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Europe Equity Research

29 September 2011

European Airlines
Initiating coverage: Unprecedented times: we prefer legacy carriers over low-cost carriers; top pick IAG
 Unprecedented times: Whilst the airlines have had to deal with low economic growth/recessions and high oil prices before, not since the 1970s have they had to deal with both at the same time.  2012 different to 2009 – premium to outperform: The downturn in 2008/09 was driven by corporates, with declines in global trade leading to significant decreases in premium demand. We believe 2012 will be different due to: (1) a Eurozone, not global, recession; (2) a greater balance between consumers and corporates with no stimulus from lower energy/interest costs leading to weaker non-premium demand; (3) higher fuel costs meaning less scope to drop prices and stimulate demand.  IAG: Highly exposed to premium traffic. We initiate coverage with an Overweight rating, and a Sep-12 price target of €2.30. IAG is highly exposed to premium traffic; is the only carrier with significant 'self help' through BA/IB merger synergies, the JBA with American Airlines; and has the second strongest balance sheet of airlines under coverage measured by gearing & net debt/EBITDAR.  Air France-KLM: not an out-and-out short, but risk-reward negative. We initiate coverage with a relative Underweight rating and a Sep-12 price target of €6.00. We do not believe Air France-KLM will need to raise additional capital, but with the highest exposure to non-premium another profits warning looks possible. Combined with structural issues meaning cost cutting is difficult, we believe the risk-reward is negative.  Lufthansa: strong balance sheet and exposure to premium, but may have to accelerate growth at the wrong time. We initiate coverage with a Neutral rating, and a Sep-12 price target of €11.80.  easyJet: well positioned longer-term, but faces higher fuel costs, weaker consumer demand this winter, and a strengthening USD. Further shareholder activism also possible We initiate coverage with a relative Underweight rating, and Sep-12 price target of 362p.  Ryanair: Capital return likely; also facing a strengthening USD, higher fuel costs and weaker consumer demand, but cutting capacity this winter. We initiate coverage with a Neutral rating, and Sep-12 price target of €3.60.
Equity Ratings and Price Targets Company Air France-KLM IAG Lufthansa easyJet Ryanair Symbol AIRF.PA IAG.MC LHAG.DE EZJ.L RYA.I Mkt Cap ($ mn) 2,250.22 4,465.70 6,136.54 2,388.61 6,476.15 Price CCY EUR EUR EUR GBp EUR Rating Price 5.52 1.77 9.86 355 3.26 Cur UW OW N UW N Prev NC NC NC NC NC Price Target Cur Prev 6.00 — 2.30 11.80 — 362 — 3.60 —

European Transport David Pitura
AC

(44-20) 7325-0369 david.c.pitura@jpmorgan.com

Christopher G Combe
(44-20) 7325-7310 christopher.g.combe@jpmorgan.com

Elodie Rall
(44-20) 7155 6659 elodie.rall@jpmorgan.com J.P. Morgan Securities Ltd.

Key upcoming events: September 29th: Ryanair AGM October 5th: IAG September traffic stats October 6th: easyJet September traffic stats October 10th: Air France-KLM September traffic stats October 12th: Lufthansa September traffic stats October 27th: Lufthansa 3Q11 results October 31st: IAG 3Q11 results November 7th: Ryanair 1H12 results November 16th: easyJet FY11 results November 17th: Air France-KLM 3Q11 results

Source: Company data, Bloomberg, J.P.Morgan estimates. n/c = no change. All prices as of 28 Sep 11.

See page 81 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. www.morganmarkets.com

David Pitura (44-20) 7325-0369 david.c.pitura@jpmorgan.com

Europe Equity Research 29 September 2011

Table of Contents
Executive Summary .................................................................3 Summary of recommendations ...............................................6 Risks to our view ......................................................................8 Legacy carriers .........................................................................9 Low-cost carriers....................................................................18 Valuation .................................................................................23 Seats, seats everywhere but little profit to be made ...........29 What happened in 2009-2010? ..............................................37 Outlook for 2011/12 ................................................................39 Have low-cost carriers gone ex-growth? .............................42 Earnings estimates and assumptions ..................................46 Sensitivity analysis ................................................................57 Historical trading ranges/Returns analysis..........................65 Valuation Methodology and Risks ........................................69

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David Pitura (44-20) 7325-0369 david.c.pitura@jpmorgan.com

Europe Equity Research 29 September 2011

Executive Summary
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” Warren Buffett, Berkshire Hathaway 2007 Annual Report

Do we like the sector?
We find it hard to ‘like’ the airline sector. In pure capitalist terms, the track record of the airline industry does not make it an attractive industry to invest in. Over the past 40 years, global airlines have generated over US$8.7 trillion in revenue, but only US$332m in net profit. The industry is characterized by high capital intensity, low returns, excessive government interference, and strong labour unions. In most cases, this implies that investing (at the equity level) is not to be undertaken over the long term (even Warren Buffet lost money). That said, airline share prices are volatile, meaning there are profits to be made trading the peaks and troughs of the cycle. Key to understanding the cycle in airline share prices, we believe, is earnings momentum: specifically revenue (or yield) momentum. On a simplistic level, this is a function of global economic growth, and consumer spending (for the low-cost airlines). The investor who understands both where the revenue environment is going to go next, and where the market thinks it’s going to go, is the investor who can make money trading airline shares.

Unprecedented times
J.P. Morgan economists are currently forecasting a mild recession in the Euro area, beginning in 4Q11, and ending in 3Q12, although downside risk remains, with a deep recession only being avoided if mechanisms to avoid contagion are upsized and used. Our estimates and recommendations therefore assume a mild recession in the Eurozone. However, we would point out that we see the effects of a zero/low growth economic environment as likely to be somewhat similar to a mild recession for the airlines. Whilst the current economic outlook isn’t unprecedented, for airlines we believe it is unprecedented territory. This is because whilst we’ve had low growth/recessions and high oil prices, we have not had both at the same time since the 1970’s The downturn in 2008/09 saw global GDP growth fall from +3.9% in 2007 to -2.1% in 2009, but Brent crude oil prices also fell from a high of $145/bbl in July 2007 to a trough of $57/bbl in February 2009. The forward curve for jet fuel is currently at US$988/mt for 2012, falling to US$956/mt for 2014, broadly equivalent to US$98.80/bbl and US$95.60/bbl for Brent Crude Oil respectively, despite a recession in Europe looming.

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David Pitura (44-20) 7325-0369 david.c.pitura@jpmorgan.com

Europe Equity Research 29 September 2011

Higher fuel prices and weak demand
The slow rise in fuel prices in the last cycle meant airlines could build a good fuel hedging book that took time to equalize with spot prices. In the current cycle, this advantage will be less great, so airlines will be faced with raising prices to cover higher fuel costs against a background of weak demand. We believe the extent to which individual airlines will be affected will, at least partly, be a function of how fast capacity is growing or being cut. Encouragingly, none of the airlines under coverage are increasing capacity aggressively this winter, although Lufthansa may be forced to do so if competitors increase capacity faster than expected at Frankfurt Airport.

Non-premium/low-cost carriers set to underperform
Lufthansa’s recent profits warning was partly a function of a significant slowdown in August, in contrast to a very strong July. In particular, the first signs of weakness had been detected in non-premium traffic, whilst premium remains stable. We believe this trend will continue into 2012. In contrast to 2009 when the US, UK and Eurozone all fell into recession, the J.P. Morgan economics team currently forecast that recession in 2012 will be limited to the Eurozone. In addition, the 2009 downturn was led by corporate, with declines in global trade and investment capex leading to significant declines in premium traffic. In contrast, consumer spending remained relatively resilient, helped by lower interest costs and energy bills. However, without the stimulus of lower energy bills (assuming energy costs remain at current levels), and lower automatic fiscal stabilizers (as governments implement austerity measures), JPM economists believe there will be more of a balance in the coming Eurozone recession between corporates and consumers. With recession limited to the Eurozone and emerging market growth remaining robust, coupled with the strength of corporate balance sheets, a lack of hiring post 2009, and higher fuel costs, we believe premium traffic is set to outperform nonpremium in 2012. This is a critical point for earnings, because legacy carriers generate the majority of their profits from premium traffic (which is driven by global GDP), whereas the low-cost carriers are almost exclusively dependent on leisure traffic. In contrast to the downturn in 2009, we believe this will lead the low-cost carriers to underperform their legacy carrier peers in 2012.

September/October are key for the legacy carriers
We believe the biggest months of the year in terms of business traveler numbers are September and October. Performance in the next couple of months will likely dictate performance for the rest of 2011, and likely influence early 2012. With the majority of business travelers booking less than six weeks before departure, now is the critical time for October travel. A close eye will need to be paid to the performance of premium traffic. For this, the best source of timely information is IAG monthly traffic stats, as IAG is the only airline to report both premium and non-premium traffic (IAG’s September 2011 traffic stats are due October 5th).

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Whilst there are 'Black Swan' type risks (like the fate of the Eurozone) which were not a characteristic of the previous recession. JPM and consensus economic forecasts do not reflect this. However. and Lufthansa is c15% above its post 9/11 low. often with little or no regard for profits. but they have no offsetting dollar revenues (as the legacy carriers do).pitura@jpmorgan. weaker consumer demand. Air France-KLM shares are currently trading near to all-time lows.c. we view the absolute level of the oil price as less important (from an earnings perspective) than the speed and reason for the rise in oil prices. In this regard. compared with Ryanair which only has 60% to 70% hedged in the year to March 2013. we believe the market is discounting too much into European airline share prices based on the current economic outlook.David Pitura (44-20) 7325-0369 david. people are less likely to drop their annual twoweek holiday than postpone. and hence profits longer term. but also led to strong air traffic demand that meant airlines could pass on rising fuel costs to passengers. is often the only way to reduce unit costs. and Ryanair c20% above 2009 lows. High oil prices change the fixed/marginal cost balance. peak margins for most of the airlines under coverage coincided with peak oil prices. We view hedging as a temporary measure that can smooth out short-term spikes in prices. This was because strong global growth was not only driving the oil price higher. The low-cost carriers are completely short the US$ as fuel. and a strong US dollar.com Europe Equity Research 29 September 2011 Stronger US$ could complete a perfect storm for LCCs Whilst it could be argued that certain segments of the low-cost passenger base are less cyclical than business travel (i. but should not be considered a long-term competitive advantage. Sector is pricing in a severe recession The sector has significantly de-rated in the past couple of months due to fears over the global economy. we believe the low-cost carriers could face a ‘perfect storm’ of high fuel prices. One thing to remember is that in the last cycle. we've long held the view that high oil prices can ultimately be beneficial for the airline industry in the long run. It would therefore seem that the market is discounting a recession on par in terms of severity as that in 2008/09. and the outcomes of sovereign debt issues in the Eurozone. easyJet appears slightly better protected than Ryanair. or cancel. low economic growth. despite a significantly stronger balance sheet than post 9/11. This is because the industry is characterised by a high degree of fixed costs and strong labour unions. with easyJet c40% above. In contrast.e. The low-cost carriers have fared somewhat better. a business trip). leasing. High fuel prices a positive longer term From an earnings perspective in the short term. meaning growing capacity. meaning capacity growth becomes more ‘rational’. and some maintenance costs are priced in US dollars. with 69% of its US dollar requirement hedged in the year to September 2012. which supports pricing. 5 .

00 (7% upside)  Air France-KLM has the highest exposure to non-premium traffic flows compared to its legacy carrier peers.  We expect synergies from the BA/Iberia merger to outweigh integration costs for the first time in 2012. PT €2. Lufthansa: Neutral.311.9% 6. we generally prefer the legacy carriers.30 (29% upside)  IAG is highly exposed to premium traffic flows. it has a significant amount of non-aircraft capex which is harder to defer. and the lack of US dollar cost headwinds.c. 6 .P.00 €11.  IAG has the lowest planned capacity growth for Winter 2012.David Pitura (44-20) 7325-0369 david.2 4. in addition to the continued amortization of benefits stemming from the joint business agreement with American Airlines.pitura@jpmorgan. We do not believe a rights issue is the most likely outcome.8 1.30 €6.7 Rating Overweight Underweight Neutral Price Target (Sep-12) €2. In addition.80 (17% upside)  Lufthansa also has a higher exposure to premium traffic flows  Lufthansa is growing the most this winter to secure new take-off/landing slots created from the opening of the new runway at Frankfurt. We have compiled our forecasts. PT €6. Air France-KLM: Underweight. costs. it faces structural difficulties that mean it is difficult to significantly cut absolute.  Air France-KLM’s balance sheet is very weak in comparison with either Lufthansa or IAG on either a Net/EBITDAR or Gearing basis. and set our recommendations for the legacy carriers mainly with reference to the following: (1) EXPOSURE TO PREMIUM TRAFFIC FLOWS (2) CAPACITY GROWTH IN 2012E (3) BALANCE SHEET STRENGTH IAG: Overweight.687.62 €10.7% IAG Air France-KLM Lufthansa Source: J. PT €11. particularly from London. which we expect to outperform non-premium in the coming downturn.80 Upside/ (downside) 28.com Europe Equity Research 29 September 2011 Summary of recommendations Table 1: Legacy carrier recommendations and price targets Price €1. Morgan estimates LEGACY CARRIER ASSUMPTIONS: Given the higher exposure to premium traffic. rather than unit.8% 16.629.79 €5.11 Market Cap (€m) 3.  Although it has slowed its capacity growth this winter. but the margin of error is very small.

 We view it as unlikely Ryanair will place another aircraft order in the next couple of years. we believe current consensus. 2011 LOW-COST CARRIER ASSUMPTIONS: Despite outperforming the legacy carriers in the last recession.  The continued risk of shareholder activism from easyJet's biggest shareholder. despite the recently announced dividend and capital return. Table 2: Low-cost carrier recommendations and price targets Price easyJet Ryanair 357p €3. and set our recommendations for the low-cost carriers mainly with reference to the following: (1) CAPACITY GROWTH IN 2012 (2) FUEL PRICE INCREASES easyJet: Underweight.60 Upside/ (downside) 1. in contrast to Ryanair which is cutting capacity. combined with cost headwinds from a stronger US dollar.com Europe Equity Research 29 September 2011  Lufthansa has by the strongest balance sheet (see Figure 7 and Figure 8 below) of the legacy carriers under coverage. Given the weak consumer environment. Share prices as at cob on September 27th.P. We have compiled our forecasts.801. will see low-cost carriers underperform their legacy carrier peers. which looks for a small decline yoy.c. PT 362p (1% upside)  Both easyJet and Ryanair are facing significant fuel cost headwinds this winter.8% Source: J. is too optimistic. Sir Stelios Haji-Ioannou. However. PT €3.4 €4. 7 .David Pitura (44-20) 7325-0369 david. we believe a change in the geographical scope and nature of the coming downturn. Ryanair: Neutral.pitura@jpmorgan. Morgan estimates.4% 9. easyJet's winter capacity is expected to be flat.60 (10% upside)  Ryanair looks relatively better placed to overcome fuel cost headwinds this coming winter due to a planned reduction in capacity. We believe this will lead it again to return capital to shareholders.7 Rating Underweight Neutral Price Target (Sep-12) 362p €3. due to differences over the speed of growth.536.28 Market Cap (m) £1.

 Lower than expected capex. Ryanair  Better than expected traffic or revenue performance.com Europe Equity Research 29 September 2011 Risks to our view General airline risks include war.  A significant downturn in the profitability of financial service firms or banks . a significant drop in the price of jet fuel.  A weakening of the US dollar vs.c. increases in the price of jet fuel and/or carbon credits. or competitors.David Pitura (44-20) 7325-0369 david. Lufthansa  The relative out-performance of non-premium traffic compared to premium traffic.  Better than expected passenger or cargo pricing. the Euro.  Better than expected passenger or cargo pricing. terrorism.  Faster than expected cost cutting. environmental factors such as volcanic eruptions that affect air travel.  Slower than expected capacity growth from either easyJet or competitors.  Slower than expected capacity growth from either the Lufthansa Group airlines or competitors. fiscal crises in European countries. 8 .  A significant drop in the price of jet fuel. and other geo-political risks. easyJet  Better than expected traffic or revenue performance.pitura@jpmorgan.  Faster than expected capacity growth either from Ryanair or competitors.  Lower capacity growth than expected from either Air France-KLM. Air France-KLM  Relative outperformance of non-premium traffic compared to premium.  A weakening of the US dollar versus the Euro.  Slower/lower than expected synergies from the BA/Iberia merger or Joint Business Agreement with American Airlines.  Slower than expected cost cutting.  A significant drop in the price of jet fuel. IAG  Relative underperformance of premium traffic compared to non-premium. further taxes on air travel.

Whilst this wasn’t an easy process (BA faced several strikes by its cabin crew).David Pitura (44-20) 7325-0369 david.29 0. this exposure does come with risks. The only carrier with significant ‘self-help’ Of all the legacy carriers under coverage. However.3 1. The benefits of the JBA are subtle. but we do expect the average discount to the ‘rack-rate’ to decrease over time. J. whilst AMR (American Airlines’ parent) has cited the fact these benefits have been rather slow to 9 .00 4.6 Source: Company data.603 EBITDAR FY (€ mn) 1. We don’t expect headline fares to rise.05 0.00 4.385 809 4. Bloomberg. it is the only carrier to push through structural change.33 18.731 16.pitura@jpmorgan.com Europe Equity Research 29 September 2011 Legacy carriers IAG Overweight Company Data Price (€) Date Of Price Price Target (€) Price Target End Date 52-week Range (€) Mkt Cap (€ bn) Shares O/S (mn) 1. and benefited from. but nonetheless significantly beneficial.5% 3. a number of years ago. British Airways (BA) has done the best job at reducing employee costs. in our view.6% Pretax Profit Adjusted FY 84 473 (€ mn) Net Income Adjusted FY (€ 100 373 mn) Dividend (Net) FY (€) 0.3% 458 362 0. BA also has the highest degree of exposure to the financial services industry of its peers (although for Iberia. we believe this will become a significant competitive benefit for IAG – albeit one that is ‘held back’ by a lack of the same success at IAG’s other airline.30 29 Sep 12 3. Should the sovereign debt related issues in the Eurozone cause a sector-specific slowdown in financial services (similar to the situation post the Lehman Brothers bankruptcy). For an industry that is plagued by ‘legacy’ working practices that increase costs. This is something Lufthansa/United. Morgan estimates.44 0. which.58 3. However.074 575 3.MC. Iberia. rather than separate basis. all things equal. should be positive for IAG yields. and hence IAG. we believe this is lower).23 17.00 EV/EBITDAR FY 3.19 Revenue FY (€ mn) 14. The visible benefits such as the routes between London and New York being re-timed to provide a ‘shuttle’ type schedule.0 Highly exposed premium and O&D traffic We believe that premium traffic will see less of a decline this coming cycle than nonpremium. IAG (through BA) would be the most exposed. and Air France-KLM/Delta implemented.c. through which the airlines run their transatlantic businesses as if they were one. will be less than the benefits from negotiating corporate contracts on a coordinated.4% 693 547 0.77 28 Sep 11 2.IAG SM) FYE Dec 2010A 2011E Adj.799 1.00 0. the benefits of which will amortize over time as the proportion of cabin crew on newer contracts increases.P.1.20 0.215 2.6 2013E 0.350 2.42 . 2012E 0.855 International Consolidated Airlines Group SA (IAG. meaning (all things equal) it should be better placed to weather the coming downturn. the holding company for British Airways (BA) and Iberia. Added to this is IAG’s Joint Business Agreement (JBA) with American Airlines.7 4.20 Bloomberg EPS FY (€) -0. is highly exposed to premium traffic and O&D traffic (as Figure 1 and Figure 2 below show). IAG.992 EBIT FY (€ mn) 373 589 EBIT margin FY 2. EPS FY (€) 0. As Figure 4 below shows.

as the plan to start up a separate short-haul airline testifies. a process that has been ongoing for several years. TAP Air Portugal. Future consolidation The merger of BA and Iberia in 2010/11 has seen IAG come relatively late to the consolidation party – Air France and KLM merged in 2004.pitura@jpmorgan. has been relatively weak. Lufthansa is now looking for a ‘strategic’ solution. 10 . and reducing the absolute number of short-haul aircraft. with only a small degree of success (pilot approval has been notably difficult). by shifting capacity away from domestic markets. However. Iberia is trying to reduce the absolute cost base in its short-haul business. we believe it will continue to negatively impact earnings in the short term. but Spain is still a weakness Whilst Iberia’s routes to Latin America have been strong. bmi. and whilst part of the losses have been due to events in the Middle East/North Africa (to which bmi is highly exposed). as any acquisition of TAP or Aer Lingus would involve the Portuguese or Irish governments. September 19th 2011) has speculated these include bmi. Iberia has been reducing its exposure to its domestic market (partly due to the introduction of the high-speed rail link between Madrid and Barcelona). London is strong. as cultural and pricing issues don’t perfectly align. Lastly. For some years. In addition. would bring BA much needed capacity growth at Heathrow. In particular. CFO Gemkow highlighted that bmi has no real ‘connectivity’ with the rest of the Lufthansa Group. broadly split 60%/40% between cost and revenue synergies. bmi would be a good fit for IAG At the recent Investor Day. with c8% of the take-off/landing slots. CFO Gemkow also stated that the slots bmi needs and does not need had been identified. implementation costs of €59m). and whilst IAG has declined to name the 12. The press has reported IAG has 12 acquisition targets ("BA-Iberia has 12 on takeover target list" Financial Times. Lufthansa CFO Stephan Gemkow made it clear that Lufthansa had tried to restructure bmi for two years.c. TAP would strengthen the relative weak points in IAG's network to Latin America and Africa. Whilst we believe Iberia is determined to structurally improve its domestic/short-haul business. and Aer Lingus. but we think it would be a good fit for IAG. in contrast with bmi which is owned by Lufthansa. synergies created from the merger of BA and Iberia should outweigh the costs of integration for the first time in 2012 (cost/revenue synergies of €166m vs. September 4th 2010). the press (“IAG looks at three potential mergers” Financial Times. it will depend on the political process. and is therefore not a constituent part of the multi-hub strategy. and Lufthansa acquired SWISS in 2005. and Aer Lingus could be used as a transfer hub to North America to ease pressure on Heathrow. We believe the fact that bmi is not seen as integral to the Lufthansa Group means it could eventually be sold. We believe that all three make strategic sense. IAG believe synergies will eventually reach €400m by 2015. It is impossible to predict who would win any sale of bmi.David Pitura (44-20) 7325-0369 david. we still do ultimately believe they will be beneficial for IAG and AMR. to which Iberia still has a significant exposure.com Europe Equity Research 29 September 2011 materialize. a point highlighted by IAG’s recent purchase of six slots from bmi. the Spanish domestic market.

Figure 3: London-New York premium market* share. 11 .David Pitura (44-20) 7325-0369 david. (3) Data for Lufthansa for the year to December 2010. Firstly. Source: J. The value of bmi comes from its Heathrow slot holding. Whilst this is less than Air France-KLM’s share of slots at Paris-CDG or Amsterdam. Morgan estimates. J. both of these scenarios would carry short-term risk for IAG.P. regulatory authorities could have competition concerns (in particular if Virgin Atlantic were to raise objections – something we believe would be highly likely). bmi currently holds c8% of Heathrow slots.com. September 18th 2011). Either way. The Sunday Times. data for Lufthansa is for Finance & consulting for H1 2010).com Europe Equity Research 29 September 2011 bmi would bring risks in the short-term We believe IAG acquiring bmi would be an eminently sensible strategy. Figure 1: Premium as a % of long-haul revenues and Long-haul as a % of total revenue 80% 70% 60% 50% 40% 30% 20% 10% 0% IAG Lufthansa Air France-KLM Premium (% of long-haul revenue) Long-haul (% of total revenue) Figure 2: Point-to-point passengers as a % of total passengers* 55% 54% 53% 52% 51% 50% 49% 48% IAG Lufthansa Air France-KLM Source: J. Secondly. and integrated into BA. financial services. Any acquisition of bmi would therefore take IAG to over 50% of the slots at Heathrow. if bmi were to be acquired by IAG. Company data (*Note: (1) Data for Air France-KLM for the year to March 10. or Lufthansa’s share of slots at Frankfurt. (2) Includes all London and New York airports) Source: Company data. Company data (*Note: (1) Data for IAG & Lufthansa is for the year to December 2010. (3) Data for Air France-KLM is for the year to March 2010). (*Note: (1) data for British Airways is for banking.c. 2002-2011 Premium market share (capacity) 100% 80% 60% 40% 20% 0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 British Airways Continental Airlines American Airlines Delta Air Lines Virgin Atlantic Airways Others Figure 4: Exposure of banking/financial services* 45% 40% % of corporate revenues 35% 30% 25% 20% 15% 10% 5% 0% British Airways* Lufthansa Air France-KLM Source: OAG. (3) Data for Iberia for the year to December 2009). compared to IAG’s 45%. but not without risk. The Sunday Times has already reported that bmi’s pilots union is threatening to scupper any attempt to sell bmi (“Pilots revolt on BMI sale”.pitura@jpmorgan. (2) Data for British Airways for the year to March 2010. (*Note: (1) market share based on share of scheduled capacity. Morgan estimates. (2)data for Air France-KLM is for Finance for 2007. Morgan estimates. insurance & legal for Apr to Dec 2007. this could provoke significantly less protest from bmi.P. seatguru.P. so any deal to sell these slots separate from the airline would likely be met with significant resistance – although.

pitura@jpmorgan. we see some compelling factors that could justify a positive investment case. we believe the market is at least partly pricing in a rights issue.33) -0. or a more benign economic view.395 (84) -0. More exposed to non-premium traffic. amplified by IAG’s higher capacity growth.P. losses of the same magnitude are unlikely to repeat as the fuel hedging policy has been changed.5% 302 207 0. Indeed.744 3. and has a shareholder agreement which means that it cannot favor one of its hubs over the other (even if.65 23. the Euro – threats that are unlikely to diminish in the near term.52 28 Sep 11 6. Bloomberg.5.566 2.168 670 2.02 1.4bn.5 Source: Company data.David Pitura (44-20) 7325-0369 david. However.9 2012E (0.3 2013E 0. Morgan estimates.30 .69 0.448 28 0. we believe Air France-KLM has some serious structural issues which will be difficult to overcome. However.618 2.82 24. we believe this fear is overdone (see below). it operates under labour laws that mean serious cost cutting is difficult.AF FP) FYE Dec Adj. Given Air France-KLM’s weak balance sheet and its share price which is at an all-time low. J.00 29 Sep 12 15. For example. whilst Air France-KLM’s peak-totrough earnings fell more than its peers.98 -3.05 25. We believe the combination of these structural issues and the fact that Air France-KLM is relatively exposed to non-premium traffic means its risk-reward profile is skewed to the negative compared to either IAG or Lufthansa. The increased threat from IAG results from the opening of Terminal 5 at Heathrow in 12 .2 2011E (1. and appears to be discounting significant bad news – even more so than in the downturn in 2008/09. the Amsterdam hub is more efficient/less costly than the Paris-CDG hub). but risk-reward negative Air France-KLM’s share price has recently made new all-time lows.7 300 Air France-KLM (AIRF. this was at least partly due to an ill-devised fuel hedging policy that.00 5.9% (143) -100 0.com Europe Equity Research 29 September 2011 Air France-KLM Underweight Company Data Price (€) Date Of Price Price Target (€) Price Target End Date 52-week Range (€) Mkt Cap (€ bn) Shares O/S (mn) 5.732 231 0. EPS FY (€) Bloomberg EPS FY (€) Revenue FY (€ mn) EBITDAR FY (€ mn) EBIT FY (€ mn) EBIT margin FY Pretax Profit Adjusted FY (€ mn) Net Income Adjusted FY (€ mn) Dividend (Net) FY (€) EV/EBITDAR FY 2010A 0.1% 24 289 0.00 6.65 26. when fuel prices collapsed. negatively impacted its results by a total of c€1.3% (520) -430 0.317 2.PA. to be clear. during the last downturn. Compared to its peers. Not an out-and-out short. profits warning possible We believe that the overcapacity Air France-KLM cited as a contributing factor to its profits warning in February 2011 was at least partly due to the increased competitive threat from IAG. and the weakening of the GBP vs.c. whilst we Underweight Air France-KLM. as we suspect.43) -0. But. we do not view the stock as an out-and-out short – particularly at these all-time low valuations. we believe Air France-KLM can also be viewed as a highly geared option for an investor with either a longer-term time horizon.00 5. Although we believe Air France-KLM could possibly issue another profits warning (see below).00 4. It has the weakest balance sheet of all the airlines we cover.

Air France-KLM’s two main cash outflows in FY11E are capex of €1. which allowed IAG to offer an experience for transfer passengers that is at least comparable to Air France-KLM and Lufthansa. with EBIT losses of €548m in 1H11. Lufthansa’s recent profits warning. but risks remain Air France-KLM has by far the weakest balance sheet of any airline under coverage. 13 . We believe a more likely outcome would either be a sell-down of at least part of the c15% stake in Amadeus given it’s a listed company. Air France-KLM does not disclose what percentage of its aircraft financing comes from these banks.9bn in cash/securities.57bn (of which €500m was a credit line that was replaced by a new line of credit). and could therefore issue another profits warning for the same reason as Lufthansa. No need for cash at the moment. For a rights issue to be needed. and debt repayments of c€1. an increase in sale/lease-back transactions. Our forecasts see operating cash flow of €1. which was partly a result of weakness in nonpremium traffic. and a perennial concern of investors is that it will need to raise capital. or raising finance on the c42% of aircraft that are unencumbered.c. In the worst case scenario (using current estimates). so could still theoretically meet its main cash outflows this year – although that would leave it with worryingly low cash balances.com Europe Equity Research 29 September 2011 March 2008. risks do remain. or not to be able to finance its aircraft deliveries – both of which we would normally expect it to be able to do.David Pitura (44-20) 7325-0369 david. However. Indeed.pitura@jpmorgan. in our view. could. However. Current Air France-KLM FY11 guidance is for a “positive” operating result”.6bn. which we believe highlights Air France-KLM’s higher exposure to the non-premium sector than its peers. neither IAG nor Lufthansa issued a profits warning in February 2011. We believe Air France-KLM is likely to be seeing similar trends to Lufthansa. it would represent a risk for Air France-KLM due to its stretched balance sheet – although we would note that aircraft financing markets remained open during the 2009 downturn. However. possibly be repeated at Air France-KLM – for the same reason.5bn (of which c€1bn is fleet related). Air France-KLM has c€3. Bloomberg reported on September 22nd 2011 that French banks BNP Paribas and Societe Generale have stopped lending to aircraft purchasers because of difficulties in obtaining dollar refinancing (although this was later denied by the banks). Whilst we believe there is a risk of a rights issue. currently valued at c€800m (although more likely is a sale to around 7% to enable Air France-KLM to keep a board seat). the more likely a rights issue could become). but if it is a general harbinger of things to come. we would not view a rights issue as the most likely scenario in the short term (although we would note that the higher Air FranceKLM’s share price increases. Air France-KLM would have either not to be able to roll over its debt financing. Our view that non-premium will see bigger declines than premium traffic means that we see Air France-KLM being more impacted than its legacy carrier peers. enough to pay either FY11 capex or the scheduled debt repayments. Air France-KLM would have to generate 2H11 profits only 12% lower than 2H10 to equal current Bloomberg consensus of +€30m (2010 was a very strong year for the airline industry).

