Table of Contents

1. 2. 3. 4. 4.1 4.2 4.3 4.4 4.5 5. 6. 7. Executive Summary ......................................................................................... 3 Crisis Analysis Chart 1979-2011 ...................................................................... 4 Crisis Analysis Chart 2000-2011 ..................................................................... 4 Crisis Analysis ................................................................................................ 5 WTC Attack US - Sep 2001 Analysis ................................................................ 5 SARS in China 2003-2005 Analysis ................................................................. 6 Swine Flu Mexico-Apr 2009 Analysis ................................................................ 8 Icelandic Volcanic eruption event: April 2010 - Analysis ........................................ 8 Quake, Tsunami and nuclear plant explosion Japan-March 2011 Analysis .......... 9

Fuel prices impact on world capacity Analysis .................................................. 11 The impact of financial crises on global capacity Analysis .................................. 12 Conclusion .................................................................................................... 13

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1. Executive Summary
Over the past 30 years there have been may events of differing magnitude that have impacted air travel. This report evaluates those major events that have occurred at a country, regional and global level in the aim to understand and predict the impact on air travel capacity of future events. Each event can be categorised according to its magnitude based on a High, Medium and Low rating and for each category the impact on capacity can be identified.

Event scale Low Medium

Classification Singular localised event Earthquake, tropical storms Multiple event widespread virus, extreme natural disaster Global event global financial shocks, WTC attacks

Recovery period up to 3 months (Country) 3-12 months (Regional) 12-36 months (Globally)

High

For a localised event, the recovery in capacity is relatively quick seeing recovery with 3 months as the impact is felt mainly on the national carrier or major carriers into that country/city. Other non-domicile carriers may reduce capacity or frequency of operations for a short while whilst the recovery takes place, but demand quickly recovers and capacity returns to pre-event levels. For the regionalised events such as SARS and the March 2011 Japanese Earthquake and following Tsunami are categorised as a medium level event and see a recovery in capacity between 3 to 12 months. These events impact not only the domicile carriers operating to and within the country, but also the non-domicile as demand to travel to that region declines for a sustained period of time. For the major global events such as financial shocks and the World Trade Centre attacks in September 2001 have a much wider reaching impact. These high impact events impact all major carriers due to sharp reduction in air travel demand and thus capacity is drastically reduced in order to maintain profitability. Due to the global nature of the event, demand takes much longer to recover and capacity takes between 12 and 36 months to recover back to pre-event levels.

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2. Crisis Analysis Chart 1979-2011

400
Cyclone and Flooding BangladeshApr 1991 First SARS alerts Hong KongMarch 2003 SARS China-Jan 2004

Millions

Volcanic Ash Iceland-Apr 2010 Sw ine Flu Mexico-Apr 2009

350

Second SARS China-Jan 2005

300
Volcanic Eruption US-May 1980

Drought India-May 2000 Quake, Tsunami and nuclear plant explosion Japan-March 2011 Earthquake China-May 2008

250

Earthquake Iran-Jun 1990 Volcanic Eruption Columbia-Nov 1985 Flood North Korea-Aug 1995

200

WTC Attack US-Sep 2001

150

Capacity
100
Earthquake Armenia-Dec 1988

Events

50

0 Jan-79 Jun-81 Dec-83 May-86 Nov-88 Apr-91 Oct-93 Apr-96 Sep-98 Mar-01 Aug-03 Feb-06 Jul-08 Jan-11

World capacity 1979-2011

Source: OAG Schedules iNet

The annual trend in world capacity is steadily increasing at 3.1% per year. The growth in the past 20 years was only impacted in 2001 by the World Trade Centre (WTC) event in the US. Over the past 10 years, world capacity steadily grew at an average of 2.6% per year.

3. Crisis Analysis Chart 2000-2011

Quake, Tsunami and nuclear plant explosion Japan-March 2011 Sw ine Flu Mexico-Apr 2009 SARS China-Jan 2004

Millions

400 350 300 250

Second SARS China-Jan 2005

WTC Attack US-Sep 2001 Volcanic Ash Iceland-Apr 2010 Earthquake China-May 2008

200
Drought India-May 2000

First SARS alerts Hong Kong-March 2003

150 100 50 0
Jan- Jul- Feb- Aug- Mar- Sep- Apr- Nov- May- Dec- Jun- Jan- Jul- Feb- Sep- Mar- Oct- Apr- Nov- May- Dec00 00 01 01 02 02 03 03 04 04 05 06 06 07 07 08 08 09 09 10 10

Capacity Events

World capacity 2000-2011

Source: OAG Schedules iNet

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4. Crisis Analysis

Events Volcanic Eruption US-May 1980 Volcanic Eruption Columbia-Nov 1985 Earthquake Armenia-Dec 1988 Earthquake Iran-Jun 1990 Cyclone and Flooding Bangladesh-Apr 1991 Flood North Korea-Aug 1995 Drought India-May 2000 WTC Attack US-Sep 2001 First SARS alerts Hong Kong-March 2003 SARS China-Jan 2004 Second SARS China-Jan 2005 Earthquake China-May 2008 Swine Flu Mexico-Apr 2009 Volcanic Ash Iceland-Apr 2010 Quake, Tsunami and nuclear plant explosion Japan-March 2011

