Cargo outlook Brian Pearce Chief Economist. 13 December 2018

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1 Cargo outlook 2019 Brian Pearce Chief Economist 13 December 2018

2 % total revenues % total revenues Cargo revenue contribution stabilizing 2 82% 80% 78% 76% 74% 72% 70% 68% 66% 64% 62% Share of airlines' total revenue Cargo Ancillaries Base fare (left scale) Source: IATA Statistics, IdeaWorks, own forecasts 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

3 Number of unique city-pairs Air cargo revenue/ftk in 2018 US$ Economic contribution increasing 3 20,000 16,000 12,000 8,000 4,000 0 Real air cargo yields and unique city-pair connections Unique city-pairs (left scale) Inflation-adjusted air cargo yields Source: IATA Statistics, CargoIS, SRS Analyser, own forecasts

4 Doubling expected within next 20 years Index (2017 = 100) 20-year forecasts for freight tonne kilometres Boeing: 3.7 to 4.7% CAGR Airbus: ~3.8% CAGR Sources: Airbus, Boeing

5 But a pause in globalization constrains the outlook Index (2008 = 100) Ratio of world trade to economic activity (left scale) Foreign value added in exports i.e. production on-shoring Pre-GFC Post-GFC % of total exports 31% 30% 29% 28% 27% 26% 25% 24% 23% 5 Source: Netherlands CPB, UNCTAD Eora database, Datastream

6 trillion, 2016 prices Brexit, if it happens, will weaken trade in long-term No Brexit Deal + Backstop -2.8% Deal + FTA (proposal) -3.9% Orderly No Deal -5.5% Size of UK economy, GDP Source: Oxford Economics, NIESR Brexit Impacts Report 26 th November 2018

7 % change year-on-year Tariff wars bigger issue but not a recession cause Global GDP growth No escalation Escalation 25% tariffs 2.0 US-China trade war Source: IMF, Citi US-China Tariffs-Limbo on the Verge of Trade Wars 3 December 2018

8 But air cargo has outperformed sluggish world trade Indices (SA, 3m ended Jan 2012 =100) Global FTKs World trade volumes Ratio of FTKs to world trade volumes Increasing FTK share Source: IATA Statistics, Netherlands CPB

9 E-commerce is part of the story % yoy 20 US e-commerce sales growth World trade growth Source: IATA Statistics, Datastream

10 And the recent business restocking cycle % year-on-year % year-on-year -15% 40% -10% -5% 0% 5% 10% Global FTKs (RHS) Inventory-to-sales ratio (LHS, inverted scale) 30% 20% 10% 0% -10% -20% 15% % 10 Source: IATA Statistics, Datastream

11 This year market growth has been very diverse International FTK growth by route (YTD, % year-on-year, up to Sep 2018) 35% 30% 25% 20% 15% Central - South America Within South America Europe - South America -10% 11 10% 5% 0% -5% Africa - Asia North - South America Within Europe Africa - Europe Africa - Middle East M.East - Asia Europe M.East Middle East - North America Europe - North America Within Asia Asia - North America Europe - Asia 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% Share of total international FTKs (%, Year-ended Sep 2018) Source: IATA Statistics

12 Million barrels a day US$ per barrel But are markets now signalling recession in 2019? Business confidence (left scale) FTSE World Equity price index Bloomberg commodity price index Source: Datastream, Markit

13 % change year-on-year PMI index In fact, economic growth is expected to continue Global GDP growth Business confidence Source: Markit, IMF World Economic Outlook October

14 Million barrels a day US$ per barrel And fuel prices look considerably lower in US oil supply (left scale) Jet fuel price Brent crude oil futures price 4 Dec Source: Datastream, Platts

15 Air cargo industry leaders remains confident Weighted Score (50 = No Change) Volumes Yields Oct-08 Oct-10 Oct-12 Oct-14 Oct-16 Oct Source: IATA Statistics quarterly survey of heads of cargo

16 Billion tonne kilometers flown US$ billion Revenues & FTKs slow, but grow further in 2019 slower Cargo revenue and tonne kilometers flown Cargo tonne km flown (left scale) Cargo revenue Source: IATA Statistics, own forecasts 20

Cargo outlook Brian Pearce Chief Economist. 13 December 2018

Cargo outlook Brian Pearce Chief Economist. 13 December 2018 Cargo outlook 2019 Brian Pearce Chief Economist 13 December 2018 1 Cargo revenue contribution stabilizing 2 % total revenues 82% 80% 78% 76% 74% 72% 70% 68% 66% 64% 62% 2008 2009 2010 2011 2012 2013 2014