Future Of Aviation Advisory CommitteeFuture Of Aviation Advisory Committee

Domestic and Global Airline Competition – Current State of Play and Challenges Looking Forward

August 25, 2010August 25, 2010Kevin Knight - Senior Vice President, PlanningKevin Knight - Senior Vice President, Planning

Graham Atkinson – EVP / President, Mileage Plus Graham Atkinson – EVP / President, Mileage Plus United AirlinesUnited Airlines

+11%

+8%

+3%

+5%

+6%

+3%

+1%

+1%

The World Is Changing And The World Is Changing And Growth Is Occurring On A Global ScaleGrowth Is Occurring On A Global Scale

Sources: Cartogram of the World's Population (2007); Global Insight (WMM), Real GDP growth rates for 2010 (base year as 2005).

Population Weighted Map With 2010 Real GDP Growth Rates (%)

2

+5%+5%

+2%

+4%

+6%

+5%

Open Skies Agreement

Restrictive Agreement

No Agreement

U.S. Air Services Agreements By Country

Access To Some Of The World’s Largest And Access To Some Of The World’s Largest And Fastest Growing Markets Remains RestrictedFastest Growing Markets Remains Restricted

3

Foreign Airline Competitors Have BeenForeign Airline Competitors Have BeenSupplanting U.S. Carriers In World Leadership…Supplanting U.S. Carriers In World Leadership…

1/ Pro formaSource: Airline Business, Air Transport Intelligence

Global Top 10 Airline Rankings (By Revenue)

1010

99

88

77

66

55

44

33

22

11 United

American

FedEx

Delta

British Airways

Japan Airlines

Lufthansa

ANA Group

Northwest

Air France

19991999 20092009

Lufthansa Group

Air France-KLM

Delta

FedEx

American

Japan Airlines

ANA Group

British Airways / Iberia1/

Continental

United

1010

99

88

77

66

55

44

33

22

11

4

……And There Are Emerging Carriers Like Emirates And There Are Emerging Carriers Like Emirates That Are Positioned To Capture This Global GrowthThat Are Positioned To Capture This Global Growth

5

5757

7777

106106

DubaiDubai

Emirates currently operates 143 widebody aircraft with

orders for 197 more

Europe To Asia: Emirates Via Dubai Hub

Source: OAG, August 2010

• Emirates connects 24 European airports with 29 Asian airports via their Dubai hub (nearly 700 airport pairs)

• In contrast, British Airways serves 517 Europe to Asia airport pairs via their London-Heathrow hub

• Qatar and Etihad have implemented similar network strategies at Doha and Abu Dhabi, respectively

Alliances Have Emerged To Help Carriers Compete Effectively Alliances Have Emerged To Help Carriers Compete Effectively In Response To Regulatory Barriers In Restricted MarketsIn Response To Regulatory Barriers In Restricted Markets

Source: OAG, August 2010. International is defined as non-U.S. online destinations.

Online International Destinations Served – August 2010

6

These Alliances Offer Many KeyThese Alliances Offer Many KeyBenefits To Airlines And ConsumersBenefits To Airlines And Consumers

For Airlines:For Airlines:

•Linking route networks•Expansion of nonstop international services•Increased profitability

For Consumers:For Consumers:

•Connectivity•Seamless travel•Recognition

7

To Produce Greater Benefits, Alliances Are Moving To Produce Greater Benefits, Alliances Are Moving Toward Deeper And Broader Commercial RelationshipsToward Deeper And Broader Commercial Relationships

• Seamless Connectivity

• Reciprocal Frequent Flyer Cooperation

• Open Skies Required

• Anti-Trust Immunity Required

• Profit/Revenue Sharing

• Combined/Seamless Consumer Offer

• Bilateral relationships

• Basic Cooperation (Ticketing and Baggage)

InterlineInterline CodeshareCodeshare Joint Joint VentureVenture

Degree of IntegrationDegree of Integration

8

Lufthansa Merger

Delta / Northwest Merger

China Eastern Merger

?Cross-Equity Investment

? Merger

Mergers And Cross-Border Investments Have And Will Mergers And Cross-Border Investments Have And Will Continue To Impact The Make-Up And Effectiveness Of AlliancesContinue To Impact The Make-Up And Effectiveness Of Alliances

9

Carrier(s) From Alliance To Alliance Catalyst

ConclusionsConclusions

• The world is changing and growth is occurring on a global scale

– The highest growth rates are occurring outside the United States

• Access to many of the world’s emerging markets is still highly restricted

• The U.S. has lost its leadership role to foreign airlines

• Emerging airlines are changing the competitive landscape

• The development of alliances has been a key strategy for U.S. airlines to compete effectively in the global marketplace

• Cross-border investments and mergers have and will continue to impact the effectiveness of U.S. airline alliances

10

SuggestionsSuggestions

• Establish access to most important international growth markets– Reaffirm policy to support open skies– Negotiate additional open skies agreements – Support removal of trade barriers

• Enable effective cross-border alliances– Facilitate immunized commercial relationships– Facilitate deeper commercial relationships – Facilitate access to needed infrastructure (e.g., slots, gates)

11

APPENDIXAPPENDIX

12

Three Robust Global Alliances Exist Three Robust Global Alliances Exist In A Highly Competitive MarketplaceIn A Highly Competitive Marketplace

Cross-Border Investments Of U.S. Owned Companies Cross-Border Investments Of U.S. Owned Companies Have Become Commonplace In Other IndustriesHave Become Commonplace In Other Industries

14

BankingBanking TechnologyTechnology ConsumerConsumer HealthcareHealthcare

Growth In Open Skies Agreements Since The Early 1990’sGrowth In Open Skies Agreements Since The Early 1990’s

15