Morgan estimates.com Europe Equity Research 29 September 2011 Fire-sale valuations unhelpful We do not believe it useful to discuss the underlying asset value per share from Air France-KLM's assets in a ‘fire sale’ situation – because we do not believe that the French or Dutch governments would allow Air France-KLM to be broken up and sold piece-by-piece.c. (3) RoIC is defined as EBITDAR/DFV. (2) Data prior to 2005 for Air France only) Source: ASCEND.0x 2006 2007 2008 2009 2010 Lufthansa 2011E 2012E IAG* Air France-KLM 2006 2007 2008 Air France-KLM 2009 2010 Lufthansa 2011E 2012E IAG* Source: J. Company data (*Note: (1) Net debt includes capitalized leases and pension deficits where applicable.500) (3. (3) data for IAG prior to 2009 is for British Airways for the fiscal year to March) Source: J.0x 1.0% Gearing* 60. 2006-2012E 6. (3) data for IAG prior to 2009 is for British Airways for the fiscal year to March) 14 . EV/DFV. Morgan estimates.500 Cash Flow (€m) 1. 2000-2013E 3. Figure 5: Air France-KLM Cash flow. Figure 7: European legacy carrier Net Debt/EBITDAR*. (2) data for Air France-KLM before 2010 is for the fiscal year ended March.0% 15.0% 80.0% 10.0% 40.0x 2.0% 25. Morgan estimates.P.0% 20.0% 120% Cash from Operations Cash from Investing Cash from Financing RoIC* (LHS) EV/Depreciated Fleet Value (RHS) Source: J. 2000-2011E 110% 100% 90% 80% 70% 60% 2011E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EV/Depreciated Fleet Value 30.0x 0. Morgan estimates. we consider it far more likely that either or both of the governments would step in and support Air France-KLM in some form. (2) data for Air France-KLM before 2010 is for the fiscal year ended March. this process would likely leave current equity holders with little or no value.P.P.David Pitura (44-20) 7325-0369 david. Company data (*Note: (1) Data before 2010 is for the fiscal year ended March. rendering the underlying asset valuation somewhat moot.500 2.500 RoIC* 500 (500) (1.500) 2011E 2012E 2013E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Figure 6: Air France-KLM RoIC vs.0x Figure 8: European legacy carrier Gearing* 120. J. (4) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values and depreciated to the average age of the fleet using standard depreciation methodologies).0% 100. (2) Data prior to 2005 is for Air France only.500) (2.P. Company data (*Note: (1) Gearing is defined as Net debt (not adjusted for leases) to total equity.0% (20.0% 20.0% 0.0x 3. In this hypothetical scenario.0%) 4.0x Net debt/EBITDAR* 5.pitura@jpmorgan. If the situation really became that serious. (*Note: (1) Data prior to 2010 is for the fiscal years ending March.

55 3.03 30.804 EBIT FY (€ mn) 876 EBIT margin FY 3. you get the automatic right to use the slot in following seasons into perpetuity (although these rules are sometimes suspended following events such as 9-11 or the volcanic ash disruption in 2010).7 Sometimes. Therefore when new slots become available.5 458 Deutsche Lufthansa AG (LHAG.324 EBITDAR FY (€ mn) 2.2% Pretax Profit Adjusted FY 978 (€ mn) Net Income Adjusted FY (€ 1. although we expect premium traffic to decline as the forecast mild recession takes hold. this is the only way to reduce unit costs. a key problem for the airline industry is a seemingly insatiable desire to grow – because with a high proportion of fixed costs (and often strong labour unions). in contrast to a very strong July.1% 330 232 0. we believe it likely that non-premium traffic weakness was amplified by Lufthansa’s capacity growth which has been greater than its peers.David Pitura (44-20) 7325-0369 david. as competitor airlines such as easyJet take up new slots at Frankfurt.93 . and is likely to be partly offset at other airlines and airports within the Lufthansa group. The rules of the airline industry mean that slots are 'grandfathered'.40 4.DE. Lufthansa originally planned to grow capacity c12% this coming winter.c. EPS FY (€) 2.LHA GY) FYE Dec 2010A Adj.60 EV/EBITDAR FY 4. J. and the opening of a new runway at Frankfurt in October 2011 will significantly increase capacity in the form of new runway slots.743 639 2.51 1.78 0.86 28 Sep 11 11. Lufthansa suggested easyJet did not take up some of the slots that it requested for winter 2012. you just have to grow As discussed elsewhere in this report. But for Lufthansa.93 4. Morgan estimates. Whilst we believe 4% capacity growth this winter is manageable (although not yield-positive).666 2. we believe this is an eminently sensible strategy for one specific reason – locking in future growth at Frankfurt. Bloomberg. 2011E 0.65 Bloomberg EPS FY (€) 1.99 1.87 29. No weakness in premium traffic has been detected. and counter-intuitively. at the recent Investor Day. Whilst it is impossible to say for sure.00 Revenue FY (€ mn) 27.P.8.781 2.182 974 3. Indeed.com Europe Equity Research 29 September 2011 Lufthansa Neutral Company Data Price (€) Date Of Price Price Target (€) Price Target End Date 52-week Range (€) Mkt Cap (€ bn) Shares O/S (mn) 9.80 29 Sep 12 17.2 2013E 0.42 32. We believe it likely that future cuts in capacity will only be possible should competitors further reduce capacity plans.7 2012E 0.214 mn) Dividend (Net) FY (€) 0.0% 503 358 0.0% 633 452 0. and the current plan calls for 4% growth. as long as you use it 80% of the time.864 878 3.61 3.2 Source: Company data. airlines must take as many as they are allowed – because they only get one chance to do so. Lufthansa recently issued a profits warning which was partly a function of a significant slowdown in August. This simply means that once you use a slot. to secure future capacity growth.870 3. Although Lufthansa’s 15 . We believe the reduced capacity growth has been at least partly a result of competitors not taking up as many slots as Lufthansa expected. it has to grow. Frankfurt is one of the main capacity-constrained airports in Europe. we believe capacity is likely to ramp up in summer 2012. although this has been reduced twice.pitura@jpmorgan.

Following a restructuring program that was underway at the time of Lufthansa’s acquisition. Hurrah for the SWISS We believe Lufthansa’s acquisition of SWISS International Air Lines has to rank as one of the best airline acquisitions in Europe. SWISS had made an operating profit. the key metric used in this respect is Funds from Operation (FFO) to net debt. Given the relative size of the 16 . Cargo strength in 2010 unlikely to repeat One of the main drivers of profitability in early 2010 for airlines such as Lufthansa and Air France-KLM was cargo. Lufthansa only had six weeks of cash remaining. we believe Lufthansa may have to grow faster than it would otherwise wish to. and is one of the only airlines in the world to hold an investment-grade credit rating). thereby diluting yields further. in every quarter since 1Q09. Whilst it impossible to say with certainty that SWISS has the highest operating margins of any European legacy carrier (some are private. A combination of tight capacity (as aircraft were grounded).David Pitura (44-20) 7325-0369 david. Formed from Crossair and the bankrupt Swissair. albeit still high compared to historical levels. we struggle to think of an airline which would have had margins higher than the +14. We view 2012 as unlikely to beat 2011 levels. We believe these events led to the rights issue in 2004 (the proceeds of which have yet to be used). Lufthansa’s guidance for 2011 is that cargo profitability will not be at the same level as 2010. the strength of the Swiss franc is a significant benefit. but also the strength of the Swiss Franc – which. and 40% for Air FranceKLM (British Airways also reported a similar cargo performance.pitura@jpmorgan. as stocks are run down in response to the expected mild recession in the Eurozone. and a balance sheet conservatism that has left many investors believing Lufthansa will undertake another rights issue to retain its investment-grade credit rating (Lufthansa has the strongest balance sheet of the legacy airlines we cover. the recent intervention in the currency markets by the SNB is likely to limit the future upside for Lufthansa. SWISS has become the most profitable (in terms of margins) airline in the Lufthansa Passenger Airline group. Indeed. had strengthened c38% against the Euro since the beginning of 2008. If successful. and strong demand driven partly as a result of inventory build saw quarterly cargo yields reach highs of c31% for Lufthansa. something very few airlines are able to claim.com Europe Equity Research 29 September 2011 relatively high proportion of premium traffic should see it fare better during the coming downturn than peers such as Air France-KLM. Balance sheet strength At the recent Investor Day. but it's a smaller part of its business). Whilst we view a rights issue as currently unlikely (unless the macro environment worsens significantly). For euro-reporting Lufthansa. We believe this means Lufthansa’s risk-reward profile is evenly balanced. Lufthansa group CFO Gemkow was very honest when he said that following the terrorist events of September 11th 2001. until the intervention by the Swiss National Bank (SNB). but we believe SWISS will continue to be one of the best performers in the Lufthansa Group portfolio. and do not report earnings). despite the recent share price decline and other positive attributes. This success is partly a function of the strong Swiss economy and the successful restructuring program. SWISS was acquired by Lufthansa in 2005.4% margins SWISS reported in 3Q10.c.

increasing operational cash flow is more important than reducing net debt.0% Lufthansa Air France-KLM IAG Source: OAG.0% 1. Winter 2011 is November 2010-March 2011. 2011-2012 16% 14% 12% 10% 8% 6% 4% 2% 0% Frankfurt Munich Zurich Winter 2011 Summer 2011 Winter 2012 Source: OAG.5x for developed countries. 2009-11 Operating Result (EBIT) (margin) 30. Source: OAG. J. We therefore believe a rights issue would only come after Lufthansa had done all it could on improving operational cash flow. and does not take account of cancelled flights in the previous year.0% 6.0% 1. (2) Capacity growth is based on ASKs). Summer 2011 is April 2011-October 2011. Figure 11: Winter 2012 capacity* growth 4.P. Morgan estimates.0%) 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Lufthansa British Midland SWISS Germanwings Austrian Airlines Source: Company reports and J. Morgan estimates.5% 1. 1.0% 5.0% 0.5% 0.0%) (50.0% Air France-KLM Lufthansa IAG* Weighted GDP growth (2011) Capacity growth (2011) Figure 10: Lufthansa Passenger Airlines EBIT margin.0% 7. IMF.P.0% (10.0% 0. and does not take account of cancelled flights in the previous year.0% 3. Winter 2012 is November 2011-March 2012) Figure 12: Lufthansa capacity growth by airport. capacity (ASK) growth.pitura@jpmorgan. Morgan estimates.0% 3. (*Note: (1) weighted GDP is derived by multiplying IMF Real GDP forecasts by 1x for short-haul markets.5% 2. & 2x for emerging markets. Winter 2012 is November 2011-March 2012 Vienna 17 . 2011 8.0% 4. J. (*Note: capacity data is based on ASKs. Morgan estimates.0% 2.0% 10.0%) (30.David Pitura (44-20) 7325-0369 david. J. ex disruption in 2010.P.5% Capacity growth (ASKs) (% yoy) 4.P.c. Figure 9: European legacy carrier weighted* GDP growth vs.0% 2.com Europe Equity Research 29 September 2011 numbers. (*Note: capacity data is based on ASKs.5% 3. (3) Capacity on an underlying basis.

we do see growth opportunities for easyJet and Ryanair (if it wants to) to continue the remarkable growth of the past decade. In the US. helped by lower interest costs and energy bills. However. 18 . In particular. there is a key difference between the US market and the European market. but without the benefit from global growth focused premium traffic. with UK and USA GDP growth remaining positive. the fiscal positions of governments were stronger than they are currently.c. We expect the low-cost carriers therefore to be faced with passing on higher fuel costs against a background of a relatively weak European consumer sector. the low-cost carriers are completely short the US dollar. leasing. then the low-cost carriers will see rising costs pressures at a time of economic uncertainty – possibly completing a ‘perfect storm’. resulting in short-haul O&D passengers being 'spilt' onto low-cost carriers. the main legacy airlines are still focused on the US domestic market.David Pitura (44-20) 7325-0369 david. However. As with fuel. although easyJet is currently slightly better hedged with c69% hedged for the year ending September 2012. Since the beginning of September. Air Berlin) have a similar market share to the main low-cost carriers in the US (and potentially greater if we look at all low-cost carriers in aggregate). the J. consumer spending remained relatively resilient. which have US dollar revenues. with declines in global trade and investment capex leading to significant declines in premium traffic that impacted the legacy carriers. In contrast. the Euro has weakened c6. something which we do not expect to repeat in 2012. In Europe. albeit at a reducing rate. Whilst both carriers are currently well hedged. we expect a greater proportion of seats on their short-haul networks to be taken by transfer passengers.5%. on continuing uncertainty over the sovereign issues in the Euro zone. low-cost carriers outperformed their legacy carrier peers. easyJet. However. is expected to see more of a balance between corporates and consumers in the 2012 downturn.P. a lack of a stimulus from lower energy bills and interest costs. Unlike 2009. coupled with lower automatic fiscal stabilizers. Still room to grow longer term We do not believe the airline industry in aggregate is a growth industry in terms of profits. should the sovereign crisis in the Eurozone see further Euro/GB pound weakness against the US Dollar. and a strong US dollar is likely to lead to the low-cost carriers underperforming in the upcoming European recession. In addition.com Europe Equity Research 29 September 2011 Low-cost carriers Low-cost carriers likely to underperform legacy peers During the 2009 downturn. As the European legacy carriers grow their long-haul fleets faster than their short-haul fleets. both easyJet and Ryanair hedge their US dollar exposure. and the GB pound has weakened c5% against the US dollar. and some maintenance costs are denominated in US dollars. In addition. the main legacy carriers are focused on international/intercontinental markets. We estimate that the three main European low-cost carriers (Ryanair. Morgan economics team forecast that recession will be limited to the Eurozone. which means the European low-cost carriers still have room to grow.pitura@jpmorgan. and Ryanair c60% to 70% hedged for the fiscal year ending March 2013. A combination of this consumer exposure. the 2009 downturn was a corporate-led downturn. Stronger US$ could complete a perfect storm Unlike their legacy carrier peers. This is important because costs such as fuel. the expected recession and high oil prices are likely to see higher bankruptcies of which low-cost carriers like easyJet and Ryanair will be able to take advantage.

easyJet has recently faced significant activism from its biggest shareholder.10 4.40 2.9% 246 188 8. and return cash to shareholders. In the case of National Express. Sir Stelios has had significant success in this regard. The main undertone of Sir Stelios’s press releases towards easyJet have been focused on whether easyJet should continue to grow or not. 19 .com Europe Equity Research 29 September 2011 easyJet Underweight Company Data Price (p) Date Of Price Price Target (p) Price Target End Date 52-week Range (p) Mkt Cap (£ bn) Shares O/S (mn) 355 28 Sep 11 362 29 Sep 12 483 .6% 179 136 6. We believe that the lower increase in the average cost of fuel paid.80 3. should.L. we estimate that Ryanair’s fuel costs will increase by c19% (although this is likely to be higher due to the weakening of the Euro). A tough winter ahead easyJet’s 1H11 loss almost doubled year on year because of not being able to fully pass on fuel costs that were c31% higher than the previous year.973 375 181 6. Sir Stelios Haji-Ioannou. The situation with Sir Stelios is different from other examples of shareholder activism (for example National Express) because up until May 2010.44 27.300 1.10 3.53 5.5 430 easyJet Plc (EZJ.58 37. In contrast.pitura@jpmorgan. Bloomberg.743 397 208 5. which should help to support pricing. combined with a reduction in capacity. EPS FY (£) Bloomberg EPS FY (£) Revenue FY (£ mn) EBITDAR FY (£ mn) EBIT FY (£ mn) EBIT margin FY Pretax Profit Adjusted FY (£ mn) Net Income Adjusted FY (£ mn) Dividend (Net) FY (p) EV/EBITDAR FY 2010A 28. J. If jet fuel remains at the current level for the whole winter season.6 2013E 43. and a regular dividend of 9p per share for the 2011 fiscal year.0% 247 187 43. he was an easyJet board member.32 6. all other things equal. because the issue of whether easyJet should continue to grow has not been settled. Elliot Advisors were seeking to nominate their own candidates to the board. Morgan estimates.74 5. As matters currently stand. a strong summer performance due to better than expected pricing more than made up for the weak 1H11 performance.EZJ LN) FYE Sep Adj. which is being played out in public.David Pitura (44-20) 7325-0369 david. with easyJet proposing to pay a special dividend of £150m.P. we are not certain if this is the end game for Sir Stelios' activism. We believe both easyJet and Ryanair are facing another tough winter with rising fuel costs against a background of weak consumer demand.402 449 271 8. put Ryanair in a more favorable position compared to easyJet to weather the tougher consumer environment we expect this coming winter – although we would note that easyJet has substantially cut its growth this winter compared to last. we also believe it unlikely that both easyJet and Ryanair will be able to raise prices to fully compensate for higher fuel costs next year.1% 154 121 6. Shareholder activism Unlike any of the airlines under coverage.3 2012E 31. and taking into account current hedging.4 Source: Company data. However. Given the weak consumer environment.70 45.37 39.6 2011E 43. Sir Stelios dropped his call for an EGM to vote on the removal of nonexecutive director Rigas Doganis. Following this news. we estimate easyJet's winter fuel costs will c26% greater than last year.020 478 279 6.c.

in the case of these two airports. 20 . will subtly change towards operating at more primary airports. Many of the airports in Figure 13 above are slot constrained.David Pitura (44-20) 7325-0369 david. easyJet has already built significant positions at these types of primary airports.com Europe Equity Research 29 September 2011 Figure 13: easyJet/Ryanair share of operations at European primary airports. meaning Ryanair will have to wait for slots to become available (for example through bankrupt airline exiting) to begin service. In comparison. Primary position in Primary airports In an environment of high fuel prices. 2011 Share of operations 40% 30% 20% 10% London (LHR) Paris (CDG) Frankfurt (FRA) Madrid (MAD) Amsterdam (AMS) Rome (FCO) Munich (MUC) Barcelona (BCN) London (LGW) Paris (ORY) Zurich (ZRH) Vienna (VIE) Copenhagen (CPH) Oslo (OSL) Dusseldorf (DUS) Palma (PMI) Stockholm (ARN) Milan (MXP) Brussels (BRU) Dublin (DUB) Manchester (MAN) Athens (ATH) Helsinki (HEL) Lisbon (LIS) Hamburg (HAM) Geneva (GVA) Prague (PRG) Malaga (AGP) Nice (NCE) Stuttgart (STR) Cologne (CGN) Edinburgh (EDI) Alicante (ALC) Budapest (BUD) Warsaw (WAW) Lyon (LYS) Birmingham (BHX) Las Palmas (LPA) Milan (LIN) 0% easyJet Ryanair Source: OAG.c. we believe Ryanair’s business model. Ryanair did not have a problem gaining the necessary slots it needed. J. currently based on creating new demand at secondary/tertiary airports.pitura@jpmorgan. which we believe gives it a first-mover advantage.P. This process has been underway for the past couple of years. with new bases at airports including Madrid and Barcelona. Morgan estimates. However. as there was ample capacity.

we believe this has led Ryanair to subtly change it business model by entering more 'primary' airports such as Madrid and Barcelona.c. with entry into service scheduled for 2016.29 4.28 0.630 EBITDAR FY (€ mn) 884 EBIT FY (€ mn) 516 EBIT margin FY 14. EPS FY (€) 0.2. whilst the C919 will be big enough to compete against the B737-800.P. Bloomberg.I. Unless the economic environment becomes significantly worse. J.026 661 13.5% 586 522 0. as the number of airline bankruptcies is likely to increase. 2012E 0. airports would give Ryanair substantial discounts on the cost of using the airport. Currently. we expect this to see a significant increase in free cash flow.30 4.36 5.2 2013E 0.0% 469 417 0. the airport is likely to offer discounts (although they are unlikely to be as great as received from tertiary airports). After this. Because Ryanair could guarantee certain levels of traffic growth.464 Ryanair Holdings Plc (RYA. Subtle changes in business model Ryanair’s original raison d’être was to fly to secondary/tertiary airports that had previously had little or no scheduled air service.26 Revenue FY (€ mn) 3.8 1.9 Source: Company data. Assuming no further aircraft are ordered. Ryanair has already returned cash to shareholders in the form of a €500m special dividend in 1H11. Because of the high fuel price in recent years. which in the short-term is likely to be margin enhancing due to the higher yields Ryanair could receive from these markets.RYA ID) FYE Mar 2011A Adj. The wildcard to this thesis is the non-Boeing/Airbus aircraft manufacturers such as Bombardier and Comac from China.25 Bloomberg EPS FY (€) 0.191 938 543 13. we believe it unlikely these aircraft manufacturers will offer the kinds of discount Ryanair desires to place another order. offering very low fares which created new demand.60 29 Sep 12 4. and has promised to return further cash by 2013 if it does not order more aircraft.26 28 Sep 11 3. We believe this is beyond the timescale for Ryanair to decide on a return of cash to shareholders.pitura@jpmorgan. although Ryanair has signed an agreement with Comac to develop its C919 aircraft.com Europe Equity Research 29 September 2011 Ryanair Neutral Company Data Price (€) Date Of Price Price Target (€) Price Target End Date 52-week Range (€) Mkt Cap (€ bn) Shares O/S (mn) 3. We believe this process will accelerate the higher fuel prices rise. its first flight is not expected until 2014.David Pitura (44-20) 7325-0369 david.26 6. Bombardier’s CSeries is not big enough for Ryanair (Ryanair operates the 189-seat B737-800 whereas as biggest C-Series is expected to be c145 seats). leaving passenger traffic 'holes' at primary airports that can only be filled by strong airlines such as Ryanair.26 0.36 4. Our estimates therefore assume Ryanair returns another €500m to shareholders within the next two years.25 EV/EBITDAR FY 7. To tempt Ryanair.76 4.23 .7% 422 376 0.896 1.1 Capital return likely The last of Ryanair's aircraft currently on order should be delivered by March 2013. causing Boeing/Airbus to lose significant numbers of aircraft orders. Whilst 21 . Ryanair will see its planned capex fall to approximately €100m from €500m in FY12 and €400m in FY13. it is only possible for Ryanair to offer these kinds of prices when the oil price is below current levels.8 2014E 0.693 885 500 10. As mentioned previously in this report.2% Pretax Profit Adjusted FY 451 (€ mn) Net Income Adjusted FY (€ 375 mn) Dividend (Net) FY (€) 0.28 6. However. Morgan estimates.

Lowest cost always wins Whilst Ryanair may not have the ‘slot advantage’ of easyJet.00 30.0% EBITDAR margin Cost per seat (£) 40.0% 0. but also. Figure 14: Ryanair cost per seat vs. J.0% 30.c. Whilst we expect some of this to begin to equalize the more Ryanair moves into primary airports.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 50. Morgan estimates. we believe it is easier to control rising costs than to try and reduce costs that have already risen. EBITDAR margin. (*Note: data is for the fiscal years ending March).00 40.P. we believe as a result of better cost control.00 10. and so the upside is less.0% 10.David Pitura (44-20) 7325-0369 david.0% EBITDAR margin Fuel Airports EBITDAR margin Staff costs Navigation Maintenance Other Fuel Ground operations Other Staff costs Navigation EBITDAR margin Maintenance Sales Source: Company data.0% Figure 15: easyJet cost per seat vs. Morgan estimates.00 Cost per seat (€) 30.0% 30. We believe this relatively better cost position puts Ryanair in a better position to profit from future growth. J. EBITDAR margin.pitura@jpmorgan.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0. Source: Company data.00 0. This is partly as a result of Ryanair’s smaller B737-200 being phased out.P. Using staff costs as an example. it does have a cost advantage.00 20.00 0.com Europe Equity Research 29 September 2011 easyJet is also likely to take advantage of these situations.00 20. easyJet’s staff costs per seat rose c30% between 1999 and 2010.0% 20. 1999-2010* 50.0% 10.0% 20. 22 . whereas Ryanair's fell between 2000 and 2011. 1999-2011* 40.00 10. (*Note: data is for the fiscal years ending September). it is already present in these types of market.

We have excluded years where there is significant non-company specific volatility (such as 2001 and 2008). we believe the market is currently discounting too much into 23 .pitura@jpmorgan. given the presence of non-airline business such as catering and maintenance (which we do not forecast separately). For all the airlines under coverage (with the exception of Lufthansa). compared with historical returns. Price-to-peak EPS is a useful valuation backstop. Whilst there are ‘Black Swan' type risks such as the situation of the Eurozone which were not a characteristic of the previous recession.com Europe Equity Research 29 September 2011 Valuation How best to value an airline There is no ‘ideal’ valuation metric to value and compare the airlines. bmi. For example. but it does not take account of structural change.e. Brussells Airlines). For Lufthansa. and EV/DFV provides a good standard measure of ‘franchise’ value between airlines. We use the same depreciation method for all the airlines (straight line over 20 years to a 10% residual value) to avoid any differences in depreciation policies (Lufthansa depreciates its aircraft over a period of 12 years to a residual value of 15%. Lufthansa's peak earnings potential should theoretically be higher given the acquisitions undertaken by the group over the past few years (Austrian. compared to c20 years for many of the other airlines). or where we believe valuations are being driven by factors other than returns. We view EV/EBITDAR and EV to Depreciated Fleet Value (EV/DFV) as two of the best metrics to use. whereas J.P. with easyJet still c40% above its 2009 lows. Pricing in another severe recession The sector has significantly de-rated in the past couple of months due to fears over the global economy and the outcomes of sovereign debt issues in the Eurozone. Air France-KLM is currently trading near to all-time lows and Lufthansa is c15% above its post-9/11 low– despite a significantly stronger balance sheet than post-9/11. P/E multiples don’t take account of differing tax rates between countries and cannot be used when airline earnings are negative. equity stakes or dividends to calculate an implied equity value. minority interests.c. pension deficits. and historical trading ranges. From this we subtract net debt. we calculate RoIC as EBITDAR/Depreciated Fleet Value. How we set our price targets We use an EV/EBITDAR multiple set against two-year forward forecasts of EBITDAR to derive an implied EV. EV/EBITDAR avoids problems with capital structure (i. and add any tax losses. Morgan and consensus economic forecasts do not reflect this. we calculate RoIC as the EBITDAR of the whole group against the gross value of group fixed assets including capitalizing its aircraft leases and adding back any goodwill previously written down.David Pitura (44-20) 7325-0369 david. and Ryanair c20% above its 2009 low. The low-cost carriers have fared somewhat better. between leasing your fleet of aircraft and owning them). Depreciated Fleet Value is the value of an airlines fleet using a 40% discount to list prices depreciated down to the average age of airlines fleet. The multiple we use is calculated with reference to two year forecast Return on Invested Capital (RoIC). This is then discounted to determine our September 2012 price targets. The market therefore appears to be discounting a recession as severe as that of 2008/09.

Morgan estimates. March 2013.8 1. & September 2013 24 . Year 2.7x 1.4 4. & Year 3 for easyJet are the years ending September 2011.9x 1.6x 6. Table 5: Price/Book value & EV/Depreciated Fleet Value valuation using JPM estimates P/BV High LEGACY CARRIERS Air France-KLM* IAG* Lufthansa LOW-COST CARRIERS easyJet Ryanair 1.4x 0.6x 1.6x 0.2x 4.9x 1.P.David Pitura (44-20) 7325-0369 david.3x Low 3.60 Upside/(downside) 28.6x 0.5x 0. & Year 3 for Ryanair are the years ending March 2012.8% 16. Year 2. Year 2.801. (3) Year 1.6x 2.7 Market Cap 1.28 Market Cap 3. IAG. Share prices as at cob on 27th September Table 4: EV/EBITDAR and EV/Sales valuation using JPM estimates High LEGACY CARRIERS Air France-KLM* IAG* Lufthansa LOW-COST CARRIERS easyJet Ryanair 13.1x 4.4x 8.4% 9. December 2012.0p 3.9x 1. (1) Year 1.2x Year 2 4.6x 0. September 2012.4x 0. Table 3: European airlines recommendations and price targets LEGACY CARRIERS IAG* Air France-KLM* Lufthansa LOW-COST CARRIERS easyJet Ryanair Price 1.5x 0.4x Year 1 0.5x Year 3 0.7x 0.7 Rating Overweight Underweight Neutral Rating Underweight Neutral Price target €2. (*Note: (1) Year 1.4x Year 2 0.0x 3.6x 0.1x 6.4x 2.4x EV/SALES Year 1 0.1x High 0. & Year 3 for easyJet are the years ending September 2011.6x 0.5x 0.9x 1.2x 6.4x Year 2 0.1x 14.687.6x 3. (3) Year 1. we have upside in all our target prices.3x High 129% 219% 166% 425% 1440% Low 57% 47% 70% 34% 76% EV/DFV* Year 1 83% 72% 67% 35% 66% Year 2 77% 70% 64% 35% 63% Year 3 71% 66% 61% 32% 53% Source: ASCEND.5x 0.11 Price 357. Lufthansa are the years ending December 2011.8% Source: J.3x 0. and December 2013 respectively.00 €11. (1) Year 1.6x 0.7x 5.3x EV/EBITDAR Year 1 5.7x 5.6x 4.8x Year 3 3.4x 0. Source: J.62 10. September 2012. Year 2.4x 0.3x 0.com Europe Equity Research 29 September 2011 European airlines share prices based on the current economic outlook – indeed. Morgan estimates. and December 2013 respectively. & Year 3 for Air France-KLM.6x 0.4x 5.629.9x 15.4x 0.7x 1.c. Morgan estimates.4x 3. & March 2014. March 2013.5x 6. & September 2013. & Year 3 for Air France-KLM.0x 10.6x Low 0.9x 23.1x Source: J.6x 1. & March 2014.311.P.9x 4. December 2012. Morgan estimates.3x 0. & Year 3 for Ryanair are the years ending March 2012.5x Low 0.6x 4. Lufthansa are the years ending December 2011.0p €3.80 Price target 362.2 4.P.1x 3.7x 1. IAG.5x 0.pitura@jpmorgan.7% Upside/(downside) 1.30 €6.9x 3. Year 2.6x 1.4x 0. (*Note: (1) Year 1.9% 6.536.5x 0.3x 6.4x 3.3x Year 3 0.79 5. J.4x 0. Year 2.P.

9 214.0 5.83 €11.0 (4.0 1.4% Ryanair (€m) EBITDAR Multiple Implied EV (Net debt)/cash Pension deficit Minority Interest Tax Losses Equity stakes Dividend Implied equity value Number of shares Value per share (€) (FY14) Value per share (€) (FY12) Price Target (€) Current share price (€) Upside/(downside) 2014E 1.544.15 200. Share prices as at cob on 27th September What happens to airline share prices during a recession? Using the example of the recession in 2008/09.5) 0. Morgan estimates.8) 0. During the recession the shares gained c32%.1 709. and c55% during the previous six months. and were then broadly flat over the following six months.181.220.1x 12.60 €3.866.8% Lufthansa (€m) EBITDAR Multiple Implied EV (Net debt)/cash Pension (deficit)/surplus Minority Interest Tax Losses Equity stakes Dividend Implied equity value Number of shares Value per share (€) (FY13) Value per share (€) (FY11) Price Target (€) Current share price (€) Upside/(downside) 2013E 3.6 430.2 (3.60 €3. Lufthansa.8 0.094.025. Share prices as at cob on 27thSeptember Table 7: Low-cost carrier price target sum-of-the-parts easyJet (£m) EBITDAR Multiple Implied EV (Net debt)/cash Pension deficit Minority Interest Tax Losses Equity stakes Dividend Implied equity value Number of shares Value per share (p) (FY13) Value per share (p) (FY11) Price Target (p) Current share price (p) Upside/(downside) 2013E 477.0 27.0 7. c48%.61 €2.02 €6.9 €3.6) (2.6 6.c.0 (49.11 16.400.509.0p 362.630.0) 1.167.8 1.4 412.7) (2.4 (12.486.80 €10.3 4.357.5x 2.7 665.0 0.7% Source: J.0p 357.0 0.6 500.9% Air France-KLM (€m) EBITDAR Multiple Implied EV (Net debt)/cash Pension (deficit)/surplus Minority Interest Tax Losses Equity stakes Dividend Implied equity value Number of shares Rights Issue discount Value per share (€) (FY13) Value per share (€) (FY11) Price Target (€) Current share price (€) Upside/(downside) 2013E 3.0 0.7 5.075.774.776.5 1.827. and Air FranceKLM’s share prices hit their low point in the same quarter as the low point for GDP.0p 1.6 457.0 441.3 300.0) (119.0p €1.9) 0. having fallen c34%.P.com Europe Equity Research 29 September 2011 Price target sum-of-the-parts and upside/downsides Table 6: Legacy carrier price target sum-of-the-parts IAG (€m) EBITDAR Multiple Implied EV (Net debt)/cash Pension (deficit)/surplus Minority Interest Tax Losses Equity stakes Dividend Implied equity value Number of shares Value per share (€) (FY13) Value per share (€) (FY11) Price Target (€) EURGBP Price Target (p) Current share price (€) Upside/(downside) 2013E 2.27 €11.9 5.8 3. and c59% from the GDP low point to growth turning positive.4x 10.269.837.064.855 €2.30 1.6 0 2.0) 69.David Pitura (44-20) 7325-0369 david. IAG.619.79 28.28 9.7x 11.0) 0.62 6.P.0 0.00 €5.2 25% €6. c46%.8p 362.7 (478.0 4.26 €2.8% Source: J.pitura@jpmorgan.0 4. Morgan estimates.60 €3.4) (239.455.1x 5.0 (1. 25 .9 €13.2 1.571.93 €6.463.

