asia airlines

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14 June 2010Nomura

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

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Nomura Anchor Reports examine the key themes and value drivers that underpin oursector views and stock recommendations for the next 6 to 12 months.

Any authors named on this report are research analysts unless otherwise indicated.See the important disclosures and analyst certifications on pages 145 to 148.

Airlines | A S I A P A C I F I C TRANSPORT/LOGISTICS

Jim Wong +852 2252 2195 jim.wong@nomur a.com

Vis ib i l i t y be t t e r on t he upside

After the recent share price consolidation, many Asian airlines are again trading belowtheir historical mid-cycle multiples and are far from their historical peak-cycle multiples,

while the operational outlook continues to improve. Yields and volumes for Asian

airlines continued to recover into April 2010, especially if we adjust for the volcanic ash

cloud disruption. While the base effect wont last forever, our analysts are still looking

for average passenger traffic (RPK) growth of 15.2% in 2010F and 8.2% in 2011F;

passenger yields to be up 9.5% in 2010F and 3.5% in 2011; cargo traffic (RFTK) to be

up 21.2% in 2010F and 7.8% in 2011F; and cargo yields to rise 8.2% in 2010F and

0.7% in 2011F. On the other hand, scheduled fleet expansion in 2010 is only in single

digits for most Asian airlines. Given our macro outlook for a continuing global

economic recovery, our top BUYs are EVA Airways and Cathay Pacific, which are

arguably more geared to recovery in international traffic and/or cargo traffic. However,for investors more cautious on the markets, SIA would be a more defensive option, in

our view.

Recent price consolidation may present buying opportunity

Demand should outpace supply

Currencies and oil hedging are significant swing factors

SIA and CX quality plays, while EVA is a geared play

RUNNING

THEME

S t o c k s f o r a c t i o n

Stock Rating Price Pricetarget

Cathay Pacific BUY 15.68 18.18

Singapore Airlines BUY 14.28 16.85

Air China NEUTRAL 7.68 8.21

China Eastern Air BUY 3.28 3.95

China Southern Air NEUTRAL 3.23 3.61

EVA Airways BUY* 17.95 21.50

Malaysia Airlines BUY 1.97 2.40

AirAsia NEUTRAL 1.26 1.20

Korean Airlines NEUTRAL 71,300 79,000

All Nippon Airways NEUTRAL 273.00 300.00

Note: Share prices as of 7 June, 2010; localcurrency; Upgrade, * Initiation

A n a l y s t sJim Wong

+852 2252 2195

[email protected]

Makoto Murayama

+81 3 5255 1755

[email protected]

Shirley Lam

+852 2252 2196

[email protected]

Jacinda Loh

+60 3 2027 6889

jacinda. [email protected]

Justin Lee

+82 2 3783 2338

just in [email protected]


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14 June 2010Nomura 1

Airlines | A S I A P A C I F I C TRANSPORT/LOGISTICS

Jim Wong +852 2252 2195 jim.wong@nomur a.com

A c t i o n

Recent share price consolidation on concerns about an economic slowdown in

Europe could be seen as a buying opportunity for Asian airlines, as the majorearnings driver of most of them is Asia-based demand. However, different airlines

provide different exposure. EVA Air is most geared to a cargo recovery, SIA to an

international premium passenger rebound and CSA to sustained domestic revival.

C a t a l y s t s

Recovery in international routes and impending 2Q10 results may be near-term

catalysts, while high oil prices will be a negative for unhedged airlines.

A n c h o r t h e m e s

With Asian economies (led by China) expected to recover at a much faster pace

than the US and Europe, airlines with hubs in Asia are expected to see a stronger

recovery than their global peers.

Vis ib i l it y be t t e r on the ups ide

Recent price consolidation may present buying opportunityWhile the earnings recovery for Asian airlines commenced in September 2009,

hiccups in the forms of volcanic ash cloud disruptions in Iceland and over much of

Europe, concerns about a renewed economic downturn in Europe, and a stronger

US dollar have revived doubts over the sustainability of the recovery and may

present a buying opportunity for investors. We note that after the recent share

price consolidation, many Asian airlines are again trading below their historicalmid-cycle multiples and are far from their historical peak-cycle multiples.

Demand should outpace supplyYields and volumes for Asian airlines continued to recover into April 2010,

especially if we adjust for the volcanic ash cloud disruption. April 2010 passenger

volumes rose by single digits to teens y-y, cargo volumes by up to 82% y-y,

passenger yields by 27% off-trough, and cargo yields by 56% off-trough. On the

other hand, scheduled fleet expansion in 2010 is only in single digits for most

Asian airlines. The air cargo recovery to date has been stronger than passenger

recovery, albeit off a lower base; Taiwanese and Korean carriers have greater

exposure to cargo.

Currencies and oil hedging are signif icant swing factorsAsian airlines have historically been significantly impacted by currency and oil price

movements. Our estimates show that a strong local currency, especially versus the

US dollar, is positive for Chinese, Japanese, Korean and Malaysian airlines. In

contrast, a strong local currency is negative for SIA and CX. As for oil hedging, a

low oil price would be most positive for CSA, AirAsia, SIA and KAL, which are

minimally hedged for oil.

SIA and CX quality plays, while EVA is a geared playGiven our macro outlook for a global economic recovery, our top buys are EVA

(please refer to our initiation report, also published today, Eva Airways Corp: More

good news to come, a summary of which is contained herein) and CX, which are

arguably more geared to a recovery in international traffic and/or cargo traffic.

However, for investors more cautious on the markets, SIA would be a more

defensive option, in our view.

N O M U R A I N T E R N A T I O N A L ( H K ) L I M I T E D

St o c k s f o r ac t i o n

SIA and CX are seen as the highest-

quality plays given their solid earningstrack record and strong positioning to

premium traffic recovery. EVA is seen

as most geared to a trade recovery

given its high exposure to cargo.

