oliver Wyman 16

Alliance share of departures by region in May 2015

63% 4% 7%

27% 7%

16%

24% 52%

36%

23%

18%

23%

12%

14%

56% 17%

21%

51%

13%

16%

23%

13%

9%

55%

18%

54% 27%

1%

North America

Europe

Middle East

Asia

Oceania

LACSA Africa

Other Star Alliance SkyTeam oneworld

Monthly scheduled departures by alliance and by region May 2015

Note: (1) Other = unaligned airlines and airlines in other alliances Source: PlaneStats.com > schedule > monthly operations for May 2015

Global total

Star 19.8%

SkyTeam 17.6%

oneworld 14.5%

Other1 48.1%

17 © Oliver Wyman 17

Alliance capacity shifts

11% 15% 15%

21% 20% 20%

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17%

2013

18% 17%

oneworld

2015

SkyTeam

Star Alliance

2014

48% 51% 48%

Shar

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Other1

Monthly scheduled departures by alliance May 2013 – 2015

Note: (1) Other = unaligned airlines and airlines in other alliances Source: PlaneStats.com > schedule > monthly operations for May 2013, 2014, 2015

• Showcase of new customer-facing technology • The latest in technology: What do travelers want, and

what are they getting?

Panel 6

Technology Showcase and Panel

19 © Oliver Wyman 19

Social media following doesn’t necessarily correlate to airline size. The world’s largest airlines have dramatically different followings on Facebook and Twitter.

Airline Daily departures Facebook page likes Twitter followers

American / US Airways 6,554 1,827,040 1,090,000 Delta 5,152 1,389,554 952,000 United 4,786 783,864 650,000 Southwest 3,588 4,533,636 1,840,000 China Southern 1,976 NA 31,600 China Eastern 1,818 NA 887 RyanAir 1,770 NA 149,000 Air Canada 1,606 986,994 290,000 Lufthansa 1,426 1,810,418 192,000 easyJet 1,409 329,686 282,000 Turkish 1,228 6,251,150 667,000 ANA 1,055 745,425 257,000 British Airways 1,026 1,769,784 654,000 Air France 970 5,030,149 412,000 Alaska 921 578,125 145,000 GOL 881 2,316,713 407,000 jetBlue 870 1,014,096 1,930,000 SAS 859 803,238 69,800 Aeroflot 809 75,883 79,400

Sources: PlaneStats.com departures for May 2015, Facebook.com and Twitter.com as of April 21, 2015

20 © Oliver Wyman 20

Social media isn’t going away. Growth rates for those engaging on social media continues to steadily grow

Airline Daily departures Change from PY

Facebook page likes

Change from PY

Twitter followers

Change from PY

American / US Airways 6,554 (2%) 1,827,040 +13% 1,090,000 (9%)

Delta 5,152 (8%) 1,389,554 +9% 952,000 +49%

United 4,786 (12%) 783,864 +12% 650,000 +57%

Southwest 3,588 +12% 4,533,636 +8% 1,840,000 +13%

China Southern 1,976 (1%) NA NA 31,600 +30%

China Eastern 1,818 +13% NA NA 887 +236%

RyanAir 1,770 +2% NA NA 149,000 +133%

Air Canada 1,606 (3%) 986,994 +17% 290,000 +61%

Lufthansa 1,426 (3%) 1,810,418 +15% 192,000 +34%

easyJet 1,409 +1% 329,686 +34% 282,000 +56%

Turkish 1,228 (1%) 6,251,150 +70% 667,000 +59%

ANA 1,055 (14%) 745,425 +37% 257,000 +80%

British Airways 1,026 +2% 1,769,784 +45% 654,000 _+61%

Air France 970 0% 5,030,149 +42% 412,000 +25%

Alaska 921 (1%) 578,125 +46% 145,000 +37%

GOL 881 0% 2,316,713 +29% 407,000 +43%

jetBlue 870 (3%) 1,014,096 +13% 1,930,000 +7%

SAS 859 NA 803,238 NA 69,800 NA

Aeroflot 809 +2% 75,883 +83% 79,400 +52% Sources: PlaneStats.com departures for May 2015 vs. August 2014, Facebook.com and Twitter.com as of April 21, 2015 vs. March 31, 2014

21 © Oliver Wyman 21

About PlaneStats.com

PlaneStats.com is powerful suite of analytical tools and enhanced aviation data that allows users to rapidly and intuitively craft custom analysis to make critical business decisions.

Inclusive of key industry and governmental data sets, paired with our own proprietary research and algorithms, it is easy to use and very flexible to analyze things like airline schedules, fleet composition, cost data, passenger loads, MRO data, and more.

For more information, please contact Khalid Usman at khalid.usman@oliverwyman.com or see www.PlaneStats.com.

22 22 © Oliver Wyman

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