Welcome Address Aleks Popovich Senior Vice President, Financial and - PowerPoint PPT Presentation

Fuel prices continue to trend upwards Jet Fuel and Crude Oil Price ($/barrel) 160 Jet Fuel Price Crude Oil Price (Brent) 140 120 100 80 60 40 20 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Sep-11 May-12 Sep-12 May-13 Sep-13 May-14 Sep-14 May-15 Sep-15 May-16 Sep-16 May-17 Sep-17 May-18 Sep-18 Source: IATA Economics using data from Platts

And cost pressures have emerged across most inputs Unit cost changes between 2016 Q1 and 2017 Q4 8.4 8% 11% % contribution to 8.2 30% increase in CASK 8 51% US cents per ASK 7.8 7.6 7.4 7.2 7 CASK 2016 Q1 Fuel Labour Infra- structure Other CASK 2017 Q4 Source: IATA Economics using data from The Airline Analyst

As spare capacity disappears at the late stages of the cycle OECD unemployment and capacity shortage in the economy 4 9 Unemployment 3 8 (right scale) % gap between GDP and full capacity 2 7 1 6 % of labour force 0 5 -1 4 -2 3 Capacity shortage in the -3 2 economy (left scale) -4 1 -5 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from Datastream

The question is can these costs be recovered? Indices (Jan 2011=100), seasonally adjusted 105 100 Economy-class base fare yield 95 90 Premium-class base fare yield 85 80 Global average passenger base fare yield (US$ terms) 75 70 2011 2012 2013 2014 2015 2016 2017 2018 Source: IATA Economics using data from PaxIS

Ancillaries are helping Airline revenue per passenger 200 60 180 Base fare (left scale) 50 Cargo, ancillaries US$ per passenger 160 Base fare US$ per passenger 140 40 120 Cargo & other 100 30 (right scale) 80 20 60 40 Ancillaries 10 (right scale) 20 0 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from ICAO, IATA Statistics, IdeaWorks and our own forecasts

More rational asset utilization is also helping Load factor (passenger + cargo) versus breakeven 70 Passenger + cargo load factor 68 4.7% pts 66 5.8% pts % of ATKs 64 Breakeven load factor 62 60 58 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: IATA Economics using data from ICAO, IATA Statistics and our own forecasts

The key will be the strength of demand…cargo reflects inventory cycle % year-on-year % year-on-year 40% 30% 30% Growth in industry FTKs (RHS) 20% 20% 10% 10% 0% 0% -10% Global PMI new export orders -20% -10% component (LHS, adv. 2 months) -30% -20% -40% -50% -30% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: IATA Economics using data from IATA Statistics, Markit

Air travel demand is buoyant at present… % year-on-year Diffusion indices 65 16% Growth in industry RPKs (RHS) 60 12% 55 8% 50 4% Global composite PMI index (adv. 2 months, LHS) 45 0% 40 -4% 35 -8% 30 -12% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: IATA Economics using data from IATA Statistics, Markit

…But risks are building in the wider economy Outstanding debt held by non-financial private sector, % GDP 175 140 Developing economies 130 170 120 165 110 160 Developed economies 100 155 90 150 80 145 70 140 60 135 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: IATA Economics using data from ICAO, IATA Statistics, IMF and our own forecasts

Need to reinforce structural gains - economic upcycle unlikely to last Global GDP growth and average airline operating margin Operating 10% margin GDP % change year ago, Margin % revenue 8% 6% 4% 2% GDP growth 0% -2% -4% -6% 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: IATA Economics using data from ICAO, IATA Statistics, IMF and our own forecasts

Stanislav Petrov mauritius images/Alamy

Questions to Leaders from 4 th Industrial Revolution Paolo Gallo @World Financial Symposium – Madrid 19 September

4 th Industrial Revolution

Job Markets, Life expectancy, AI, Learning, Trust and…our choices Paolo Gallo @World Financial Symposium – Madrid 19 September

Megatrend 1- High unemployment with skills shortages- Gig Economy

https://www.cnbc.com/video/2018/02/27/drones-carried-handbags-at-the-dolce-gabbana-fashion-show.html

Megatrend 2 – Increasing life expectancy

Photo: Gold Sakazuki cup

The top 10 skills Source: Future of Jobs, World Economic Forum

Megatrends 3. A.I & Learning

Van Gogh or AI?

It’s now possible to Telepathically communicate with Drones (BCIs)

Facial recognition @Schools

“Microsoft has not given Tay an understanding of unappropriate behaviour ”

Megatrend 4: From Information to Reputation – Trust in the digital age

https://www.youtube.com/watch?v=WEw-GjTriIo

…it was 10 years ago…..

Trust in the digital age

Are algorithms the ‘New Gods’ ? Social credit system

Photo: Archive Photos/Getty Images

What is our moral compass?

THANK YOU

th 5 World Financial Symposium 17 – 20 September 2018 Madrid Marriott Auditorium Hotel & Conference Center World Financial Symposium 2018

Innovate.Accelerate.Deliver Michael Doersam Chairman of IATA Financial Committee SVP Group Finance, Emirates World Financial Symposium 2018

Supporting Sustained Financial Health Our journey so far 2015 2017 MADRID 2018 Innovate . Sustainable Accelerate . Financial Deliver Health 2014 2016 HIPO SIN DUB Sustainable Financial 2016 2017 Health Innovate . Accelerate . Deliver

Where did we stand last year on industry Initiatives ? The Inside view The Outside view World Financial Symposium 2018

2018 - Decline in airline profitability $US Index, Jan11=100, seasonally adj 140 105 120 100 100 95 80 90 60 85 Brent crude oil (left axis) 40 80 Global ave. pax yield (right axis) 20 75 0 70 Jan/11 Jan/12 Jan/13 Jan/14 Jan/15 Jan/16 Jan/17 Jan/18 Source: IATA Travel Intelligence, EIA

Supporting Airline Industry Achievement of Sustained Financial Health 2016 White Paper 2 nd Edition

5 Strategic Pillars 1 Smarter Regulations Harmonizing the regulatory framework making it supportive and conducive to sustainable growth 2 Value Chain Optimization Optimizing the value chain, making it reflective of relative risks 3 Innovation Enabling innovative and competitive customer centric products 4 Efficient Processes Enabling efficient, secure and seamless end-to-end industry processes 5 High Performing Finance Organization A journey for the finance department from an accounting department to a value manager

How did we progress since DUB ? Losin Los ing di distribu butio ion Data – Pow ower/Ownership ip NDC & ND & ONE NE ORDER Futu ture GAFA DISRUPTION rd par BLOCKCHAIN f 3 rd pow power & & pa paym yments of partie ties and nd Eco-System str trategie ies Hi High volu volume e analytic lytics proc pr ocess control