St ock Rat in g Pr ice Pr ice t arget

Cathay Pacific BUY 15.68 18.18

Singapore Airlines BUY 14.28 16.85

Air China NEUTRAL 7.68 8.21

China Eastern Air BUY 3.28 3.95

China Southern Air NEUTRAL 3.23 3.61

EVA Airways BUY* 17.95 21.50

Malaysia Airlines BUY 1.97 2.40

AirAsia NEUTRAL 1.26 1.20

Korean Airlines NEUTRAL 71,300 79,000

All Nippon Ai rways NEUTRAL 273.00 300.00

Note: Share prices as of 7 June, 2010; local currency; Upgrade, * Initiation

RUNNING

THEME

A n a l y s t s

Jim Wong

+852 2252 2195

[email protected]

Makoto Murayama

+81 3 5255 1755

[email protected]

Shi r ley Lam

+852 2252 2196

[email protected]

Jacinda Loh

+60 3 2027 6889

jacinda. [email protected]

Just in Lee

+82 2 3783 2338

just in [email protected]


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Airlines | Asia Pacific Jim Wong


Contents

Recovery may not be entirely discounted 3

Macro environment continues to recover 7

Taiwanese and Korean airlines most exposed to cargo recovery 15

Fleet age and forward fleet expansion 16

Currency sensitiv ities differ signif icantly 21

CSA has largest local revenue/greatest foreign debt exposure; SIAthe least 25

Chinese and Japanese carriers more focused on domestic routes 31

ANA, MAS and CX most hedged for oil 35

Core earnings strongest for SIA, CX, AC 36Valuation methodologies and risks to our investment view 42

Latest company views

AirAsia Berhad 45

Air China 59

All Nippon Airways 66

China Eastern Airlines 78

China Southern Airlines 88

Cathay Pacific 95

EVA Airways 106

Korean Air Lines 112

Malaysian Airlines System 120

Singapore Airlines 133


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Stock recommendations

Recover y may not be ent i re ly d iscount ed

Exhibit 1. Key stock conclusions and recommendations

Company Ticker Rating

Price

target

Impliedupside/downside

(%) Rationale

China / Hong Kong

Air China 753 HK NEUTRAL HK$8.21 6.9 Air China is the largest beneficiary of the Chinese governments recentpositive policies and least affected by the expected slowdown in renminbiappreciation. Nevertheless, with its strong 1Q FY10 results, the capitalinjection of RMB6.5bn and the acquisition of Shenzhen Airlines, webelieve most of the good news has been priced in. NEUTRAL maintained.

China EasternAirlines

670 HK BUY HK$3.95 20.4 While SIA has ruled out the possibility of investing in CEA, the chairman ofCEA continues to target the introduction of a strategic partner within thisyear. We reiterate our positive view. Upcoming catalysts include renminbiappreciation, Shanghai World Expo and the possible introduction ofstrategic investors. CEA is also the beneficiary of recent positivegovernment polices. BUY maintained with a new price target of HK$3.95.

China SouthernAirlines

1055 HK NEUTRAL HK$3.61 11.8 Compared with its peers, CSA would likely suffer the most from the slowrenminbi appreciation and benefit the least from the governments recentpolicies. Possible competition from railways and Air Chinas aggressive

expansion into CSAs southern hub are likely to cap CSAs earningsgrowth beyond 2010F, in our view. While CSAs share price has beenconsolidated to below our price target, we upgrade to NEUTRAL.

Cathay Pacific 293 HK BUY HK$18.18 15.9 We have revised upward our profit estimates for Cathay Pacific by 62%for 2010F and 3% for 2011F, on the back of its recently announcedHACTL and HACEO stake disposals. With air passenger yield and volumetrends continuing strong into 2010, we believe there may still be upside toour revised estimates. As the group still trades below its historical mid-cycle P/B level of 1.6x, we maintain BUY.

Singapore

Singapore Airlines SIA SP BUY S$16.85 18.0 Although SIA is highly geared to the current recovery in premium airpassenger traffic, we also expect it to be more resilient than mostAsian airlines in any downturn, given its flexible staff cost structure,minimal oil hedging and net cash position. With the overhang of apossible overpriced acquisition having diminished, we now find SIAsexisting valuation of just 1.1x FY12F P/B as attractive, especially withthe peer group at an average P/B multiple of 1.5x. Upgrade to BUY.

Malaysia

Malaysia Airlines MAS MK BUY RM2.40 22 We see MASs turnaround story gaining traction with cost savingscontinuing to improve FY10F earnings, with a leg up in FY11F as the bulkof its new fleet arrives to drive its yield improvement strategy further.While headwinds remain in the form of competition and a potentially costlyhedge, we premise our BUY call on the scope for upside coming from alow base with an added boost from its new fleet.

AirAsia AIRA MK NEUTRAL RM1.20 (4.7) Despite trading close to trough-cycle valuations since 2007, AirAsiasshares, we believe, will continue to languish near the historical level of1.2x P/BV. Our NEUTRAL view is premised on its strong earnings (which,in our view, reflect AirAsias established market position), offset bypotentially higher-than-expected gearing amid potential large write-offsand continued cashflow stress.

Korea

Korean Airlines 003490 KS NEUTRAL W79,000 10.8 We believe Korean Airs fundamental recovery is well on its way andexpect the company to post all-time high revenue and operating profit inFY10F. However, with high sensitivity to the won/US$ rate and higher oilprice, Korean Airs earnings could deteriorate in the longer term. Thecompany is fairly valued at the current level, in our view.