Datastream. Source: Bloomberg.0% yoy change 3.P.0% Figure 19: Lufthansa share price vs. Figure 20: IAG* share price vs.0%) (5. 26 .0%) Global GDP (RHS) Lufthansa share price (LHS) Eurozone GDP (RHS) Lufthansa share price (LHS) Source: Bloomberg.0%) yoy change yoy change (1.0%) (4. J.0% (2. Datastream. J.0%) (3.0%) 5. Datastream. Figure 18: Lufthansa share price vs.com Europe Equity Research 29 September 2011 Figure 16: Air France-KLM* share price vs. 2000-2011 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (€) 6. J.0% 4.0%) (3.0% 4.P.0%) (6.0%) (4.0% 2. 2000-2011 40 35 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 6.0%) (5.0% Global GDP (RHS) IAG share price (LHS) Source: Bloomberg.0% 4. J. (*Note: Air France data before 2005). (*Note: Air France data before 2005). 2000-2011 30 25 20 (€) 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 5.0% 3.David Pitura (44-20) 7325-0369 david. Global GDP. Morgan estimates.0% 2. 2000-2011 40 35 30 25 20 15 10 5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Global GDP (RHS) 5. 2000-2011 600 500 400 (p) 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Eurozone GDP (RHS) IAG share price (LHS) 2011 6. Morgan estimates. Morgan estimates.0%) yoy change (€) (€) Eurozone GDP (RHS) Air France-KLM share price (LHS) Source: Bloomberg. Morgan estimates. Morgan estimates.0% yoy change 1.P.P.pitura@jpmorgan. (*Note: British Airways before 2011).0%) (3. Global GDP.0%) (6.0%) (4. J.0%) (5. Global GDP.0% yoy change Figure 21: IAG* share price vs.0% 1.0% (2.0% 0.0%) (6. (*Note: British Airways before 2011). Global GDP. Datastream. Eurozone GDP.P.0% 3. Datastream.0%) 1. Morgan estimates.0% (1. Eurozone GDP.0% (2. J.0% 0.c. Datastream.0% 2.0%) Air France-KLM share price (LHS) Figure 17: Air France-KLM* share price vs.P.0% 0. Source: Bloomberg. 2000-2011 600 500 400 (p) 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (1. Source: Bloomberg.

Premium vs.0%) Ryanair share price (LHS) yoy change 27 6. Morgan estimates. (*Data for IAG prior to 2011 is for British Airways). during the past downturn the low-cost carriers significantly outperformed their legacy-carrier peers. Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Lufthansa Air France-KLM IAG Source: Bloomberg. Eurozone GDP. In addition.0% 2.pitura@jpmorgan. and a lack of stimulus from lower energy bills.P. J. Datastream. 2000-2011 7 6 yoy change 5 (€) 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Eurozone GDP (RHS) 2011 6. Datastream. so lower prices cannot stimulate demand.0% (2.0%) (4.0% 4. Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 easyJet Ryanair 140 130 120 110 100 90 80 70 60 50 Share price (Jan 07 = 100) Share price (Jan 07 = 100) Figure 24: Lufthansa/Air France-KLM/IAG* share price performance.0% (2.P.0% 4. We believe this was primarily driven by the fact that the last recession was led by corporates.0% 0.com Europe Equity Research 29 September 2011 Figure 22: easyJet share price vs. and using them as a proxy.0%) (4. 2007-2011 140 130 120 110 100 90 80 70 60 50 .David Pitura (44-20) 7325-0369 david. This was certainly the case in the 2008/09 downturn. with declines in global trade and investment capex. J. J. 2007-2011 Figure 25: easyJet/Ryanair share price performance. it has been premium traffic that has underperformed non-premium. non-premium recession performance British Airways (IAG) is the only airline to report a separate split of premium and non-premium on a monthly basis. so airlines have typically lowered prices to attract passengers when times got tough. However.0% 2. Morgan estimates. Figure 23: Ryanair share price vs. Premium passengers are price insensitive.c. Datastream. Figure 27 below shows that in most of the downturns since 1996. 2000-2011 800 700 600 500 400 300 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Eurozone GDP (RHS) Source: Bloomberg.0%) (6. Morgan estimates.0%) easyJet share price (LHS) (p) Source: Bloomberg.0% 0. Morgan estimates. helped by lower interest costs and energy bills. Source: Bloomberg. As Figure 24 and Figure 25 above show. Datastream. J.0%) (6. consumer spending remained relatively resilient. We believe this is partly due to non-premium passengers being price sensitive. In contrast. unlike 2009 we believe there will be lower automatic fiscal stabilizers as governments implement austerity measures.P. Eurozone GDP. we believe it unlikely the low-cost carriers will outperform in 2012 given the coming recession is likely to see a greater balance between corporates and consumers.P.

we believe non-premium could underperform premium traffic this recession. Morgan estimates.0%) (10. with each additional $10/mt change in jet fuel. and the split between marginal and fixed costs.0% 0.0% (10. (*Note: data post Jan 2011 is for IAG) Table 8: Latest European airline hedged positions IAG Lufthansa Air France-KLM easyJet Ryanair 73% hedged for 3Q11.0% 20.0% 0.79bn at $100/bbl. 48% hedged for FY12 at a price of $106/bbl & 10% hedged for FY13 at a price of $107/bbl.1bn at $90/bbl 55% hedged for 3Q11 & 59% hedged for 4Q11 at a price of c$100/bbl.P. Current FY11 fuel cost guidance of $9.2bn.8bn at $134/bbl & falling to 6. fuel prices dropped steeply. airlines have more fixed costs. 2006-2011 20. J.49bn at $130/bbl & $8.0%) Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Traffic growth (% yoy) Premium Source: IATA Non-Premium Source: Company data.David Pitura (44-20) 7325-0369 david. fuel prices are still above $100/bbl. Figure 26: IATA Premium & Non-premium traffic growth.0%) Traffic growth (% yoy) Figure 27: British Airways* traffic performance.0% 10.0%) (20. and therefore sell seats to raise revenue and thus cash. €6. Current FY12 guidance is that fuel costs will rise by c€350m. at high fuel costs. 73% hedged for FY12 at a price of $956/mt jet fuel & 27% hedged for FY13 at a price of $1006/mt jet fuel 90% hedged for FY12 at a price of $820/mt jet fuel. 61% hedged for 4Q11 & 50% hedged 3Q11-2Q12.0% 15.0% 30.4bn (based on $112/bbl crude oil). Combining this with reduced ability to stimulate demand through pricing because of high fuel prices. 1996-2011 40. allowing airlines to reduce pricing.c. equating to €8m in cost 77% hedged for 2011 with a breakeven of $95/bbl crude oil. being able to lower prices depends partly on the price of fuel. increasing to €6. 28 Apr-96 Mar-97 Feb-98 Jan-99 Dec-99 Nov-00 Oct-01 Sep-02 Aug-03 Jul-04 Jun-05 May-06 Apr-07 Mar-08 Feb-09 Jan-10 Dec-10 Premium Non-premium . However. 75% hedged for FY11 at a price of $750/mt jet fuel.0%) (25. If the expected recession in Europe is relatively short-term in duration. Current FY11 fuel cost guidance of €6. airlines’ ability to do this is curtailed.P.07bn (based on $112/bbl crude oil) rising to $9. In the past downturn.0%) (15. J. with the hedge price depending on the spot price. which we believe will curtail the ability of airlines to drop prices and stimulate non-premium demand.6bn at $123/bbl. and more balanced between corporates and consumers as currently forecast.0%) (20.0%) (40. Currently.0% (5. At lower fuel prices. and stimulate demand.com Europe Equity Research 29 September 2011 However.pitura@jpmorgan. Source: Company data.0%) (30. Current FY11 fuel cost guidance of €5.0% 5.0% 10. Morgan estimates. we believe that premium travel demand will decline less than during other recessions. 58% hedged for 2012 with a break-even of $103/bbl crude oil.

at the height of the financial crisis.0% 1. and the peak in 2010 (split 137% for global GDP focused legacy carriers. and 74% for the consumer spending focused low-cost carriers). Figure 28: World airlines passenger traffic growth.c.0%) (5. representing a 2.0% (1. with revenue growing a little less than 9% over the same period. and aircraft that are too ‘cheap’ (i. Since 1970. However.e.0% 0.8bn. and the globalization process in particularly. clearly in our view airline investors should not be investing over the long term given the lack of profit generation. over the same 40 year period. What is possibly even more surprising is that despite its poor profitability. given the relationship with global GDP.pitura@jpmorgan. However. Comparing 2010 with 2008 shows just how cyclical the airline industry can be. the airline industry is highly cyclical. 2010 saw the industry generate $15. representing a -4. and airline stocks are highly volatile. one would expect the average EBIT margin for the world’s airlines over the past 40 years to be higher than 2% – yet it is not.0% (5.com Europe Equity Research 29 September 2011 Seats. This provides opportunities for airline investors willing to trade between the peaks and troughs of profitability – the key to investing profitably is to time the peak and toughs correctly.0% 5. In 2008. depends on a vibrant airline sector. We ascribe this poor financial performance to a combination of government involvement (most notably through subsidies to failing airlines). seats everywhere but little profit to be made Whilst the global economy.6% margin. the airline industry has continued to grow.7trillion in revenue.David Pitura (44-20) 7325-0369 david. the world’s airlines made an EBIT loss of $26. 1970-2010 7.0% EBIT margin (%) 10.1bn. Whilst individual airlines may generate more profit than their peers. 1970-2010 Passenger traffic (RPK) (% yoy) 15. Indeed. the price of aircraft not fully reflecting the cost of production through technology transfers from government-supported military R&D).0% 3.0%) (3.0% 5. easy access to financing (aircraft are an attractive asset to finance). For the airlines under coverage.0%) 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Passenger traffic (% yoy) Source: Air Transport Association/ICAO Figure 29: World airlines EBIT margin. passenger traffic for the world’s airlines has averaged 6%.9% margin. but only $332 million in Net Income. it is somewhat surprising how little profit airlines actually make. this translated into an average share price appreciation of 116% between the trough in 2009. the global industry has generated over $8.0%) 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 EBIT margin Source: Air Transport Association/ICAO 1970-2010 CAGR Average EBIT margin (1970-2010) 29 . As a service that is vital to the global economy.

pitura@jpmorgan. Lufthansa or IAG.e. The relationship between premium traffic growth and airline share prices can be seen in Figure 32 below where movements in British Airways’ (now IAG – the only airline to report monthly premium traffic trends) share price are closely linked to its monthly premium traffic statistics. This explains the very close relationship that can be seen below in Figure 33 and Figure 34. cargo is a proxy for global trade. For legacy airlines like Air France-KLM.com Europe Equity Research 29 September 2011 Revenue momentum is key It seems obvious to say that earnings are one of the key drivers to stock prices. given airlines have a high degree of fixed costs. First and Business class) passengers. revenue (and profitability) is driven by premium (i. revenue is the key driver of earnings. 30 . Similarly.David Pitura (44-20) 7325-0369 david. given the 'trading' nature of the sector. For airlines.c. The price of a premium-class ticket is less important than the number of passengers given the price-insensitive nature of business travelers. Passengers who travel in First/Business classes tend to be travelling on business. In particular. between premium and cargo traffic. and thus their activity is linked to Global GDP. and global GDP. we would argue that earnings momentum is the key driver of airline share prices. Low cost airlines are more closely linked to consumer spending given lower numbers of business passengers (due to their network structure).

12-month forward consensus revenue.0p British Airways share price 800.000 British Airways share price (LHS) British Airways 12-month forward consensus revenue … Source: Bloomberg.David Pitura (44-20) 7325-0369 david. JP Morgan estimates 31 600.com Europe Equity Research 29 September 2011 Figure 30: British Airways share price vs.0p 200.pitura@jpmorgan. 1996-2010 40.c.0% 0.0p 12-month forward consensus Revenue (£m) 80. 2005-2010 12-month forward consensus EPS 600p 400p 200p 0p 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 60. premium traffic. 12-month forward EPS 1987-2010 800p Share Price Figure 31: British Airways share price vs.0% (20.0% 0.000 8. Source: Datastream/I/B/E/S Figure 32: British Airways share price vs.0p 0.0%) (40.0p 40.500 .0% Traffic growth (% yoy) 20.0%) (40.0% (20.0p (20. Company data Figure 33: British Airways premium & cargo traffic.500 8.0p 600p 10.0%) 1996 1997 1998 1999 2000 2002 2003 2004 2005 2006 2007 2009 2010 British Airways Premium traffic (% yoy) British Airways share price Source: Bloomberg. 1996-2010 Premium traffic growth % yoy) 20.0p) (40.0p) British Airways share price (LHS) British Airways 12-month forward consensus EPS (RHS) 500p Share Price 400p 300p 200p 100p Feb-05 Feb-06 Feb-07 Feb-08 Feb-09 Jun-05 Oct-05 Jun-06 Oct-06 Jun-07 Oct-07 Jun-08 Oct-08 10.000 9.0%) 1996 1997 1997 1998 1999 2000 2001 2002 2002 2003 2004 2005 2006 2007 2007 2008 2009 2010 British Airways Premium traffic (% yoy) British Airways cargo traffic (% yoy) Source: Company data.0p 400.500 9.0p 0.0p 20.

0% (5.0%) (1. Most airlines started life as nationalized businesses with strong unions – making cutting costs difficult.0%) 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 IATA Premium traffic (LHS) Source: IATA. which weighs on pricing in good times.0% 0. airlines. 32 Global real GDP index quarterly change .0%) (20.David Pitura (44-20) 7325-0369 david.0%) (10.5% 0.0%) (25.P. Global GDP.5%) (2. the industry has a propensity to destroy its own profitability through irrational capacity growth that reduces pricing. airlines often chose to reduce unit costs by growing capacity whilst trying to limit the increase in fixed costs.5%) (1. The downside of this is that the airline industry is plagued by overcapacity. Unfortunately.0% 10. In this situation.0% 0. and amplifies losses in bad times. J. Rational companies make investment decisions contingent on the profitability of the additional capital spend.0% (0.0% 5. for a variety of different reasons.pitura@jpmorgan. most notably their high degree of fixed costs.5%) Global real GDP (RHS) 1Q11 Premium traffic growth (% yoy) Irrational capacity growth can spoil the party Whilst airlines are somewhat at the mercy of global GDP trends. seemingly expand with little regard for the profitability of additional capital spend. 2006-2011 15.0%) (15. Morgan estimates.c.com Europe Equity Research 29 September 2011 Figure 34: IATA Premium traffic growth vs.5% 1. Whilst understanding demand trends is important for identifying the earnings outlook. This explains why global airline profitability growth has not kept pace with revenue and traffic growth. airline investors must also keep a close eye on capacity growth. 1.0%) (2.

The dynamics of the most recent cycle.0 10. 1990-2011 40. J. equating to when the number of stored aircraft in Figure 37 peaked. 1990-2011 500 Number of stored aircraft Figure 38: European* operated stored aircraft age profile. It is therefore likely that. Figure 35: Narrowbody orderbook. in the absence of a sharp drop in fuel prices. depressing pricing as a result. only to see the aircraft delivered when the industry was in a downturn (due to the lag between order and delivery). in each airline downturn. Morgan estimates. these aircraft will not return to service.com Europe Equity Research 29 September 2011 Irrational exuberance curtailed by Asia and oil In past economic cycles. (*Note: Europe is defined as EU25 countries) 400 300 200 100 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Narrowbody Regional Widebody Source: ASCEND. the current order books are filled by airlines from other regions – notably from Asia and the Middle East.c. have become uneconomic to operate. the average age of aircraft stored has decreased (Figure 38 below).0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Narrowbody Regional Widebody Source: ASCEND.pitura@jpmorgan. Morgan estimates. J. thereby supporting pricing. Morgan estimates. are different. (*Note: Europe is defined as EU25 countries) .P.0 25. The other problem the industry faced was aircraft stored during a downturn returning to service when conditions improved. 'saved' from the previous 'irrational exuberance' that characterized previous downturns. The rapid rise in the oil price over the past five years has meant that aircraft such as the B737300. 1990-2011 100% 80% 60% 40% 20% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 33 80% 60% 40% 20% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Asia Europe North America Others Asia Europe North America Others Source: ASCEND. one of the problems the airline industry encountered was a tendency for airlines to over-order at the peak of the cycle. Morgan estimates. Source: ASCEND.0 15. and the current cycle.P. 1990-2011 100% Narrowbody order baclog Widbody order backlog Figure 36: Widebody orderbook.David Pitura (44-20) 7325-0369 david. which is only one aircraft generation behind the most recent. and will continue to be. Figure 37: European* operated stored aircraft numbers.P. Figure 35 and Figure 36 below show that unlike the early part of the last decade when North American and European airlines dominated the order books of Boeing and Airbus.0 Average aircraft age 35. J. We believe airlines in Europe have been. J.0 20.0 30. However.P.

In the fast increase situation airlines are not able to pass the rising fuel costs onto passengers fast enough to compensate.pitura@jpmorgan.0% 4. the earnings impact of higher fuel prices depends on three things: The premium/non-premium mix of passenger traffic: Business passengers tend to be more price inelastic than leisure passengers. airlines were able to increase margins against a backdrop of rising fuel costs.0% 100 90 80 70 60 50 40 30 20 12. in the last cycle. The speed and reason for rising fuel prices: Our view of fuel hedging is that it should give an airline certainty on fuel costs so that these can be matched with rises in ticket prices given airlines generally sell tickets a year in advance (6-months for some low-cost carriers).0% 2003 2004 2005 2006 2007 2008 2009 European legacy* carrier EBITDAR margin (LHS) Source: J. This is the reason why.P. a higher proportion of premium passengers gives you a higher degree of protection – assuming global GDP remains strong and does not weaken with high oil prices.c. In the absence of hedging.e. Equally. All things equal. if fuel prices are increasing because of demand-side issues (i. 2003-2010 16. hedging is important because it gives some protection against the kinds of price spike witnessed as a result of the uprisings in the Middle East at the beginning of 2011.0% 6. and protects both on the upside and the downside. Brent Crude Oil (US$/bbl) (RHS) 34 2010 Brent Crude oil (US$/bbl) EBITDAR margin . In our view. However. Figure 39: European legacy* carrier EBITDAR margin vs.0% 8. Fuel hedging: We believe hedging should not be a source of competitive advantage – unless the hedging is long-dated.0% 10. rising GDP) this is usually beneficial for airlines. However. so the title above may seem somewhat surprising. Brent Crude Oil. Morgan estimates.0% 14. Bloomberg. the worst possible situation for an airline is a sudden rise in fuel prices because of supply-side issues in the oil industry.com Europe Equity Research 29 September 2011 Don’t be too afraid of the oil price Fuel accounts for between 23% and 40% of total costs for the main European airlines.David Pitura (44-20) 7325-0369 david. peak EBITDAR margins for the European legacy carriers in the last cycle coincided with peak oil prices. Indeed. As Figure 39 below shows. fast fuel price increases have a much greater correlation with airline share prices than gradual increases. and hence easier to pass higher fuel costs on to. a higher oil price does not necessarily mean lower airline earnings.

EBIT margin at spot fuel prices.0% (2. Airlines grow to reduce unit costs because they have a high degree of fixed costs. We estimate that the ‘breakeven’ point for the industry is around $120/bbl for Brent Crude oil.0% 5.c.0% 15.0% 20. and its earnings suffered as a result (Figure 41 below). However.0%) 2004 2005 2006 2007 2008 2009 2010 EBIT margin (reported) Source: J. thereby supporting pricing.0% 2004 2005 2006 2007 2008 2009 2010 Air France-KLM EBIT margin EBIT margin (spot fuel) EBIT margin (reported) Source: J. 2004-2010 8. Morgan estimates.pitura@jpmorgan.David Pitura (44-20) 7325-0369 david. Morgan estimates.0% Ryanair EBIT margin 25. 2004-2010 30. EBIT margin at spot fuel prices.0%) (8. fuel prices 80% 70% 60% 50% 40% 30% 20% 10% 0% 25 50 75 100 125 Brent Crude (US$/bbl) 150 175 200 % of Total costs Marginal costs Fixed costs Source: J.0%) (6. so airlines only increase capacity if they can generate enough cash from the additional capacity to pay for the additional fuel costs.0% 0.0% 10. a EUR/USD rate of 1. whilst Air France-KLM benefited from its hedged position when fuel prices were rising. Similarly.0%) (4.0% 0.0% 4.0% 2. However. Figure 42: Airline marginal & fixed costs vs.P. Figure 41: Ryanair reported EBIT margin vs. EBIT margin (spot fuel) High oil prices can be positive We believe high oil prices can have a positive impact on the profitability of the airline industry. Company data. Morgan estimates. because fuel becomes an increasing proportion of marginal costs. marginal costs outweigh fixed costs. this relationship breaks down at higher oil prices. Company data.41 & long-term Brent Crude to jet fuel conversion average) 35 . benefiting its EBIT margins by c3% points (Figure 40 below). Company data. Above this level. it chose the wrong times.com Europe Equity Research 29 September 2011 Fuel hedging can go wrong Air France-KLM arguably had the best fuel hedging of any airline in the last cycle. because it stops one of the main barriers to profitability – namely irrational capacity growth. Figure 40: Air France-KLM reported EBIT margin vs.P. Ryanair was reluctant to hedge its fuel due to a belief that oil prices would fall. and hence profitability. (*Note: based on Air France-KLM FY10 costs.0% 6. the significant drop in fuel prices that accompanied the financial crisis amplified the losses in the downturn. When it did hedge its fuel.P.

c. Likewise. time-sensitive. and a high proportion of O&D passengers. compared to multiple airlines that offer connections via their hubs.com Europe Equity Research 29 September 2011 Long-haul premium is the place to be for legacy carriers Most legacy carriers make the majority of their profits in premium cabins (First/Business class).pitura@jpmorgan. the competitive pressure for transporting O&D passengers is less than the competition for transfer passengers. The reason for this is that there is a greater opportunity for airlines to differentiate (and charge more) for their premium products because passengers are more willing to pay for additional services the longer they fly. 36 . All things equal. These types of passenger that do not connect are known as ‘O&D’ passengers (standing for origin and destinations). are the best (defined as least competitive) market segments to operate in. Given that there are usually only a few airlines operating a particular route. long-haul premium. particularly on long-haul flights. but price-insensitive business passengers will usually choose direct services over making a connection.David Pitura (44-20) 7325-0369 david.

David Pitura (44-20) 7325-0369 david.c.pitura@jpmorgan.com

Europe Equity Research 29 September 2011

What happened in 2009-2010?
Significant supply cuts in 2009 met strong demand in 2010
Prior to 2008, and with the notable exception of the post 9-11 downturn, utilization (i.e. how intensively an aircraft is flown on average) had been increasing year on year. This was one of the ways airlines increased capacity when they could not increase their fleet sizes as much as they wanted because Boeing and Airbus' order books were filled with orders from non-European/North American airlines. Following the post-Lehman Brothers downturn in 2008, airlines reduced capacity in two ways. Firstly, this was done by both grounding aircraft (Figure 43 and Figure 45 below), and secondly by flying them less intensively (Figure 44 below). However, 2010 was an exceptionally strong year for most airlines in the world because demand growth returned much faster than most were expecting. This led to yield increases of over 15%, and the world’s airlines reporting EBIT margins of 4.0%, beating the peak in the previous decade of 3.9% in 2007.
Figure 43: European* Net Seat growth, 1990-2010
12.0% 9.0% 6.0% 3.0% 0.0% (3.0%) (6.0%) (9.0%) (12.0%)

Net Seat* growth

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Narrowbody (ex-RJ's)

Widebody

Total

Source: ASCEND, J.P. Morgan estimates. *Note: (1) Europe is defined as the EU25; (2) Seat data calculated using average seating configurations); (3) aircraft in active service only

Figure 44: European utilisation* 1990-2011
8.0 Block hours per day 7.5 7.0 6.5 6.0 5.5 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Narrowbody utilisation (LHS) 12.0 Block hours per day 11.5 11.0 10.5 10.0 9.5 9.0 8.5 Widebody utilisation (RHS)

Figure 45: European* aircraft storage trends, 1990-2010
Stored aircraft (% of active fleet)
37

Aircraft numbers in service

4000 3000 2000 1000 0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

15.0%

10.0%

5.0%

0.0% Narrowbody Widebody
2010

Regional Stored fleet (% of active fleet)

Source: ASCEND, J.P. Morgan estimates. (*Note: (1) Europe is defined as EU25; (2) Utilisation is defined as block hours per days based on the in-service fleet.)

Source: ASCEND, J.P. Morgan estimates. (*Note: Europe is defined as EU25 countries)

2010

David Pitura (44-20) 7325-0369 david.c.pitura@jpmorgan.com

Europe Equity Research 29 September 2011

Figure 46: European legacy* carrier yield vs. IATA Premium traffic, 2006-2011
20.0% 15.0% 10.0% 5.0% 0.0% (5.0%) (10.0%) (15.0%) (20.0%) (25.0%)

3Q06

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

European legacy* carrier yield (% yoy)

IATA Premium traffic (% yoy)

Source: IATA, J.P. Morgan estimates. (*Note: European legacy carrier is an average of Air France-KLM, BA/IAG, & Lufthansa)

The strong 2010 performance wasn't limited to the passenger business – cargo too had a very strong year. Cargo pricing is somewhat at the mercy of the passenger side of the industry given air cargo is transported not only in dedicated freighters (i.e. cargo only aircraft), but also in the ‘belly holds’ of passenger aircraft. Capacity is usually set with reference to passenger demand, so if passenger demand is strong, this can also result in additional cargo capacity, whether or not there is the demand. Therefore, in 2009, cargo capacity was cut alongside passenger capacity. Weak demand towards the end of 2008 and early 2009 caused a run up in inventories (as a proportion of sales). This saw cargo profitability drop for Air France-KLM and Lufthansa (two of the biggest European cargo airlines) (Figure 47 below). However, cargo demand (and hence profitability) started to improve as inventory levels were reduced, in the latter half of 2009, and improve significantly in the early part of 2010 as inventories were rebuilt.
Figure 47: Air France-KLM & Lufthansa cargo EBIT vs. UK Inventory/sales ration, 2008-11
US Inventory to sales ratio
200 1.63 1.58 1.53 1.48 1.43 1.38

Figure 48: IATA Airfreight traffic vs. SIA* Integrated Chip shipments & US Inventory/sales ratio, 2003-2011
100.0% yoy change 50.0% 0.0% (50.0%) 1.50 1.40 1.30 1.20 1.10 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 US Inventory / Sales (RHS) IC units (LHS) IATA total freight (LHS)
Source: SIA, IATA, Datastream, J.P. Morgan estimates.

Cargo EBIT (€m)

100 0 (100) (200) (300)

1.00

Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Lufthansa cargo EBIT (LHS) Air France-KLM cargo EBIT US Inventory to sales ratio (manufacturing industries) (RHS)
Source: Datastream, J.P. Morgan estimates.

38

Q1 2011

2Q11

David Pitura (44-20) 7325-0369 david.c.pitura@jpmorgan.com

Europe Equity Research 29 September 2011

Outlook for 2011/12
A combination of the collapse in the oil price and strong demand/profitability in 2010 saw airlines increase capacity significantly in the first half of 2011 – even those airlines that had historically been more conservative with capacity growth (such as IAG). Figure 49 below shows the difference between their planned capacity growth and the underlying demand growth. Historically, airline industry traffic growth has grown by c2x global GDP, although within this, emerging markets will grow at a much higher multiple of GDP than developed markets. We have calculated underlying demand for each airline by applying a multiple to IMF forecasts for individual country’s real GDP growth (with the multiple based on the type of market), then scaling this by the airlines’ exposure to these countries in terms of scheduled capacity. All things equal, the greater the differential between demand and capacity, the greater the chance of rising prices/yields. Compared to peers, Lufthansa plans to increase capacity the most in 2011, with capacity growth equally underlying demand growth. However, both Air France-KLM and IAG are growing capacity less than underlying demand growth. This is reflected in our revenue assumptions, where we see lower unit revenue growth for Lufthansa than both Air France-KLM and IAG (it is important to look at unit revenue, rather than yield growth because airlines make trade-offs between yield and load factor which can skew the comparison).
Figure 49: European legacy carrier weighted* GDP growth vs. capacity (ASK) growth, 2011
8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Air France-KLM Lufthansa Capacity growth (2011) IAG* Weighted GDP growth (2011)

Source: OAG, IMF, J.P. Morgan estimates. (*Note: (1) weighted GDP is derived by multiplying IMF Real GDP forecasts by 1x for shorthaul markets, 1.5x for developed countries, & 2x for emerging markets; (2) Capacity growth is based on ASKs); (3) Capacity on an underlying basis, ex disruption in 2010.

For the legacy carriers, schedules are set on a Summer/Winter basis with the Winter running between end of October/early November, and the end of the March. Schedules are normally not firmed up more than one season in advance, meaning we have a very good idea of Winter 2011/12 capacity but less visibility about Summer 2012 (currently schedules data runs until August 2012). Given the uncertain economic conditions, we believe carriers (legacy and low-cost) in most cases will not confirm 2012 capacity until they have good visibility of the likely performance in Winter 2012. Indeed, both Air France-KLM and Lufthansa have recently announced cuts to their Winter programs, despite the start being only one month away.

