Air traffic update and forecast for Latin America - ACI

XVIII ACI-LAC Regional Annual General
Assembly, Conference & Exhibition
Air traffic update and forecast
for Latin America
Gustavo Garcia MIranda, head of Airline Consulting,
Advanced Logistics Group
Salvador de Bahia, November 18th, 2009
A D V A N C E D L O G I S T I C S G R O U P
Madrid · Barcelona · Caracas · Lima · México DF · Santiago de Chile
Buenos Aires · Sao Paulo · Londres · París · Lisboa · Milán · Dubai 0

Summary
• Latin American aviation in context
• Markets
• Actors
• Current crisis
• Short- and Mid-term forecasts
1

Latin American aviation in the world context
• Some 2.750 millions passengers traveled by air in the world during 2008, which represents some 0,4 trips
per inhabitant. The revenue generated by airlines was around 535 billion US$
• Latin airlines represent only around 5% of world aviation. However, there is a traditional deficit of
international capacity among Latin airlines, which is covered mainly by US or European ones.
• Adding all the traffic generated from/to the region, the 5% figure grows to some 8%
LatAm airlines
10%
8%
LatAm as a region
7,7%
8,0%
8,7%
2008 US$
Revenue
LatAm
airlines
28 b
World
airlines
536 b
6%
4%
5,9%
4,1%
5,2%
Operating P/L
Net P/L
1050 m
-1250 m
1500 m
-10400 m
2%
0%
Pax RPKs Revenue
2008 cumulated data for some 60 airlines or Groups in Latin America. Other sources: IATA, ICAO.
2

Travel propensity in Latin America - general
• Although with big variations
among countries, there is a
true correlation between
the air trips per capita and
the average income.
• Latin American countries
are situated in the region of
the table where discreet
increases in income per
capita (or descends in the
average fare) drive to big
increases in trips per
capita.
10,0
1,0
China
0,1
Jamaica
C.Rica Turkey
Ecuador
Portugal
Trinidad&T
Chile
Russia
México
Brasil
Guatemala
Pax/hab vs GNI/pc, 2008
Korea
Spain
Italy
Canada
France
Japan
Iceland
Latin America
Europe
World
GNI/capita (US$)
0 10.000 20.000 30.000 40.000 50.000 60.000 70.000
USA
Switzerland
Per capita air trips vs GNI per capita, 2008
Sources: World Bank, CEPAL, ACI, Civil Aviation authorities, ALG
3

Travel propensity in Latin America – more in detail
• The Caribbean countries show a
much higher ratio of trips per
capita because of the incoming
tourism.
• In Central and South America
the effect of tourism is also
important for Costa Rica and
Ecuador. Panamá is also above
average, due to the strong
influence of its local airline in
attracting international
passengers.
• Brazil, Chile, Mexico, Bolivia
show the highest ratios of trips
per capita for domestic flights.
Certainly the big distances and
difficult ground transportation
have a strong influence on it.
10,00
1,00
0,10
0,01
Jamaica
Pax/hab vs GNI/pc, 2008
Rep.Dom. Costa Rica
Chile
Cuba
EcuadorPanamá
Bolivia
Perú
Guatemala
Brazil
Argentina
México
Trinidad&T
Bahamas
Sud&C.Am, Total
Caribbean, Total
Domestic
GNI/capita (US$)
0 5.000 10.000 15.000 20.000
Per capita air trips vs GNI per capita, 2008
Sources: World Bank, CEPAL, ACI, Civil Aviation authorities, ALG
4

Big numbers of Latin American aviation
• In a few words, Latin American aviation includes:
46 countries and
territories. Nearly 550
million inhabitants
More than 80 airlines
220 million pax in
2008
70 airports with more
than 1 million pax in
2008
Some 50 billion US$
in revenue (pax.ops)
13 in South America
8 in Central America (including Mexico)
25 in the Caribbean
21 in the 9 big Groups (one billion US$ revenue or more)
20 with revenues between 75 and 350 m$ per year
30+ with revenues between 10 and 75 m$
12 freighter airlines with more than 12 m$ in revenue
120 million carried by the big 9 Groups
44 carried by other Latin airlines
57 carried by US and European airlines (charter included)
33 in South America
19 in Mexico and Central America
18 in the Caribbean
23,3 b$ the big 9 Groups
4,5 b$ other Latin airlines
22,3 b$ US and European airlines (charter included)
5