Taiwan

EVA Airways 2618 TT BUY * NT$21.50 19.8 After suffering substantial losses from oil hedging contracts, traffic slumpowing to the financial crisis in 2008-2009 and recent share placement, theworst is over, in our view. We expect EVA to see double-digit growth intraffic and yields in 2010F. Possible further increases in daily directschedule flights and continued improvement in traffic bode well for EVAsprospects, we think. We have a BUY rating and price target of NT$21.50.

Japan

All Nippon Airways 9202 JP NEUTRAL JPY300 9.9 With profits likely to be low in 11/3 (FY10F), we derive our PT on the basisof an effective dividend yield, assuming that shareholder discountcoupons are equivalent to the dividend. We expect ANA to restore a

dividend of 1 per share on common stock in 11/3, which, together withshareholder benefits, equivalent to a dividend of 5, gives an effectivedividend of 6 per share. We set our target price at 300, derived from adividend yield of 2%, which is higher than the yield on long-term JGBs.

Upgrade, * Initiation. Source: Nomura research


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With Asian airlines under our coverage having reported significant earnings recoveries

in 2H09 and/or 1Q10 results, the recovery in the Asian airline industry should now be

well recognised in the market.

However, with hiccups, such as the volcanic ash cloud that effectively shut down

Europe-related air traffic for a significant part of April 2010 and concerns over

European economic recovery, the strong demand recovery in Asia is as yet unlikely to

have been fully discounted in consensus estimates, in our view, arguably leaving roomfor potential upside surprises as calendar year 1H10 and/or 2Q10 results are

announced.

Exhibit 2. Revision in reported net profits

Previous reported net profit New reported net profit Chg % in revision

Company 2008 2009 2010F 2011F 2008 2009 2010F 2011F 2010F 2011F

ANA (JPYmn)* (4,260) (57,387) 5,000 19,000 (4,260) (57,387) 5,000 19,000 - -

MAS (RMmn) 246 493 503 593 246 493 503 593 - -

CX (HK$mn) (8,558) 4,694 3,877 5,035 (8,558) 4,694 6,299 5,174 62.5 2.8

EVA (NT$mn) (16,890) (2,844) 3,332 4,532 (16,890) (2,844) 3,332 4,532 - -

Air China (RMBmn) (9,256) 4,854 7,443 6,331 (9,256) 4,854 7,202 7,155 (3.2) 13.0CEA (RMBmn) (15,269) 169 2,319 2,247 (15,269) 169 2,089 2,760 (9.9) 22.9

KAL (KRWbn)** (1,942) (99) 504 602 (1,942) (99) 431 413 (14.5) (31.4)

SIA (S$mn)* 1,062 141 927 1,394 1,062 216 1,259 1,667 35.8 19.6

AirAsia (RMmn) (497) 506 426 492 (497) 506 426 492 - -

CSA (RMBmn) (4,823) 330 2,508 1,398 (4,823) 330 1,722 1,802 (31.3) 28.9

Source: Company data, Nomura estimates, *FY09-12F numbers are used given March year-end, ** Numbers before adjustment of foreign exchange gains were usedin previous reported net profit

Exhibit 3. Comparison of trough-peak cycle valuation

Share price Market cap Current multiple Trough-cycle Mid-cycle Peak-cycle

Airlines (lcc) Rating (US$mn) FY10 P/BV (x) FY11 P/BV (x) (x) (x) (x)

Air China (753 HK) 7.68 NEUTRAL 16,000 2.3 1.9 0.5 2.0 6.2

Singapore Airlines (SIA SP)* 14.28 BUY 12,023 1.2 1.1 0.5 1.0 1.9

Cathay Pacific (293 HK) 15.68 BUY 7,908 1.4 1.3 0.7 1.6 3.0

China Southern Air (1055 HK) 3.23 NEUTRAL 6,170 1.2 1.1 0.2 1.2 6.6

China Eastern Air (670 HK)# 3.28 BUY 10,177 2.6 2.0 0.3 1.2 6.6

Korean Air (003490 KS) 71,300 NEUTRAL 4,154 1.5 1.4 0.1 0.5 1.9

Malaysia Airlines (MAS MK) 1.97 BUY 1,984 1.6 1.4 0.8 1.8 4.2

EVA Airways (2618 TT) 17.95 BUY 1,639 1.4 1.2 0.4 1.5 3.1

AirAsia (AIRA MK) 1.26 NEUTRAL 1,048 1.0 0.9 1.1 2.9 9.5

ANA (9202 JP)* 273.00 NEUTRAL 7,503 1.4 1.4 1.1 2.6 5.6

Source: Nomura estimates, Bloomberg consensus, #Given negative equity in FY08 and FY09 for CEA, we use CSAs historical mid-cycle and peak cycle as areference for CEA, * YE-March, hence FY11F-FY12F numbers are used, share prices as of 7 June, 2010

Strong demand recovery in Asia

is, as yet, unlikely t o have been

fully discounted, thus leaving

room for upside surprise


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Exhibit 4. Comparison o f impact f rom different variables

AirlinesCargo

recoveryFleet

age

Domesticcurrencystrength

Deterioration inEuropeaneconomy

Asian economic recovery(apart from its home

countries)Oil price moves

up in 2010Core earning s

track record

China / Hong Kong

Air China + + + - + + ++

China Eastern Airlines + + ++ N + + -

China Southern Airlines + ++ ++ N + -- -

Cathay Pacific ++ N N -- ++ N ++

Singapore

Singapore Airlines + ++ -* -- ++ - ++

Malaysia

Malaysia Airlines + - ++ - + + +

AirAsia + ++ + + -- ++

Korea

Korean Airlines ++ N + - ++ -- -

Taiwan

EVA Airways ++ N N - ++ - +

Japan

All Nippon Airways + N ++ N + na +Source: Nomura estimates, ++ Strong positive impact, + Positive impact, N Neutral, - Negative impact, - - Strong negative impact., *Albeit not against the US$

