COVID-19Flexibility will be critical to success in first year of restart

Brian PearceChief Economist

1

16th June 2020

Depth of COVID19 impact far exceeds previous crisesRPKs 20% fall after 9-11 and 12% after SARS vs 95% fall in April 2020

0

20

40

60

80

100

120

-3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12

Inde

xed

to e

qual

100

at e

vent

sta

rt d

ate

Months after event start date

Global RPKs, indexed to 100 at start date of crisis event

SARS

9-11Global Financial Crisis

COVID19

Source: IATA Economics using data from IATA Statistics

Previous crises allowed diversion to stronger regionsNo such flexible response in fleet deployment possible this time

Europe North America Latin America

-34%

-18%

Middle EastAsia Pacific Africa

-10%

-99%

-11%

-98%

-36%

-11%

-98%

-20%-14%-13%

-98%

-10%

1%

-97%

-12%

-99%

9/11Global Financial CrisisCOVID-19

Largest monthly YoY drop in international RPKs in the aftermath of 9/11, during the Global Financial Crisis and after the outbreak of COVID-19

Source: IATA Economics using data from IATA Statistics

-82%

-100

-80

-60

-40

-20

0

20

YoY change in bookings (%)

0

80.000

20.00040.000

100.000

60.000

120.000140.000

Feb JunMar

New COVID-19 cases

Jan Apr May

1st wave of COVID-19 far from over & bookings are lowAirlines cannot plan schedules for N Winter season with any certainty

Asia

AmericasEurope

OceaniaAfrica

YoY change in net bookings worldwide

Source: IATA Economics using data from DDS and ECDC

Latest survey shows passengers even more cautiousNow only 45% will fly within 1-2 months. Previous survey shows 60%Once the pandemic has subsided, how long would you wait, if at all, to return to your usual travel plans?

95%

Not returning in the foreseeable future

Wait a year or so

Not wait at all

Wait six months or so

Wait a month or two

12%

33%

36%

14%

5%

Total returning within a year

Source: IATA Economics using data from end May–early June passenger survey by Rockland Dutton for IATA

Airlines have even less visibility from forward bookingsPassengers are booking flights much later. 41% only 0-3 days ahead.

Number of days between booking and travel time, bookings worldwide made in May 2019 vs. 2020

May-19

29%

May-20

18%0-3 days

4-10 days

11-20 days

20+ days

19%

14%

49%

41%

20%

10%

Source: IATA Economics using data from DDS

No sign of rapid return to travel even in summer monthsAirlines must plan winter schedules now but zero visibility of demand

30

0

10

20

60

40

50

70

80

SepAugJulMay Jun Oct Nov Dec

Bookings (millions) 20192020

Net bookings (sales minus refunds) made in May 2019 vs. 2020, by month of travel

Source: IATA Economics using data from DDS

Lack of demand visibility widespread across regionsAirlines have little evidence on which to schedule restart network

DecSepMay JulJun NovAug Oct

20202019

Aug DecNovMay Jun Jul OctSep DecJulMay AugJun Sep Oct Nov

AugMay SepJulJun NovOct Dec AugJun DecMay Jul OctSep Nov Jun DecMay AugJul Sep NovOct

Europe North America Middle East

Asia excluding China China Latin America

Net bookings (sales net of refunds) in May 2019 vs. May 2020 for travel in subsequent months, by region

Source: IATA Economics using data from DDS

Demand for long-haul travel remains close to zeroNormally airlines would have sold 14% of tickets for start of winter season

25

0

35

15

5

10

20

30

40

45

50

55

Travel - 16

weeks

Bookings (mn)

Travel - 44

weeks

Travel - 52

weeks

Travel - 48

weeks

Travel - 20

weeks

Travel - 40

weeks

Travel - 36

weeks

Travel - 32

weeks

Travel - 24

weeks

Travel - 28

weeks

Travel - 8

weeks

Travel - 12

weeks

Travel - 4

weeks

Travel date

-59%

20192020

Cumulative bookings for long-haul air travel between 1-7 Nov, 2019 vs. 2020

22 weeks prior to travel, normally airlines would have already sold ~14% of tickets

Source: IATA Economics using data from DDS

Load factors likely to remain well below breakevenWithout schedules flexibility airlines will be unable to fill seats

60

65

70

75

80

85

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

% o

f ASK

s

Industry average breakeven and achieved passenger load factors, % ASKs

Achieved passenger load factor

Breakeven passengerload factor

Remains high due to low yields and restrictions on aircraft utilization

Source: IATA Economic Performance of the Airline Industry, Mid Year 2020

Lack of summer cash flow adds to fragile situationAirline business seasonal with cash flows always weak in winter seasonEstimated operating profit margins of European carriers by quarter, 2019

9%

Q1

17%

Q2 Q3 Q4-1%

2%

WinterSummer

Source: IATA Economics using data from the Airline Analyst

$84 billion forecast airlines’ net loss in 2020 concentrated in these 2 quarters, when airlines usually make majority of annual profit

The key to survival in the winter season will be flexibilityExtended waiver on 80:20 slots rule needed to give necessary flexibility

31 July

Start of the Winter season

Airlines must return slots they do not intend to use

Coordinators reallocatereturned slots to other airlines

Winter slot allocation process is finalized

Schedules are updated

25 October

15 August

31August

Airlines need certainty of the waiver of the 80/20 rule to plan their schedule, crew, aircraft

Source: IATA

If slots lost, long-haul connectivity may not be restoredFlight banks at hub airports require certain slots at each end

Source: IATA

So there is a risk that city-pair air connectivity will be lost94% airport-pairs connect indirectly, though most travel on trunk routes

6%

89%94%

11%

O-D routes Passengers

Direct connection exists

No direct connection available

1.069.617 3.919.255.659

Share of origin-destination airport pairs and passengers where direct connection was available in 2019

Source: IATA Economics using data from DDS and SRS Analyser