Main Latin markets
70
60
50
40
30
20
10
0
69,6
54,2 28,2
12,8
2,6
56,4
8,4
19,8
39,1
4,0
18,0
17,1
Million pax by country, 2008
15,3
2,4
5,4
7,4
Doméstico
Resto Intl
Intl o/d USA
15,2
13,3
9,8 9,7 8,7
9,9 5,8
5,9
5,6 4,8 4,2
3,5 6,4
3,0 4,2 3,3
3,1
1,8 1,2 1,2 0,7 1,2 1,9 0,8
Brasil Caribbean Colombia Venezuela
Mexico CentralAm Argentina Chile
Perú
Ecuador
• Brazil and Mexico cumulate half
of the passengers carried by air
in the region.
• Brazilian domestic market is the
fifth biggest in the world, and
Mexican is around the 10th.
Mexico and Caribbean are the
2nd and 4th international
destinations for US citizens.
• The Caribbean as a whole is the
third biggest market. However,
more than 80% of the traffic is
carried by US and European
airlines.
• Central America and Colombia
follow, with big ethnic and
domestic traffic respectively.
Then Argentina, Venezuela,
Chile, Perú…
Sources: Civil Aviation authorities, CLAC, ALG estimates
6

So, where is the money in LatAm…?
• We have divided the Latin
American market into
more than 30 submarkets.
• Of them, the 11 biggest
account for 92% of the
RPKs and 90% of the
revenue (freight excluded)
• South America – Europe is
the biggest submarket by
traffic, followed by
Caribbean–Europe, South
America–USA and
Domestic Brazil.
3
5
28
4
8
48
64
31
99
• Domestic Mexico is the
seventh biggest
submarket.
Arrow width proportional to traffic.
Figures: billion RPKs in 2008
7

So, where is the money in LatAm…?
• We have divided the Latin
American market into
more than 30 submarkets.
• Of them, the 11 biggest
account for 92% of the
RPKs and 90% of the
revenue (freight excluded)
• South America – Europe is
the biggest submarket.
• Domestic Brazil is the fourth
submarket by RPKs but the
second in value (some 7
billion US$ in 2008).
• Traffic to/from Caribbean
has lower value because
of the big impact of
charter operations.
m.RPKs (2008)
100.000
80.000
60.000
40.000
20.000
0
South Am. - W.Europe
South America - US
Caribbean - W.Europe
Domestic Brazil
Main regions in LatAm aviation
Domestic Mexico
Mexico - US
Central Am. - W.Europe
RPKs
Revenue
Intra South America
Caribbean - US
Domestic South America
Central America - US
m.US$ (2008)
10.000
Other
8.000
6.000
4.000
2.000
0
Sources: Airbus, ICAO, IATA, ALG elaboration
8

… and which airlines get it?
US$ m
6000
Biggest airlines operating in LatAm - revenues 2008
5000
4000
3000
2000
5841
4896
4534
3463
Latin
US
European
1000
0
TAM
AAL
LAN
2386 2170 21252100199618941641
1289 1100 1000 878 850 703 694 607 535
GLO
AFKL
IBE
AMX
MXA
COA
AVA
DAL
CMP
TAI
ARG
USA
FDX
TAP
DLH
UAL
BAW
• 22% of the revenue generated in the region is catch by US and Canadian airlines, and another 22% by
European ones. “Fair” share of external airlines should be 30%.
• Latin services are in general the most profitable of international operations for US airlines.
• Iberia (biggest European operator to LatAm) makes most of its profits out of its operations to the region.
Sources: airline reports, US´ DOT, AEA, ALG elaboration
9

The Big Nine Latin American groups - revenues
6000
5000
4000
3000
2000
1000
Revenue 2000-08, $m
TAM
LAN
GOL+VRG
MXA+CBE
AMX+SLI
AVA
ARG+AUT
COPA
TACA
VRG
• TAM is the biggest airline by
revenue in the region,
followed by Grupo LAN and
GOL.
• In spite of the collapse of
Varig and the stagnation of
Aerolineas Argentinas and
(to a lesser extent) the two
big Mexicans, the growth in
recent years has been
spectacular.
• Growth in revenue for the
last three years:
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
- GOL x 3,1
- TAM x 2,4
- Avianca & COPA x 2,1
- LAN x 1,8
- TACA x 1,4
- Aerolíneas ≈-10%
10