Exhibit 5. Airlines: Valuation comparison

Reported P/E (x) Div yield (%)

Traditional airlinesShare

price lccNomura

ratingMarket

cap (US$mn) 2008 2009 2010F 2011F 2008 2009 2010F 2011F

Cathay Pacific (293 HK) 15.68 BUY 7,897 neg 13.1 9.8 11.9 0.2 0.6 3.8 3.2

Air China (753 HK) 7.68 NEUTRAL 16,000 neg 16.4 11.6 11.6 0.0 0.0 1.7 1.7

China Eastern Air (670 HK) 3.28 BUY 10,177 neg 162.9 15.3 11.1 0.0 0.0 0.0 0.0

China Southern Air (1055 HK) 3.23 NEUTRAL 6,170 neg 60.1 14.2 15.0 0.0 0.0 0.0 0.0

Singapore Airlines (SIA SP)** 14.28 BUY 12,019 15.9 78.7 13.5 10.2 7.0 13.5 3.2 4.2

Malaysia Airlines (MAS MK) 1.97 BUY 1,983 17.2 8.6 32.9 10.1 0.0 0.0 0.0 0.0

AirAsia (AIRA MK) 1.26 NEUTRAL 1,048 neg 6.1 7.3 6.4 0.0 0.0 0.0 0.0

EVA Airways (2618 TT) 17.95 BUY 1,791 neg neg 17.4 13.9 0.0 0.0 0.0 0.0

Korean Air (003490 KS) 71,300 NEUTRAL 4,169 (2.6) (45.4) 11.9 12.5 0.0 0.0 0.7 0.8

All Nippon Airways (9202 JP)** 273.00 NEUTRAL 7,503 neg neg 136.5 35.9 0.4 0.0 0.0 0.0

Source: Nomura estimates, ** YE-March, share prices as of 7 June 2010. (Note that we include A-shares for calculating market cap of Chinese airlines, while thecompany sections use only H-share price; ANAs market cap in the company section is in JPY, our number is in US$)

Exhibit 5. Airlines: Valuation comparison (contd)

P/BV (x) ROE (%)

Traditional airlinesShare

price lccNomura

ratingMarket

cap (US$mn) 2008 2009 2010F 2011F 2008 2009 2010F 2011F

Cathay Pacif ic (293 HK) 15.68 BUY 7,897 1.6 1.5 1.4 1.3 (19.3) 11.7 14.4 11.2

Air China (753 HK) 7.68 NEUTRAL 16,000 4.1 3.4 2.3 1.9 (36.6) 22.1 23.4 17.7China Eastern Air (670 HK) 3.28 BUY 10,177 (1.1) 22.3 2.6 2.0 na (2.8) 31.2 20.4

China Southern Air (1055 HK) 3.23 NEUTRAL 6,170 2.6 2.2 1.2 1.1 (51.1) 3.8 10.7 7.6

Singapore Airlines (SIA SP)** 14.28 BUY 12,019 1.2 1.3 1.2 1.1 7.3 1.6 9.1 11.3

Malaysia Airlines (MAS MK) 1.97 BUY 1,983 1.0 5.5 1.6 1.4 6.1 20.2 8.5 15.3

AirAsia (AIRA MK) 1.26 NEUTRAL 1,047 1.9 1.2 1.0 0.9 (20.6) 24.0 15.0 14.9

EVA Airways (2618 TT) 17.95 BUY 1,791 1.6 1.7 1.4 1.2 (48.3) (9.8) 8.7 9.6

Korean Air (003490 KS) 71,300 NEUTRAL 4,169 1.8 1.7 1.5 1.4 (53.8) (3.4) 13.2 11.6

All Nippon Airways (9202 JP)** 273.00 NEUTRAL 7,503 1.6 1.4 1.4 1.3 (1.0) (12.9) 1.0 3.8

Source: Nomura estimates, ** YE-March, share prices as of 7 June 2010.


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Exhibit 6. Key assumptions for Asian Airlines

(%) 2010F 2011F

Air China (753 HK; Neutral)

RPK 14.1 9.7

Passenger yields 13.5 3.2

RFTK 23.4 6.7

Cargo yields 11.2 0.0China Eastern Airl ines (670 HK; Buy)

RPK 45.0 9.0


RFTK 57.5 7.9

Cargo yields 7.0 0.1

China Southern Ai rlines (1055 HK; Neutral)

RPK 16.5 10.5


RFTK 17.0 19.5


EVA Airways (2618 TT; BUY)

RPK 13.9 9.9


RFTK 23.1 8.9


Singapore Ai rlines (SIA SP; BUY)**

RPK 5.1 7.0


RFTK 6.0 6.0


Cathay Pacific (293 HK; BUY)

RPK 7.0 5.0


RFTK 14.0 7.0

Cargo yields 15.0 0.0MAS (MAS MK; B uy)

RPK 13.6 7.7


RFTK 17.4 5.0

Cargo yields (5.5) 0.0

AirAsia (AIRA MK; Neutral)

RPK 20.8 17.0


RFTK - -

Cargo yields - -

Korean Ai rlines (003490 KS; Neutral)

RPK 10.0 4.0


RFTK 18.0 1.0


ANA (9202 JP; Neutral)**

RPK 5.9 2.6


RFTK 14.8 -

Cargo yields - -

Source: Nomura estimates, **Assumptions for FY11-FY12F


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Recent traffic trend

Macr o env i ronment c ont inues to recoverAs is evident in their operating statistics and financial results and confirmed by

management teams, Asian airlines seem to have put the worst of the global crisis

behind them (many started to return to profitability by September 2009) and continue

to see sustainable recovery into the foreseeable future (as indicated by advance

bookings). Numbers from Taiwanese airlines (that fly regional and international routes)

show that both passenger and cargo yields bottomed in mid-2009 and have since

recovered by up to 56% from the trough.