39

David Pitura (44-20) 7325-0369 david.c.pitura@jpmorgan.com

Europe Equity Research 29 September 2011

Figure 50: Air France-KLM capacity growth by region, 2011-2012
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 8.6% 7.4% 6.2% 6.7% 3.8% 2.2% 4.5% 2.8% 1.2% Summer 2011 Short-haul Total Winter 2012

Figure 51: Air France-KLM share of capacity growth, 2011-2012
80% 60% 40% 20% 0% (20%) (40%)

North America

Latin America

Short-Haul

Africa

Caribbean

Winter 2011 Long-Haul

Winter 2011

Summer 2011

Winter 2012

Source: OAG, J.P. Morgan estimates. (*Note: capacity data is based on ASKs, and does not take account of cancelled flights in the previous year; Winter 2011 is November 2010-March 2011; Summer 2011 is April 2011-October 2011; Winter 2012 is November 2011-March 2012)

Source: OAG, J.P. Morgan estimates. (*Note: capacity data is based on ASKs, and does not take account of cancelled flights in the previous year; Winter 2011 is November 2010-March 2011; Summer 2011 is April 2011-October 2011; Winter 2012 is November 2011-March 2012)

Figure 52: Lufthansa capacity growth by region, 2011-2012
12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Winter 2011 Long-Haul Summer 2011 Short-haul Total Winter 2012 9.6% 9.0% 7.7% 7.9% 6.9% 5.0% 5.2% 4.3% 2.4%

Figure 53: Lufthansa share of capacity growth, 2011-2012
60% 50% 40% 30% 20% 10% 0% (10%) (20%)

North America

Latin America

Middle East Middle East Middle East

Short-Haul

Africa

Winter 2011

Summer 2011

Winter 2012

Source: OAG, J.P. Morgan estimates. (*Note: capacity data is based on ASKs, and does not take account of cancelled flights in the previous year; Winter 2011 is November 2010-March 2011; Summer 2011 is April 2011-October 2011; Winter 2012 is November 2011-March 2012)

Source: OAG, J.P. Morgan estimates. (*Note: capacity data is based on ASKs, and does not take account of cancelled flights in the previous year; Winter 2011 is November 2010-March 2011; Summer 2011 is April 2011-October 2011; Winter 2012 is November 2011-March 2012

Figure 54: IAG capacity growth by region, 2011-2012
12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% (2.0%) (4.0%) (6.0%) (8.0%) (10.0%) 9.8% 6.9% 5.3% 2.1% 5.4% 2.5%

Figure 55: IAG share of capacity growth, 2011-2012
150% 100% 50% 0% (50%) (100%)

North America

Latin America

Short-Haul

Africa

Caribbean

Asia

(1.9%) (7.6%) Winter 2011 Long-Haul Summer 2011 Short-haul Total (7.5%) Winter 2012

Caribbean

Winter 2011

Summer 2011

Winter 2012

Source: OAG, J.P. Morgan estimates. (*Note: capacity data is based on ASKs, and does not take account of cancelled flights in the previous year; Winter 2011 is November 2010-March 2011; Summer 2011 is April 2011-October 2011; Winter 2012 is November 2011-March 2012

Source: OAG, J.P. Morgan estimates. (*Note: capacity data is based on ASKs, and does not take account of cancelled flights in the previous year; Winter 2011 is November 2010-March 2011; Summer 2011 is April 2011-October 2011; Winter 2012 is November 2011-March 2012

40

Other

Other

Asia

Other

Asia

should. Morgan estimates (Note* data is based on a fiscal year to March) Source: Company reports. Summer 2011 is April 2011-October 2011.0% 1H09 2H09 1H10 2H10 1H11 2H11 1H12E Source: Company reports.2% 11.0% Capacity growth (seats) % yoy Figure 58: easyJet capacity growth*.P.c. easyJet’s increased 1H11 losses were partly a result of fuel costs which were c31% higher. In contrast.1% Frankfurt Munich Zurich Winter 2011 Summer 2011 Winter 2012 Source: OAG.2% 6. Winter 2011 is November 2010-March 2011.P.P. 1H09-1H12E 12. Ryanair should see winter capacity cut by around 4%. whilst easyJet plans to have roughly flat winter capacity year-on-year. J. Morgan estimates (Note* data is based on a fiscal year to March) Vienna 41 .0% Capacity growth (seats) (% yoy) 15.8% 10. 1Q11-4Q12E 20. not being fully pass on to passengers. which should help to support pricing.2% 7. and taking into account current hedging. J.0% 4.4% 13. Winter 2012 is November 2011March 2012 Another tough winter for the low-cost carriers Both Ryanair and easyJet plan to significantly slow their capacity growth this winter.0% 0. Figure 57: Ryanair capacity growth*. put Ryanair in a more favorable position compared to easyJet to weather the tougher consumer environment we expect this coming winter – although we would note that easyJet has substantially cut its growth this winter compared to last.0% 10.pitura@jpmorgan.0% 0.0%) 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 10.0% 2.com Europe Equity Research 29 September 2011 Figure 56: Lufthansa capacity growth by airport.0% (5. (*Note: capacity data is based on ASKs. We believe that the lower increase in the average cost of fuel paid.9% 1.0% 8.2% 3. Morgan estimates.0% 6.0% 6.9% 1. If jet fuel remains at the current level for the whole winter season.0% 4. we estimate easyJet's winter fuel costs will c26% greater than last year. J. 2011-2012 16% 14% 12% 10% 8% 6% 4% 2% 0% 13. combined with a reduction in capacity.0% 5.8% 5. all other things equal. we estimate that Ryanair’s fuel costs will increase by c19% (although likely to be higher due to the weakening of the Euro).David Pitura (44-20) 7325-0369 david. and does not take account of cancelled flights in the previous year.

a decision can be made somewhat later.P. Indeed. the outcome is a little more opaque. For both airlines. it seems likely Ryanair would have been given a similar deal by Boeing. if Boeing and Airbus were willing to offer these types of discount to other airlines. we believe it highly unlikely any European competitor would be able to gain new aircraft at the levels of pricing we think easyJet and Ryanair received. the United States claims that easyJet received a 56% discount off the list price from Airbus. Morgan US analyst Jamie Baker) is often held up as the ‘original’ low-cost carrier that all low-cost carrier business models are based on (we would disagree in the case of Ryanair.c. and hence order more aircraft. and so must make a decision relatively soon on whether or not it wants to continue growing. Is there growth in the European market? For Ryanair. Airbus dispute. in particular their low ownership costs. who has brought the grow/no-grow debate into the public eye. In answer. Indeed. within the report by the World Trade Organization (WTO) on the Boeing vs. For easyJet. we believe the decision to grow is a binary one based purely on whether or not Boeing. or indeed other manufacturers like COMAC are willing to supply aircraft at the right price.David Pitura (44-20) 7325-0369 david. In terms of other (controllable) costs. In the short-term therefore. Within the evidence of the dispute. the US is probably the best example to compare the European market against. rather than an airline that may or may not be around in the long-term. it seems logical they would offer them to important customers like easyJet and Ryanair first. We can see that the combined market shares of easyJet and Ryanair 42 . but the final decision will depend on how successful Sir Stelios Haji-Ioannou is in persuading easyJet of his point of view – something that is impossible to determine. given their relative size and scale. If it can get the pricing it wants. We believe the January 2011 aircraft order shows a determination to continue growing. Although impossible to prove. the key to their low cost bases (and hence business models) has been low aircraft ownership costs secured by significant discounts from Airbus and Boeing. we believe it unlikely easyJet and Ryanair will lose their competitive advantages.pitura@jpmorgan. we believe easyJet and Ryanair are too important for suppliers to ignore. Airbus. This has resulted in a strong response from easyJet's largest shareholder. If not. Sir Stelios Haji-Ioannou. as an aircraft order in January 2011 will see it take its last delivery from Airbus in November 2014. it will grow. it will not grow. the United States asserted that this was the largest single lost sale for Boeing during the 2001 to 2005 period. For easyJet. Southwest Airlines (covered by J. While the pricing terms of aircraft contracts are rarely made public. As the first aviation market in the world to deregulate. as its business model is fundamentally different from Southwest's). We think the question of whether easyJet and Ryanair should continue to grow should be framed by whether or not they can hold onto their competitive advantage over peers. Figure 59 and Figure 60 below compare easyJet and Ryanair’s market share in the intra-Europe market with those of the main low-cost carriers in the US domestic market.com Europe Equity Research 29 September 2011 Have low-cost carriers gone ex-growth? Size and scale mean competitive advantage is secure Ryanair is scheduled to take its last delivery from Boeing in March 2013.

Morgan estimates (*Note: (1) Market share based on seats.c.0% 5. proving growth opportunities for the low-cost carriers. Serbia.0% 0.0% Source: Bureau of Transportation Statistics. (3) Low-cost carriers based on definition used by Eurocontrol). J. Kosovo. Montenegro. and Switzerland.0% (5. Indeed. total market growth. there should be a greater proportion of transfer passengers flying on short-haul routes. meaning some O&D passengers are ‘spilled' to other airlines.0% 5. providing the low-cost carriers with the opportunity to take market share.0% 0. Bosnia/Herzegovina. 43 . FYR Macedonia.0% 10.0% 10. Norway. as the long-haul fleets of the legacy carriers grow faster than the short-haul fleets.0% 0.P. However.0%) Source: OAG.0% 10. in contrast to the US.pitura@jpmorgan.0%) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Southwest Airlines JetBlue Airways Virgin America AirTran Airways Total market (% yoy) (RHS) 10. 1990-2010 Total market growth (% yoy) Total market growth (% yoy) 25.David Pitura (44-20) 7325-0369 david. total market growth.P.0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Ryanair Vueling Airlines easyJet Other low-cost carriers Air Berlin Total market (% yoy) (RHS) Norwegian Air Shuttle 15. (2) EU CAA is the European Union Civil Aviation Area defined as the EU27 plus Albania. Croatia.com Europe Equity Research 29 September 2011 are approximately the same as the combined market share of Southwest Airlines and AirTran (which was acquired by Southwest in 2010). Figure 59: US low-cost carrier US domestic market share* vs. the market share of the top four low-cost carriers in the EU is actually bigger than the market share of the top four low-cost carriers in the US.0% 5. J.0% Market share* 30. the EU contains economies that are still emerging economies. Morgan estimates (*Note: based on passengers flown) Figure 60: EU low-cost carrier intra EU CAA market share* vs.0%) (10.0% 20. and we expect growth in these markets to outpace more developed economies.0%) (10.0% 0. Additionally. 2002-2011 40. Iceland.0% Market Share 15.0% 20.0% (5.

If the future fuel costs remain high. then we believe Ryanair will increasingly enter existing primary airports (subject to being able to turn around aircraft within a suitable time) and use its low cost base to take market share from competitors. easyJet is more focused on taking market share from existing competitors by offering lower fares on routes between primary airports.P. market size*. J. Kosovo.David Pitura (44-20) 7325-0369 david. Montenegro. and Switzerland. Morgan estimates (*Note: (1) EU CAA is the European Union Civil Aviation Area defined as the EU27 plus Albania. Iceland. we believe that with persistently high oil prices.P. but by 2009. Serbia. FYR Macedonia. Iceland. and strong balance sheet would allow it to offer fares which were lower relative to the competition. but easyJet and Ryanair's business models are fundamentally different. Bosnia/Herzegovina. the easier we believe it will become for 44 . J.pitura@jpmorgan. this has already happened with new bases at primary airports such as Madrid and Barcelona. FYR Macedonia. The higher fuel prices go. and Switzerland. In particular. Ryanair's lower non-fuel cost base. It may seem surprising. However. market size*.c. Figure 62: Low-carrier market share vs. Norway. Serbia. Morgan estimates (*Note: (1) EU CAA is the European Union Civil Aviation Area defined as the EU27 plus Albania. Kosovo. is an example of this. Croatia. 2011 140 120 Seats per year (m) 100 80 60 40 20 0 10% 15% Greece Netherlands 20% 25% 30% 35% Low-cost carrier market share 40% 45% 50% 55% France Switzerland Norway Germany Italy Spain United Kingdom Sweden Source: OAG. 2011 20 18 16 14 12 10 8 6 4 2 0 20% Portugal Austria Finland Czech Republic Romania Hungary Belgium Denmark Ireland Poland Seats per year (m) 25% 30% 35% Low-cost carrier market share 40% 45% 50% Source: OAG. Montenegro. Indeed. compared to Ryanair operating between London-Stansted and Bergamo. next 10 biggest Intra-EU CAA* markets. Norway. In the fiscal year ended March1999. In this situation.com Europe Equity Research 29 September 2011 Figure 61: Low-carrier market share vs. The oil price will shape the future for low-cost carriers We believe the fuel price will determine the shape of the future for easyJet and Ryanair. easyJet operating between London-Gatwick and Milan Linate. fuel made up c16% of total costs. (2) Low-cost carriers based on definition used by Eurocontrol). Ryanair’s main focus is 'creating' new markets by offering very low fares in markets in which few other airlines operate – by operating to tertiary airports in particular. Croatia. Bosnia/Herzegovina. Ryanair's business model will look more and more like easyJet's. this had more than doubled to 44% because of the rapid increase in fuel prices. we believe Ryanair’s ability to offer these low fares is determined by the price of fuel. (2) Low-cost carriers based on definition used by Eurocontrol). Top 10 Intra-EU CAA* markets.

0% 40.0% 10. However.0% 5.0% 25.0% 0.0% 0.0% 20.0% 25.0% 0.0% 15. Company data (*Note: data is for the fiscal year to March) Source: J. EBITDAR margin. the more important low operating costs and a strong balance sheet will become.P.0% 0. Company data (*Note: data is for the fiscal year to September) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E EBITDAR margin (RHS) EBITDAR margin 45 50.c. something that is not that prevalent today.0% 50.0% 15. 1999-2013E 35.0% 20.pitura@jpmorgan.0% 5.0% Fuel (% of total costs) Fuel (% of total costs) 40.0% 10.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2013E 2014E EBITDAR margin Fuel (% of total costs) (LHS) EBITDAR margin (RHS) Fuel (% of total costs) (LHS) Source: J. EBITDAR margin. For easyJet.0% 10. which should see easyJet and Ryanair's returns improving. this would see a lot more head-to-head competition with Ryanair. 1999-2013E 60.0% 20. Morgan estimates.0% 30.0% 20. Figure 63: Ryanair fuel costs vs.com Europe Equity Research 29 September 2011 Ryanair and easyJet to take market share.0% 10.0% 30.0% 30.David Pitura (44-20) 7325-0369 david. the higher fuel prices go. Morgan estimates.P.0% .0% Figure 64: easyJet fuel costs vs.

7% Unit Costs (% yoy) Year 2 Year 3 0. & Year 3 for Ryanair are the years ending March 2012.1% 2.4% 3.7% 1.9% 10.7% (0.8% 2.3% 12.2% 5.0% 23.8% 7.4% 5.5% Source: J.5% Source: J.4% (0.0pts Passenger Yield* (% yoy) Year 1 Year 2 Year 3 1.5% 3.7% 3. & Year 3 foe easyJet are the years ending September 2011.pitura@jpmorgan.0% 0.4% 0. March 2013.0% 8.2% 5.6% Year 3 2.5% 2.7% 8.0% 7.9% 14.3% 12.5% 4.3% 11.6pts 0.9% (0.5% Total Revenue (% yoy) Year 1 Year 2 5.3% 6.8% 2.6% 2.2%) 3. & Year 3 for Air France-KLM.6% 7.7pts 0.6% 5. Table 11: J.7% 11.9% 21.9% 9. & Year 3 for Air France-KLM.1% 4.6% 5.0% 4.0% 4.0% 1.8% 3. IAG. & Year 3 foe easyJet are the years ending September 2011.7% 9.8% 3.5% 2.3% Total Unit Revenue* (% yoy) Year 1 Year 2 Year 3 5.P.0% 6.9% 2.7% 40.4% 12. and December 2013 respectively.1% 5.4% 1.2% 22.1% 4.0% 6.9%) (3.0% 3.5% 2.7% (1.5% 4.0% 2.5% 4. March 2013.9% 10.0% 3. Morgan revenue assumptions Passenger Revenue (% yoy) Year 1 Year 2 Year 3 LEGACY CARRIERS Air France-KLM* IAG* Lufthansa LOW-COST CARRIERS easyJet Ryanair 6.9% 7.P.8% 11.P.3% Low (6.6% 8.4pts) 0.1pts 0.8% 7.8% 3. & September 2013.1% (0.6% 2. Year 2. & March 2014.4%) (2.1% 5.3%) 2.9% 4.0% 2. Lufthansa are the years ending December 2011.4% 7. & September 2013.0% 3.5% 5.0pts (1. (3) Year 1. & September 2013.6% 1.5% 15. & Year 3 foe easyJet are the years ending September 2011.2% 4.4% 14. September 2012.4% 4.7% 14. Morgan estimates.1% 11. September 2012.3% 4.3pts) 0.0%) (0.7% 12.0pts (0.8% 2.7% 13. Morgan traffic/capacity assumptions Passenger Traffic (% yoy) Year 1 Year 2 Year 3 LEGACY CARRIERS Air France-KLM* IAG* Lufthansa LOW-COST CARRIERS easyJet Ryanair 5. & Year 3 for Ryanair are the years ending March 2012. (3) Year 1.3% 1.5% 4.2%) 1.5% 1.2% Other Revenue (% yoy) Year 2 Year 3 2.2pts 0.P.5% 8. Lufthansa are the years ending December 2011. December 2012.1% EBIT margin Year 1 Year 2 (0.9% Year 3 11. Table 10: J.4% 1. IAG. (1) Year 1.3% 4.7% 12. (1) Year 1.5% Year 1 2.8% 3.4% 2.2% 1.4% 10.1% 0. Year 2. IAG.4% 9. March 2013. Lufthansa are the years ending December 2011. Morgan estimates.7% (0. & Year 3 for Ryanair are the years ending March 2012. (1) Year 1.8% 12.7% 18. & Year 3 for Air France-KLM.4% 15.0% 12.0pts 1. December 2012.0% 8. (*Note: (1) Year 1.5% 0. Year 2.3%) 3. & March 2014.4% 0. and December 2013 respectively.8% 13.3pts 0.0% 4.0% 11.6%) 0.6% (0.0%) 0.5% 8.9% 12.P.com Europe Equity Research 29 September 2011 Earnings estimates and assumptions Table 9: J.David Pitura (44-20) 7325-0369 david.9% 17.6% Year 1 2.0% Passenger Capacity (% yoy) Year 1 Year 2 Year 3 3.1%) 1.4% 1.0%) High 15.9% 13.5% 4.0% 8.0% 12.3% 2.4% 1.6% 14. December 2012.c.0% 9. Year 2. Year 2.4pts) 0.1%) 9.9%) (3.3% Source: J J.0% High 5.9% 3.0pts 0.2% 7. and December 2013 respectively.P.1% 12. September 2012. Year 2.1% 4.0% 2.3% 4. (3) Year 1.8% 3.5% EBITDAR margin Year 1 Year 2 9. Year 2.8% (0. Year 2.7% 8.0% 6. Morgan estimates.8% 10.8% 5.0% 3.0% Passenger Load Factor (% pts yoy) Year 1 Year 2 Year 3 1.5% 3. Morgan earnings assumptions Unit Costs (ex-fuel) (% yoy) Year 1 Year 2 Year 3 LEGACY CARRIERS Air France-KLM* IAG* Lufthansa LOW-COST CARRIERS easyJet Ryanair (0.4% 4.5% 4. (*Note: (1) Year 1.4% Low 5.1%) 5.5% 4.5% 3.0% Year 3 4.4% 31.6% 4. Year 2.0pts 0.0% 1.3% 5.6% 10.1% 4. 46 .6% 18. (*Note: (1) Year 1.2% 9.9%) 6.9% 5.9% 3.0% 13.1%) (6. & March 2014.0pts (0.

1% 0.886.9) 4.6% (256.170.0 3.341.0) (3.113.0 0.5% (1.0) (1.2% 100.636.395.0) (1.00 Source: Company data.0% 80.8% 3.0) (6.3) (8.6%) (1.6) (3.6 4.8 2.496.5% 2012E 19.8% 11.068.98 0.4 4.077.4%) (0.678.195.0% 2.0) (922.201.5) (23.0% 86.0 2.8% (359.0) 913.3%) 2.00 2014E 4.0%) 439.05 0.4) (1.0% 3.397.6) (7.53) 0.0 (143.0) (3.8%) (0.4% (6.904.5%) 268.8% 2006A 15.0) 1.0 4.5) (898.619.4) (1.0% 4.0 2.674.232.25 0.8% (1.0 (387.0 (455.0% 3.0) (7.4 9.200.869.736.300.317.7% (1.0) 1.9) (1.1% (93.0 (392.450.2 1.188.0) (1.1) (22.604.0) (1.0 (3.5% 1.5 (455.0) (1.6) (7.0) (806.pitura@jpmorgan.0) (646.922.4% (1.4% 5.0% 2.0 0.793.156.0) 28.371.8) 231.0% (1.0) n/a 2.4% 0.7) (1.6) (3.c.118.0 2.831.9% 80.0) 367.5 27.0) 8.456.9) 3.0 207.9 2.5) (7.0 370.191.223.606.4 3.0) 756.3% 12.331.0% 2.614.090.05 0.0 (368.353.010.6) (430.9% 80.66) 0.6%) 2010A 18.2 0.4% (4.041.094.851.0 539.0 0.76) 0.0 5.397.1 2.0) (938.9) (0.0) (1.0) (975.9 25.8) 670.48 2008A 4.0 7.1 1.0) 936.00 2012E 2.4% 168.0 1.8% 1.3%) 82.6 11.47 3.8%) (1.8% 81.4% (0.512.6% 0.1 1.0 (455.748.0) (1.7) (1.6 (455.0%) 0.155.3% (0.583.0 n/a (5.503.0) (21.7% 4.6) (985.0 2.6) (22.127.722.229.385.3) (1.0) (814.0% 2.0) (1.66) (0.0 1.9 5.5% 3.0) (4.0) (3.6%) 2.961.029.0) (1.00 2007A 4.0) 17.4) (2. 2010A-2014E is for the fiscal year to December).4% 0.0) (63.0) (129.9% 2010A 17.5) (1.7% n/a n/a n/a n/a n/a n/a 2010A 17.357.158.0% 3.0 (42.5 3.782.0) (1.0) 5.349.0) 1.1% (1.0 2.3) (860. 2006A-2014E (Year to December*) TRAFFIC/CAPACITY STATS Passenger capacity (ASK) Passenger traffic (RPK) Passenger load factor Passenger yield (per RPK) Cargo capacity (ATK) Cargo traffic (RTK) Cargo yield (per RTK) Total Unit cost (ex-fuel) (per ASK) Total Unit cost (per ASK) INCOME STATEMENT (€m) Passenger Cargo 3rd party maintenance Other revenue TOTAL REVENUE % change Fuel Staff costs Maintenance Handling Navigation Sales Other TOTAL COSTS % change EBITDAR margin Depreciation Aircraft leasing EBIT margin Interest Income Interest Expense Gains/(losses) on assets & other PRE-TAX PROFIT margin Tax (paid)/received Minority interest Other NET INCOME (to equity) margin EPS (basic) (€) EPS (diluted) (€) DPS (€) 2006A 9.9% 1.0 21.4%) (2.7% 2010A 17.0) (3.4 4.0 23.6%) (5.05 1.025.0 4.0% 4.35 3.0) (5.2% 2.0) 289.1% 84.3%) 5.0 15.476.0) (777.975.414.854.58 2009A 2.0) 0.9%) 1.0) 0.0 1.292.203.1%) 161.8% 3.0%) 2013E 20.4% 3.240.0% (0.0) (2.2% (1.0 5.6% 3.294.3) (1.2 3.0) (6.0) (2.121.3% (6.448.566.00 2010A n/a n/a 81.6 12.0) (83.0) (1.840.0) (0.5 (455.9% 0.232.511.0 (23.673.2 24.739.3) (0.0 1.0 15.123.0 (407.0 969.1% (1.8% (248.0 10.622.0 2.2% 2.9) (0.0 891.0) (1.588.4% 81.00 2011E 3.981.76) (2.4% 2011E 18.0 896.0 974.159.4% 0.691.5% 4.0 15.565.0 1.5) (24.6% 2.5 10.0) (20.0) (157.2% 0.0% 0.0 13.4% (6.5% (0.703.0) (18.3% 3.224.167.1% 275.0) (1.8) (913.9) (2.7 1.0 (70.046.0% 7.8 26.1) 1.0) 19.0) (7.5% 8.0) (894.202.4%) 2014E 20.49 0.9% (167.9 1.6) 6.455.049.301.937. (*Note: 2006A-2009A is for the fiscal year ending March.0) (7.6% 1.038.0 5.2) 893.601.5% (4.258.0) 488.0 (24.317.0 301.2 0.0) (1.449.8% 85.0% 78.0 4.092.455.390.6 2.0 0.4% (4.116.0 0.P.5% 4.92) 0.9% 3.576.0 4.5) 1.4% (0.0 23.7% (2.0 2.0) (1.8% (1.656.David Pitura (44-20) 7325-0369 david.8% 1.3) (1.689.0% (3.0 24.0) 18.731.0% (0.4% (0.0) (637.0) (611.3%) (0.0 977.902.6%) 1.6%) 44.2 1.572.156.0) (1.705.6% (4.131.00 2013E 3.610.0) (519.944.618.744.0) (20.2 1.0 2.4% 5.66 2.0) (1.com Europe Equity Research 29 September 2011 Air France-KLM Table 12: Air France-KLM Income Statement.0 1.0 7.465.9 3.4% 3.0 2.0 3.0 4.070.0) (1.0) (19.7) (898.4% (6.5% 2.89 0.606.8% (1.555.9% 288. 47 .204.9%) 2.0 2.61) (0.0) (13.9%) 3.9) (941.4% 267.0) (3.2%) (1.6 2.0) 6.755.910.0 (0.7) (3.24) (0.452.7% (1.351.1% 2.018.631.8) (1.9% 79.123.0) 6.8) 3.3) (3.2) (858.0) 0.534. J.1% 2.5% 86.259.0 23.6) (1. Morgan estimates.0) (600.0 24.0 (99.176.1% 3.0) 12.0 8.882.4 1.

0) 203.0 800.413.8 (34.0 431.9 2014E 13.0 10.0 11.0 0.0 (177.172.9) 374.5 4.9 354.0 1.0 2.217.0 3.1 21.0 16.0 309.0 (25.009.0 (455.0 9.0) 6.622.790.866.864.0 2.pitura@jpmorgan.0 26.0 11.0) 0.734.5 1.7 559.8) 88.0) 2.0 (240. Morgan estimates.0 6.0 1.0) 148.5 21.709.0 2.191.0) 587.0 0.271.0) 6.4 602.040.583.0 7.371.967.822.0 340.0 1.0 4.0 6.0 0.757.0 7.264.0 (137.0 11.0) 0.0) 0.com Europe Equity Research 29 September 2011 Table 13: Air France-KLM Cash flow Statement.857.0 5.0 1.600.0 (88.403.040.601.0 20.0 3.0 2.0 (747.815.0) 0.215.0 20.0) 0.0) (372.127.4 1.0) 0.0 766.0 119.7 3.0 401.811.0 (156.0 312.0 2.5 167.0 4.178.5 (21.089.0 75.975.0 224.7 1.836.7 21.386.0 507.271.600.351.0 21.275.0 740.0 397.6 3.1 1.600.453.106.254.0 417.2 800.0 4.0 4.0 446.0 (410.391.0) (26.0 766.0 5.0 852.0 2008A 14.130.0) 0.0 (284.7 2013E 13.0 339.0 699.317.574.5) (455.0) 5.415.377.5 800.0 30.0 18.720.114.0 3.0 1.0 766.449.894.0 18.0 430.737.0 7. Table 14: Air France-KLM Balance sheet.588.9 (5.500.9 3.0 468.0 (2.623.976.260.0 9.877.7 1.0 122.0) 2011E (430.619.543.499.0) 0.320.160.689.0 (58.0 (838.250.0 (1.2 100.1 567.0 4.0 (916.743. 2006A-2014E (Year to December*) CASH FLOW STATEMENT (€m) Net Income Net Interest Tax paid Depreciation/Amortisation Change in working capital Other Tax CASH FROM OPERATING ACTIVITIES (CFO) Interest received Capex Asset sales Other CASH FROM INVESTING ACTIVITIES (CFI) Interest paid Capital issues (net) Dividends paid Increase/(decrease) in short-term debt Increase/(decrease) in long-term debt Other CASH FROM FINANCING ACTIVITIES (CFF) NET CASH FLOW 2006A 921.0 (154.1 1.0 2.7 (93.0 0.0 (71.0 10.0 628.429.0) 7.811.836.0) 2010A 980.743.034.0 430.108.0 (2.0 5.0) 0.0) 564.833.0 10.0 (93.5 5.0 799.518.8 (93.412.0) (343.071.802.0 (119.617.110.1 28.0 3.0 8.0) 522.853.0 1.524.0 819.317.569.1) 2013E 207.549.6 3.707.6 1.5 1.653.542.0 5.0 0.0 2.0) 0.4 579.236.0 20.0 0.0 2.2 1.038.3 3.0 9.0 521.1 1.0 2.0 0.122.0 (1.131.0) (96.0 431.0 0.106.612.537.0) 335.0 8.0 5.793.0 2.0 20. property.7 2.909.705.0) 650.5 (1.656.2 1.6 51.0 359.0 (2.391.125.0 0.0 1.0) (4.0 8.0 96.611.0 8.0 2.0 4. 2010A-2014E is for the fiscal year to December).0 2011E 13.271.0 5.0 (2.3 44.0 (592.0 6.0 1.4) (455.271.0 (89. 2010A-2014E is for the fiscal year to December).473.0 1.0) 0.174.0 0.7 (3.0) 1.716.0 10.267.478.0 22.0 2.0) (455.0 (455.364.0 2.0) 1.0) 6.610.8 4.844.0 54.063.0 448.0) 0.0 1.921.0) 1.106.301.0 1.353.0 280.600.275.294.072.0 430.0 26.063.0 579.0) (364.9 49.0 337.0 3.0 (1.0 5.0 360.0 7.0 (1.0 (1.2 28.4 93.7 27.0) 883.581.0 2.7 21.0) 0.0 8.6 2.811.0) 1.676.344.063.728.075.0 2007A 887.771.0 28.558.6 (93.887.0 599.0 535.0 7.4 8.106.0 3.0) (451.7 82.0 0.0 2.0 0.0 946.416.4) 1.0 3.0 431.5 8.0 800.0) 0.353.4) 2.564.836.0) 1.3 4.955.836.0 1.0 3.989.5) (455.7 7.900.0 (1.719.0 6.5 8.986.0 0.0) 6.027.0 2.0) 0.8 2.9 (93.0 20.0 11.0 0.875.0 (553.702.0 3. 48 .0 7.0) 3.4 80.0 17.793. 2006A-2014E (Year to December*) BALANCE SHEET (€m) Aircraft.0 (30.397.0) 7.3) 2012E (99.956.0 52.0 154.271.299.566.0 113.0 1.0 6.519.0 (1.438.0) (699.398.062.955.0 2010A 13.0 20.0) 89.0 431.0 3.0 210.0 7.0 296.8 86.676.0 63.0 1.0 288.499.027.0 431.303.098.0) 8.105.0 0.0 20.0 1.0 0.0 7.0 249.0 228.0 7.491.702.002.793.811.0 2.0 354.2 161.7 3.0 0.131.418.0 1.0) 2.7 6.2 2.0 7.8 Source: (*Note: 2006A-2009A is for the fiscal year ending March.0) 0.743.975.0) 0.0 9.0) 157.972.0 152.005.065.0 430.0 0.0 7.6) 82.0 269.0 0.6 (1.7 6.098.416.581.743.063. (*Note: 2006A-2009A is for the fiscal year ending March.6 2012E 13.0) (1.0 2.0 1.0 20.0 1.3 2014E 370.David Pitura (44-20) 7325-0369 david.691.5 (44.5 1.6 6.0 18.057.0 (309.0 2009A (807.0) (410.0 (41.0 204.811.0 10.0 10.0 2.412.106.2 368.0 5.836.0 1.8 1.0 11.0 800.9 1.0 2009A 14.0 (1.0 3.0 0.271.0 (161.519.2) 1.0 28.0) (2.720.0 328. plant & equipment Goodwill/other intangibles Investments Other LONG-TERM ASSETS Inventories Trade & other receivables Cash & cash equivalents Other CURRENT ASSETS TOTAL ASSETS Long-term debt Deferred tax liabilities Retirement benefit liabilities Provisions Other LONG-TERM LIABILITIES Short-term debt Trade & other payables Revenue in advance of carriage Other CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS Issued capital Retained earnings & other reserves Other equity SHAREHOLDERS EQUITY Minority interests TOTAL EQUITY 2006A 12.0 (493.032.780.5 (1.0) 9.980.0 (593.0 2008A 775.7 50.740.0 0.0 3.0 3.826.048.928.101.628.7 Source: J.170.793.144.0 1.0 2.4 1.130.2 1.0 766.0 11.0 2.126.0 990.079.4 2.0 7.0) 0.793.672.914.602.111.225.075.0 2.7 1.0 3.222.466.419.404.0 1.039.0 (377.0) (283.3 27.0 9.0) (1.447.8 48.518.0 0.0) (261.0 26.0 8.0 527.209.0 8.300.0 5.0) 843.0 9.0 891.8 3.0 299.0 766.0) 2.853.914.218.0 839.0 2.c.041.0 959.4 1.0 177.063.7) 91.0 2007A 13.7 3.513.0 5.666.0 (2.0 (124.0) 0.705.849.0 430.0 11.P.0 905.499.535.600.0 7.032.0) (80.002.5 8.743.0 7.4) 373.0 (455.0 5.0 (132.0 157.0 636.0 557.0 (455.

