Living with change Peter Harbison Executive Chairman CAPA

Living with change Peter Harbison Executive Chairman CAPA- Centre for Aviation Perth, 4 -Jul- 2018 Share your thoughts #CAPAEvents

1. The global environment 2. Perth and Australia domestic 3. Distribution and NDC Share your thoughts #CAPAEvents

Oil prices change the market Jun-2018 to Jul-2018 Share your thoughts #CAPAEvents Jul-2017 to Jul-2018 x

130 How oil prices changed the market 125 10% 140 110 120 105 100 80 95 $ 60 90 40 85 20 80 2011 2012 2013 Share your thoughts #CAPAEvents 2014 2015 2016 2017 Passenger yield / Load Factor / Passenger growth Barrel price ($) 115 8% 6% 4% Airline operating profit (EBIT) 120 Passenger growth Profit Load factor $ Average ticket price Oil barrel price January 2011 = Index 100 Globally, 2017 was a fairytale year It was not a normal year Source: CAPA – Centre for Aviation; IATA

Global influences • Trade War • Middle East turmoil Share your thoughts #CAPAEvents

Discount fares rising The lowest fares are trending upwards. This is the most price sensitive market Share your thoughts #CAPAEvents Source: BITRE

Business class fares steady Business class fares have been stable over the past couple of years Share your thoughts #CAPAEvents Source: BITRE

Restricted (non-flexible) economy But look at this…. . And who pays these fares? Share your thoughts #CAPAEvents Source: BITRE

Most fares trending upwards - higher fuel costs - less domestic competition - lower AUD Demand remains fairly strong - what impact of the end of the housing boom, higher interest rates? Domestic growth slowing Share your thoughts #CAPAEvents

Share your thoughts #CAPAEvents https: //www. youtube. com/watch? feature=player_embedded&v=g 2_g 4 hh 8 s. KM#at=15

Selling tickets - 1950 s style Share your thoughts #CAPAEvents

Selling tickets – moving along Agent Share your thoughts #CAPAEvents

Selling tickets – CRSs arrive: 1970 s-1990 s CRS Agent CRS Share your thoughts #CAPAEvents The big airlines created their own Then the dopes CRSs sold (and thempaid off! agents to distort And GDSs their inventory in evolved…. favour of their flights)

What’s NDC and why is it important? ATPCo Airline objections to GDS: GDS OAG 1) Only 26 buckets Limits offer flexibility Fares Schedules Availability Agent $$$ Share your thoughts #CAPAEvents 2) GDS fees/segment + airlines locked in for 5 years (GDSs share fees with agents)

What’s NDC and why is it important? ATPCo Fares OAG Schedules Availability N D C GDS Agent Fares Schedules Availability Share your thoughts #CAPAEvents $$$ The New Distribution Capability seeks to allow added “richness” to the old legacy systems that limit them in how they can sell: 1) Allows more ancillary sales 2) Regains control of the selling process 3) Allows data collection

What happens next? Change! • But nobody knows what. Migrating to NDC is complex: • Legacy airlines mostly have very complex, “legacy” systems, so it’s hard to deliver directly to agents or to customers • Most airlines think it’s an IT issue. 90% of the business is dedicated to buying and flying metal (which doesn’t make money); managements don’t know the nature of this revolution, so they can’t tackle it • There’s a lot of other stuff going on: • • Payments and back office solutions (and disrupters) Data collection and analytics. Chatbots. AI Blockchain. Winding Tree. 40, 000 smart tech startups trying to disrupt the system Share your thoughts #CAPAEvents

What happens next? Change! • Most intermediaries should be worried, if they’re not prepared • Agents have been shielded from being bypassed because GDSs locked airlines into using them and paid agents to support the old system by sharing the GDS segment fees with them • It’s going to be very messy • It will take years for the picture to become clearer, so there will be many opportunities for the ones who understand the big picture • And (smart) airlines are worried too. There are lots of 3 rd party lurkers who know the airlines’ customers much better than they do: • Amazon, Facebook, Google, Tencent, Alibaba, We. Chat, Twitter, Uber, Didi…. . Share your thoughts #CAPAEvents

Thankyou! Share your thoughts #CAPAEvents

Share your thoughts #CAPAEvents

Profile of corporate and business travel decision makers Share your thoughts #CAPAEvents Source: : Roy Morgan Single Source (Australia) 12 months ended Mar-2018

Annual Passenger Growth at Australian Airports 10. 12% 10% Annual Passenger Growth 8. 38% 5% MEL SYD ADL BNE 1. 92% 0% -0. 35% PER -0. 93% -1. 88% -1. 71% 2015 2016 -5% 2011 2012 Share your thoughts #CAPAEvents 2013 2014 2017 2018 All Airports Average Annual Growth = 3. 14% Source: BITRE (Year Period = May-April)

Annual Passenger Growth at Perth Airport 9. 09 M 9 M 8. 95 M 8. 35 M 8. 61 M 8. 32 M Annual Passenger Growth 7. 51 M 8. 05 M 8. 06 M 4. 40 M 4. 35 M DOM 7 M 5 M 4. 08 M 4. 18 M 4. 25 M 2014 2015 2016 INT 3. 69 M 3. 44 M 3. 20 M 3 M 2011 2012 Share your thoughts #CAPAEvents 2013 2017 2018 Source: BITRE (Year Period = May-April)

Domestic Airfare Index 100 Index Value SYD 75 MEL ADL PER BNE 50 2013 Share your thoughts #CAPAEvents 2014 2015 2016 2017 Source: Forward Keys (Year Period = January-December) [Index 100 = 2012]

International Airfare Index 100 ADL Index Value SYD PER MEL BNE 75 50 2013 Share your thoughts #CAPAEvents 2014 2015 2016 2017 Source: Forward Keys (Year Period = January-December) [Index 100 = 2012]