As shown below, passenger yields for Taiwanese airlines are now up 21-27% from the

recent trough.

Exhibit 7. Taiwanese airlines passenger yield trends

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

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

Eva Air (2618 TT) China Airlines (2610 TT)(NT$/km)

Source: Company data

Cargo yields are also up by 43-56% from the recent trough.

Exhibit 8. Taiwanese airlines cargo yield trends

4

5

6

7

8

9

10

11

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

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

Eva Air (2618 TT) China Airlines (2610 TT)(NT$/km)


While the numbers mentioned are only those of Taiwanese airlines (which provide

monthly yield numbers), they are representative of the yield recovery seen in the

overall Asian airline industry as shown in the exhibits below.

Operating s tatistics and f inancial

results show that recovery is

underway


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Exhibit 9. Passenger yield trend for various airlines

Calendaryear

CSA(RMB

cents)

ANA(JPY

cents)

CEA(RMB

cents)

Air China(RMB

cents)AirAsia

(RM sens)MAS

(RM sens)CX

(HK cents)KAL

(US cents)

EVA Air(NT$

cents)

CAL(NT$

cents)SIA

(S$ cents)

1Q05 13.81 18.90 7.10 186.97 173.50 10.50

2Q05 56.07 15.88 55.68 54.99 13.79 18.50 47.20 6.90 176.70 160.83 10.30

3Q05 13.72 19.90 7.70 190.22 178.26 10.50

4Q05 54.90 15.38 59.29 59.58 14.75 20.70 45.49 7.30 184.35 182.50 10.80

1Q06 11.00 22.60 7.60 189.49 183.97 10.60

2Q06 58.05 16.78 57.89 56.70 12.22 22.80 45.80 7.90 183.68 179.70 10.60

3Q06 11.24 25.30 8.70 199.90 199.25 10.80

4Q06 61.14 16.31 62.99 61.49 15.05 25.70 48.14 8.30 189.71 200.44 11.00

1Q07 18.90 26.10 8.60 203.04 197.51 11.20

2Q07 59.26 17.57 59.77 59.39 15.74 25.70 53.70 8.50 194.66 189.06 11.50

3Q07 17.10 27.10 9.40 206.73 204.67 12.00

4Q07 61.69 16.76 63.03 64.32 19.64 29.00 56.18 9.00 203.55 204.74 12.40

1Q08 18.03 28.40 9.20 211.96 204.47 12.50

2Q08 60.15 17.99 61.86 61.35 18.52 28.70 55.90 9.10 211.16 205.86 12.40

3Q08 19.21 31.70 9.60 228.90 230.35 12.80

4Q08 61.03 16.73 62.65 64.73 22.07 32.90 55.90 8.30 220.58 229.34 12.801Q09 20.49 29.50 6.99 207.35 214.10 11.80

2Q09 51.71 15.35 50.75 53.85 16.21 23.40 45.00 6.23 185.05 176.45 10.20

3Q09 18.22 22.40 6.92 189.58 183.95 9.80

4Q09 55.65 15.04 56.58 59.01 18.89 23.10 48.52 7.40 192.64 194.28 10.50

1Q10 19.16 23.20 7.90 215.00 215.68 11.10


Exhibit 10. Cargo yield trend for various airlines

Calendaryear

CSA(RMB

cents)

ANA(JPY

cents)

CEA(RMBcents

Air China(RMBcents

AirAsia(RM sens)

MAS(RM sens)

CX(HK cents)

KAL(US cents)

EVA Air(NT$

cents)

CAL(NT$

cents)SIA

(S$ cents)

1Q05 - 75.50 24.70 692.42 716.85 36.002Q05 184.26 NA 237.19 202.00 - 75.50 175.00 24.90 711.36 736.70 37.00

3Q05 - 74.50 26.00 753.33 775.23 38.50

4Q05 167.60 NA 225.81 236.45 - 98.30 175.00 28.30 859.74 871.05 40.60

1Q06 - 95.50 26.40 768.75 805.79 38.20

2Q06 188.90 NA 222.88 210.32 - 94.50 169.00 26.00 777.11 819.15 38.50

3Q06 - 96.00 25.60 797.10 846.31 39.10

4Q06 198.63 NA 269.03 220.46 - 94.60 169.00 26.90 864.33 897.72 39.50

1Q07 - 90.60 24.20 762.87 806.56 36.30

2Q07 191.93 NA 206.45 183.77 - 87.80 163.00 24.30 759.46 795.45 36.00

3Q07 - 90.60 25.70 796.42 843.24 37.60

4Q07 183.75 NA 212.62 194.40 - 93.60 164.84 30.00 880.17 953.70 40.60

1Q08 - 89.50 27.70 817.31 902.73 40.502Q08 198.56 NA 223.03 198.31 - 87.70 160.00 30.20 850.54 916.77 40.60

3Q08 - 96.20 33.30 963.29 1,017.51 42.50

4Q08 196.81 NA 219.65 199.69 - 90.40 162.00 26.90 845.59 951.08 38.30

1Q09 - 68.30 18.40 633.13 738.13 29.20

2Q09 161.56 NA 140.82 129.89 - 70.10 120.00 19.09 569.08 640.51 27.20

3Q09 - 64.60 22.57 620.17 718.74 28.70

4Q09 164.47 NA 187.00 170.57 - 83.40 147.62 30.50 795.68 860.09 34.90

1Q10 - 79.50 29.80 736.88 776.69 34.90

Source: Company data; half-yearly numbers are available for CSA, ANA, CEA, Air China and CX

While 1Q10 passenger yields for some airlines may still be down y-y, 1Q10 passenger

yields for all are significantly up q-q and substantially higher than recent troughs.