4% (208.5 12.4) (1.016.P.0 4.00 2014E 3.731.579.20 0.02 0.3) (1.8% (145.158.0 0.1 1.0) (1.932.7 1.908.0) (801.4) 809.7) (1.1) (4.9) 13.5) 0.655.318.2% 0.8) 3.0 0.946.05 0.8) (731.0 0.635.7 20.0 0.7 20.5% 79.2% 7.8 4.1% (1.571.2 2.4) (399.577.952.0 458.0 0.8% 78.4) (405.0 646.0 0.3% (208.8%) (0.8% 78.202.2% 2012E 14.0 0.0) (1.157.0 361.0 0.509.1) (3.0% 2.1% 0.35 0.0) (928.9 4.5% 2.6) 71.7% 0.548.0 14.4) 0.276.276.0 8.306.604.0 1.9 18.9% (208.4%) (2.9 1.0 12.3) (838.0 0.0) (630.435.0) (401.c.9% 5.7) (1.025.9 3.8) (1.0%) 0.253.0) (681.207.698.42) 0.0 373.428.4% 2013E 15.8 1.5) (1.0% (1.0 0.0 0.7 20.0) 96.5) (380.9 13.214.0 n/a (4.0) n/a 602.4) (1.9% (3.602.0 2.6) 589.9%) 79.35 0.370.0) (8.0) 1.069.0) (1.909.328.096.pitura@jpmorgan.355.3 4.7) (16.5% (201.147.6% (208.741.2) (1.2% 2.1% 0.6) 71.0 (305.3% 2.00 49 .7) 0.3% 2.8% 6.3% 2014E 15.4) (1.8% (99.764.0) (12.29 0.317.557.0 0.0 0.0 834.0) (12.1) (394. 2009A n/a n/a 78.0%) (156.2 2.194.0% 1.5 4.804.5 1.230.385.9% (4.984.7 1.0) (6.9% (3.2% (1. 2009A-2014E (Year to December) TRAFFIC/CAPACITY STATS Passenger capacity (ASK) Passenger traffic (RPK) Passenger load factor Passenger yield (per RPK) Cargo traffic (RTK) Cargo yield (per RTK) Total Unit cost (ex-fuel) (per ASK) Total Unit cost (per ASK) INCOME STATEMENT (€m) Passenger Cargo Other revenue TOTAL REVENUE % change Fuel Staff costs Maintenance Airport charges Handling Sales Other TOTAL COSTS % change EBITDAR margin Depreciation Aircraft leasing EBIT margin Interest Expense Interest Income JV's & Associates Gains/(losses) on assets & other PRE-TAX PROFIT margin Tax (paid)/received Goodwill/other intangible write(down)/up Minority interest Other NET INCOME (to equity) margin EPS (basic) (€) EPS (diluted) (€) DPS (€) Source: J.6%) 381.6% 7.0) (1.20 0.0 546.6% 2.8% 2.6% (96.5% (976.29 0.104.0 472.05 0.0% 1.9 12.9 18.615.5% 1.2% 0.904.2% 4.725.3) (891.281.6) (14.0) (5.1 4.0% 4.226.3 16.0 692.1 3.350.0% 13.0) (427.6) 71.4) 4.0 0.2 1.1) (805.661.6% 2.0% 4.6% 79.6% 16.42) (0.8 2.203.3) 0.0 (777.0) (1.725.5) (1.5 3.0 0.com Europe Equity Research 29 September 2011 IAG Table 15: IAG Income Statement.0) (3.120.0 0.610.5) (768.3 13.6) 71.4% (1.1) (15.1) (4.2% (5.7 3.David Pitura (44-20) 7325-0369 david.991.00 2012E 2.0) 373.162.7 3.7 20.0 0.00 2010A (3.0 0.3) (1.7% (5.0) 84.0% 1.5) 3.0 13.9%) 3.3% (172.0 819.021.2) (1.829.0) (816.0 1.073.183.0 (161.0% 0.8 5.3 17.0 1.6) (970. Morgan estimates.2% 1.406.8) (929.0) (865.0 0.6 12.20 0.799.1 1.0) (3.0% (1.0 0.00 2011E 7.7% 2010A 12.0) 53.2) (3.7% 0.041 0.104.893.6% 2.176.20 0.8% 2.0 9.7) 575.149.7) (15.6) 935.0) (1.0 100.2) (856.0% 22.0 20.5% (5.6% n/a n/a n/a n/a n/a 2009A 11.00 2013E 3.4% 0.0% (5.6% 2011E 13.7 2.0% 2.

0 0.1 20.0 0.598.497.0 0 (1.0 5.0 0 (928.070.873.785.155.7 20.0 (71.4 152.4) (208.315.0 1.0 13.0 7.0) 4.0 0.0 5.785.com Europe Equity Research 29 September 2011 Table 16: IAG Cash flow Statement.0 0.0 2.945.315.0 4.0 0.0 1.0 6.5 1.0 6.0 0 (652.0 1.598.0 0.2 2.0 4.0 2.0 2.0 750.296.6 71.P.560.0 1.818.543.0 0.3) (208.0 537.0 0.0 (208.8 387.0 629.753.804.8 383.9 (4.285.955.912.2 2.1) 0.0 239.0) 5.0 490.0 0.225.7 239.844.0 629.1) 0.542.619.0 6.497.119.0 0.0 0.0 660.0 629.3 368.857.6) 0.8 1.c.670.054.2 4.012.0) (41.0 (4.9 239.818.0) 0.0 1.345.0 12.0 4.0 660.352.4 1.2 (4.0 6.719.7 (4.6) 0.0 2.166.0 0.0 0.945.176.7 (1.0 157.3 14.0 12.312.0 6.0 258.0 6.471.0 228.0 14.0 629.0 5.058.4 19.945.0 (4.598.119.5 383.0 157.9 2.945.0) 976.5 1.0 750.0 750.472.0 1.4 5.8 2.9 0.119.8 1. plant & equipment Goodwill/other intangibles Investments Other LONG-TERM ASSETS Inventories Trade & other receivables Cash & cash equivalents Securities Other CURRENT ASSETS TOTAL ASSETS Long-term debt Deferred tax liabilities Retirement benefit liabilities Provisions Other LONG-TERM LIABILITIES Short-term debt Trade & other payables Revenue in advance of carriage Other CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS Issued capital Retained earnings & other reserves Other equity SHAREHOLDERS EQUITY Minority interests TOTAL EQUITY Source: J.702.670.653.543.0 660.4 14.0 0.0 1.0 16.0 2011E 9.3 6.0 365.0 2011E 589.236.0 0.0 0.0 0.771.0 (188.0 1.0 3.0 3.0 4.0) (276.500.0 849.0 1.302.0 1.0 2.0 2.021.199.405.0 (208.0 0 (1.142.0 888.1 2.0 0.490.0 11.0 0 (557.0 4.543.0 0 (1.712.0 12.0 0.0 6.359.337.0 0. 2009A-2014E (Year to December) BALANCE SHEET (€m) Aircraft.0 7.0 1.6) 2013E 809.0 5.0) 2010A 225.0) 654.964.0 5.758.1 83.0 0.0 5.7 2.0 383.307.497.4) (208.0) 5.0 349.0 6. 2009A-2014E (Year to December CASH FLOW STATEMENT (€m) Operating Profit Depreciation/Amortisation Change in working capital Other CASH FROM OPERATING ACTIVITIES (CFO) Interest received Capex Asset sales Other Purchase/(sale) of securities CASH FROM INVESTING ACTIVITIES (CFI) Interest paid Capital issues (net) Dividends paid Increase/(decrease) in short-term debt Increase/(decrease) in long-term debt Other CASH FROM FINANCING ACTIVITIES (CFF) NET CASH FLOW Source: J.0) 1.4 71.560.0 2.038.0 0.9 1.0 7.0 330.6) 0.0 20.5 20.382.706.0 258.0 1.0) 4.702.0 0.0 321. Morgan estimates.0 2.093.646.6 2014E 935.945.0 0.857.0 2.315.019.8 1.0 4.0 537.832.7 (1.6) (307.202.357.6) 461.0 (208.207.485.946.0) 0.0 7.0 0.560.0 2.0 0.9 14.818.0 5.0 0.1) (208. 2009A 8.4 Table 17: IAG Balance sheet.0 0.560.160.0 1.6) 0.0 (208.0 134.949.405.0 660.5 345.0 1.3 0.250.2 21.0 5.0 (438.0 157.0 0.0 1.0 750.0 498.636.0 0.0 71.560.686.5 67.0 629.873.0 5.0 5.043.0 239.0 18.2 2012E 9.543.1 1.0 1.0 0.0 0.5 71.0 (134.0 3.170.0 847.0 6.315.0 1.818.pitura@jpmorgan.971.792.520.000.497.7 2012E 575.0 7.1 2.7 2.0 258.021.951.0 13.0 1.P.0 244. Morgan estimates.0 14.0 0.951.7 50 .David Pitura (44-20) 7325-0369 david.7 (1.2 239.0 13.0) 0.3 383.0 537.043.118.0 2.315.0 970.0 20.0 157.0 7.0 641.0 258.0 537.0) 0.4 169.0 0.0 1.224.1 2.9 5.497.663.0 2.198.253.940.818.9) 0.0 4.0 0.0 0.6) 480.481.3 4.0 660.0 1.6) 18.0 227.119.0 2.0) 3.0 0.0 157.0 0.0 258.0 750.0 0.5 354.418. 2009A (910.0 0.415.0 2.0 6.119.478.0 537.131.191.445.863.0) 6.7 (1.5 383.0 7.8 19.0 2013E 10.050.0 1.5 1.543.0 4.104.9 2014E 10. property.373.0 2010A 9.471.431.0 (323.4 0.

495.0% 2.0 0.2% 0.3% 2009A 15.051.7% 2012E 22.658.9) (6.2) 66.645.6% 19.775.181.0 1.P.0) (5.78 0.0 8.7 3.c.586.63 0.012.40 3.174.8) (200.863.0 2.0 22.0 2.0) 58.0 879.0 0.006.740.061.802.7) 7.5%) 3.767.4 5.0 451. 2006A 1.5% 121.1% 194.357.79 1.7) (6.9) (33.1) (6.0% 0.0) 10.456.755.0 1.0 1.0) (3.117.0) 130.5% 0.0 2.7% (2.2 6.0) (200.289.9% 4.396.0) (4.0 (374.8 1.1) (5.0) (26.6% 14.3 222.4%) 2.778.863.373.25 2008A 15.498.2%) 2010A 19.9 3.923.8% 109.2 1.377.7 1.0) 16.0 329.5 (570.0 8.4% 0.591.0 1.0 75.448.7 225.0 (461.0) (5.5 32.450.6% 2.4% 7.7% (1.0 355.5% 2.0 9.0 2.824.0 6.0 (555.0 2.6 1.7% 4.0) (1.930. Morgan estimates.762.0 1.4% 2.255.0) (4.0) (19.0) (1.3% 8.3% (1.0) 1.1%) 2011E 21.184.8 10.0) (6.3% (1.0 1.2% 2.869.00 2010A 12.457.324.794.204.60 2011E 8.794.0 3.2% 9.752.620.526.138.91 51 .093.0 2.6) 639.7 1.6 1.5 1.0 26.0 (87.0) 973.8% (4.9 (514.10 0.0) (4.204.2 (570.083.0 0.333.0 2.5) (5.756.283.012.2% 198.9% (1.5% (7.0 1.5% 2.0 (399.925.1) (29.6 2.4 2.3% (7.0) (6.886.3 35.6 1.1% (90.7 1.0 8.0) (23.0%) 8.4 6.4% (1.460.7% (7.779.0) (2.214.6% 107.582.2) (5.0) 1.6) 66.0) 503.0 1.0% 0.10 1.8% 7.3) 66.0% 147.5% 4.4% (4.140.303.0 149.2% 131.542.0 505.0 (398.0 2.2 29.844.0 23.99 0.280.2%) (8.4%) 1.9) (5.51 0.5% 5.0 12.0% 2014E 25.0) (22.022.557.9% 3.6%) (3.0) 710.666.6 1.551.2% 4.2% 9.0) 7.1% (3.886.6 2.0 10.0 (554.8% 178.1% 1.8) 878.6% 6.355.0 11.587.0 12.780.7% 0.6% (3.5 34.849.8) (7.0) (5.430.7% (1.0 1.0 10.0 5.0 732.055.3%) (0.029.409.825.9% (12.0 2.0 29.499.8% 1.8%) 112.3% (313.0% 7.367.000.420.0) (281.9% 3.0) 876.0 632.0 3.860.0% 216.2) (30.0 24.5% (5.3% 2.8% 11.9% (2.260.5% (1.247.499.51 0.544.923.9% (0.5% 2006A 12.0 1.0 5.724.105.0 19.3 3.0 2.pitura@jpmorgan.9) (201.0% 78.319.0) (3.8 9.563.515.7% 14.0) 94.65 0.5) (6.0 (506. 2006A-2014E (Year to December) TRAFFIC/CAPACITY Passenger capacity (ASK) Passenger traffic (RPK) Passenger load factor Passenger yield (per RPK) Cargo capacity (ATK) Cargo traffic (RTK) Cargo yield (per RTK) Total Unit cost (ex-fuel) (per ASK) Total Unit cost (per ASK) INCOME STATEMENT (€m) Passenger Cargo 3rd party maintenance Catering IT Services Other revenue TOTAL REVENUE % change Changes in Inventories Other Operating Income TOTAL OPERATING INCOME % change Fuel Staff costs Fees & charges Other materials & services Other TOTAL COSTS % change EBITDAR margin Depreciation Aircraft leasing EBIT margin Interest Income Interest Expense JV's & Associates Gains/(losses) on assets & other PRE-TAX PROFIT margin Tax (paid)/received Minority interest Other NET INCOME (to equity) margin EPS (basic) EPS (diluted) DPS (basic) Source: J.6) 1.0 2.804.2%) 2013E 23.1% 5.5) (7.0 0.0 6.0 1.772.4% (0.0 244.0 6.2% 77.482.0%) (7.0 0.0) (246.0 10.4 32.9% 2.7% 79.9 1.668.99 0.0 12.0 232.4% 79.046.0 1.7% (1.8% (356.5 5.443.842.6 3.285.0) (4.0 22.61 2014E 4.0 9.0 1.548.895.3% 207.3%) (0.3% 22.161.633.0) 305.8% 115.70 2009A 5.8 232.801.5) 5.243.0 (10.2) 66.9% 165.0 993.442.0 820.David Pitura (44-20) 7325-0369 david.6 2.2% 1.9 1.0 12.782.2% 3.4 4.79 0.0 4.9% 19.2% 3.3%) (4.849.0% 1.977.6 2.2 3.2%) (10.0 27.0 1.1% 78.9% (174.9%) 2007A 14.70 2007A 15.8) (205.0 0.0) (5.6% 5.8 3.0 0.0) 845.782.1% 177.9) (5.0) (32.4 2.0) (4.682.7% (7.0 751.8% (0.9% 2.082.870.65) (0.0) 10.4% (6.com Europe Equity Research 29 September 2011 Lufthansa Table 18: Lufthansa Income Statement.0 12.4%) (25.5% (1.3) 4.65) 0.6) (5.0 1.3) (5.687.0 24.8% 4.0) (4.5% 5.0) 13.0% 0.8% 0.0 0.8% 2.0) (3.379.7) 4.0 2.3 228.0 357.0) 105.070.0 (299.973.4 2.4% 1.2% 78.0) (3.0 503.0% (230.0 0.40 2013E 4.0 0.238.0) (4.743.78 0.0) (280.5%) (3.0 19.0 271.002.0 0.148.716.856.976.0 279.4) 7.0) (3.779.384.297.671.9) (207.0 281.2% 202.7) 7.475.3% (5.6% 165.0 (7.0) 11.5 2.0 22.818.7%) (0.313.0) (150.0% 119.433.0) (21.8 9.55 2012E 4.0% 77.608.8% (2.052.0 21.7% (138.0) 20.0) (5.9% (195.9 33.6%) 3.1 1.0 82.0 2.0 1.9% (3.402.1 2.0 13.7 37.0) (5.5% 0.5%) 2008A 16.0 0.2% 8.0 1.65 2.5%) 2.6% 181.5 30.0 1.702.461.082.38 1.589.0% 75.640.012.6) (6.0) 354.0 (371.158.683.0 1.4% 2.8 3.0%) 1.2% 77.0 3.043.9% 2.186.3%) 225.0 3.2) 9.0) (5.64 1.598.0 2.0 8.0) (4.4%) (0.0 232.378.9% 152.037.0) 104.589.0 4.

271.5 1.0 (313.780.8 2.287.0 131.0 643.340.249.0 600.0 1.1 2012E 329.049.814.0 1.5 2.058.0 11.0) (720.5) 2.1 3.0 0.009.0 (2.593.5 746.796.3 2008A 804.0 1.696. property.136.227.578.0 190.0 108.201.0 (85.0 (2.827.176.8) (235.3 2.2) 0.079.0 6.0 6.433.683.441.417.0 1.0 2.492.938.0 3.0 1.0) 0.3 2.0 2.0 7.0 254.0 4.0 6.4 3.613. 2006A-2014E (Year to December) BALANCE SHEET (€m) Aircraft.059.0 2.0 74.0 (1.0 (1.389.245.0) 48.0 618.9 700.0 1.0 0.185.0 0.0 1.0 10.0 3.0) 325.0 1.2 1.0 1.0) 15.6 407.287.091.0 1.0 2.0 (232.826.0 6.538.0) (274.0 643.693.593.0) 1.3 2.0 (251.0 17.242.075.227.0) (3.287.411.0 10.308.0 9.0 10.105.691.3 2.688.0 291.902.691.0 (1.0 (2.0 1.796.0 1.0 0.5 (57.0) (2.0) 1. 2006A 1.136.0 1.5 1.136.461.103.918.0 405.0) (196.0 (18.115.513.538.0) (5.594.0 710.9 2.0 457.0 6.0 105.3 2.268.0 1.0 12.574.4 21.868.579.708.0 19.161.059.0 (2.571.137.3 2.0 8.0 2.0 3.190.563.417.0 10.0 3.1 147.0 9.903.124.0 10.0 501.3 2011E 503.983.3 1.0 4.851.098.0 8.182.0 1.0 1.900.4) 0.4 21.0 3.180.0) (103.154.380.3 1.878.173.513.931.0) 4.0) (247.0) 542.0 1.430. 2006A-2014E (Year to December) CASH FLOW STATEMENT(€m) Profit before tax Net Interest Depreciation/Amortisation Change in working capital Other Tax CASH FROM OPERATING ACTIVITIES Interest received Capex Asset sales Other (Purchase)/sale of securities/fund investments (net) CASH FROM INVESTING ACTIVITIES Interest paid Capital issues (net) Dividends paid Increase/(decrease) in short-term debt Increase/(decrease) in long-term debt Other CASH FROM FINANCING ACTIVITIES NET CASH FLOW Foreign exchange differences/other Cash at the beginning of the period Cash at the end of the period TOTAL LIQUIDITY Source: J.079.0 1.006.109.864.0 4.0 1.8 78.4) 0.0 8.9 2.8) 0.546.8 (54.814.6) (173.0 1.0 227.0 (821.223.7 9.0) 0.0 63.5 (2.8 (75.439.320.538.0 0.0 473.0) 455.538.3 1.1 4.4 2.4 305.6 2.0 (2.0 (1.6 194.3 1.6 2.0 620.0 9.0 109.5 (256.308.3 700.0 (301.0 1.0 (400.0 1.0 6.0) (123.969.0 14.3 3.0 7.389.0 455.2) 0.0 2.9 2.483.903.0 (238.393.0) 33.0 1.073.0) 0. plant & equipment Goodwill/other intangibles Investments Other LONG-TERM ASSETS Inventories Trade & other receivables Cash & cash equivalents Securities Other CURRENT ASSETS TOTAL ASSETS Long-term debt Deferred tax liabilities Retirement benefit liabilities Provisions Other LONG-TERM LIABILITIES Short-term debt Trade & other payables Revenue in advance of carriage Other CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS Issued capital Retained earnings & other reserves Other equity SHAREHOLDERS EQUITY Minority interests TOTAL EQUITY Source: J.0 8.3 26.625.0 (595.0 5.428.7) 3.0 816.0 2014E 1.0 3.0) 0.271.959.6 Table 20: Lufthansa Balance sheet.0 11.3 131.0 (274.082.400.0 172.834.292.0) 0.9 126.0 8.0 4.0 4.3 2.0 700.0) 1.718.0 2012E 15.9 52 .0 1.911.1 464.0 8.0 (16.0 9.3 5.0 55.626.504.0 9.364.0 (2.287.2 305.3 3.570.823.0 579.0 2014E 17.0 364.408.0) (451.845.548.0 11.256.3 22.0 3.0 14.0 4.0 0.0 1.900.0 119.5 112.0 0.488.438.6 8.158.0 663.0 (361.9 957.193.0 (689.5 2013E 16.0 0.0 8.6 2.911.0 429.3) 0.227.0 74.379.991.0 1.0 84.4 4.144.7 2.145.0 (600.3 2.5 31.444.0 349.308.0 1.0 7.138.0 1.430.0) 96.3 291.2 661.5) 3.983.8) (570.0 2.0 2.800.0 643.325.911.097.0 643.9 8.0 305.0 11.202.0 8.0 20.0 (279.055.283.6 6.389.357.0 1.839.0) 6.389.0 (2.0 0.3 2.961.444.3 8.0 (45.0 367.4 2013E 632.776.0 2.629.7) 158.0 167.408.800.0 3.0 129.0 3.0 500.0 2007A 10.0 1.0 0.3 2.473.096.0) 2.7) 2.0 3.227.0 6.711.0 15.0 475.9 (21.193.499.0 3.0 (1.7 382.0 550.0 643.513.895.3 2007A 1.0 662.0 6.0 1.0 11.0 816.209.340.0 4.6 216.0) 0.0 749.6 4.538.3 4.0 2008A 11.2 1.0) (1.444.0 (345.045.0) 3.2 2.140.0 0.0 2.pitura@jpmorgan.0 20.0 2010A 14.461.0 8.0 10.513.0 357.149.538.906.0 761.com Europe Equity Research 29 September 2011 Table 19: Lufthansa Cash flow Statement.0 (401.3 2009A (134.8 30.7 (126.7 464.4 957.3 1.900.0 2009A 13.538.975.354.0 616.0 184.693.0 8.862.0) (713.571.9 (2.0 1.0) 0.097.138.3 6.0 816.6 2.0 (580.097.510.0 1.911.0) (821.873.0 0.531.0 8.389.0 4.0 21.0 1.P.2 354.0 2.776.David Pitura (44-20) 7325-0369 david.700.739.0 957.0 2.P.320.420.0 1.3 2.9) 182.076.538.0 2.079.3 2.392.629.9) (397.571.173.0 194.987.0 6.2) 0.6 22.0 247.349.798.0 (2.2 2.513.0 693.117.538.607.278.0) 2.0) 205.0 3.0 20.0 226.244.240.0) 511.6) 0.9 50.0 1.0) (110.0 548.897.0 646.0) 1.911.032.0 314.519.0 6.0 1.528.0 1.9 957.779.9 1.0) 2.870.241.0 112.0) (7.114.0) 0.0 98.1) (514.3 3.216.073.7 375.0) (36.4 30.0) (2.629.381.0 22.407.308.094.688.629.3 455.438.0 464.0 (1.0 581.0 2.083.3 22.538.c.570.3 6.0 7.755.710.0 1.0) 262.414.9 3.0 1.0 8.0 4.0) 64.0 511.0) (226.0 15.0 (183.0 (300.081.0 8.558.4 3.0 6.0 1.303.629.0 14.0 280.320.696.0 8.312.7 1.0 400.450.0 108.0) 0.0) 1.3 4.0 (844.2 674.0 816. 2006A 9.640.0 329.0 467.594.4 97.3 1.0 2011E 14.980.623.0 1.0 5.0 3.305.941.0 701.767.3 3.202.0 18.0 633.259.0) 8.2 (2.0) 0.0 2.571.0 605.2 30.0 (11.0 214.3 29.0) (281.733.7) 0.0 1.8 2.4 6.0 (2.275.0 (325.105.075. Morgan estimates.759.0 (333.0) 85.0 492.438.3 3.0 4.4 131.5) (570.3 2010A 978.147.283.0 1.4 4.878.8 21.287.0 1.150.0 5.0 (643.3 710.0) (123.0 8.0 1.0 1.5) (159.389.0) 0.693.800.3 2.3 957.0) 0.1 4.0 1.307.947.4 2.1 5.133.462.0 0. Morgan estimates.0 589.0 1.2) 0.103.963.0 (647.271.571.0 1.0 106.0) (554.0 816.6) 0.0 11.730.3 19.0 420.308.

9% 53.2) (147.5) 117.660.7) 180.2) (256.1) (1.5) (162.1) (278.7 8.3 3.1 10.5) (329.0% 2012E 2.0 129.4% 1.8p 19.1% 7.1% 11.6% (34.0% 11.742.0) 154.1% 8.4p 0.015.7) (291.4 (24.2 16.1) 270.2% 0.3p 2013E 4.8) (2.5 516.2p 9.9) (129.1%) 1.5p 2012E 3.0 4.2 (34.3) (3.4% 2.0 110.8) (116.4) (102.2) 18.2 11.9% 4.9) (161.4) (425.488.1p 8.5) (121.9 3.9%) (5.8 6.0% 8.0 269.5) 279.5 13.1) (461.1 795.5% 0.9) (141.4p 28.441.7) 121.619.3) (169.4% 2013E 3.9% 3.0) 83.0 0.5% 12.6p 53 .8 12.4 (47.1%) 5.6% 31.2% (78.9 11.7) (115.8) 0.0% (1.0 (7.598.3) (2.0 3.5% 1.0 6.6% (3.8% 298.2%) 15.4p 42.3 6.0 5.1 11.0 245.5% 225.9) (107.760.7p 0.9% 13.5) (402.402.3% 1.1% 7.1% (57.5) (231.8) (58.6p 35.5% (733.2) (342.6% 2010A 2.193.0) (1.6) (175.3 1.4) 0.0% 2011E 2.0p 2009A 1.0 11.2 1.8p 43.225.3% 396.1 (31.6) 0.5) (486.1) (456.0) (109.0) 0.6) (1.4) 304.9% (96.6p 0.c.9% (807.5 71.8) 188.626.2) (99.0% 10.0p 2010A 6.0%) (5.7) 208.8% 22.8) (804.2) 3.1 8.8% 23.4% 375.4% 2.4) (195.4 2.9% 1.2% (28.3 4.1) (82.9p 16.7% 6.6 (35.9% 83.6) 152.3% 87.1p 6.0 0.020.0 5.169.0% 3.6p 0.5% (708.2 4.2) 49.6 201.1) 0.pitura@jpmorgan.345.2% 36.2 8.6% 9.4) (366.2% (32.9 10.2) (98.0p 2011E 11.7p 43.6 743.9) 135.3% 35.6 6.3 14.3% 87.1% 2006A 1.0% 2.8 10.9 11.9% 10.4%) 2007A 1.2% 2.1 0.0 0.5) (189.7 2.499.2p 22.362.2) (81.3% 2.0 9.9% 13.5% (63.1) 6.9% 477.3 834.9) (1.2) (168.5% 19.5) (79.8 7.6% 54.4) (900.9) (176.5 (27.3 3.2% 4.6 (43.9) (110.0) (236.7% 11.5% 2.5) (2.0p 2008A 16.1 1.6) (737.5% 84.9% 2014E 3.2) (92.3% 11.7 367.5% 5.1 2.3 4.065.6% 4.0% 248.6) 186.7% (387.0% 6.2) (56.2) (3.2% (100.5 7.9) 13.5) (508.0) (952.6 5.9) 0.7% (1.1% (2.7) 0.973.3) (204.5% (46.401.335.5% 36.1 4.1% 28.9) (104.0% (35.5 17.0) (92.1% 16.194.6) (302.1 5.4) 0.542.4% (59.6% 4.7) (100.6p 31.4% 4.0 642.P.3 8.0 54.2% (49.7) (80.com Europe Equity Research 29 September 2011 easyJet Table 21: easyJet Income Statement.9 3.4 7.7% 449.5% 84.0 171.4 131.2 (38.7 20.6 10.7% (2.0% (425.9p 47. 2006A-2014E (Year to September) TRAFFIC/CAPACITY STATS Passenger capacity (seats) Passenger traffic (passengers) Passenger load factor Average fare Ancillary revenue per passenger Total Unit revenue (per seat) Total Unit cost (ex-fuel) (per seat) Total Unit cost (per seat) INCOME STATEMENT (£m) Passenger Ancillary revenue TOTAL REVENUE % change Fuel Staff costs Maintenance Ground operations Navigation Sales Other TOTAL COSTS % change EBITDAR margin Depreciation Aircraft leasing EBIT margin Interest Income Interest Expense JV's & Associates Gains/(losses) on assets & other PRE-TAX PROFIT margin Tax (paid)/received NET INCOME (to equity) margin EPS (basic) (p) EPS (diluted) (p) DPS(p) Source: J.4% 87.8) (182.2) (132.4% 35.8 4.7% 3.7% (27.5% 82.6% (78.3) 206.5% (3.8% 9.4% (1.4% (894.2% 278.4% 87.7% 43.995.0p 2007A 14.1) (116.0 0. 2006A 12.8% (42.1% 7.9% 2008A 1.6% 17.3% 509.999.0) 11.8 31.0 178.4) (232.4% 12.5) (609.6) (2.0 0.7 4.150.3% (60.7) (125.4) (3.David Pitura (44-20) 7325-0369 david.8 12.2) (157.666.0 12.2 7.952.1 (26.114.0p 0.152. Morgan estimates.7p 2014E 2.0% 2.7) 15.3% 2009A 2.3% 12.6) (81.5) 5.2 2.7% 16.7 571.6% (89.3) (80.0) (352.5% 43.4% 3.1) 94.9% 47.341.5) (221.4% 85.2 3.8) 13.797.1% 3.6) 0.3 2.7) 91.0) 172.2) 41.0% 87.0 247.9% 2.7% 19.