The Big Nine Latin American groups - profitability
28,0%
24,0%
20,0%
16,0%
12,0%
-4,0%
-8,0%
-12,0%
Profitability is a different story:
• COPA is one of the most profitable airlines in
the world (2 nd in op. margin in 2006-2008).
• GOL was one of the most profitable until the
buying of Varig in 2007, now is recovering.
• TAM always keeps good operating margin,
but made net losses in 2008.
8,0%
4,0%
0,0%
Operating margin 2004-08, %
2004 2005 2006 2007 2008
900
700
500
300
100
-100
-300
-500
-700
GOL
COPA
LAN
TAM
TACA
AVA
MXA
AMX
11
885
447
Cumulated Profit/Loss 2006+07+08
239
161
LAN CMP AVA TAI MXA TAM GOL AMX VRG
-109 -114
-431
-472
-606
• LAN keeps good profits even in bad years.
In cumulated terms is the best in the region.
• AVA and TACA keep in general good
records also.
• Mexicans in general struggling to make
profits; Mexicana slightly better than AMX.
• Varig and Aerolineas, better no comment!

In the way towards consolidation
• Although there are a few airlines born from time to
time, the trend is for the big airlines getting bigger,
as anywhere else in the world.
• The four groups mentioned in the map carried 65
million pax and generated 13 b$ in 2008 (40% and
47% of total Latin airlines).
• Adding Aerolíneas, TAM and Mexicans, the Big-9
generate 84% of the total revenue for the region.
30
25
20
15
10
5
0
15,9 15,1 14,4 14,4
72%
Revenues LatAm a/l, $b
Top-9 Groups
69%
16,8
20,8 21,4
80%
24,4
81%
27,9
84%
2000 2001 2002 2003 2004 2005 2006 2007 2008
LAN Group in Chile, Ecuador, Perú,
Argentina, plus Colombia and Brazil
(freighters)
GOL merged with new Varig
Synergy in Colombia, Brazil & Ecuador;
now with TACA Group, linked to Volaris
in Mexico
COPA with Aerorepública in Colombia
Still independent: MXA, AMX, TAM, ARG
12

Recent growth at some Latin markets – effect of economy
• Although there are other important factors that
affect air traffic growth in developing markets, in
general it is closely linked both to economic
growth and to evolution of yields (fares).
10
8
GDP annual growth for main countries, % YoY
Argentina Brasil Chile
Colombia Perú Mexico
6
4
Average air market growth 2006-2008
2
16%
14%
12%
10%
8%
6%
4%
2%
0%
Domestic International
14,5%
13,9%
12,9% 12,7%
11,6%
10,6%
10,5%
8,2%
8,8%
7,1%
4,4%
3,0%
Argentina Brasil Chile Colombia Perú México
0
2003 2004 2005 2006 2007 2008
• Economic growth in Latin America during
last years has been very high, especially in
Argentina, Perú, Colombia…. This effect,
together with the surge of low-cost
operations in some countries (a few years
ago in Brazil, more recently in Mexico and
Chile, now in Colombia) is behind the big
recent growth.
Sources: DGACs, ICAO, World Bank, ALG elaboration
13

Recent growth at some Latin markets – effect of reduced fares
• No matter whether they are called Low-Cost, No-
Frills or High-Efficiency airlines, when a new entrant
airline in a certain market offers significantly
reduced fares, the stimulating effect is immediate.
• It was the case in 2001 with GOL in Brazil and in
2006-07 in Mexico with Volaris, Interjet and others.
The charts show the clear correlation between
lower fares and market growth.
• At the same time, traditional airlines (TAM, LAN,
TACA, AMX, MXA) have made big efforts for
reducing their costs and fares, which at the end
has a similar effect in the stimulation of the market.
18
16
14
12
10
8
Domestic yield evolution, UScents/RPK
GOL effect
Brasil
Mexico
Interjet/Volaris/
Avolar/Viva…
effect
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Domestic Pax, m
50
40
Brasil
Mexico
30
20
10
Sources: ANAC, SCT, ALG elaboration
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
14