Event scale Low Low Low Low Low Low Low High Medium Medium Medium Low Low Low Medium

Recovery period up to 3 months up to 3 months up to 3 months up to 3 months up to 3 months up to 3 months up to 3 months 12-36 months 3-12 months 3-12 months 3-12 months up to 3 months up to 3 months up to 3 months 3-12 months

4.1 WTC Attack US - Sep 2001 Analysis

Jan-Sep 2000 capacity Jan-Sep 2001 capacity Y-o-Y Pre-event trend
World Y-o-Y capacity 2000 vs. 2001

2,208m seats 2,275m seats 3% 5%

Source: OAG Schedules iNet

Pre-WTC attack trend:

280 270 260 250 240 230 220 210 200 Feb-01 Mar-01 Apr-01 May-01 Jun-01 Jul-01 Aug-01

World - capacity Feb Aug 2001

Millions

Source: OAG Schedules iNet

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Post-WTC attack trend:

300 250 200 150 100 50 0 Oct-01 Oct-02 Oct-03 Jun-02 Jun-03 Feb-02 Feb-03 Dec-01 Dec-02 Aug-01 Aug-02 Aug-03 Dec-03 Feb-04 Apr-02 Apr-03 Apr-04 Jun-04 Recovery

World capacity Aug 2001 Jul 2004

Millions

Pre-event

Source: OAG Schedules iNet

Pre-event capacity Aug-01

258m difference -10m

Post event capacity Sep-01 seats

248m

World capacity Aug 2001 Sep 2001

Source: OAG Schedules iNet

The events of September 11th 2001 had a huge impact on global capacity which took 3 years for capacity to recover.

4.2 SARS in China 2003-2005 Analysis

Pre-SARS trend

China

20 18 16 14 12 10 8 6 4 2 0
Mar-02 May-02 Jul-02 Oct-02 Jan-02 Jun-02 Feb-02 Jan-03 Nov-02 Aug-02 Dec-02 Sep-02 Feb-03 Apr-02

China capacity 2002-2003

Millions

Source: OAG Schedules iNet

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Millions

Millions
10 15 20 25 30 35 0 5

Millions
100 150 200 250 300 50 0

150

200

300 250

350

100 50
Mar-03
Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02

0
Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04
China

Mar-03

Post-SARS trend

Jun-03

China capacity 2003-2006

World capacity 2003-2006

World capacity 2002-2003

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

World

World

Dec-04

Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06

Jul-02 Aug-02 Sep-02 Oct-02 Nov-02 Dec-02 Jan-03 Feb-03

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Source: OAG Schedules iNet

Source: OAG Schedules iNet

Source: OAG Schedules iNet

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Dec-06

First SARS alerts Hong Kong-March 2003 SARS China-Jan 2004 Second SARS China-Jan 2005 Although the Chinese trend is closely aligned to the global trend, the Chinese trend is more exposed to external shocks due to the impact of the Chinese economy on a global scale. SARS had an impact on both, regional and global capacity. The recovery after the first SARS alerts in 2003 took 4 months, the subsequent SARS events in 2004 and 2005 recovery was much faster at 1 month.

4.3

Swine Flu Mexico-Apr 2009 Analysis

Mexico

Millions

8 7 6 5 4 3 2 1 0
Jul-08 Jul-09 Mar-08 Mar-09 Mar-10 Jul-10 May-08 May-09 May-10 Nov-08 Nov-09 Nov-10 Sep-08 Sep-09 Sep-10 Mar-11 Jan-08 Jan-09 Jan-10 Jan-11
Sw ine Flu Apr 2009

Mexico - capacity 2008-2011

Source: OAG Schedules iNet

The Mexican Swine Flu event had little impact on global capacity, but this event did impact capacity in Mexico. It took almost 8 months to recover.

4.4 Icelandic Volcanic eruption event: April 2010 - Analysis

Europe
120 100 80 60 40 20 0 Volcanic Ash Apr 2010

Millions

May-09

May-10

Mar-09

Mar-10

Nov-09

Sep-09

Sep-10

Nov-10

Europe vs. Iceland capacity 2009-2011

Source: OAG Schedules iNet

Mar-11

Jul-09

Jan-09

Jan-10

Jul-10

Jan-11

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April 2009 April 2010 April 2011

Europe 86m seats 90m seats 93m seats

Iceland 14m seats 15m seats 16m seats

The Icelandic volcanic ash eruption had little impact on global capacity and little impact is visible in the regional capacity.