2006A-2014E (Year to September) BALANCE SHEET (£m) Aircraft.5 (212.986.863.0 473.6 1.635.7 413.9 1.3 (430.2 0.8 0.4 69.7 0.9 32.6 2.2 363.0 0.8 0.8 0.5 1.912.908.7 32.2 758.8 3.2 1.5 195.2 81.7 (34.5 0.com Europe Equity Research 29 September 2011 Table 22: easyJet Cash flow Statement.0 266.9 260.0 131.8 1.9 877.9 260.3 0.2 4.0 298.8 788.8 0.152.0 1.0 1.821.037.6 4.3 0.0 0.0 1.7 85.0 0.3 2. Morgan estimates.0) 0.1 28.0) 0.9 27.0 5.P.1 (4.9 1.7 127.123.1 0.0 0.8 (275.8 2014E 2.7 10.0 144.152.4 941.2 0.8 107.9 532.6 2.0 0.129.0 373.0 236.1 (29.817.7 0.7 0.6 750.0 73.0 107.796.508.5) 982.7 0.0 1.2 1.0 0.7 310.2 2011E 270.003.764.0) 0.5 (520.6 446.2 3.6 631.9 200.2) 0.5 1.040.2) 0.2 144.1 60.8 3.0 1.1 909.101.4 0.9 (115.067.9 928.4 738.9 0.9 1.4) 30.0 333.1 60.3 (300.7 0.687.0 1.355.2 0.4 478.8 1.4 2008A 1.062.437.6 1.0 89.0 144.9 0.2 1.0 144.5 1.6 35.9 185.0 0.5 1.796.0 0.4 0.500.3 29.8 237.0 108.0) 0.965.684.9 0.0 (314.0 148.2 79.0 148.635.5 558.8 0.8 0.2) 170.9 1.2 127.487.6 55.6 284.0 1.0 108.2 0.1 621.9 758.4 147.0 108.7 12.8 1.5 117.7 0.140.3 0.9 452.0 0.0 136.9 0.David Pitura (44-20) 7325-0369 david.0 200.687.7 0.4 2007A 152.1 2014E 304.0) 0.7 102.2 0.3 1.0 102.0 0.8 (35.5 461.0 241.1 0.500.3 0.303.278.3 1.0 76.0 1.307.415.514.2 230.0 (500.4 1.0 388.9 2.482.2 447.1 193.7 40.0 0.2) 225.1 2013E 279.9 2.7 2.0 982.1 60.0 (37.501.0 1.0) 0.0) 7.8 758.673.1 911.0 148. 2006A 695.5 1.3) 0.3 0.0 1.3 0.0 107.0 0.3 12.349.2) 0.8 414.P.0 1.1) 11.0 148.4 0.403.7 758.0 193.5 1.8 (400.3 860.8 1.0 107.8 452.9 741.0 1. property.6 212.3 758.3 221.036.0 (300.965.965.522.0 (11.076.6 0.5 2.0 364.1 60.0 0.3 2.0 172.7 2010A 173.0) 1.365.1) 270.3 (200.307.9 0.660.017.4 44.2 54 .8 311.7 1.9 127.8 1.2 745.095.8) 94.6) 0.0) 134.002.9 286. 2006A-2014E (Year to September) CASH FLOW STATEMENT (£m) Operating Profit Depreciation/Amortisation Change in working capital Net Interest Other CASH FROM OPERATING ACTIVITIES Capex Asset sales Other CASH FROM INVESTING ACTIVITIES (CFI) Capital issues (net) Dividends paid Increase/(decrease) in short-term debt Increase/(decrease) in long-term debt Other CASH FROM FINANCING ACTIVITIES (CFF) NET CASH FLOW Source: J.8 296.0 354.1 59.7 78.4 2.0 133.336.0 148.4 1.7 2011E 2.5) 3.6 247.4 0.c.928.7 1.206.5 1.6 (482.687.0 0.0 232.0 107.3 0.6 260.962.8 570.0 1.404.307.9) (130.pitura@jpmorgan.0 (2.9 0.5 0.5) 440.0 1.2 (408.1 452.9 1. 2006A 94.0) 0.6 719.3 165.2 0.4 0.4 3.7 653.2 452.0 93.0 108.4 0.0 5.5 100.1 1.2 108.9 2013E 2.2 0.500.8) 6.4 30.0 194.3 33.6) (4.8 56.0 0.2 103.3) 17.4 1.6 286.796.2 5.404.1 3.0 (400.4 1.064.9 0.516.6) (17.7 1.0 3.0 0.6 (33.1 742.0 71.3 0.219.7 2012E 208.9 0.0 200.3 (5.0 1.2 1.7 269.6 2.102.0 137.0 95.0 119.167.0 0.0 1.5 2.0 (200.3) (128.3 0.364.0 79.0 262.6 78.9 4.3 0.612.1 (23.2 2.3 3.3 2012E 2.4 0.3 748.4 (500.0 1.084.278.2 44.0 222.9 632.5) 0.423.0) 0.6) 0.7 982.7 260.0 213.3 66.0 223.0 333.8 0.417.2) 0.6 147.5) 2009A 60.6 440.167.278.0 (272.884.635.6 2.1 907.2 2.6) 2.4 828.0 62.5) 90.4 0.0 1.3 3.3 3.9 2007A 935.0 144.4 452.133.0 (27.877.9 260.0 160.6 1.1 509.0 1.0 107.152.365.087.0 272.177.8 61.0 (187.5 1.3 315.673.7 0.2 2009A 1.8 0. Morgan estimates.4 (9.2 (448.2 0.0 1.350.1 60.303.2 0.0 Table 23: easyJet Balance sheet.6 0.808.3 1.6 1.1 0.4 (482.0 168.3 2010A 1.0 24.7 0.4 5.166.9 694.702.0 144.6 (20.9 127.680.0 (417.9 1. plant & equipment Goodwill/other intangibles Investments Other LONG-TERM ASSETS Inventories Trade & other receivables Cash & cash equivalents Securities Other CURRENT ASSETS TOTAL ASSETS Long-term debt Deferred tax liabilities Retirement benefit liabilities Provisions Other LONG-TERM LIABILITIES Short-term debt Trade & other payables Revenue in advance of carriage Other CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS Issued capital Retained earnings & other reserves Other equity SHAREHOLDERS EQUITY Minority interests TOTAL EQUITY Source: J.5 127.673.8 114.3 34.5 1.499.0 108.0 96.0 0.2) 2008A 83.190.8 1.6 1.6) (23.0 244.

6% (893.5) (58.9) (564.5% 3.David Pitura (44-20) 7325-0369 david.0% (64.8% 11.7% 2012E 3.3) (139.7 14.3%) (10.3% 0.8 4.25 0.807.6 12.5) 402. 2007A 23.36 0.9 991. 2007A-2015E (Year to March) TRAFFIC/CAPACITY STATS Passenger capacity (seats) Passenger traffic (passengers) Passenger load factor Average fare Ancillary revenue per passenger Total Unit revenue (per passenger) Total Unit cost (ex-fuel) (per passenger) Total Unit cost (per passenger) INCOME STATEMENT (€m) Passenger Ancillary revenue TOTAL REVENUE % change Fuel Staff costs Maintenance Airports Navigation Other TOTAL COSTS % change EBITDAR margin Depreciation Aircraft leasing EBIT margin Interest Income Interest Expense Gains/(losses) on assets & other PRE-TAX PROFIT margin Tax (paid)/received Goodwill/other intangible write(down)/up Minority interest Other NET INCOME (to equity) margin EPS (basic) EPS (diluted) DPS (basic) Source: J.0) 438.1) (85.1) (309.00 2015E 0.123.4% 2.0 375.0% 1.0 (82.26 0.6) (2.4% 3.1% 884.5) 0.2) (128.9% 2.0 20.0% 82.2) (413.0 354.5) 0.1) 1.2 (92.0 14.3% (791.6) (117.5 1.0 435.0 417.00 2011A 8.0 (97.6) (87.4) 499.8% 82.5% 5.6 19.226.3 12.5) (93.6 5.5 663.8 21.942.3% (8.5% (5.0 712.0% 0.3) (56.255.1 22.343.025.5) (218.9 18.4% 427.2) 0.5) (6.2) 516.0 (169.8 10.0 586.4) 0.9) 0.4 24.5 11.4% 12. Morgan estimates.5% 0.7 10.0 (108.1%) 11.713.1) (85.6 2.9) (113.5) (3.6) (42.0% (279.1 19.0 0.9) (490.257.0 8.4% (273.8% 2009A 2.2) (0.6 3.5) 36.com Europe Equity Research 29 September 2011 Ryanair Table 24: Ryanair Income Statement.0% 14.9% (35.4 13.4) 661.6% (0.1 2.6 11.5% (235.1 4.5% 2.5) (510.5% (256.315.0% 82.4%) (20.8% 5.4) (286.7) (433.0 0.0) (3.827.7 21.2% 22.7) 537.8% 5.006.1 2.9) (0.4) (87.2% (693.5) (528.734.26 0.3) (226.9) (410.0 10.0% 81.0 0.2% (51.236.0% 0.4% (257.5 12.9) (2.9 16.5% 2.016.3) (285.1% 75.4) 0.1) 0.8) 451.1) 23.4% 12.00 2008A 19.0 24.5% 2.28 0.0) (104.3% 0.4% 12.2 2.870.3% 8.26 0.6% 0.5) (151.0 390.11) 0.43 0.9% 15.2) 471.6 958.2% 8.9 801.0 0.4) 0.8) (2.1% 2.5% (1.4 9.5) (119.5) 305.34 2014E 1.0 0.1%) 13.2) (5.4%) 6.0 0.00 55 .013.5 (72.0%) 2014E 3.6% 82.21 0.2% 27.5% 0.9%) 12.1) (184.7 21.25 0.6) (151.1 13.928.0) (86.8) (83.4% 6.190.4% 0.7) (1.2% 0.9 14.5% 1.324.692.8) (443.895.0 0.0 0.P.5 (130.0 0.6 15.1 2.0% 30.7% 2013E 3.0% 2011A 2.0 0.2) 0.3 10.1% (143.5% 673.3 13.6 12.1% 2015E 4.0 422.0 634.2 14.7 488.6 10.8% 82.0 (121.4) (95.21 0.3) (66.0) (273.2) (466.4% (307.0 521.2% (15.28 0.8 4.5% 9.0) 543.2% 11.5% 7.2% (12.0 0.0 (26.9 32.5% 938.4% 82.6) 18.0) (459.43 0.6% 1.3) (187.9% 0.00 2013E 5.8% 84.0% (2.0 0.6) (523.874.2% (48.6) (445.1%) 2010A 2.5% 65.26 0.3% 785.1) (178.1) (78.9% 2008A 2.988.4 (128.0 22.6) (199.7 29.001.580.1) (165.4% (49.3% 13.2) 92.0 468.0) 30.9) (335.8%) (0.34 2012E 4.8) (454.0% (175.0 (13.1% 63.515.0% 11.6% 2007A 1.225.5 (131.9% (301.6%) (6.5% 3.745.0 0.0 0.5% (1.3%) 733.3) (259.252.11) (0.5 21.6 3.1) (180.1) (1.0% 5.3 0.3% (2.6% 19.1 1.1) 778.6% 44.00 2009A 16.7) (593.5% 23.2 4.36 0.9) 4.6) (3.9% (0.6) 450.7) 17.1) 1.1) (541.0%) 8.5% (1.6% 1.018.1) 374.0% (46.903.3% 82.0 0.7) (371.4% (1.563.8 362.4% 12.9 598.1) (10.7% 884.0) (95.pitura@jpmorgan.7) (396.9) (72.00 2010A 12.0% 82.998.4 875.1) (336.0% 4.2% (78.28 0.6 15.895.629.3) (144.0% 2.0 0.4) 0.4 30.6) (3.7% 0.7) 0.7%) (0.9 8.3% 7.1) 21.c.7%) (2.5) 0.5% 53.6% (0.28 0.0% 0.3) (581.

4 (500.224.9 307.3 2.3 333.768.0 23.8 311.0 3.0 0.6 141.8 125.6 847. property.0 23.2 104.0 100.5 44.0 710.539.P.001.0 0.899.117.4 1.0 (495.3 3.1 916.9 861.9 172.3 2010A 341.0) 0.1) (4.953.0 23.4) 854.8 125.6 2.9) 0.6 (8.0 23.424.9 13.0 4.038.827.0) 314.2 (640.9 3.4 70.844.8 669.0 279.8 46.0 (937.3 46.502.3 4.785.0 160.7 96.337.4 982.0 3.0 6.2 Table 26: Ryanair Balance sheet.187.pitura@jpmorgan.8 716.2 0.230.1 46.0 3.9 46.4 46.6 0.7 53.0 0.0 6.5 72.0 3.5 1.3 3.0 (31.5 3.642.127.7 257. 2007A-2015E (Year to March) BALANCE SHEET (€m) Aircraft.8 22.0 2.5 641.6) 14.063.8 114.466.848.733.4 333.0 557.9 96.360.0) 0.9 4.583.0) 0.2 (0.563.0 (400.0 0.6 2.6 235.1 41.4 68.8 0.526.9 76.379.3 (997.1 0.7 30.1 333.5 2.827.5) 112.4 2.5) 55.8 1.396.4) 0.1 (2.0 2.425.0 5.1) 150.8 669.4 2.9 5.370.0 34.367.2) 11. 2007A 2.0 0.0 63.5 550. 2007A 451.9 2012E 5.7 178.0 929.0 466.887.8 1.4 (1.1 0.3 3.3 2014E 586.3 2009A (180.9 1.315.9 65.403.2 (444.0 2.0 788.4 2.0 0.0 131.0 23.1 1.884.683.9 65.357.367.644.0) (134.6 267.0 1.4) 211.595.7 880.9 0.425.4 2.1 625.9 5.0 3.1 2.7 2015E 712.8 2014E 5.403.0 58.905.0 4.6 479.David Pitura (44-20) 7325-0369 david.367.0 423.4 0.4 1.0 (46.8 125.6 4.0 0.8 83.0 1.033.0 4.0 100.470.0 115.9 134.6 2011E 4.954.4 245.2 41.553.126.246.4 1.543.4 1.2) 0.1 9.0 2.3 1.7 50.2 46.206.8) 0.0 921.4 23.9 0.6 202.5) (308.628.3 5.246.9 2013E 422.8 125.9 3.8 1.7 11.0 96.0) 4.268.8 0.1 2010A 4.5 0.151.3 2.5 0.2) 0.582.8 116.5 9.8 2.315.000.6 0.7 4.9 5.0 0.3 0.9 1.0 500. Morgan estimates.284.3 3.310.0 2.0 3.0 (466.538.048.557.0 3.8 617.8 47. Morgan estimates.2 60.0 184.8 114.7 (105.7 44.1 2.7 199.8 1.0) (108.8 1.367.0 256.396.6 0.2 4.0 (221.0 0.9 134.0 5.8 2.500.2 366.0 16.1 3.6) (128.0 147.953.396.409.8 2.215.387.367.4 887.691.8 175.4 77.0 (500.6 354.242.4 249.8 406.940.0 0.0 404.1 46.4 1.0 2.0 0.0) 0.7 20.777.790.415.0 277.7 10.1 175.0 19.0 3.5) (1.5 (663.5 669.0 400.8 80.0) (121.8 0.8 114.9) 0.387.0 (28.5 261.0 0.0 6.5) (1.3 4.2 0.7 669.0 669.072.4 2012E 468.768.0 6.com Europe Equity Research 29 September 2011 Table 25: Ryanair Cash Flow Statement.3 2.0 0.0 (46.1 89.690.0 0.045.7 2.2 3.5) (90.9 134.477.0 2.396.3 (702.4 29.6 78.346.0 (500.933.3) 0.0 4.9 627.9 124.0 6.5 0.3) 2011E 420.558.4 301.502.6 102.9) 2.9 65.9 96.118.2 22.3 1.856.0 94.9 31.9 4.P.4 1.9 5.0 2.8) (72.403.8 1.3 2.8 1.0) 836.9 5.6 313.2 2009A 3.354.314.6) 2008A 438.0) (80.9 4.8 0.7 87.1 2.714.8) 89.3 3.848.8 2008A 3.095.0 499.8 1.9 134.8 125.827.768.2 1.8 93.8 0.0) (291.4 1.396.4 (123.0 6.0 3.9 2013E 5.0 4.962.0 28.539.5 (100.4) 0.5 8.4 16.284.4 3.6 3.5 155.0 0.9 1.0 0.3) (96.7 170.827.0 48.4) 0.0 391.5 333.3 1.2 1.8 2.958.9 5.5) (131.5 (897.8 (7.7 148.370.8 114.247.246.7 0.8 3.815.0 3.c.9 143.370.539.6 410.827.4 3.0) (44.8 2.165. plant & equipment Goodwill/other intangibles Investments Other LONG-TERM ASSETS Inventories Trade & other receivables Cash & cash equivalents Other CURRENT ASSETS TOTAL ASSETS Long-term debt Deferred tax liabilities Provisions Other LONG-TERM LIABILITIES Short-term debt Trade & other payables Other CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS Issued capital Retained earnings & other reserves Other equity SHAREHOLDERS EQUITY Minority interests TOTAL EQUITY Source: J.1 46.0 3.7 1.8 2.0 0.8 (609.1 96.4 (100.7 46.0) 0.1 44.4 (92.801.583.9 0.8 4.2 17.6 2015E 4.577.815.0 0.6 0.2) 959.0 (356.6 2.0 (34.4 137.848. 2007A-2015E (Year to March) CASH FLOW STATEMENT (€m) Profit before tax Net Interest Depreciation/Amortisation Change in working capital Other CASH FROM OPERATING ACTIVITIES (CFO) Interest received Capex Asset sales Other CASH FROM INVESTING ACTIVITIES (CFI) Interest paid Capital issues (net) Dividends paid Increase/(decrease) in short-term debt Increase/(decrease) in long-term debt Other CASH FROM FINANCING ACTIVITIES (CFF) NET CASH FLOW Source: J.099.0 2.3 2.3 75.875.815.7 3.2 265.701.6) 0.7 3.0) 0.1 2.3 7.0 3.477.8 114.0 2.953.028.549.1 761.323.3 0.9 134.1 151.0 6.195.502.3 65.0 2.4 1.2 3.6) 27.1 56 .024.825.2 1.3 1.1 0.3 333.9 1.327.

9 2.2% 13.5 2.540.0% 3.7 FY12E EBITDAR margin 5.858.0% 7.3% 12.2 279.688.8 2.4) (1.0% 7.6) (261.342.0% 18.0%) (4.2 4.0%) (5.009.4) (648.4 2.548.1% 14.214.008.0% 3.407.8 4.0% 5.7 3.0% 1.6 1.246.9 4.119.6 1.731.1 FY12E Cash % of sales 1.576.379.0% 1.827.6 1.2 1.5 FY11E Cash % of sales 7.6% 6.c.8% Table 28: Air France-KLM earnings/balance sheet sensitivity to passenger yield changes.450.9% 12.2% 4.0% 8.8 1.630.0% 10.3% 19.2 4.188.9 2.5 3.0%) (6.0 488.749.922.6% 11.0% 7.672.0%) (4.3% 12.900.9 3.5 5.2% 16.262.1 867.5 3.8 1.3% 11.8) (459.3 FY12E Cash/cash equivalents (€m) 420.1) (1.217.162.1) 99.1% FY11E Net Cash Flow (€m) (1. 2012E FY12E Passenger yield (% yoy) (6. Morgan estimates.7% 13.David Pitura (44-20) 7325-0369 david.2 2.5 459.391.598.879.0% 4.114.130.0%) (3.9) (1.6% 9.488.0% 6.5% 15.0% Source: J.9% 8.5) (1.0 820.583.480.6 5.5 3.0 4.1 2.3% 7.7% 12.0%) (2.4% 15.9% 5.5 3.4 299.9) (838.6% 9.4 2.8 FY11E EBITDAR margin 4.0%) 0.0% 10.7% 21.0 4.027.1 2.7% 11.8 790.2% 7.937.7 3.1% 4.4% 11.1% 15.9 2.269.5 1.1% 7.4% 15.0% 12.7 1.5% 7.1% 9.5% 20.0% 9.071.9% 57 .8 2.2 1.4 1.348.436.305.157.7) (80.9% 13.1% 15.6 2. FY12E EBITDAR (€m) 1.6% 13.com Europe Equity Research 29 September 2011 Sensitivity analysis Air France-KLM Table 27: Air France-KLM earnings/balance sheet sensitivity to passenger yield changes.909.0 1.810.7 3.7 3.3 1.6% 13.3) (269.3 1.647. Morgan estimates.5% 14.089.5 FY11E Cash/cash equivalents (€m) 1.530.7 3.0%) (2.0 3.1 2.3 5.351.299.0% 8.0% 2.3% 9.5 678.310.523. FY11E EBITDAR (€m) 949.2% 7.991.729.033.3% 10.0 2.9 3.7% 6.9% 8.0% 4.7 640.8) (441.2 2.0% 5.160.6% 9.660.pitura@jpmorgan.7% 6.1) (621.3 3.1) 109.7% 3.0% 2.8% 10.3 3.228.968.0%) (3.7 1.118.269.0%) 0.2 1.0%) (1.4 3.853.2 1.P.3) (81.395.4 2.7% 8.P.0%) (1.171.2% 13.491.639.9% 14.3 4.703.2 3.7% 17.4% 11.9% 10.966.0%) (5.6) (982.756.497.9 2.6 2.4% 9.0% Source: J.0% 6.7% FY12E Net Cash Flow (€m) (1.368.8% 14.1 3.4 3.1) (1.1% 11.6% 16.4) (802.057.2 2. 2011E FY11E Passenger yield (% yoy) (7.774.000.

9% 3.3) (1.344.9% 1.7% 3.3% 12.7 2.5% 13.0% 15.4% 29.1% 9.3 2.145.1% 14.7 4.pitura@jpmorgan.065.5 4.084.5 935.7% 6.1 4.167.158.2 4.436.7% 13.4 2.269.3 3.0 3.8% FY11E Net Cash Flow (€m) (368.8 3.4%) (6.2 4.5 2.365.0% 29.4% 58 .8% 14.294.3 335.544.2 4.4% 15. 2013E FY13E Passenger yield (% yoy) (7.4% 9.228.130.766.4 4. FY11E EBITDAR (€m) 880.735.332.5 1.0) (465.5 5.1% 13.2% 7.1 2.144.com Europe Equity Research 29 September 2011 Table 29: Air France-KLM earnings/balance sheet sensitivity to passenger yield changes.7% 6.5% 11.9% 28.4% 8.125.7 1.4 735.544.5 669.4 1.824.0 4.3 535.1%) (2.9 3.087.6 1.1%) (0.144.2% 9.8% 31.4 2.4 1.945.1 876.368.4%) (3.2% FY13E Net Cash Flow (€m) (1.3 4.983.4%) (5.6 1.967.6 5.1) (665. Morgan estimates.7% Source: J.6% 16.9) (64.9 3.5% 7.3 2.5% 27.1% 31.745.963.6 2.9% 8.2% 16.917.1 357.3 773.5 4.3 1.9% 12.8% 12.191.8) 135.944.744.8% 26.8 2.2 4.9 3.7 565.4% 30.763.991.4% 9.6 3.575.4%) (0.5% 11.9 461.540.565.7% 10.8 1.5 2.2% 13.744.502.4%) (4.135.1% 30.813.4 2. FY13E EBITDAR (€m) 1.David Pitura (44-20) 7325-0369 david.8) (161.0 1.436.408.2% 11.9% 11.713.9% 6.0% 15.9 1.0) (264.4 FY13E Cash % of sales 7.709.9 2.398.535.P.9 4.265.1 1.2 1.0% 9.970.c.1%) (1.963.7% 1.3 1.7 FY11E EBITDAR margin 5.6% 27.P.8 1.9 5.0 2.769. Morgan estimates.4%) (1.1% 9.9% Source: J.0% 7.2% 16.9% 7.568.8% 15.1% 27.2 FY13E EBITDAR margin 6.2 FY11E Cash/cash equivalents (€m) 3.5 150.745.1 2.9 4.2 FY11E Cash % of sales 25.4% 14.0) (57.3 254.3 4.547. 2011E FY11E Passenger yield (% yoy) (3.188.345.019.4 5.9% 9.4%) (2.371.0% 7.562.7% 8.5% 11.852.9% 4.2) (865.9% 5.7 3.5% 13.164.2% 26.7% 4.5 1.6 1.4%) 0.6 3.7% 8.7% 7.8% 10.0% 12.6 2.1 4.606.8% IAG Table 30 IAG earnings/balance sheet sensitivity to passenger yield changes.6) (264.335.9 FY13E Cash/cash equivalents (€m) 1.6% 29.297.7% 30.7 1.8 4.8% 10.9 980.344.686.4 2.3 5.2% 28.2% 11.021.944.8% 14.0 3.7% 2.572.1 5.545.6% 16.5% 16.9% 10.6 2.4% 15.7% 5.170.2) 46.1%) 0.9% 2.

5% 27.5% 6.2% 12.6 4.064.877.pitura@jpmorgan.6 489.2% 8.9 2.7 1.4% 9.9) (419.2% 22.5% 7.8% 9.407.0) 18.171.642.5% 9.729.4% 14.1% 25.0%) (1.176.9 3.7 3.1% 26.1% 23. FY13E EBITDAR (€m) 1.0%) (0.5 2.326.5%) (0.1 2.0%) (3.5% 3.9% (1. Morgan estimates.0% 8.625.5% Source: J.7% 25.818.5%) (4.506.5% 5.0% FY13E Net Cash Flow (€m) (922.5%) (3.6% 10. 878.3 253.1 4.3) 27.0% 24.126.724.524.841.0 250.1 5.1 1.0% 12.913.9% 15.7 5.8% 11.924.6% 26.8% 27.0 5.028.3) (216.5%) (2.3 3.4% 22.857.3 2.372.700.8 4.119.113.5%) (1.177.9% 28.8 724.P.8% 25.5) (865.8% 14.1 2.3% 16.2% 21.487.5 4.7 2.3 1.070.282.283.2% 14.P.2) (307.5% 24.0%) (4.7% 26.476.385.5 4.3% 18. 2012E (5.4% 11.3% 25.7 1.701.227.542.4 4.6) (195.4 1.4% 23.5% 4.970.9 2.230.0%) (2.3% 13.3% 24.0% 6.054.671.0% 3.0% 9.223.836.760.7 362.2% 27.995.2 4.5 2.0% 5.9) (754.2 606.3 5.171.0 3.7 4.2) (569.2) (642.6) (451.1 FY13E EBITDAR margin 6.0%) 1.0 1.3 3.9 1.2% 16.8% 24.8 4.3 2.617.394.0% 16. 2013E FY13E Passenger yield (% yoy) (6.0% 10.6% 23.2 3.348.5) (804.947.5% 6.6) (99.6 136.2 3.0% 7.820.0 4.0% Source: J.7% Table 32: IAG earnings/balance sheet sensitivity to passenger yield changes.9) (84.7 22.755.952.1 4. Morgan estimates.612.3% 7.0% 8.7% 7.089.5% 26.4 5.8) (1.059.7% 17.1 1.6 3.5 4.5 2.6% 15.5% 8.200.3% 28.287.073.7% 22.289.5% 8.c.8 4.5 1.0% 26.5 842.5 3.4% 26.0% 2.2% 10.598.1 4.5% 2.com Europe Equity Research 29 September 2011 Table 31: IAG earnings/balance sheet sensitivity to passenger yield changes.6 5.2% 27.8 4.014.329.4% 24.1 FY13E Cash/cash equivalents (€m) 3.2 FY13E Cash % of sales 21.5%) 0.2) (977.172.0%) (5.1% 13.David Pitura (44-20) 7325-0369 david.9% 27.522.8 1.2 4.2 1.9 3.5) (530.9) (334.9 3.4 4.9 2.9% 23.7% 13.5 3.0% 4.7 1.6% 59 .583.440.7 2.5% 1.8 4.9 371.8) (687.4 139.1 2.775.6% 16.936.6% 12.6 5.4 474.

781.9% 11.5% 7.8% 7.162.7 1.692.0% 11.5% 5.5% Source: J.4 3.0% FY11E Net Cash Flow (€m) (1.419.2% 12.3 4.1) (922.8% 16.5%) (6.9% 11.8 309.807.365.7 479.623.9) (46.2% 6.9% 15.931.4 2.7) 128. Morgan estimates.131.5 6.3% 17.510.6% 8.5 FY12E Cash/cash equivalents (€m) 2.875.326.6 3.5% 2.0) (599.144.420.279.8% 1.036.4 5.2% 18.352.8 1.5% 12.237.3 2.946.1% 3.8% 6.9% 15.3 1.107.329.0 FY12E EBITDAR margin 3.3 2.8% 8.3%) (2.5) (1.8 3.296.4% 10.0) (1.5%) (3.9 4.9% 9.511.0 2.1% 6.4 3.2% 12.8% Source: J.5) (962.034.1% 19.859.147.647.5%) (5.584.9 4.0% 14.3%) 0.7 FY11E Cash % of sales 12.3% 10.457.684.158.3 2.3%) (0.1 3.2) (417.513. Morgan estimates.7 3.8) (1.3% 13.6 4.4% 15.863. FY11E EBITDAR (€m) 1.8 1.0% 9.2 4. 2012E FY12E Passenger yield (% yoy) (7.8% 16.0 5.783.6) (572.348.0% 13. 2011E FY11E Passenger yield (% yoy) (5.4% 14.689.2% 8.pitura@jpmorgan.8 2.729.7 4.0% 12.7) (1.7 4.0) (1.874.3 3.David Pitura (44-20) 7325-0369 david.5%) 0.209.9 2.4% 15.P.3 3.3 673.121.7) (781.7 4.5%) (1.4 1.047.3%) (4.0) 127.669.8% 4.2 3.c.743.238.9 5.5% 13.8 5.5% 3.997.5% 8.9 3.3 6.448.5% 1.7 4.4 4.3%) (1.3 1.901.7) (54.8% 13.6 5.2) (221.9% 10.3 3.6% 5.5%) (0.056.4 FY11E Cash/cash equivalents (€m) 3.5% 6.6% 19.816.5% 4.1 2.0 4.2 FY11E EBITDAR margin 4.564.P.508.7% 10.0 654.4) (397.2 5.9% 14.6 3.2 4.438.8% 2.133.9% 7.5% FY12E Net Cash Flow (€m) (1.5%) (4.5% 19.7% 60 .5% 14.5% 6.3%) (3. FY12E EBITDAR (€m) 889.1 5.5 303.2 829.5%) (2.0 854.1 3.602.8 1.8% 7.8 2.693.098.7 FY12E Cash % of sales 9.965.756.8% 4.6% 12.3% 9.3) (1.4% 14.9% Table 34: Lufthansa earnings/balance sheet sensitivity to passenger yield changes.206.799.8) (747.8 4.5) (235.581.080.3% 9.8% 3.1% 4.4 5.3% 16.8% 9.8% 17.273.056.333.3% 11.7% 18.214.3) (1.9 3.974.8% 5.6% 10.9 3.3% 6.3 1.5 491.8% 5.983.8% 13.3% 16.4% 14.com Europe Equity Research 29 September 2011 Lufthansa Table 33: Lufthansa earnings/balance sheet sensitivity to passenger yield changes.0 1.8 3.430.282.632.6% 12.5 4.8 3.379.6 2.8% 13.508.3 4.

