Global Airlines

1. Global Airlines Presented By: Parveen Rai Dan Wurst Amar Leekha Aman Sandhu

2. Overview of Presentation • Industry Overview • Current State • Trends • Key Statistics • Regional Overviews • Europe, North America & Asia-Pacific • British Airways • Singapore Airlines • SouthWest • Conclusion

3. Characteristics of the Industry • Very cyclical, moves with strength of economy • Low Profit Margins….and falling • Economic growth • Asset intensive industry • Investments in aircraft, facilities & equipment • Labour constitutes largest cost • Jet fuel costs second largest expense • Strategic Alliances to defend against competition • Technology • E-tickets • Online Vendors

4. Future Outlook • Recovery of US economy • Confidence in President Bush • Fuel Prices? • Government Funding • National security • Subsidies • High tax burden & Regulations • Cost structure • Increase buying power of customers • Customer demands • Personal & Business customers

5. Employee Cost

6. Profitability

7. Macroeconomic Forces • Slow Economy • Airlines lost $2.5 billion in 2003 (IATA) • Total 2001-2003 losses: $23.2 billion • External Factors Leading to Losses: • September 11th • Costs of implementing new security measures at airports • Severe Acute Respiratory Syndrome (SARS) • Increased insurance premiums • Rising fuel prices in 2003

8. Trends • Growth in Traffic • RPM’s grew 2.3% in 2003 • Average industry load factor reached record 73.4 % • Increase in cargo volume • Large Layoffs • Increased competition from low-cost carriers • Westjet, Southwest and other clone airlines • Increased borrowing to cover losses from macroeconomic effects

9. Capacity Utilization

10. Regional Overview:EuropeanNorth American Asia-Pacific

11. European Market Overview

12. European Market • Slower growth for major European carriers: • Increase of “no frill” carriers • Deregulation • Worldwide Economic downturn • Structural problems of overcapacity • Threats of terrorism* ***Carriers exposed to US market***

13. Trends: Euro Market • No-frills airlines growing rapidly • Traffic levels within Europe have remained strong • Account for 1/3 of UK domestic services and routes between the UK and Europe • Increase in amount of planes & routes • Deregulations reduce barriers to entry • Likely to be followed by industry consolidation • Further Growth expected • Future focus on other Euro hubs • Alliances and Strategic Partnerships

14. North American Market

15. North American Market • Most mature market • 1978 Deregulation: emergence of “no-frills” market • Followed by consolidation of industry • “No-frills” make up 20% of US domestic market • Southwest leading low-cost carrier • Sending major carriers into bankruptcy

16. North America (cont) • Major Domestic Airlines expanding international presence • US signing of “open skies” agreement • Unrestricted capacity and frequency • Factors depressing air travel • September 11 • 2001 Recession • Fall of US Airways & United: currently restructuring

17. Asia-Pacific Market

18. Asia-Pacific Market • Relatively immature airline market • Strong growth in airline travel • 1997-98 Asian crisis temporarily halted growth • Restructuring • Disposal of non core assets • Termination of loss making routes • Wide ranging cost reduction programs

19. Asia-Pacific • Asian carriers look to form alliances with European and N. American carriers • Affected by US economy downturn (2001-2002) • Less sever on air travel industry compared to US • Growth rate expected to be greater than that of western airline markets • Rapid growth in large domestic markets (China) • Most regulated region for air travel • Competitive Advantage: closer to home

20. Key Measures of Performance

21. International Routes (Passengers Carried)

22. International Routes (RPK)

23. Total Passengers Carried (All Routes)

24. Total RPK

25. Past Yields

26. Industry Growth Trends

27. Industry Growth Trends (cont)

28. Industry Growth Trends (cont)

29. Projected Revenue Growth

30. What Does the Future Look Like?

31. Profitable Strategies • Recovery of airline industry helps other industries • Carriers must demonstrate: • “Comfortable” Security • Customer service • Productivity • Government Involvement: • Cooperation with airports and airlines • Encourage travel • Minimize hassles • Airport fees • Alternatives for short Hauls

32. Profitable Strategies • Airport – Airline Relationship • Work together with final customer in mind • Ticket Prices • Low cost carriers • Increased competition • Price conscious business customers • Labour Productivity • Consolidation of Industry • Mergers/Strategic Alliances

33. Growth Constraints: Fuel Costs • Fuel Efficiency: 43.6 pm/gallon • Hedging

34. Fuel Costs: Past

35. Fuel Costs: Future

36. Growth Constraints: Taxes • Taxes: • 1972: Taxes = 7% of ticket price • 2004: 26% of ticket

37. British Airways

38. British Airlines • Listed and Traded on the London Stock Exchange • Trading symbol: BAY • Also Trades as an ADR on the TSX and NYSE • Symbol: BAB • 1 ADR = 10 Shares

39. British Airlines • As of Market Close on November 2, 2004 • Bid: 218.75 Pents ($4.93 CDN) • Ask:219 Pents ($4.94 CDN) • Volume 28,551,043 • Outstanding Shares: 1,070,077,000

40. Background • One of the leading airlines in Europe • Second biggest in Europe by passengers carried • Operating Bases • Heathrow • Gatwick • British Airways is a public limited company • Employed approximately 49,072 employees in 2004 • It operates 291 aircraft • Flies to 550 destinations in 133 countries

41. A Quick History Lesson • Successors: • Aircraft Transport and Travel Limited (Daimler Airways) • Instone • Handley Page • British Air Marine Navigation • Smaller Airlines (1935 merged into British Airways Limited) • Merged In 1939 • British Overseas Airways Corporation • Trading of BA shares began in 1987

42. Alliance • Member of Oneworld • American airlines • Qantas • Cathay Pacific • Iberia • Finair • Aer Lingus • LanChile

43. Franchises and Holdings • Franchises • GB airlines • British Mediterranean • British Airlines Citiexpress • Loganair • Sun Air • Holdings • Air Mauritius • Qantas • Spanish Iberia

44. Stated Objectives • Future size and shape strategy • Achieve a 10% operating margin • Operating margin up 1.6 points from 3.8 points in 2003 • 13,000 reduction in employees since August, 2001 • Fleet and network strategy • Aircraft replacements • Reduced fleet by 39 aircraft • Gatwick moving to point and spoke strategy • Low fares strategy • On 180 shorthaul routes • Compete with no frill competitors • External cost reductions • Hedging strategies • Employee cost saving strategies • Product and service improvements

45. Main Competitors • Europe Market • Lufthansa • Air France • North American Market • United

46. Cost Structure

47. Geographic Revenue Distribution

48. Strengths/Opportunities • Strong Brand Equity • Account for over half of flights within UK • New low fares strategy to compete against “no frills airlines” • 37.3% increase in operating profit • Increasing air travel

49. Weaknesses and Threats • Heavy Competition • Strict Government Regulations • Route flying rights • Fare setting • Airport access • “Slots” availability • New operational standards (security, safety) • Jet Fuel Prices • Terrorism • Demand for travel affected by economic conditions (SARS) • Increased Insurance Costs • Increased Security Costs

50. Management • Rod Eddinghton • Chief Executive • May 2000 • John Rishton • CFO • September 1994 via controller • Mike Street • Director of customer service and operations • 1997 • Robert Webb QC • General Counsel • 1998 • Martin George • Director Marketing and Communications • 1987 via director of Marketing