Current crisis - how is hitting Latin American aviation (1/3)
• Current crisis is certainly the worst in the recent history of commercial aviation, much worse than the
post-9.11 one. The descent in number of passengers or RPKs comes together with a sharp decline in
fares, especially in Premium classes. Freight operations are being hit even harder than passenger's.
• However, Latin America as a region is suffering less than others. With the exception of Mexico, whose
economy is narrowly linked to the USA, Latin markets and airlines keep either growing or with small
descents in traffic in 2009. Since August/September, market is growing again at regional level (next
page).
Fares and RPKs flown on international markets
Jan-Sep 2009
vs 2008
RPK
growth
LF, %
FTK
growth
% change over year
RPKs
Economy fares
Premium fares
Africa
Asia/Pacific
Europe
Latin America
Middle East
North America
-8,9%
-8,8%
-5,9%
-2,3%
9,4%
-6,7%
69,6
72,9
76,3
72,0
72,9
79,2
-19,1%
-17,0%
-19,3%
-12,7%
-2,6%
-17,9%
World
-5,3%
75,0
-16,4%
Source: IATA
Sources: Civil Aviation Authorities, ALG
15

Current crisis - how is hitting Latin American aviation (2/3)
• Traffic recovery seems on course for most Latin countries
except Mexico, especially in domestic markets.
• September showed overall growth again for the whole
region, after eight months of descent only interrupted in
April.
12%
8%
4%
0%
-4%
-8%
-12%
-16%
8,3%
Brasil
(Aug)
-6,4%
Average market growth in 2009
4,3%
Chile
(Sep)
-9,9%
6,0%
3,1%
Colombia
(Aug)
Domestic
2,0%
Ecuador
(Jun)
-5,0%
4,5%
7,1%
Perú (Aug)
International
Mexico
(Sep)
-12,3%
-14,1%
16
% growth RPKs
20
15
10
5
0
-5
-10
5
% growth FTKs
0
-5
-10
-15
-4,9-4,2
Africa
-5,1
Africa
-6,9
-1,6
Passenger growth by region
Aug-09
sep-09
2,1
Asia
Pacific
Asia -3,1
Pacific
-9,0
3,4
-4,2
-2,8 -2,3
Europe Latin
America
10,8
18,2
Middle
East
Freight growth by region
Europe
-14,5
-13
3,9
1,8
3,0
3,6
Latin Middle
America East
-2,5-2,4
North
America
-1,1
0,3
World
Aug-09
sep-09
North World
America -5 -5,4
-9,6
-12,1
Sources:
IATA, ALTA

Current crisis - how is hitting Latin American aviation (3/3)
• From the economic side, Latin airlines are clearly
again on the recovery path. The (few) airlines
reporting periodic results show clear improvements
in 2009, actually are the best-performing airlines in
the world at regional level:
• IATA predicts that in 2009 Latin America will be the
only region where local airlines will not suffer
Operating nor Net losses overall.
Profit/Loss
(US$ million)
North America
Europe
Asia-Pacific
Latin America
Middle East
Q2 2008
Op.
513
1.327
536
-73
0
Net
-419
439
-958
5
7
Q2 2009
Op. Net
1.018 -134
-788 -1101
-723 -1290
31 485
-6 20
Sources: airline reports
Profit/Loss
(US$ billion)
2007
Op. Net
2008
2009F
Op. Net
North America
9,3
5,3
-2,3
-9,5
-0,6
-2,6
Europe
6,4
5,4
3,3
0,2
-0,8
-3,8
Asia-Pacific
3,5
2,1
-5,5
-5,5
-1,9
-3,6
Latin America
0,4
0,1
0,5
-0,7
0,0
0,0
Middle East
0,0
-0,1
0,0
-1,0
-0,4
-0,5
World
19,7
12,9
-3,8
-16,8
-3,9
-11,0
Source: IATA
17

