PARTNERSHIP EVOLUTION IN AVIATION Presented Presented by: by:

Sonjia T. Murray Vice Vice President, President, SH&E, SH&E, ICF ICF International International

International International Aviation Aviation Issues Issues Seminar, Seminar, December December 4, 4, 2008 2008

The Evolution of Partnerships

Š Like the introduction of the CRS, or development of connecting hubs, code shares and alliances have been transformational in capturing market share and building loyalty

Š The industries volatility and market uncertainty has made it increasingly difficult to fly alone--especially internationally-attraction of hub to hub is too great

Š KLM and NW started Alliances, however Star Alliance has been the most successful--its dominance is unparalled

Š Despite the many critical attributes of alliances, there are still successful carriers that fly unaligned—Virgin Atlantic, Ryanair, EasyJet, Southwest

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The Evolution of Partnerships (Cont’d)

Š As these carriers enter the international market--on their own or in a partnership or alliance, the industry will transform once again

Š Early indications on the Gatwick Airport transaction, suggest that unaligned carriers may join together and bid to dominate a major airport

Š The strength of these unaligned carriers and the potential expansion of these low fare players into international flying-aligned or unaligned- could change what was once a safe haven for the legacy carriers

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Partnerships are Developing Through Traditional Efforts and in Unlikely Ways

Š The Global Airline Business Has More Volatility and Uncertainty than Ever Before Making it Harder to Operate Alone

Š As the World Gets Smaller and Market Barriers Diminish, Airlines Need Partnerships to Increase their Presence and Competitiveness

Š Partnering Makes Both Strategic and Tactical Sense Lowering Risks and in Many Cases Increasing Revenue and Market Share

Š Partnerships are Taking Many forms and as Industry Pressures Continue It is Likely We will see Even More Non-Traditional Partnering for both Airlines and Airports

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There are Varying Degrees of Partnerships and Airlines Are Pursuing Different Strategies in Developing These Relationships

Acquisition

Alliance

Code Share

Marketing Agreement

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Transatlantic Capacity Had Been Growing Steadily Until the Fourth Quarter of 2008 Nonstop Weekly Seats in U.S./Canada-Europe Markets August 2003-August 2008, December 2008 1,000 900

924

800 700

722

767

800

936

841

667

600 500 400 300 200 100 0 Aug 03

Aug 04

Source: Source: OAG OAG Schedules Schedules

Aug 05

Aug 06

Aug 07

Aug 08

Dec 08

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Star Alliance Operates 36% of Worldwide Weekly Seats from the Top 25 North American Airports oneworld 17.1%

SkyTeam 22.3%

Weekly Seats by Global Alliance Partner Top 25 North American Markets

Unaligned 25.0%

STAR 35.6%

Seattle/ Tacoma Minneapolis

San Francisco

Toronto Detroit

Salt Lake City

Chicago ORD

Boston

Newark New York LGA New York JFK Philadelphia Baltimore Washington IAD

Denver Las Vegas

Charlotte Los Angeles

Phoenix

Atlanta Dallas/ Ft. Worth

Orlando Houston IAH

Ft. Lauderdale Miami

Note: Note: Includes Includes pending pending members members –– Air Air India, India, Continental Continental and and TAM TAM for for Star Star and and Mexicana Mexicana for for oneworld oneworld Source: Source: ACI, ACI, 2007 2007 and and OAG OAG Schedules, December Schedules, December 2008 2008

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On Transatlantic Routes, Star Alliance Operates 38% of the Total Weekly Seats Weekly Seats by Global Alliance Partner Total Transatlantic Markets

oneworld 23.3% SkyTeam 26.8%

STAR 37.9% Unaligned 12.0%

Note: Note: Includes Includes pending pending members members –– Air Air India, India, Continental Continental and and TAM TAM for for Star Star and and Mexicana Mexicana for for oneworld oneworld Source: Source: ACI, ACI, 2007 2007 and and OAG OAG Schedules, Schedules, December December 2008 2008

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Example: Lufthansa is Developing a Multi – Brand and Hub Strategy through Partnership Acquisitions

Š In the Last Few Years LH Has Acquire a Stake in Five International Airlines in Europe (SWISS, Condor, Brussels, Austrian, BMI)

Š Until Recently LH Considered a stake in SAS and May Still Revisit this in the Future; LH is Aggressively Pursuing a Stake in Alitalia

Š LH Has a Strong Position in Five European Countries (Germany, Switzerland, Austria, Belgium, UK) and is Developing a Solid Presence in a Sixth (Italy)

Š As One of the a Founding Member of Star, LH is Positioning Itself as the Most Dominant Player in the Alliance

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Lufthansa Has Increased Its Multi-Hub, Multi-Brand Strategy Over the Past Few Years with Key Acquisitions

2005

2006

2007

(24%)

(19%)

