BOEING COMMERCIAL AIRPLANES Marketing June 2003

AIR TRAVEL CYCLESCycles are a regular part of the air travel industry. However, annual negative worldtraffic growth has been experienced only twice in all of modern aviation history —in 1991 and in 2001–2002. Cycles do not change the fundamentals of economicgrowth, globalization, and the desire of people to travel. Long-term trends forair traffic growth remain healthy.The major driver of longtermair travel growth is economicgrowth. Globalization of trade isanother cause of air travel growth.The Internet further encouragestravel by opening up globalopportunities to many morepeople. Airline network serviceimprovements and declining faresexplain additional portions oftraffic expansion. DeregulationTraffic Is at a Cycle TroughWorld traffic in RPKs, billions4,0003,0002,0001,000 1985 1990 1995 2000and liberalization enhance airline competition, which in turn fosters lower faresas well as the additional frequencies and city pairs passengers desire.I N THE SHORT TERM, AIR TRAVEL IS MORE VOLATILE. Consumer confidenceand business profits can be strong influences on air travel demand during a businesscycle. Travelers treat discretionary air travel in a similar manner as they treat moredurable goods such as computers and automobiles. Visits to friends and relatives,vacations, and even business trips can be cancelled or delayed when income isdepressed or uncertain.The current short-term cycle began modestly in early 2001 with the burstingof the high-technology stock market “bubble.” After September 11, 2001, thenormal cycle turned into an extreme cycle. Fear and “hassle” factors, such as linesat security checkpoints, distorted the normal relationship between economic variablesand air travel. The recent outbreak of the SARS virus has also had a downwardeffect on the current cycle. In time, this short-term cycle will end, and the relationshipbetween traffic and economic growth will once again be paramount.Demand for Air Travel 6Current Market Outlook 2003