Short-term forecast:
First of all, aviation is a very resilient industry!
-14%
World annual traffic
(RPKs - trillions)
4.5
Oil Crisis
Oil Crisis
Gulf Crisis
Asian
Crisis
WTC
AttackSARS
-17%
IATA forecast
(March 2009)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
• World aviation always recovers
from the periodical crisis. In the
case of the last big one (post-
Sept´11), world air traffic took
some three years to recover the
former growth path.
• For the current crisis IATA
predicts a maximum 17%
descent in traffic in 2010 versus
the previous trend, with very
long recovery afterwards (but
IATA forecasts use to be
overpessimistic!)
0.0
1972 1977 1982 1987 1992 1997 2002 2007
2012 2015
Sources: ICAO, IATA,
Airbus, ALG
18

Short-term forecasts for Latin America
• The IATA forecast predicts for 2009 a small increase
in pax and an important descent in freight, but P/L
accounts will keep in break-even for LatAm airlines.
• For 2010, a modest recovery of 3,7% in FTKs (same
as world average), but modest net profits for LatAm
airlines, vs still big losses at world level.
b.RPKs
500
400
300
200
100
0
Short-term traffic forecast for LatAm
479,5
-1,6%
471,7
5,0%
6,0% 5,7%
-2,4% 5,1%
-3,2% 2,7%
-0,7% 5,3%
495,4
2008 2009F 2010F
Other
Central America - US
Intra South America
Domestic South America
Caribbean - US
Domestic Mexico
Central Am. - W.Europe
Mexico - US
Domestic Brazil
South America - US
Caribbean - W.Europe
South Am. - W.Europe
19
2009F
LatAm World
Passengers (%) 0,8%* -4,0%
Cargo, FTKs (%) -12,1%* -14,0%
Traffic growth (FTKs) -4,4% -6,9%
Revenue ($b)
-15,0%
Op. profits ($ b) 0,0 -3,9
Net profit ($ b) 0,0 -11,0
2010F
LatAm World
3,2%
3,7%
0,3
0,1
5,0%
3,7%
4,6%
6,5
-3,8
(*) ALTA data
• Combining several forecast sources
with economic growth figures and
analysis of the different sources of
traffic for every market, we obtain
the growth rates shown in the chart.

Forecast – medium term
6%
4%
Mid-term traffic forecasts for LatAm
6,4%
6,0%
IATA
4,5% 4,9% 5,0% 5,0% 4,9% 5,0%
Airbus
Boeing
ALG
• The most respected medium- and long-term
forecasts concerning commercial aviation are the
ones provided by Airbus and Boeing.
2%
ALG mid-term traffic forecast for LatAm
0%
-2%
2009-08 2010-09 2018-08 2028-08
-1,8% -1,9%
-1,6%
6%
5,03%6,23% 5,99%6,02%5,85%5,68%
5,60%5,50%5,46%
4,95%
4%
• Based on similar methodology but using
our deeper knowledge of the Latin market,
at ALG we predict the following growth
rates for the next ten years.
2%
0%
-2%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 10Y
avg
-1,63%
20

Addendum:
An interesting potential between Latin America and Asia/Pacific
• Because of the big distances, current direct air offer
between LatAm and Asia/Pacific is scarce (27 frequencies
/week in 2007, 34 today). Of course the connecting flights
via the US or Europe are numerous.
• However, Asia-Pacific is the world´s aviation engine for
several years, and LatAm a growing region scarcely
affected by the current crisis.
Estimated traffic volume in 2012 by subregion
Australia/NZ/Pac.-S.Am
Asia-Central America
China-Central America
Asia-South America
Japan-Central America
Other region-pairs
2012F
RPKs Frecs/w
3.500 11
4.100 10
2.500 8
2.500 6
1.800 6
11.600 9
• the current development of both
regions, the economic potential,
the ethnic market and the huge
tourism potential will fuel a high
traffic growth rate between both
regions.
• We forecast the market to double
by 2012 compared to 2007, with
some 50 weekly frequencies using
equivalent 250-seater aircraft.
21

In summary…
• Latin American aviation in general has enjoyed a very good health in the
last years, growing faster than the world average.
• As a pending matter, it has to gain share in long range markets.
• Growing consolidation among airlines. Very good results in general for the
big-nine Groups of airlines.
• At short term, 2009 will finish with a small back step in traffic, but with big
variations among countries and markets. 2010 will see a recovery, likely to
improve further in 2011.
• At mid-term traffic will grow at 5-6% average per annum. By countries,
Brasil, Perú, Chile, Colombia show brighter perspectives than Mexico,
Argentina or Ecuador.
22