2008

Note: Does not Include Germanwng/Eurowing, Luxair, Air Dolomiti acquisitions 9

Lufthansa Will Be a Dominant Carrier in Several Key European Markets and Offer a Number of Service Opportunities EU Member EU Member with Open Skies Candidate EU Member * Candidates include: Macedonia, Turkey, Croatia Finland

Estonia

Sweden

United Kingdom

Latvia Denmark

Lithuania

Ireland Netherlands Poland

Germany Czech Republic

Belgium Luxembourg

Slovakia

Austria

France

Hungary Slovenia

Switzerland

Romania

Croatia* Portugal

Bulgaria

Italy Spain

F.Y.R.O. Macedonia* Turkey* Greece

Cyprus Malta

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Lufthansa Weekly Seats Have Grown By 40% Since 2003 Nonstop Weekly Seats Operated by Lufthansa and Its Regional Partners August 2003-August 2008, December 2008 3.0M 2.5M 2.0M 1.5M

1.6M

1.6M

1.6M

Aug 05

Aug 06

Aug 07

1.7M

1.7M

Aug 08

Dec 08

1.3M 1.0M

1.2M

0.5M 0.0M Aug 03

Aug 04

Source: Source: OAG OAG Schedules Schedules

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When Acquisitions are Included, Lufthansa’s Weekly Seats Have Grown 126% Since 2003 Nonstop Total Weekly Seats Operated by Lufthansa Group August 2003-August 2008, December 2008 3.0M

2.9M 2.7M

2.5M 2.0M

2.1M

2.2M

Aug 06

Aug 07

1.9M 1.5M

1.3M 1.0M

1.2M

0.5M 0.0M Aug 03

Aug 04

Aug 05

Aug 08

Dec 08

Note: Note: Acquisitions Acquisitions Include Include Swiss Swiss Since Since 2005, 2005, Condor Condor Since Since 2006 2006 and and Brussels, Brussels, Austrian Austrian and and BMI BMI in in 2008, Does not Include Germanwng/Eurowing, Luxair, Air Dolomiti acquisitions 2008, Does not Include Germanwng/Eurowing, Luxair, Air Dolomiti acquisitions Source: Source: OAG OAG Schedules Schedules

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Lufthansa and its Subsidiaries Have Seven Hubs Providing Transatlantic Service to 23 North American Markets Nonstop Transatlantic Service by Lufthansa and Its Subsidiaries December 2008

Source: OAG Schedules, Includes LH, Austrian, BMI, Swiss, Condor flies to Caribbean, MX and S. America 13

Lufthansa’s Code-Share Partners Add an Additional Number of Frequencies to 26 North American Markets Nonstop Transatlantic Service by Lufthansa and Its Subsidiaries/Partners December 2008

Source: Source: OAG OAG Schedules; Schedules; Includes Includes LH LH and and subsidiaries, subsidiaries, United, United, Air Air Canada Canada and and Continental Continental

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Where Do We Go From Here? Š Partnerships are Developing Between Carriers that Would Have Been Unlikely Only a few Years ago – jetBlue and Lufthansa; – jetBlue and Aer Lingus – United and Aer Lingus – Virgin and Easy Jet

Š Partnerships are Supporting both Tactical and Strategic Development

Š Partnerships will Likely Continue to Develop in Surprising Ways as Carriers Look for New Revenue and Growth Opportunities

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Strong LCCs Will Continue to Surprise the Industry Either through New Partnerships or On their Own

London Frankfurt Paris

Chicago MDW

Hartford Philadelphia Baltimore

Rome

Washington IAD

Orlando

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Virgin Group and easyJet’s Coalition to Possibly Operate London Gatwick Adds an Interesting Dimension to Partnership Initiatives

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Paris and Schiphol Airports’ Newly Implemented Partnership Will Be an Interesting Test in the Market Š The Recent Alliance Between Aeroports de Paris (ADP) and Schiphol Group Should Generate Incremental Revenue and Cost Savings – Combined Revenue and Cost Synergies of $95M USD by 2013 – Expect to Reduce Annual Capital Expenditures by $14.2M USD starting in 2013

Š Increase Competitiveness Through Operational Management Efficiencies – 8 Committees covering operational areas with 30 Initiatives Planned by 1Q09 – Additional 30 Initiatives to be Implemented during CY09

Š Expected to Strengthen Skyteam’s Position – Agreement Planned to Cover an Initial 12 Years – Expected to provide “Significant Benefits to Both Airports and their Customers in Key Business Areas” 18

Partnerships will Remain a Key Strategic Asset for the Airline Industry in the Future

Š Expect More Partnerships to Emerge Š Prepare for Unlikely and Nontraditional Structures to be Developed Š Understand How Your Airport Can Possibly Support Newly Emerging Partnerships that Can Generate Positive Development for All Parties

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