10/150



Exhibit 11. Passenger yield growth trend for various airlines

Calendaryear

CSA(%)

ANA(%)

CEA(%)

Air China(%)

AirAsia(%)

MAS(%)

CX(%)

KAL(%)

EVA Air(%)

CAL(%)

SIA(%)

1Q06 (20) 20 7 1 6 1

2Q06 4 6 4 3 (11) 23 (3) 14 4 12 3

3Q06 (18) 27 13 5 12 3

4Q06 11 6 6 3 2 24 6 14 3 10 2

1Q07 72 15 13 7 7 6

2Q07 2 5 3 5 29 13 17 8 6 5 8

3Q07 52 7 8 3 3 11

4Q07 1 3 0 5 30 13 17 8 7 2 13

1Q08 (5) 9 7 4 4 12

2Q08 2 2 3 3 18 12 4 7 8 9 8

3Q08 12 17 2 11 13 7

4Q08 (1) (0) (1) 1 12 13 (0) (8) 8 12 3

1Q09 14 4 (24) (2) 5 (6)

2Q09 (14) (15) (18) (12) (12) (18) (19) (32) (12) (14) (18)

3Q09 (5) (29) (28) (17) (20) (23)

4Q09 (9) (10) (10) (9) (14) (30) (13) (11) (13) (15) (18)

1Q10 (6) (21) 13 4 1 (6)


Exhibit 12. Cargo yield growth trend for various airlines

Calendaryear

CSA(%)

ANA(%)

CEA(%)

Air China(%)

AirAsia(%)

MAS(%)

CX(%)

KAL(%)

EVA Air(%)

CAL(%)

SIA(%)

1Q06 - - 26 7 11 12 6

2Q06 3 - (6) 4 - 25 (3) 4 9 11 4

3Q06 - - 29 (2) 6 9 2

4Q06 19 - 19 (7) - (4) (3) (5) 1 3 (3)

1Q07 - - (5) (8) (1) 0 (5)

2Q07 2 - (7) (13) - (7) (4) (7) (2) (3) (6)

3Q07 - - (6) 0 (0) (0) (4)

4Q07 (7) - (21) (12) - (1) (2) 12 2 6 3

1Q08 - - (1) 14 7 12 12

2Q08 3 - 8 8 - (0) (2) 24 12 15 13

3Q08 - - 6 30 21 21 13

4Q08 7 - 3 3 - (3) (2) (10) (4) (0) (6)

1Q09 - - (24) (34) (23) (18) (28)

2Q09 (19) - (37) (35) - (20) (25) (37) (33) (30) (33)

3Q09 - - (33) (32) (36) (29) (32)

4Q09 (16) - (15) (15) - (8) (9) 13 (6) (10) (9)

1Q10 - - 16 62 16 5 20


Similar recovery trends have been seen in volumes and load factors.


11/150



Exhibit 13. Asian airlines: revenue passenger kilometre (RPK) growth rate

(% y-y) Air China CSA CEA CX SIA Qantas CAL EVA Thai MAS KAL AirAsia# ANA

Mar-08 1.0 6.4 2.0 17.2 2.4 3.4 (2.0) (2.9) 6.2 (9.3) (1.2) 20.7 (2.2)

Apr-08 0.3 6.6 0.3 12.8 4.8 1.7 (6.9) (1.4) 5.9 (8.7) 1.0 (0.6)

May-08 (6.7) 1.1 (6.0) 19.6 9.0 4.3 (5.3) (1.8) 4.6 (3.6) 3.5 (0.3)

Jun-08 (6.1) (4.3) (12.2) 16.4 5.2 11.2 (6.5) (10.7) 0.9 (8.6) 1.3 19.7 (4.3)

Jul-08 (8.4) (4.1) (13.1) 15.7 6.7 0.2 (7.7) (6.1) (6.4) (6.7) 1.0 (2.2)

Aug-08 (16.3) (18.7) (25.3) 7.5 5.3 (0.9) (8.6) (2.7) (11.1) (10.2) 4.0 (3.8)

Sep-08 (7.9) (4.8) (13.4) 4.5 1.3 (2.9) (12.5) (22.2) (23.1) (18.1) (7.0) 26.7 (7.6)

Oct-08 0.5 7.0 (5.2) 4.3 3.0 (3.1) (9.0) (6.1) (18.8) (14.6) (4.1) (5.3)

Nov-08 3.0 3.7 (4.3) 1.0 (2.6) (5.2) (12.6) (10.6) (32.3) (19.0) (8.7) (10.4)

Dec-08 2.3 3.8 (3.7) 2.4 (3.5) (4.0) (9.6) (9.0) (38.0) (20.1) (2.1) 17.9 (10.5)

Jan-09 10.4 11.0 6.5 1.2 (6.9) (4.1) (7.8) (4.1) (20.9) (25.2) (1.1) (10.3)

Feb-09 6.2 3.3 3.0 (4.9) (17.0) (10.1) (17.4) (23.6) (21.3) (32.8) (5.6) (17.4)

Mar-09 4.9 4.8 8.6 (4.5) (21.8) (6.4) (9.8) (3.5) (18.8) (25.5) (3.6) 17.4 (11.2)

Apr-09 4.8 2.2 8.8 5.3 (17.7) (2.7) 0.2 (7.0) (17.9) (15.6) (2.4) (11.6)

May-09 7.0 6.5 10.8 (6.7) (22.8) (3.9) (8.2) (9.4) (24.9) (16.9) (9.0) (13.1)

Jun-09 5.3 16.2 15.1 (14.1) (18.2) (7.1) (18.0) (11.4) (25.7) (11.1) (8.8) 23.4 (13.5)