That´s all. ¡¡¡Muito Obrigado!!!
AVIATION
CONSULTING
SERVICES
DELIVERING RESULTS
TO
AIRPORT AND AIRLINES
EUROPA
LATINOAMÉRICA
ASIA
MADRID
María de Molina, 54, 5ª plta.
28006 Madrid (España)
Tel: (+34) 91 400 80 88
Fax: ( +34) 91 409 44 87
BARCELONA
Comte d'Urgell, 240, 3º
08036 Barcelona (España)
Tel: (+34) 93 430 40 16
Fax: (+34) 93 419 55 24
BILBAO
Ribera de Axpe, 11
Edificio D1-D2
41950 Erandio (Vizcaya)
Tel: (+34) 94 402 43 00
Fax: (+34) 94 402 43 54
LISBOA
Av. Duque D'Ávila, nº46
1053-083 Lisboa (Portugal)
Tel: (+35) 121 313 90 60
Fax: (+35) 121 313 90 61
LONDON
Crossweys House
28-30 High Street .Guildford
Surrey GU1 3EL. London
Tel: +44 (0) 148 324 3343
Fax + 44 (0) 148 324 3301
MILANO
Via Fatebenefratelli, 26
20121 Milán (Italia)
Tel: (+39) 02 30 57 55 1
Fax: (+39) 02 30 57 50 02
LIMA
Calle Alcanfores 495
Oficina 514
Edificio Thunderbird
Miraflores – Lima 18(Perú)
Tel: (511) 242-7365
CARACAS
Av. Francisco de Miranda, El
Rosal. Edificio EASO Piso 7
Oficina PH
1050 Caracas (Venezuela)
Tel: (+58) 23212 951 45 83
MÉXICO D.F.
Av. G. González Camarena, 1600
01210 Santa Fe (México D.F.)
Tel: (+52) 55 5243 6144
SAO PAULO
Rua James Joule, 92 - 6º andar
04576-080 Brooklin Novo
São Paulo (Brasil)
Tel: (+55) 11 21 27 04 00
Fax: (+55) 11 21 27 04 05
DUBAI
Grosvenor House Commercial Tower
Office M.07, Sheikh Zayed Road
P.O. Box 3089, Dubai, UAE
Tel: +971 (0) 4 329 63 88
Fax. +971 (0) 4 329 64 11

Forecast – medium term
• The different
24

Latinoamérica es tierra de oportunidad en el negocio del transporte
aéreo para los próximos años (1/2)
• A pesar de la crisis actual, en su condición de economía
emergente Latinoamérica mantiene la capacidad de
crecer su consumo y su PIB a un ritmo cercano al 6%
durante los próximos años.
• En su pronóstico hasta el año 2016 Airbus afirma que el
mercado intra-Latinoamericano crecerá a ritmo promedio
del 6,2% anual. Por su parte Boeing en su pronóstico hasta
el 2027 afirma que el mismo mercado crecerá un 6,7%.
• Ambas compañías consideran que la creciente liberalización
del mercado en LatAm es un factor contribuyente
a dicho crecimiento.
Fuente: Airbus´ Global Market Forecast
25

Latinoamérica es tierra de oportunidad en el negocio del transporte
aéreo para los próximos años (2/2)
• Si bien el mercado intra latinoamericano tendrá un gran
crecimiento, el mercado entre Latinoamérica y Europa
Occidental seguirá formando parte de los diez más
importantes flujos mundiales y aumentará su relevancia.
En 1995 ocupaba el puesto 10; para el 2026 se espera
que ocupe el puesto 6.
• Para Boeing, es el mercado intra-Latinoamericano el
que experimentará el mayor crecimiento entre los de la
región, con un 6.7% anual en promedio hasta el 2027
(6.9% en particular para el intra-Suramérica):
Crecimiento anual
medio 2007-2027
por regiones, RPKs
(Boeing CMO)
Puesto 6 en 2026
3º en el mundo
Fuente: Airbus´ Global Market Forecast
26