5% 10.5% 14.5 3.8 FY13E EBITDAR margin 4.2 1.9% 11.262.2 398.0% 8.141.7 2.3) (159.284.8%) 0.6% 7.4 170.0% 10.0% 11.1) (345.951.8% 13.937.0 4.4 212.0%) (3.3% 1.137.4% 9.437.3 1.0% 6.4) 26.323.6% 11.7 1.224.8 221.0%) (2.3% 6.7 2.7 243.3% 7.1 195. FY11E PBT (£m) 41.9% 39.202.958.0%) 0.8 221.2 272.460.4 FY13E Cash/cash equivalents (€m) 1.5 1.3% 5.8 1.0) (1.1 FY11E Cash % of sales 38.547.0% 10.0%) (1.2 2.9 769.9 4.0% 7.3% Source: J.7 144.3% 10.6% 4.671.0 118.3% 9.0% 41.5 1.9 2.1 3.438.4 331.481.6) (902.646.0%) (4.8% 43.3% 4.0 FY11E PBT margin 1.6% 41.2 3.2% 38.327.8%) (0. Morgan estimates.0% 40.6 324.623.694.8%) (3.3% 8.6% 8.0% Source: J.0% 9.218.9% 8.3% 12.066.5 247.0% 9.3% 8.160.3% 41.8%) (1.1 1.0 3.8 1.0% 2.9 4. Morgan estimates.415.2 2.809.426.9 177.468.405.7% 5.6 265.240.6 4.9% 3.3 1.738.1% 2.com Europe Equity Research 29 September 2011 Table 35: Lufthansa earnings/balance sheet sensitivity to passenger yield changes.3 93.pitura@jpmorgan.0% 8.c.5 3.9 199.0 1. FY13E EBITDAR (€m) 1.9% 7.5% 6.9% 12.995.713.3 427.4% 11.3% 3.7) (716.9) (531.503.5 1.7 955. 2011E FY11E Passenger yield (% yoy) (4.1 134.0%) (5.0 155.2 3.181.692.4 353.305.367.4% 12.3% 11.459.3% 9.3% 2.5 4.3% 2.0% 5.4 2.3 3.8 FY13E Cash % of sales 6.0% 4.8 2.5 309.2% FY13E Net Cash Flow (€m) (1.3% 11.650.6 1.6% 40.508.2 112.552.8 3.2% 6.P.447.0% 3.7% easyJet Table 36: easyJet earnings/balance sheet sensitivity to passenger yield changes.5% 10.5 1.2 1.3% 10.6% 41.088.8%) (2.0 375.2) (1.7% 10.8% 6.7 401.5% 42.181.6% 9.0% 9.9 298.3% 6.1 1.2% 42.4 1.0% 4.9 1.2 FY11E Cash/cash equivalents (£m) 1.8 1.1% 61 .1 583.9% 13.894.4) (1.3% 40.8 3. 2013E FY13E Passenger yield (% yoy) (6.274.4 2.1% 5.393.9% 42.1 4.0% 1.3 350.3 375.7% 12.525.3% 13.880.252.David Pitura (44-20) 7325-0369 david.371.3 4.1 1.349.6 3.3% 39.P.9% FY11E Net Cash Flow (£m) 46.9% 7.2 90.4% 7.3 68.7 67.0 2.6 287.6% 38.3 4.4% 5.915.

3 426.5% 38. Morgan estimates.P.2% 4.6 215.1% 40.7 199.9 FY12E Cash % of sales 35.4% 39.8 206.P.690.4 456.309.793.0% 36.1 344.8% 9.7 1.2 416.3% 8.1 1.587.1) (107.664.2 1.5 1.5 314.5% 37.7% 42.8%) (0.510.9 1.6% 3.3% 3.5 155.4) (14.5 152.2 178.8% 7.8% 38.819.0% 2.8% 40.5% 10.2 339.3 95.1 1.262.8 1.5% 3.3% 5.1% 4.9 306.com Europe Equity Research 29 September 2011 Table 37: easyJet earnings/balance sheet sensitivity to passenger yield changes.5) (83. 2012E FY12E Passenger yield (% yoy) (3.8% 9.2 95.9) (60.4 1.498.4 237.9% 43.3 1.0%) (1.1 57.3% 1.1 175.1% 38.0 336.5 1.404.3% 11.0%) (3. FY12E PBT (£m) (42.9 40.9 1.844.7 372.1 262.451.David Pitura (44-20) 7325-0369 david.1% 39.356.1 1.8 275.1% 41.3% 9.1% 39.7 FY13E Cash % of sales 38.4% 6.5 34.1 35.5 1.2% 43.2 1.5% 8.1 1.2% 6.6% 42.485.c.7 81.0 1.5 FY13E PBT margin 0.6 1.1% 0.767.4% 4.5 1.3% Source: J.0% 9.639.4% Table 38: easyJet earnings/balance sheet sensitivity to passenger yield changes.5 234.9 FY13E Cash/cash equivalents (£m) 1.9% 2.5 185.0% 8.286.4% 36.0% 5.1 185.592.8 1.5% 39.1% 1.238.5% 6.474.8% 39.4% FY12E Net Cash Flow (£m) (154.3 FY12E Cash/cash equivalents (£m) 1.8% 40.3% 42.0% 7.1% 40.7% 36.3% 10.8) 12.8 211.459.0% Source: J.8 123.0% 1.4 FY12E PBT margin (1.5 151.3 83.427.1 261.4%) 0.7% 2.8 288.0% 3.562.2% 8.1 1.5 68.380.716.4 160.9% 1.4% 1.2 396.0%) (2.741.2%) (0.4 317.545.1% 6.3) (36.7% 5.3 1.8 289.1% 37.2 65.7 1.9 1.4% 41.9 365. FY13E PBT (£m) 5.5 391.0% 6.5% 8.8% 7.8%) (2. Morgan estimates.0 108.2% 8.8% FY13E Net Cash Flow (£m) 31.1% 10.9 1.9 1.7 1.5% 62 .0% 10.1 366.6 1.613.522.3% 35.3% 2.4 125.8% 5.3 1.0%) 0.9 128.7 57.569.8% 41.3 104.7% 39.3% 4.8%) (1.7) (131.0% 4.4% 40.0%) (4.536.pitura@jpmorgan.0% 42.3% 7.3% 6.3 1.5 1.1) 10. 2013E FY13E Passenger yield (% yoy) (5.7 245.7 134.8% 37.333.8%) 0.7) (13.0% 4.

3 469.9% 1.206.2 2.9 109.3 2.6 40.2% 6.5 2.5% 10.830.5 521.1 2.3 904.5% 9.2 FY13E Cash % of sales (1.0 600.732.5% 11.5% 5.2% 18.5%) (0.David Pitura (44-20) 7325-0369 david.8% 7.c.6% 9.172.4 495.5 188.9% 3.7 876.1 847.847.4% 10.796.5 279.4% 3.1 177.4 3.8 532.3 3.7 347.675.864.9 251.9% 6.4% 8.9 407.5% 8.5% 6.8% 18.001.137.7% 8.8 381.8% 14. 2012E FY12E Passenger yield (% yoy) 4.0 143.2 FY12E Net Income margin 5.0% FY13E Net Cash Flow (€m) (61.8% 4.8% 7.1% 14.7 2.762.1% 12.8% Source: J.9% 6.5% 12.9% 11.3 338.875.618.9 2.pitura@jpmorgan.8 74. Morgan estimates.3% 15.7% 19.8% 10.728.9 417.6% 2.5% 9.8% 11.8 2.9% 5.7 233.7 547.7 390.5% 7.5 500.1 FY12E Cash/cash equivalents (€m) 2.2 618.0 2.5 962.5 3.5 344.2 157.2 2.7% FY12E Net Cash Flow (€m) 533.5% 11.4 2.589.4%) (0.1 282.8 2.0 2.6 590.240.6 313.5% 7.4% 21.6 2.790.0% 11.P.2% 7.5% 17.4 2.5% 5.069.7 3.5 819.4 676.1 450.5% 3.990.8% 19.899.1% 17.3% 20.5% 13.9% 21.647.1 2.561.8 260.9 790.6 2.933.5%) 0.8% 13.8% 6.8% 9.2 211.5% 14.0 286.9% 16.5% 12.904.7 219.9 933.8% 5.6% 18.3 FY12E Cash % of sales 13.P.9 574.8% 8.1% 0.0 563.7% 15.0 3.3 313.2 312.6 3.5% 6.com Europe Equity Research 29 September 2011 Ryanair Table 39: Ryanair earnings/balance sheet sensitivity to passenger yield changes. FY13E Net Income (€m) 126.8% 15.5% Source: J.0 443.9 416. 2013E FY13E Passenger yield (% yoy) (1.8% 17.0% 10.6% 12.5% 4. Morgan estimates. FY12E Net Income (€m) 207.8% 9.8% 16.7 2.1% 3.3% 5.0 2.5% 1.4% 10.1 3.0 561.6%) 0.967.8 2.5% 2.3 245.8% 10.2% 9.7 375.9% Table 40: Ryanair earnings/balance sheet sensitivity to passenger yield changes.3% 19.1% 13.2% 5.1% 7.0% 8.035.6% 13.3 761.5% 4.961.5) 6.8% 12.8% 20.8 647.103.761.0 704.9 2.9 3.4 FY13E Net Income margin 2.5% 7.5 364.1% 63 .818.4 2.933.2 469.2 594.1 438.2% 4.6) (27.704.6 733.3% 8.8% 8.2 FY13E Cash/cash equivalents (€m) 2.7 2.

5 1.2 286.1 3.5% 5.6% 14.5%) (2.5% 6.5% 4.3 588.525.2% 12.9 744.2% 6.819.038.6 723.8% 12.9 FY14E Cash/cash equivalents (€m) 3.5 671.2 4.8% 20.8% 17.5% 1.9% 15.599.672.6 781.9% 13.3 3.5 421.1 597.8 320.4 561. Morgan estimates.5% 9.3 FY14E Cash % of sales 11.4% 13.635.562.3% 14.1 454.966.0% 13.2% 16.074.709.7 891.5% 3.0% 64 .001.8 1.6 3. 2014E FY14E Passenger yield (% yoy) (5.9 387.8% 5.8 634.5 3.856.0 689.5% 12.5%) 0.5% Source: J.David Pitura (44-20) 7325-0369 david.5 3.3 818.076.5% 8.0 3.4% 10.6% 14.4 928.8 3.1% FY14E Net Cash Flow (€m) 524.9 622.8 555.8% 9.4% 21.3% 11.5% 8.746.2% 8.6% 16.2 3.4 3.5%) (1.002.929.1 964.5% 6.2 FY14E Net Income margin 4.1% 18.7 3.6 4.039.782.2 521.3% 19.892.7% 11.9% 7.5%) (3.2 1.6 488. FY14E Net Income (€m) 219.0% 10.7% 19.5%) (4.5%) (0.P.5% 7.com Europe Equity Research 29 September 2011 Table 41: Ryanair earnings/balance sheet sensitivity to passenger yield changes.9 3.9 4.8 3.3 353.2 707.pitura@jpmorgan.c.5% 18.0 854.5% 2.6 253.5 656.

(2) Data prior to 2005 is for Air France only.0x 5.0x 6. (2) 2009/2010 data is for IAG for the fiscal years ending December).0x 4.0x 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EV/EBITDAR (High) EV/EBITDAR (Low) Source: J.0x EV/EBITDAR EV/DFV 6.P. (*Note: (1) Data prior to 2010 is for the fiscal years ending March.0x 7.0x 13. Figure 69: Lufthansa EV/DFV*. Morgan estimates. 2000-2010 15. 2000-2010 12. Morgan estimates. (*Note: (1) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values & depreciated to the average age of the fleet 65 .0x 10.P. J. J. 2000-2010 250% 200% Figure 68: IAG* EV/EBITDAR.0x 5.0x 4.P. Morgan estimates.com Europe Equity Research 29 September 2011 Historical trading ranges/Returns analysis Figure 65: Air France-KLM EV/DFV*. Morgan estimates. (2) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values & depreciated to the average age of the fleet Source: J.0x EV/EBITDAR 8.P. J.0x 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EV/EBITDAR (High) EV/EBITDAR (Low) EV/EBITDAR (Average) Source: ASCEND.0x 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EV/EBITDAR (High) EV/EBITDAR (Low) EV/EBITDAR (Average) EV/DFV 150% 100% 50% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EV/DFV (High) EV/DFV (Average) EV/DFV (Low) Source: ASCEND.0x EV/EBITDAR 11.0x 9.P.c. (*Note: (1) Data prior to 2010 is for the fiscal years ending March. Figure 67: IAG* EV/DFV*. Morgan estimates.0x 3.0x 7. 2000-2010 8. (2) Data prior to 2005 is for Air France only).0x 3.David Pitura (44-20) 7325-0369 david.pitura@jpmorgan. (*Note: (1) Data prior to 2009 is for British Airways only for the fiscal years ending March. Morgan estimates. 2000-2010 135% 125% 115% 105% 95% 85% 75% 65% 55% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EV/DFV (High) EV/DFV (Average) EV/DFV (Low) Figure 66: Air France-KLM EV/EBITDAR. (*Note: (1) Data prior to 2009 is for British Airways only for the fiscal years to March.0x EV/DFV 130% 110% 90% 70% 50% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EV/DFV (High) EV/DFV (Average) EV/DFV (Low) 2. 2000-2010 170% 150% Figure 70: Lufthansa EV/EBITDAR. (3) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values & depreciated to the average age of the fleet Source: J.P. EV/EBITDAR (Average) Source: ASCEND.

0% 8.0% 14.0% 7. (3) Data is for Lufthansa Airline group.0% RoIC 15.0% 5. 66 2010 2013E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 .0% 20.0% 9.P. (1) Data is for Lufthansa Airline group.P.P. Figure 75: Lufthansa RoIC*.0% 7. (1) RoIC is defined as EBITDAR/DFV. defined as Lufthansa Passenger Airlines & Lufthansa Cargo). Figure 73: IAG* RoIC*.0% 6. (1) RoIC is defined as EBITDAR/DFV.P. (2) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values and depreciated to the average age of the fleet using standard depreciation methodologies.c. (4) Data prior to 2005 is for Air France only Source: J. 2000-2013E 15.0% 9.0% 10.0% 14.0% 5. (1) RoIC is defined as EBITDAR/DFV.0% 0. (3) Data prior to 2010 is for the fiscal years ending March. 2000-2013E 40% 35% 30% 25% RoIC 20% 15% 10% 5% 0% 2011E 2012E 2013E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Figure 74: AIG* EBITDAR margin.0% 13.0% 11. Morgan estimates. (2) 2009/2010 data is for IAG for the fiscal years ending December. 2000-2013E 17. Morgan estimates. (1) Data prior to 2009 is for British Airways only for the fiscal years to March.0% 22.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 EBITDAR margin 20. 2000-2010 25.pitura@jpmorgan.0% 15. (3) Data prior to 2009 is for British Airways only for the fiscal years to March.com Europe Equity Research 29 September 2011 Figure 71: Air France-KLM RoIC*.0% 12.P.P. Morgan estimates.0% 16. 2000-2013E 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2013E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: J.David Pitura (44-20) 7325-0369 david. (3) 2009/2010 data is for IAG for the fiscal years ending December Source: J. Source: J. Morgan estimates.0% 12.0% EBITDAR margin RoIC 2011E 2011E 2012E 2012E Source: J. Morgan estimates. defined as Lufthansa Passenger Airlines & Lufthansa Cargo).0% 10. (2) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values and depreciated to the average age of the fleet using standard depreciation methodologies.0% 24.0% 2011E 2012E 2013E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Figure 72: Air France-KLM* EBITDAR margin.0% Figure 76: Lufthansa EBITDAR margin. (2) Data prior to 2005 is for Air France only.0% 18. 2000-2013E 28.0% 11.0% EBITDAR margin 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: J.0% 10. Morgan estimates. (1) Data prior to 2010 is for the fiscal years ending March.0% 13.0% 26. (2) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values and depreciated to the average age of the fleet using standard depreciation methodologies.

0x 3.0% RoIC 20.P. Morgan estimates. (*Note: (1) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values & depreciated to the average age of the fleet Source: J.0% 15.0x 7.0% 2011E 2012E 2013E 67 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: J.c. Morgan estimates. 2000-2010 40. 2010 . Source: J.0x 5.David Pitura (44-20) 7325-0369 david. Morgan estimates.P.0% 10. 2003-2010 250% 200% Figure 78: easyJet EV/EBITDAR.0% 10. Morgan estimates.0% 0.0% 0.com Europe Equity Research 29 September 2011 Figure 77: easyJet EV/DFV*. (1) RoIC is defined as EBITDAR/DFV.0x 9.0% 35.0% 5.0% 30. 2003-2010 15.P.0% 15.0% 5.0% 25. 2000-2013E 25.pitura@jpmorgan. J. (2) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values and depreciated to the average age of the fleet using standard depreciation methodologies).0x 2003 2004 2005 2006 2007 2008 2009 2010 EV/EBITDAR (High) EV/EBITDAR (Low) EV/EBITDAR (Average) EV/DFV (High) EV/DFV (Average) EV/DFV (Low) Source: ASCEND.0x EV/EBITDAR 2003 2004 2005 2006 2007 2008 2009 2010 EV/DFV 150% 100% 50% 0% 11.0% EBITDAR margin 20.P. Figure 79: easyJet RoIC*.0% 2011E 2012E 2013E 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Figure 80: easyJet EBITDAR margin.0x 13.

Morgan estimates.0x 5. Morgan estimates.c.P.0x 0. 2001-2011 1000% Figure 82: RyanairEV/EBITDAR.P.0x EV/DFV 600% 400% 200% 0% EV/EBITDAR 800% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 EV/DFV (High) EV/DFV (Average) EV/DFV (Low) EV/EBITDAR (High) EV/EBITDAR (Low) Source: J. 2000-2013E 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 Source: ASCEND. Figure 83: Ryanair RoIC*.com Europe Equity Research 29 September 2011 Figure 81: Ryanair EV/DFV*. J. 68 EBITDAR margin RoIC 2011 . 2003-2010 25. Source: J. Morgan estimates. (*Note: (1) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values & depreciated to the average age of the fleet.pitura@jpmorgan. J.P. 2001-2011 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Figure 84: Ryanair EBITDAR margin.0x 10.0x 15.0x 20.P. (*Note: (1) Depreciated Fleet Value (DFV) is the value of the fleet using standard aircraft values & depreciated to the average age of the fleet. EV/EBITDAR (Average) Source: ASCEND. Morgan estimates.David Pitura (44-20) 7325-0369 david.

69 . This is then discounted to determine our September 2012 price target. or a dilutive rights issue. using a WACC 7. better than expected passenger or cargo pricing. further taxes on air travel. a better than expected economic environment. and other geo-political risks. lower than expected capex. faster than expected cost cutting. a significant drop in the price of jet fuel or carbon permits.00) We use an EV/EBITDAR multiple set against two-year forward forecasts of EBITDAR to derive an implied EV. compared with historical returns. General airline risks include war. Depreciated Fleet Value is the value of an airlines fleet using a 40% discount to list prices depreciated down to the average age of airlines fleet. equity stakes or dividends to calculate an implied equity value. Risks to Our View : Specific factors that would undermine our Underweight recommendation include the relative outperformance of non-premium traffic compared to premium.pitura@jpmorgan. and historical trading ranges. From this we subtract net debt .com Europe Equity Research 29 September 2011 Valuation Methodology and Risks Air France-KLM (Underweight Price Target: €6.c. We calculate RoIC as EBITDAR/Depreciated Fleet Value. lower capacity growth than expected from either Air FranceKLM.David Pitura (44-20) 7325-0369 david. minority interests. We use the same depreciation method for all the airlines (straight line over 20 years to a 10% residual value) to avoid any differences in depreciation policies. fiscal crises in European countries. or competitors.3%. environmental factors such as volcanic eruptions that affect air travel. pension deficits. and add any tax losses. The multiple we use is calculated with reference to two year forecast Return on Invested Capital (RoIC). terrorism.

a significant downturn in the profitability of financial services firms or banks.3% . compared with historical returns.com Europe Equity Research 29 September 2011 IAG (Overweight Price Target: €2. The multiple we use is calculated with reference to two year forecast Return on Invested Capital (RoIC). environmental factors such as volcanic eruptions that affect air travel. further taxes on air travel. a worse than expected recession in 2012 that is not specific to the Eurozone. and add any tax losses. terrorism. This is then discounted to determine our September 2012 price target. The multiple we use is calculated with reference to two year forecast Return on Invested Capital (RoIC). compared with historical returns. Depreciated Fleet Value is the value of an airlines fleet using a 40% discount to list prices depreciated down to the average age of airlines fleet. Risks to Our View : Specific factors that would undermine our Overweight recommendation include the relative underperformance of premium traffic compared to non-premium. We calculate RoIC as EBITDAR/Depreciated Fleet Value. terrorism. using a WACC 5. minority interests. equity stakes or dividends to calculate an implied equity value. and add any tax losses. fiscal crises in European countries.c. a worse than expected economic environment. General airline risks include war.30) Valuation Methodolgy : We use an EV/EBITDAR multiple set against two-year forward forecasts of EBITDAR to derive an implied EV. better than expected passenger or cargo pricing. a significant drop in the price of jet fuel or carbon permits. slower than expected cost cutting. and other geo-political risks. Lufthansa (Neutral Price Target: €11.pitura@jpmorgan. lower than expected capex. faster than expected capacity growth from either IAG or competitors. fiscal crises in European countries. pension deficits. This is then discounted to determine our September 2012 price target. using a WACC 7. slower than expected capacity growth from either the Lufthansa Group airlines or competitors. pension deficits. or earnings dilutive M&A.9% Risks to Our View : Specific risks that would undermine our Neutral recommendation include the relative out-performance of non-premium traffic compared to premium traffic. From this we subtract net debt . The multiple we use is calculated with reference to two year forecast Return on Invested Capital (RoIC). higher than expected capex. equity stakes or dividends to calculate an implied equity value. a spike in the price of jet fuel or carbon permits.David Pitura (44-20) 7325-0369 david. earnings dilutive M&A. environmental factors such as volcanic eruptions that affect air travel. General airline risks include war. and other geo-political risks. and historical trading ranges. worse than expected passenger or cargo pricing. and historical trading ranges we calculate RoIC as EBITDAR/Depreciated Fleet Value.80) Valuation Methodolgy : We use an EV/EBITDAR multiple set against two-year forward forecasts of EBITDAR to derive an implied EV. We use the same depreciation method for all the airlines (straight line over 20 years to a 10% residual value) to avoid any differences in depreciation policies From this we subtract net debt . slower/lower than expected synergies from the BA/Iberia merger or Joint Business Agreement with American Airlines. We calculate RoIC as the EBITDAR of the whole group against the gross value of group fixed assets including capitalizing its aircraft leases and adding back any goodwill previously written down. Depreciated Fleet Value is the value of an 70 . further taxes on air travel. minority interests. easyJet (Underweight Price Target: 362p) Valuation Methodolgy : We use an EV/EBITDAR multiple set against two-year forward forecasts of EBITDAR to derive an implied EV. including a recession in 2012 that is not specific to the Eurozone.

c. terrorism. General airline risks include war. From this we subtract net debt . This is then discounted to determine our September 2012 price target.pitura@jpmorgan. a better than expected economic environment. and add any tax losses. environmental factors such as volcanic eruptions that affect air travel. using a WACC 6.60) Valuation Methodology: We use an EV/EBITDAR multiple set against two-year forward forecasts of EBITDAR to derive an implied EV. further taxes on air travel. We use the same depreciation method for all the airlines (straight line over 20 years to a 10% residual value) to avoid any differences in depreciation policies. fiscal crises in European countries. pension deficits. and other geo-political risks. We use the same depreciation method for all the airlines (straight line over 20 years to a 10% residual value) to avoid any differences in depreciation policies. using a WACC 6. General airline risks include war. Depreciated Fleet Value is the value of an airlines fleet using a 40% discount to list prices depreciated down to the average age of airlines fleet. equity stakes or dividends to calculate an implied equity value. fiscal crises in European countries. pension deficits. or weakening of the US dollar vs. and add any tax losses. faster than expected capacity growth either from Ryanair or competitors. Ryanair (Neutral Price Target: €3. a weakening of the US dollar versus the Euro.com Europe Equity Research 29 September 2011 airlines fleet using a 40% discount to list prices depreciated down to the average age of airlines fleet.8% Risks to Our View : Specific risks that would undermine our Underweight rating include better than expected traffic or revenue performance. This is then discounted to determine our September 2012 price target.David Pitura (44-20) 7325-0369 david. environmental factors such as volcanic eruptions that affect air travel. 71 . equity stakes or dividends to calculate an implied equity value. a significant drop in the price of jet fuel or carbon permits. From this we subtract net debt .8% Risks to Our View : Specific risks that would undermine our Neutral rating include better than expected traffic or revenue performance. minority interests. a worse than expected economic environment. We calculate RoIC as EBITDAR/Depreciated Fleet Value. slower than expected capacity growth from either easyJet or competitors. minority interests. a significant drop in the price of jet fuel or carbon permits. further taxes on air travel. terrorism. compared with historical returns. and other geo-political risks. the Euro. and historical trading ranges. The multiple we use is calculated with reference to two year forecast Return on Invested Capital (RoIC).

698 1.9 0.c.5% 0.2 4.497 4.2% Liabilities Interest coverage (x) (13.David Pitura (44-20) 7325-0369 david.0%) (21.5% 5.9 Total current liabilities 5.m) .4% Shareholders' equity 3.5% -146.7% -3.913 6.7% 4.6% 3.0% 3.0% 2.0% Net fixed assets .058 1.382 6.406 14.P.(1.00 % Change Y/Y (147.497 ROE (%) -20. 72 .1% 2.198 19.043 5.1%) 51.0 3.2% (3.9% LT investments 134 157 157 157 157 Sales growth (%) 6.4% Free cash flow (276) 1.0%) Other 0 0 0 0 0 Net Income (Reported) % change Y/Y .2% Balance sheet Ratio Analysis € in millions.9% 13.pitura@jpmorgan.497 4.7% 10.170 4.9% 12.479 6.5% -107.2 5.9%) 273.050 5.00 0.0 0.20 0.Attributable net profit growth (%) Total assets 16.7 0.215 EBIT (801) 373 589 575 809 % Change Y/Y 6.0 0.5% 5. year end Dec FY09 FY10 FY11E FY12E FY13E € in millions.952 ROIC/WACC -0.158 % Change Y/Y -92.4) 2.946 1.844 5.8 0. year end Dec FY09 FY10 FY11E FY12E FY13E Cash and cash equivalent 1.0% 16.42 0.7% 4.670 5.158 84 473 458 693 Disposals/(purchase) % change Y/Y -187.520 ROIC (%) -0.5 0.063 3.873 4.8 3.1% 51.1%) (112.Ending debt 1.063 3.0%) 0. year end Dec FY09 FY10 FY11E FY12E FY13E € in millions.199 Operating margin (%) NM 2.4 0.373 18.Change in working capital & Other (323) 244 67 84 152 EBITDA (basic) 175 1.946 1.7% 9.5% 9.3 4.063 3.731 16.3% 4.6% 12.155 14.022 1.176 Gross Margin (%) .4 Long term debt 4.783 2.4 Others 365 537 537 537 537 Sales/assets (x) 0. year end Dec FY09 FY10 FY11E FY12E FY13E Revenues 13.9% Taxes 22 6 (99) (96) (146) EBIT (801) 373 589 575 809 Capex .5 4.1% 7.1% 3. €) -0.2% 5.254 1.3% EBITDA Margin (%) 1.9% 12. Morgan estimates.337 6.398 1.0% -2.9%) 19.000) (1.8% Net Interest 0 0 (137) (137) (137) EBIT Margin (%) -6.6% (1.497 4. gross) 0.3 0.142 1.6% 9.454 1.7 0.500 13.20 0.679 1.9% 15.5% 3.093 1.com Europe Equity Research 29 September 2011 IAG: Summary of Financials Profit and Loss Statement Cash flow statement € in millions.9 ST loans 847 750 750 750 750 Effective Interest Rate (IS) (%) Payables 4.9 0.00 0.8 BVPS (€) Source: Company reports and J.8 0.00 0.5% 40.3% 9.857) % Change Y/Y -163.965 EBITDA margin (%) 1.753 FCF margin (%) (2.949 14.1%) 9.2% 698.1%) 51. declared.603 17.5% 9.2% Total liabilities 12.0% 5.702 Assets/Equity (%) 4.619 19.871 3.986 Cash flow from operations (189) 1.965 EPS (Reported.9% Accounts Receivables 849 970 1.104 1.7% 10.297 14.792 2.1%) (112.471 1.6% 3.8 0.05 0.3% 462.063 ROCE (%) -12.0%) (21.345 599 (171) 155 Net Interest income/(expense) (60) (148) (137) (137) (137) Earnings before tax -1.254 1.019 4.00 0.663 6.3% 5.352 6. basic.792 2.2% (3.6% 9.312 6.6 3.0% Depreciation & amortization 976 1.6% 58.131 6.472 EPS growth (%) (147.7% 9.29 DPS (€.415 Net debt /EBITDA (x) 2.857) (1.Beginning debt Shares Outstanding (Av.0% (21.2% 18.5% 3.9%) 273.611 1.471 1.4% 6.3% 4.2% Other liabilities 2.4% Inventories 321 330 346 355 369 Net margin (%) Others 641 660 660 660 660 EBIT margin on Incremental Sales (%) Current assets 5.702 20.192 5.2% 4.7% 9.405 5.2% Equity raised/repaid 0 0 0 Tax (charge) 381 16 (99) (96) (146) Dividends paid 0 0 0 Tax as a % of PBT (32.3% 9.350 18.

Beginning debt Shares Outstanding (Av.566 25.5 0.3% 1.048 2.3% 4.4% 189.4%) 0.672 28.2 Long term debt 7.8%) (307. declared.740 1.836 8.254 Cash flow from operations 857 1.836 8.5% 1.771 7.0 Total current liabilities 11.584 Gross Margin (%) .6 BVPS (€) Source: Company reports and J. year end Dec FY09 FY10 FY11E FY12E FY13E € in millions.1% 2.6 1.476 20.146 6.m) .811 Effective Interest Rate (IS) (%) Payables 1.98 -1.225 Assets/Equity (%) 5.6% -2.9% 2.com Europe Equity Research 29 September 2011 Air France-KLM: Summary of Financials Profit and Loss Statement Cash flow statement € in millions.5% Inventories 527 579 560 567 580 Net margin (%) Others 1.3% 7.445) (320) 112 294 704 Net Interest income/(expense) (100) (371) (373) (375) (368) Earnings before tax -1.0% -2266.8 0.7% Total liabilities 22.864 8.9% 2.811 1.David Pitura (44-20) 7325-0369 david.0 4.3% 4.345 EPS (Reported.0%) (31.7 4.8% 5.9 1.7% Shareholders' equity 5.887 1.8% (31.922 10.4%) Balance sheet Ratio Analysis € in millions.9% Net Interest (148) (280) (373) (375) (368) EBIT Margin (%) -0.600) (1.7% -1.1% NM 0.535 1.3% 0.Attributable net profit growth (%) Total assets 28.836 8.743 1.33 0.666 27.466 3. year end Dec FY09 FY10 FY11E FY12E FY13E € in millions.3% 4.5 2.038 1.43 -0.500) (1.1% 8.00 0.3 4.4%) Liabilities Interest coverage (x) (1.619 1.5% Equity raised/repaid 1 0 0 0 0 Tax (charge) 439 275 161 44 (94) Dividends paid (177) (2) 0 0 0 Tax as a % of PBT (36.676 7.4% 4.8%) (307.2%) (76.3% 4.928 2.963 6.4% Net fixed assets .3) 0.618 26.00 % Change Y/Y (204.8 ST loans 1.7% 5.4% -72.500 6.5% 0.606 1.351 3.1 3.P.5%) (246.833 2.123 EPS growth (%) (204.868 5.7% -399.0%) (135.2) 0.602 1.9 0.353 1.69 DPS (€.345 EBITDA margin (%) 6.6 0.4 0.904 21.2 4.2% 11.0 3.600) % Change Y/Y -109. 73 .4% 1.1% Other liabilities 2.Change in working capital & Other 296 (154) 44 (22) (35) EBITDA (basic) 1.6 0.875 1.2% 7. €) -2.090 3.7% 5.5%) (246.5% Free cash flow (1.534 20.6% LT investments 446 431 431 431 431 Sales growth (%) -0.351 3.7 Others 7.743 1.601 6.00 0.236 Sales/assets (x) 0.956 2.204 24 -520 -143 302 Disposals/(purchase) % change Y/Y -204.76 0.1 (0.275 7.0 4.034 27.4% 4.5% 19.811 1.4% 23.706 ROIC/WACC 0.4% -310.8 0.466 3.00 0.744 EBIT (129) 28 (84) 231 670 % Change Y/Y -0.453 7.307 % Change Y/Y -51.072 10.0%) (135.178 Net debt /EBITDA (x) 3.811 1.3% 7.0% 6.780 1.1% -6.6% -2.090 3.010 3.108 9.4% Depreciation & amortization 1.5% 3.743 1.062 6.475 1.836 ROE (%) -14.1% -0.5% -1.00 0.0%) (31. Morgan estimates.057 ROIC (%) 3.042 Operating margin (%) NM 0.032 6.893 2.743 EBIT margin on Incremental Sales (%) Current assets 7.114 2. year end Dec FY09 FY10 FY11E FY12E FY13E Revenues 23. gross) 0.4% Taxes 89 (26) 5 1 (3) EBIT (129) 28 (84) 231 670 Capex (2.170 430 430 430 430 ROCE (%) 2.574) (1.391) (1.604 1.2% 7.0% EBITDA Margin (%) 6.754 20.pitura@jpmorgan.010 3.614 1.c.0% 6.0%) Other (240) (71) 0 0 0 Net Income (Reported) % change Y/Y .4% Accounts Receivables 2.8% 4.1% 8.268 7.709 FCF margin (%) (6.317 24.0%) (1.491 28.975 23.0% -102.3% 4.2%) (76.Ending debt 3.3% -6. year end Dec FY09 FY10 FY11E FY12E FY13E Cash and cash equivalent 3.280 1.8% -375.5%) 1145.642 1.1% -121.702 9. basic.1% 3.