Jul-09 13.8 13.0 18.4 (8.2) (13.2) (2.1) (6.4) 10.0 (12.7) (5.3) 1.0 (4.5)

Aug-09 29.0 31.4 44.3 1.9 (14.1) (1.4) 5.6 8.7 (2.2) (2.6) 1.9 (4.1)

Sep-09 11.4 10.0 16.0 0.1 (7.9) 2.7 6.9 6.3 10.6 8.9 9.7 9.9 1.1

Oct-09 11.3 11.4 13.8 (0.2) (6.0) 3.2 4.7 2.7 11.0 8.9 6.8 (4.0)

Nov-09 13.0 14.3 7.9 2.0 (5.1) 3.0 11.6 12.7 27.5 10.6 13.4 (1.3)

Dec-09 14.9 18.6 8.8 4.0 (4.3) 1.9 15.9 18.2 55.0 15.3 13.9 16.1 2.5

Jan-10 8.6 10.8 36.4 1.6 (1.6) (0.2) 5.3 11.0 21.3 25.1 12.0 5.7

Feb-10 16.6 21.5 53.9 10.5 9.9 3.9 19.2 14.4 18.8 35.7 12.0 10.6

Mar-10 20.8 25.8 45.6 6.6 13.9 4.1 8.4 16.0 13.1 28.0 17.0 17.3 8.0

Apr-10 16.5 20.4 36.1 (4.3)* 2.9* - (4.7)* 5.2* - - 10.0* 4.5

May-10 - - - 10.3 - - - 19.9 - - - -

Source: Company data; * Biased by volcanic ash cloud disruption, #AirAsia (quarterly)

Exhibit 14. Asian airlines: revenue freight tonne kilometre (RFTK) growth rate

(%) Air China CSA CEA CX SIA Qantas CAL EVA Thai MAS KAL AirAsia ANA

Mar-08 1.7 (0.8) 10.5 6.9 (4.9) - 6.0 2.2 0.9 (2.3) 0.0 - -

Apr-08 (0.7) 5.9 (2.4) 12.9 (0.5) - (1.4) 3.4 4.3 5.2 (1.5) - -

May-08 (0.7) 9.3 11.0 8.3 3.4 - (4.3) (9.0) 2.0 4.7 (2.0) - -

Jun-08 (7.1) (10.2) (4.5) 3.0 (1.6) - (15.4) (13.7) 4.0 4.7 (7.5) - -

Jul-08 (0.8) (14.2) 0.5 2.2 (2.1) - (18.3) (25.8) (0.5) (11.1) (7.0) - -

Aug-08 (7.2) (23.9) (10.5) (4.6) (1.5) - (16.2) (18.4) (3.0) (4.2) (8.0) - -

Sep-08 (14.3) (15.2) (21.5) (8.2) (7.3) - (24.5) (21.5) (7.5) (14.2) (12.5) - -

Oct-08 (4.8) (11.5) (17.2) (6.7) (11.3) - (21.2) (15.6) (9.1) (18.3) (10.0) - -

Nov-08 (14.3) (27.5) (24.2) (11.1) (12.5) - (28.4) (29.0) (30.9) (14.5) (15.5) - -

Dec-08 (22.6) (31.5) (32.9) (21.1) (19.0) - (47.0) (40.6) (49.1) (29.4) (22.5) - -

Jan-09 (30.5) (42.9) (36.8) (21.9) (14.4) - (47.2) (43.4) (35.0) (26.7) (24.0) - -

Feb-09 (14.4) (15.7) (16.7) (16.5) (15.2) - (38.4) (41.2) (33.0) (28.4) (18.0) - -Mar-09 (15.4) (23.6) (17.6) (10.4) (18.0) - (41.3) (38.5) (24.2) (27.7) (16.0) - -

Apr-09 (12.7) (26.3) (5.2) (14.7) (21.6) - (34.6) (31.4) (24.6) (35.2) (18.5) - -

May-09 (12.8) (16.6) (3.0) (14.2) (20.7) - (24.7) (18.3) (23.4) (26.3) (15.0) - -

Jun-09 (8.0) (3.2) 6.7 (9.4) (20.8) - (18.2) (16.3) (24.2) (38.9) (13.0) - -

Jul-09 (8.8) 5.9 (5.8) (3.7) (14.6) - (2.8) (1.2) (15.8) 2.0 (8.0) - -

Aug-09 6.5 23.2 5.5 (6.1) (17.7) - (6.9) (0.8) (9.2) (17.8) (7.0) - -

Sep-09 23.1 17.9 23.0 (3.3) (14.5) - 8.4 0.5 (4.0) (10.3) 4.8 - -

Oct-09 13.9 15.5 14.7 (1.9) (4.2) - 18.6 10.2 4.6 6.2 6.0 - -

Nov-09 31.2 44.5 28.5 3.8 (3.1) - 51.2 32.2 46.0 4.7 16.4 - -

Dec-09 41.7 58.6 46.5 20.8 5.7 - 104.8 56.6 100.4 23.9 25.2 - -

Jan-10 66.0 121.9 141.7 25.7 3.3 - 111.5 67.6 54.9 21.4 24.0 - -

Feb-10 50.0 75.1 90.2 16.6 3.4 - 82.0 75.7 59.0 31.2 18.0 - -

Mar-10 42.3 109.3 98.9 21.2 12.0 - 88.7 59.4 50.0 39.9 15.0 - -Apr-10 26.8 82.0 96.9 28.4 5.8 - 71.9 60.9 - - 23.0 - -

May-10 - - - 38.9 - - - 62.2 - - - - -



12/150



Exhibit 15. Asian airlines: RPK (mn)

Air China CSA CEA CX SIA Qantas CAL EVA Thai MAS KAL AirAsia ANA

Mar-08 5,597 6,951 4,585 7,941 8,016 8,666 2,860 2,020 5,568 3,183 4,150 2,970 5,349