4.5

Quake, Tsunami and nuclear plant explosion Japan-March 2011 Analysis

Pre-event trend
Japan 19 18 17 16 15 14
Jul-09 Nov-09 Jul-10 Nov-10 Jan-09 Jan-10 Mar-09 Mar-10 Jan-11 May-09 May-10 Sep-09 Sep-10 Mar-11

Japan capacity 2009-2011

Millions

Source: OAG Schedules iNet

World 400 350 300 250 200 150 100 50 0

Mar-09 Mar-10 May-09 May-10 Nov-09 Nov-10 Sep-09 Sep-10 Mar-11 Jul-09 Jan-09 Jan-10 Jul-10 Jan-11

World capacity 2009-2011

Millions

Source: OAG Schedules iNet

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Post-event trend

Japan 18 17 16 15 14

Millions

Mar-11

May-11

Jan-11

Feb-11

Jun-11

Jul-11

Japan capacity Jan 2011- Apr 2011

Source: OAG Schedules iNet

World 400 350 300 250 200 150 100 50 0

Millions

Mar-11

May-11

Jan-11

Feb-11

Jun-11

Jul-11

Aug-11

World capacity Jan 2011- Apr 2011

Source: OAG Schedules iNet

The 9.0 magnitude earthquake and following tsunami that struck Japan on 11th March 2011 caused widespread disruption leading to a reduction in capacity to the region. It has disrupted Japan's export-led economy causing difficulties for many of the country's largest exporters, such as carmakers and electronics companies. We have classified the Japanese earthquake as a medium level event, whereby we are expecting a recovery 3-12 months post the event.

Aug-11

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Sep-11

Apr-11

Sep-11

Apr-11

5.

Fuel prices impact on world capacity Analysis

Gulf War 1990 4.0 3.5

Gulf War 2003 Banking Crisis Hurricane Katarina US California Energy Crisis

Jet fuel US Dollars per Gallon

3.0 2.5 2.0 1.5 1.0 0.5 0.0 Apr- Jun- Sep- Dec- Mar- May- Aug- Nov- Feb- May- Jul- Oct- Jan- Apr- Jul- Sep- Dec- Mar90 91 92 93 95 96 97 98 00 01 02 03 05 06 07 08 09 11 Fuel prices Events

Jet fuel prices Jan 1990-Apr 2011

Source: http://www.eia.doe.gov

Gulf War 1990

Gulf War 2003 California Energy Crisis

Banking Crisis

Millions

400 350 300 250 200 150 100 50

Hurricane Katarina US

Capacity Events

0 Apr- Jun- Sep- Dec- Mar- May- Aug- Nov- Feb- May- Jul- Oct- Jan- Apr- Jul- Sep- Dec- Mar90 91 92 93 95 96 97 98 00 01 02 03 05 06 07 08 09 11

World capacity Jan 1990-Apr 2011

Source: OAG Schedules iNet

The Jet fuel price has been dramatically impacted over the last decade by geopolitical disruptions and fluctuating world oil prices. Today refiners must deal with low marketing and transport profit margins, and the increasing capital and operating costs of environmental compliance1. Jet fuel is a major influencing factor accounting for approximately 30% of some airlines costs.2 This high fuel price over the past 10 years although having an influencing impact on capacity growth, whereby the average growth rate has softened from 3.1% over the last 30 years to 2.6% over the past 10 years, has had no significant impact on global capacity.

http://www.eia.doe.gov http://www.iairgroup.com

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6.

The impact of financial crises on global capacity Analysis

WTC Attack US 2001 Banking Crisis Asian Financial Crisis

4.6%
World GDP Growth

3.5% 2.4% 1.3% 0.2% -0.9% -2.0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 GDP Events

World GDP Growth

Source: http://data.worldbank.org

Over the past 13 years, the Asian Financial Crisis in 1997, the WTC Attack in 2001 and the Banking Crisis in 2008/09 have had a significant impact on the global GDP. Of these events, only the events of September 11th 2001 and the recent banking crisis have had a significant impact on global capacity, impacting the capacity trend for approximately 2 years. The Asian financial crisis of 1998 although had a regional impact, did not significantly affect the global capacity growth due to its more localised influence.

WTC Attack US 2001

Billions

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5

Asian Financial Crisis

Banking Crisis

Capacity Events

0.0 1991 1992 1993 1994 1995 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2008 2009 2010

World capacity 1991-2011

Source: OAG Schedules iNet

Financial and energy Events Gulf War 1990 Asian Financial Crisis 1997 California Energy Crisis 2000 WTC Attack US 2001 Gulf War 2003 Hurricane Katarina US 2005 Banking Crisis 2009

Event scale Low Low Low High Low Low High

Recovery period up to 3 months up to 3 months up to 3 months 12-36 months up to 3 months up to 3 months 12-36 months

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7.

Conclusion

Event scale Low Medium

Classification Singular localised event Earthquake, tropical storms Multiple event widespread virus, extreme natural disaster Global event global financial shocks

Recovery period up to 3 months (Country) 3-12 months (Regional) 12-36 months (Globally)

High

Global capacity growth is very resilient and regionalised events such as natural disasters, conflicts and fuel price spikes which have a minimal impact on capacity. Only wider global events such as major financial shocks and the events of September 11th 2001 have had a significant enough impact on the global airline industry to stem the growth for a significant period of time. But even this is short lived and global capacity growth soon recovers. Fuel price shocks have historically had little impact on global capacity, with the shocks being absorbed through airlines hedging practices, but due to its increasing price, fuel has now become one of the largest costs items for airlines and will continue to add increasing pressure to air capacity growth over the coming years.

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