9% 4.408 10.6% -34.174 FCF margin (%) (2.800) % Change Y/Y -89.2% 9.2% 9.2% 3.5%) (27.2%) (506.1% Taxes 48 (110) (75) (58) (127) EBIT 130 876 878 639 974 Capex (2.708 1.320 30.8% 573.5 Long term debt 6.6% 3.767 EPS growth (%) (159.P.6 0.056 30.3% Shareholders' equity 6.097 700 464 305 EBITDA margin (%) 7.pitura@jpmorgan.227 5.700) (2.5% 4.9% 10.227 6.5%) (35.c.881 4.136 1.0% 8.696 10.7% 0.980 21.6% EBITDA Margin (%) 7.1% Accounts Receivables 3.8% 6.5%) (27.074 ROIC (%) 3.4% -829.6% 17.978 5. declared.444 1.5% 59.571 4.109 6.3% Net Interest (67) (137) (354) (376) (407) EBIT Margin (%) 0.9 1.9% (27.0%) (70. year end Dec FY09 FY10 FY11E FY12E FY13E € in millions.2% 9.136 1.781 32.2% 52.9% LT investments 1.5 1.1 Total current liabilities 8.9% 0.0 1.55 0.028 2.5 3.9% -4.452 2.749) (1.7 1.com Europe Equity Research 29 September 2011 Lufthansa: Summary of Financials Profit and Loss Statement Cash flow statement € in millions.0% 8.202 8.356 2.595 2.2% Other liabilities 2.3% -27.676 4. 74 .349) (2.3% 22. gross) 0.6% 8.796 4.2%) 94.712 11.3 3. year end Dec FY09 FY10 FY11E FY12E FY13E € in millions.059 Net debt /EBITDA (x) 1.780 1.61 % Change Y/Y (159.6% 3.7%) 0.190 20.499 ROCE (%) -0.6%) 2.392 29.579 9.5% 91.283 27.4% 9.209 Operating margin (%) 0.776 9.4% 3.6% 4.625 21.136 1.Change in working capital & Other 129 475 78 50 (22) EBITDA (basic) 1.David Pitura (44-20) 7325-0369 david.8% Depreciation & amortization 1.6% Liabilities Interest coverage (x) 0.827 ROE (%) -4.605 2.896 2.0% Inventories 646 662 661 674 711 Net margin (%) Others 473 816 816 816 816 EBIT margin on Incremental Sales (%) Current assets 8.666 30.2%) 94.777 5. year end Dec FY09 FY10 FY11E FY12E FY13E Cash and cash equivalent 1.8% 6.535 2.097 700 464 305 EPS (Reported.Beginning debt 1.201 1.379 30.7 0.683 3.354) 0 600 550 Net Income (Reported) % change Y/Y .4% 10.2%) (506.4% 9.5 2.Ending debt 1.6% 3.0% 2.870 EBIT 130 876 878 639 974 % Change Y/Y -10.161 Sales/assets (x) 0.65 0.097 700 464 Shares Outstanding (Av.7 0.2% 7.417 8.2% 4.00 0.962 22.65 2.6% 8.6 3.981 Cash flow from operations 1.1% 3.513 1.287 4.5 0.6%) 16.6 3.m) .942 4.8 0. basic.570) (2.3% 3.99 DPS (€.138 3.78 0.799 3.2% 2.40 0.324 29.60 0.649 2.1% Total liabilities 20.5%) Other (1.0 1.900) (2.0%) (70.227 6.8% Net fixed assets .6% 3.720 3.2% 9.4 ST loans 693 957 957 957 957 Effective Interest Rate (IS) (%) Payables 3.693 ROIC/WACC 0.2% 3.4 2.142 % Change Y/Y -37.193 4.8% 5.513 1.3% 22.6% Balance sheet Ratio Analysis € in millions.9% Equity raised/repaid 6 0 0 0 0 Tax (charge) 112 165 (138) (91) (174) Dividends paid (333) (18) (275) (252) (183) Tax as a % of PBT (83.8% (0.419 2. €) -0.7 2.9% 15.4 0.8 0.430 8. year end Dec FY09 FY10 FY11E FY12E FY13E Revenues 22.0% 2.8 BVPS (€) Source: Company reports and J.340 8.513 Sales growth (%) -10.357 10.1% 3.8% 14.499 3.688 1.5%) (35.826 10.1 1.0% Free cash flow (579) 726 232 (208) 281 Net Interest income/(expense) (325) (357) (354) (376) (407) Earnings before tax -134 978 503 330 633 Disposals/(purchase) % change Y/Y -118.1 Others 4.558 2. Morgan estimates.658 2.259 9.513 1.177 Assets/Equity (%) 4.007 Gross Margin (%) .51 0.9% -48.Attributable net profit growth (%) Total assets 26.

6% LT investments 0 0 0 0 0 Sales growth (%) 12.74 % Change Y/Y (14.5% 52.685 1.7% 10.5%) Other (35) 200 0 0 0 Net Income (Reported) % change Y/Y .168 1.9% Free cash flow (386) (119) (112) (45) 64 Net Interest income/(expense) (5) (20) (24) (29) (33) Earnings before tax 55 154 247 179 246 Disposals/(purchase) % change Y/Y -50.134 1.7 2.1% 8.885 ROE (%) 5.9% 9.4 1. 75 .9% 6.085 1.1% 8.43.7% -14.9% 5.53 6.5% (27.Change in working capital & Other 62 102 85 103 45 EBITDA (basic) 109 259 349 297 375 Cash flow from operations 153 372 435 400 420 % Change Y/Y -21.405 EPS (Reported.Attributable net profit growth (%) Total assets 3.3 0.0%) (3.3% 7.502 2.5% (27.9% 8.2%) 1.0% Shareholders' equity 1.973 3.m) .0% 5.44 43.134 1.674 5.3% 7.c. year end Sep FY09 FY10 FY11E FY12E FY13E £ in millions.9 BVPS (£) Source: Company reports and J.4% 181.168 Shares Outstanding (Av.3% 10.130 Net debt /EBITDA (x) 0. declared.405 EBITDA margin (%) 4.8 2.5%) (24.4% 6.1 9.5%) (4.4% 10.3% EBITDA Margin (%) 4.003 1.041 5.7 0. year end Sep FY09 FY10 FY11E FY12E FY13E £ in millions.667 2.2% (21.1% 8.405 3.9% 11.4% 10.7% 11.9% 26.0% 138.366 2. basic.2% Total liabilities 2.076 FCF margin (%) (14. £) 16.020 EBIT 49 181 271 208 279 % Change Y/Y 12.134 1.4% 8.743 4.70 DPS (£.3% Taxes (9) (14) (23) (16) (23) EBIT 49 181 271 208 279 Capex (521) (483) (500) (400) (300) % Change Y/Y -46.6% 6.7 0.673 4.636 1.366 Assets/Equity (%) 2.0% 7.4% 11.7% 10.303 1.4 0.1% 34.765 1.3%) (1.062 1. year end Sep FY09 FY10 FY11E FY12E FY13E Cash and cash equivalent 789 912 1.4% Net fixed assets .0% 267.5% 52.1 8.32 8.2%) 38.4% Depreciation & amortization 60 79 79 89 96 Gross Margin (%) .1% 11.1 Long term debt 1. year end Sep FY09 FY10 FY11E FY12E FY13E Revenues 2.1% Net Interest (21) 13 (24) (29) (33) EBIT Margin (%) 1.9% 9.8 3.7 0.9%) 68.9% 11.7 Total current liabilities 1.0 0.David Pitura (44-20) 7325-0369 david.687 1.2%) 38.com Europe Equity Research 29 September 2011 easyJet: Summary of Financials Profit and Loss Statement Cash flow statement £ in millions.0% 5.2% 34.501 1.9% Inventories 0 0 0 0 0 Net margin (%) Others 166 149 149 149 149 EBIT margin on Incremental Sales (%) Current assets 1.6% 6.003 4.797 ROIC/WACC 0.3% Accounts Receivables 242 194 222 244 262 Operating margin (%) 1.307 1.58 43.0%) (23.1 3.5 7.1% 8.3% 6.4 ST loans 118 127 127 127 127 Effective Interest Rate (IS) (%) Payables 751 829 942 1.Beginning debt 632 789 912 1.065 1.5% -27.703 ROIC (%) 3.515 1.986 3.402 3.8% 6. Morgan estimates.821 2.4% Balance sheet Ratio Analysis £ in millions.8 0.9% -23.Ending debt 789 912 1.9 Others 194 109 109 109 109 Sales/assets (x) 0.4% Liabilities Interest coverage (x) 9.5% 60.418 1.2 11.0% 7.37 31.2%) (24.168 1.pitura@jpmorgan.5% Equity raised/repaid 1 8 0 0 0 Tax (charge) 17 (33) (61) (43) (58) Dividends paid 0 0 0 (187) (27) Tax as a % of PBT 30.5% Other liabilities 301 353 391 417 452 ROCE (%) 4. gross) .8% 6.9%) 68.500 EPS growth (%) (14.8 1.1 0.88 28.4 0.8% 49.5% 14.482 1.178 1.5% 9.1% 8.067 1.P.7 0.7% 37.5% 14.

5 0.6% 13.21 0.0% 10.001 3.Change in working capital & Other 250 87 (8) (7) (3) EBITDA (basic) 637 789 851 802 940 Cash flow from operations 934 879 839 794 937 % Change Y/Y 82.8 2.5% 12.539 1.028 2.1% 28.25 0.8 Long term debt 2.316 ROE (%) 10.3% 17.785 ROIC (%) 8.827 1.9 2.368 1.4 0.3% 21.28 0.2% 12.396 1.2% Accounts Receivables 44 51 58 65 68 Operating margin (%) 13.828 10.8% Liabilities Interest coverage (x) 8.466 5.9% LT investments 116 114 114 114 114 Sales growth (%) 1.0 2.4% 5. year end Mar FY10 FY11 FY12E FY13E FY14E € in millions.368 1.8% Balance sheet Ratio Analysis € in millions.0% 4.0% 32.4% 27.5% 14. year end Mar FY10 FY11 FY12E FY13E FY14E Cash and cash equivalent 1.6% Total liabilities 4.642 6.5 Total current liabilities 1. 76 .549 9.790 3.2% 8.Ending debt 1.827 1. declared.David Pitura (44-20) 7325-0369 david.com Europe Equity Research 29 September 2011 Ryanair: Summary of Financials Profit and Loss Statement Cash flow statement € in millions.371 3.3% EBITDA Margin (%) 21. €) 0.001 3.316 3.516 8.8% Other liabilities 475 500 545 586 643 ROCE (%) 7.6% 21.7% 20.6 2. year end Mar FY10 FY11 FY12E FY13E FY14E € in millions.856 EPS (Reported.7%) 21.3% Depreciation & amortization 235 278 308 302 279 Gross Margin (%) .28 0.9 0.8 (0.063 3.9% 13.988 3.954 3.396 1.0% 8.2 1.7% 12.5%) (1.583 1.693 4.849 2.4 0.478 2.2 0.512 9.1% 19. Morgan estimates.0%) (11.5% Free cash flow (76) (50) 337 389 830 Net Interest income/(expense) (49) (65) (79) (77) (75) Earnings before tax 354 451 469 422 586 Disposals/(purchase) % change Y/Y -296.1%) (11.6 1.324 FCF margin (%) (2.6% 13.3% 16.368 Net debt /EBITDA (x) 0.5 0.6% 12.3 7.5% 15.2 BVPS (€) Source: Company reports and J.550 1.8% 7.9% 11.6% 7.36 % Change Y/Y (280.9% 13.8% 17.816 4.21 0.478 2.827 Assets/Equity (%) 2.7% Shareholders' equity 2.3% 21.4%) 8.5% Inventories 3 3 3 3 3 Net margin (%) Others 1.1% 19.26 0.790 3.3% Net fixed assets .368 1.26 0.191 4.790 3.5% 15.247 4.2% 13.7% 20.769 ROIC/WACC 1.4% 8.216 4.P.827 1.7% 13.8% -5.1) Others 42 125 125 125 125 Sales/assets (x) 0.1 1.9%) 38.630 4.0% -9.7% 12.188 6.9%) 38.8 ST loans 266 334 334 334 334 Effective Interest Rate (IS) (%) Payables 1.7%) 21.3% Net Interest (50) (61) (79) (77) (75) EBIT Margin (%) 13.8% 23.8 3.0% 4.396 1.2% Taxes 0 (6) (6) (6) (8) EBIT 402 516 543 500 661 Capex (998) (897) (500) (400) (100) % Change Y/Y 334.478 2.715 5.8% Equity raised/repaid 15 27 0 0 0 Tax (charge) (36) (50) (52) (46) (64) Dividends paid 0 (500) 0 (500) 0 Tax as a % of PBT (10.6% 21.pitura@jpmorgan.0% 10.2% 13.1%) (11.001 Shares Outstanding (Av.c.9 6.7% 8.9 6.691 3.Beginning debt 1.3% 17.0%) (11.5% 12.477 4.9% 38.0% (9.25 0. gross) 0.0%) Other (641) 423 0 0 0 Net Income (Reported) % change Y/Y .1% 4.3% -8.5 8.396 EBIT margin on Incremental Sales (%) Current assets 3.247 3.028 2.3% 11.856 EBITDA margin (%) 21.Attributable net profit growth (%) Total assets 7.36 DPS (€.5% 14.628 6.4 0.242 1.0% (9.m) .896 EBIT 402 516 543 500 661 % Change Y/Y 1. year end Mar FY10 FY11 FY12E FY13E FY14E Revenues 2.028 2. basic.507 EPS growth (%) (280.4% 11.

25 2 S.00 9.00 2.90 1.00 -10.84 % to Avg 3% 180% 244% 173% Max 75.04 -1.00 10.04 Jul/11 Average 9.99 7.5x 2.0x 1.00 0.00 0.22 0.EY/Cost of equity) where cost of equity =Bond Yield + 5.0x 2.0x 0.0x Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 9.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 7.63 0.0x Price/Book Value 4.0 0.00 3.5x 4.04x 0.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: -5.66 39.60% Jul/08 Jul/09 Jul/10 Jul/11 Jul/08 Jul/09 PE (1Yr Forward) 80.98 0.0x 3.73 -16.0x -0.58 0.97 33.37 -0.37906 SEDOL 4916039 Airlines Latest Min -20.20 3.00 30.58 12 Mth Forward EPS 5.00 -0.00 30.24 -1.00 40.6% As Of: Local Price: EPS: % to Min % to Max % to Med -321% 730% 13% -21% 1049% 116% -464% -218% 757% 940% 291% 111% 5-Aug-11 7.00 35.00 -28.25 0. J.39 -1.0x 0.0 8.David Pitura (44-20) 7325-0369 david.0x 40.00 20.5x Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 PBV hist PBV Forward Current: 0.39 30.0x -40. Morgan Calcs * Implied Value Of Growth = (1 .0x 20.0 2.00 20.00 2.0 6.00 Jul/08 Jul/09 Jul/08 Jul/09 Jul/10 Summary Air France-KLM FRANCE Industrials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 3202.com Local Share Price 45.38 -5.00 3.91 Median 10.00 10.90 2.75 0.10 -34.+ 31.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Jul/08 Jul/09 Jul/10 Jul/10 Jul/10 Jul/10 Jul/11 Earnings Yield (& local bond Yield) 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 12Mth fwd EY France BY Proxy Current: 11% Implied Value Of Growth* 3.00 -1.50 1.0 7.0x -20.5x 1.00 Current: 0. -13.0x 60.00 -2.0 4.50 3.00 0.0 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 0.00 -1.3x Jul/08 Jul/09 Jul/10 Jul/11 Jul/08 Jul/09 ROE (Trailing) 40.P.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: -34.00 1.83 7.00 0.5x 3.00 4.00 5.0% (ERP) Jul/11 Jul/11 Jul/11 77 .D.04 Dividend Yield (Trailing) 9. Reuters Global Fundamentals.50 2.5x 0.c.00 25.pitura@jpmorgan.50 0.50 -2.00 1.00 -30.0 1.D.45 9.0 5.0 3.12 2.00 -20.35x 0.00 -40.50 -1.27 0.87 2 S.00 0.84 Jul/08 Jul/09 Jul/10 Jul/11 -3.36 Source: Bloomberg. IBES CONSENSUS.26 0.com Europe Equity Research 29 September 2011 JPM Q-Profile Air France-KLM (FRANCE / Industrials) As Of: 05-Aug-2011 Quant_Strategy@jpmorgan.00 15.

3 0.0x 12.2x 0.40 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Jul/08 Jul/09 Jul/11 PE (1Yr Forward) 14.P.59 10.25 -0.05 -0.00 -0. J.30 -0.pitura@jpmorgan.D.0 0.com Europe Equity Research 29 September 2011 JPM Q-Profile International Consolidated Airlines Group SA (BRITAIN / Industrials) As Of: 05-Aug-2011 Quant_Strategy@jpmorgan.6x 0. Morgan Calcs * Implied Value Of Growth = (1 .32 -31.23x P/BV (Trailing) 0.02 -0.4 0.98 2 S.10 -0.0x 4.91 0.0x 6.5% As Of: Local Price: EPS: % to Min % to Max % to Med -6% 16% 0% 5-Aug-11 2.9 0.0x 0.00 -0.20 -0.10 0.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Jul/08 Jul/09 Jul/10 Jul/10 Jul/10 Jul/10 Jul/11 Earnings Yield (& local bond Yield) 12% 10% 8% 6% 4% 2% 0% Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 12Mth fwd EY US BY Proxy Current: 10% Implied Value Of Growth* 0.44 12 Mth Forward EPS 0.com Local Share Price 3.00 2.90 0.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 2.4x 0.51% Jul/08 Jul/09 Jul/10 Jul/11 -0.35 Current: -31.8 0.24 Jul/08 Jul/09 Jul/10 Jul/11 0.50 3.+ 11.23 Jul/11 Average 10.20 0.00 1.6 0.15 0.1 0.30 0.00 Dividend Yield (Trailing) 0.19 -0.7 0.0% (ERP) 78 Jul/11 Jul/11 .00 0.2x 1.2x Price/Book Value 1.10 0.04 Median 10.25 0.18 BRITAIN 26.40 0.0x 8.0x Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 PBV hist PBV Forward Current: Jul/08 Jul/09 Jul/10 Jul/11 Jul/08 Jul/09 ROE (Trailing) 1.20 -0.20 0.0 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: Jul/08 Jul/09 Jul/08 Jul/09 Jul/10 Summary International Consolidated Airlines Group SA 6462.15 -0.86 -0.44 0.27945 SEDOL B5282K0 Industrials Airlines Latest Min 12mth Forward PE 9.0x Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 10.42 2 S.70 0.00 Implied Value of Growth -0.00 0.24 % to Avg 2% Max 11.50 0.c. IBES CONSENSUS.36 0% 88% 38% 41% Source: Bloomberg.60 0.0x 10.35 0.50 1.David Pitura (44-20) 7325-0369 david.00 0. 8.00 0. Reuters Global Fundamentals.8x 0.EY/Cost of equity) where cost of equity =Bond Yield + 5.50 2.05 Current: 0.50 0.0x 0.5 0.80 0.00 ROE (Trailing) 0.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: Dividend Yield (Trailing) 1.0x 2.2 0.D.30 0.

00 0.09 24.18 8.20 Jul/11 Average 17.60 0.91 -0.78 12.0x 20.50 1.0 10.8x Jul/08 Jul/09 Jul/10 Jul/11 Jul/08 Jul/09 ROE (Trailing) 30.21 -1.David Pitura (44-20) 7325-0369 david.00 3.00 -40.07 Median 13.0 12.00 10.84 79.EY/Cost of equity) where cost of equity =Bond Yield + 5.com Local Share Price 30.09 -0.00 3.63 1.0x 5.pitura@jpmorgan.0x 40.50 2.0 0.78 -18.00 20.0x 15.40 -0.20 1.0 8.00 Current: 1.48 Jul/08 Jul/09 Jul/10 Jul/11 -0.+ 46.20 -0.96 -29.15 35.80 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: -53. J.20 0.0x Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 8.54 -53.00 0.00 -30.0 2.90 8.50 0.58 12.0x 10.00 8.91 Dividend Yield (Trailing) 14.80 0.P.c.0x -40.00 0.D.96 Jul/08 Jul/09 Jul/08 Jul/09 Jul/10 Summary Deutsche Lufthansa AG GERMANY Industrials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 8586.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 13.0 4.21 2 S. Morgan Calcs * Implied Value Of Growth = (1 .72 2. -12.93071 SEDOL 5287488 Airlines Latest Min -20.48 % to Avg 94% 100% -20% -38% 140% Max 75.00 5.60 -0.00 10.12 12 Mth Forward EPS 2. Reuters Global Fundamentals.0x -20.0x 20.12 1.00 25.5% As Of: Local Price: EPS: % to Max % to Med 747% 55% 361% 80% 206% -30% 77% -10% 300% 137% 5-Aug-11 13.40 0.0x Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 PBV hist PBV Forward Current: 0.00 -10.58 0.0x 60.48% Jul/08 Jul/09 Jul/10 Jul/11 Jul/08 Jul/09 PE (1Yr Forward) 80.00 0.34 0.39 0.com Europe Equity Research 29 September 2011 JPM Q-Profile Deutsche Lufthansa AG (GERMANY / Industrials) As Of: 05-Aug-2011 Quant_Strategy@jpmorgan.0% (ERP) Jul/11 Jul/11 Jul/11 79 .0 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 3.0 6.50 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Jul/08 Jul/09 Jul/10 Jul/10 Jul/10 Jul/10 Jul/11 Earnings Yield (& local bond Yield) 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 12Mth fwd EY Germany BY Proxy Current: 11% Implied Value Of Growth* 1.59 0.65 0.90 2 S.D.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 13.03 13.85x 0.00 -0.00 20.0x 0.40 2.55 3.00 15.76 1. IBES CONSENSUS.19 1.00 1.9x Price/Book Value 30.78x 0.0x 0.00 -20.48 % to Min -326% -24% -100% -309% 0% Source: Bloomberg.0x 25.

31 Jul/08 Jul/09 Jul/10 Jul/11 -0.40 0.10 -0.3 0.07 Source: Bloomberg.90 0.84 0.0x Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 PBV hist PBV Forward Current: 1.00 2.00 10.20 0.77 Median 17.60 0.0x 45.00 -0.00 -5.0x Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 9. IBES CONSENSUS.0x 10.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 3.00 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 14.10 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Jul/08 Jul/09 Jul/10 Jul/10 Jul/10 Jul/10 Jul/11 Earnings Yield (& local bond Yield) 14% 12% 10% 8% 6% 4% 2% 0% Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 12Mth fwd EY Ireland BY Proxy Current: 10% Implied Value Of Growth* 0.6 0.com Europe Equity Research 29 September 2011 JPM Q-Profile Ryanair Holdings PLC (IRELAND / Industrials) As Of: 05-Aug-2011 Quant_Strategy@jpmorgan.02 0.20 0.0x 40. J.00 15.00 20.0x 30.7% As Of: Local Price: EPS: % to Min % to Max % to Med -1% 375% 79% -21% 475% 95% -148% -135% 112% 137% 31% 16% 5-Aug-11 3.0x 35.39 9.00 5.0x -5.78 3.80 0.D.67 0.20 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 32. 4.38 Jul/11 Average 19.30 0.00 -10.0x 10.00 0.5 0.87 14.0 0.6x Jul/08 Jul/09 Jul/10 Jul/11 Jul/08 Jul/09 ROE (Trailing) 35.00 18.0 Jul/96 Jul/97 Jul/98 Jul/99 Jul/00 Jul/01 Jul/02 Jul/03 Jul/04 Jul/05 Jul/06 Jul/07 Current: 0.50 0.EY/Cost of equity) where cost of equity =Bond Yield + 5.+ 34.0x 0.05 0.0x 0.00 3.pitura@jpmorgan.1 0.00 25.P.8 0.76x 1.70 0.60 0.78 2 S.10 0.17 -0.66% Jul/08 Jul/09 Jul/10 Jul/11 Jul/08 Jul/09 PE (1Yr Forward) 50.23 1.79 11.0x 25.00 5.00 4.66 9.2 0.00 0.0x 15.05 0.00 Jul/08 Jul/09 Jul/08 Jul/09 Jul/10 Summary Ryanair Holdings PLC IRELAND Industrials 12mth Forward PE P/BV (Trailing) Dividend Yield (Trailing) ROE (Trailing) Implied Value of Growth 6493.98 0.0x 20.00 1.46 0.7 0.00 6.10 0.50 0.0x 20.31 % to Avg 103% 145% 18% 29% Max 46.00 0.35 0.17 Dividend Yield (Trailing) 1.05 12 Mth Forward EPS 0.8x Price/Book Value 25.00 -6.com Local Share Price 7.c.0x 5.65 -0.00 16.00 Current: 0.D.0x 5.40 0.00 29. Reuters Global Fundamentals.87 0.00 30.0% (ERP) 80 Jul/11 Jul/11 Jul/11 .92 8.42 2 S. Morgan Calcs * Implied Value Of Growth = (1 .00 1.01 0.30 0.653562 SEDOL B1R9YB5 Airlines Latest Min 9.47 3.David Pitura (44-20) 7325-0369 david.4 0.00 31.0x 15.57x 0.12 32.9 0.

P.c.P. the following company(ies) as clients. or intend to seek. or had within the past 12 months.P.19 Price Target (€) --- 0 Feb 07 Nov 07 Aug 08 May 09 Feb 10 Nov 10 Aug 11 Source: Bloomberg and J. Ryanair. Morgan currently has. Ryanair. Lufthansa. and the services provided were non-securities-related: IAG. and (2) no part of any of the research analyst's compensation was. Important Disclosures        Market Maker: JPMS makes a market in the stock of Ryanair. Lufthansa. Morgan. Ryanair. where multiple research analysts are primarily responsible for this report. 81 . is. Morgan has received compensation in the past 12 months for products or services other than investment banking from IAG. price data adjusted for stock splits and dividends. Non-Investment Banking Compensation:J. Analyst Position:The following analysts (and/or their associates or household members) own a long position in the shares of IAG: David Pitura. the following company(ies) as clients.P. Morgan currently has. Client/Non-Investment Banking. Investment Banking (next 3 months): J.81 11. compensation for investment banking services in the next three months from IAG.P. or had within the past 12 months. easyJet. and the services provided were non-investment-banking. Air France-KLM (AIRF. Securities-Related: J. securities-related: IAG. Client/Non-Securities-Related: J. easyJet. easyJet. Break in coverage Mar 01. 2010.pitura@jpmorgan. the following company(ies) as clients: IAG. the research analyst denoted by an “AC” on the cover or within the document individually certifies. Morgan currently has. Morgan expect to receive. with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers. Lufthansa. 2010 . Lufthansa.P. Client:J.PA) Price Chart 70 56 42 Price(€) 28 UW OW Date 01-Mar-10 22-Jun-10 14 Rating Share Price (€) UW OW 9. Ryanair. easyJet. or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.David Pitura (44-20) 7325-0369 david. or had within the past 12 months.com Europe Equity Research 29 September 2011 Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or.Jun 22.

Break in coverage Mar 01.David Pitura (44-20) 7325-0369 david.com Europe Equity Research 29 September 2011 IAG (IAG. Morgan.P.MC) Price Chart 4 3 Price(€) 2 1 0 Aug 11 Aug 11 Aug 11 Sep 11 Sep 11 Sep 11 Source: Bloomberg and J.P. price data adjusted for stock splits and dividends. price data adjusted for stock splits and dividends. Lufthansa (LHAG. Morgan.DE) Price Chart 36 27 N Price(€) 18 OW Date 01-Mar-10 22-Jun-10 9 Rating Share Price (€) N OW 11.72 Price Target (€) --- 0 Feb 07 Nov 07 Aug 08 May 09 Feb 10 Nov 10 Aug 11 Source: Bloomberg and J.08 11. 2010 .c.pitura@jpmorgan.Jun 22. 2010. 82 .

2010 . Go-Ahead (GOG. Morgan. Break in coverage Mar 01.] Neutral [Over the next six to twelve months. Coverage Universe: Pitura.074 OW 895 N 716 Price(p) 537 358 179 0 Sep 06 Jun 07 Mar 08 Dec 08 Sep 09 Jun 10 Mar 11 Date 01-Mar-10 20-Apr-10 22-Jun-10 Rating Share Price (p) N OW N 419 473 426 Price Target (p) ---- Source: Bloomberg and J. National Express (NEX. we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.P. 2010 .] Underweight [Over the next six to twelve months.I) Price Chart 11 10 9 8 7 6 Price(€) 5 4 3 2 1 0 Sep 06 Jun 07 Mar 08 Dec 08 Sep 09 Jun 10 Mar 11 OW N Date 03-Mar-05 01-Mar-10 22-Jun-10 Rating Share Price (€) OW OW N 4. Morgan uses the following rating system: Overweight [Over the next six to twelve months.P.P.Apr 20. 2010. Stagecoach (SGC. price data adjusted for stock splits and dividends. Ryanair (RYA. Morgan.L). David C: FirstGroup (FGP. See below for the specific stocks in the certifying analyst(s) coverage universe.com Europe Equity Research 29 September 2011 easyJet (EZJ.P.67 Price Target (€) 7.L) Price Chart 1.] The analyst or analyst's team's coverage universe is the sector and/or country shown on the cover of each publication. the current analysts may or may not have covered it over the entire period.Jun 22. N= Neutral. UW = Underweight Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.L). we expect this stock will underperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe. 2010.49 3.David Pitura (44-20) 7325-0369 david.P. we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.L) 83 . The chart(s) show J.253 N 1. price data adjusted for stock splits and dividends. Break in coverage Mar 01.L).00 --- Source: Bloomberg and J.pitura@jpmorgan. Morgan's continuing coverage of the stocks. J. Morgan ratings: OW = Overweight.c.22 3.

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