Apr-08 5,594 7,303 4,813 7,492 7,621 8,326 2,644 1,912 5,249 2,999 4,100 4,530

May-08 5,234 6,606 4,335 7,595 7,670 8,004 2,741 1,909 4,934 2,982 4,450 4,867

Jun-08 5,234 5,924 3,948 7,760 7,900 9,001 2,797 1,832 4,816 3,034 4,550 3,286 4,807

Jul-08 5,601 7,380 4,678 8,405 8,339 8,984 2,878 2,085 4,967 3,335 4,800 5,058

Aug-08 5,268 6,759 4,209 7,747 8,187 8,396 2,790 2,161 4,795 3,246 5,150 5,607

Sep-08 5,470 6,956 4,344 6,867 7,578 8,278 2,348 1,705 3,977 2,703 3,920 3,429 5,050

Oct-08 6,056 7,702 5,003 7,452 7,749 8,623 2,399 1,828 4,275 2,758 4,125 5,168

Nov-08 5,581 7,058 4,587 7,131 7,495 8,049 2,234 1,718 3,614 2,592 3,745 4,726

Dec-08 5,509 6,766 4,392 7,792 8,053 8,559 2,415 1,768 3,301 2,835 4,209 3,800 4,333

Jan-09 6,122 7,530 4,747 7,886 7,406 8,710 2,640 1,944 4,478 2,407 4,550 4,150

Feb-09 5,664 7,172 4,533 6,652 5,859 7,310 2,172 1,632 4,105 2,007 3,870 3,911

Mar-09 5,885 7,292 4,981 7,582 6,271 8,113 2,578 1,834 4,524 2,370 4,000 3,487 4,750

Apr-09 5,924 7,471 5,234 7,887 6,275 8,101 2,649 1,878 4,308 2,533 4,000 4,005

May-09 5,607 7,039 4,804 7,085 5,919 7,693 2,516 1,733 3,705 2,479 4,050 4,231

Jun-09 5,523 6,889 4,543 6,666 6,461 8,360 2,293 1,692 3,580 2,698 4,150 4,056 4,160

Jul-09 6,372 8,344 5,537 7,720 7,240 8,797 2,693 2,015 4,336 3,159 4,850 4,830

Aug-09 6,809 8,893 6,076 7,894 7,035 8,279 2,946 2,266 4,688 3,160 5,250 5,378

Sep-09 6,094 7,656 5,038 6,877 6,979 8,504 2,510 1,813 4,400 2,944 4,300 3,769 5,107

Oct-09 6,740 8,577 5,696 7,301 7,285 8,900 2,511 1,877 4,744 3,003 4,405 4,961

Nov-09 6,302 8,067 4,951 7,275 7,114 8,289 2,492 1,936 4,609 2,866 4,247 4,663

Dec-09 6,328 8,024 4,777 8,106 7,710 8,725 2,798 2,090 5,116 3,268 4,792 4,410 4,441

Jan-10 6,649 8,340 6,476 8,009 7,290 8,693 2,781 2,159 5,431 3,011 5,096 4,385

Feb-10 6,603 8,716 6,978 7,353 6,436 7,592 2,588 1,867 4,877 2,724 4,334 4,326

Mar-10 7,109 9,174 7,251 8,082 7,141 8,444 2,795 2,128 5,116 3,035 4,680 4,090 5,131

Apr-10 6,903 8,999 7,123 7,551* 6,456* - 2,526* 1,975* - - 4,400* 4,186

May-10 - - - 7,816 - - - 2,077 - - - -

Source: Company data; * biased by volcanic ash cloud disruption

Exhibit 16. Asian airlines: RFTK (mn)

Air China CSA CEA CX SIA Qantas CAL EVA Thai MAS KAL AirAsia ANA

Mar-08 327 160 231 799 683 - 549 439 213 225 860 - -

Apr-08 315 175 215 756 658 - 518 388 202 226 810 - -

May-08 315 161 209 751 659 - 514 352 206 217 796 - -

Jun-08 300 134 198 732 648 - 481 358 208 224 750 - -

Jul-08 321 138 213 749 664 - 458 306 202 207 760 - -

Aug-08 294 137 202 735 669 - 465 313 195 207 730 - -

Sep-08 275 164 200 739 658 - 426 319 198 197 790 - -

Oct-08 301 143 206 786 633 - 439 348 201 193 763 - -

Nov-08 269 130 193 748 642 - 400 301 158 213 709 - -

Dec-08 246 126 165 657 544 - 274 242 112 167 618 - -

Jan-09 205 107 135 571 490 - 238 217 132 140 570 - -

Feb-09 196 97 145 549 474 - 252 200 130 134 610 - -

Mar-09 276 123 190 716 560 - 322 270 161 163 740 - -

Apr-09 275 129 203 645 516 - 339 266 152 147 650 - -

May-09 275 134 202 645 522 - 387 287 158 160 788 - -

Jun-09 276 130 211 663 513 - 393 299 158 137 786 - -

Jul-09 293 146 200 721 567 - 445 302 170 211 792 - -

Aug-09 314 169 213 690 551 - 433 310 177 170 690 - -

Sep-09 339 193 246 715 563 - 462 320 190 177 750 - -

Oct-09 343 165 237 771 606 - 521 383 210 205 809 - -

Nov-09 353 188 248 777 622 - 605 397 230 223 825 - -

Dec-09 348 200 242 794 575 - 561 379 224 207 774 - -

Jan-10 339 237 327 718 506 - 504 364 204 169 707 - -

Feb-10 295 169 276 640 490 - 460 352 207 176 720 - -

Mar-10 393 257 379 868 627 - 608 430 242 227 851 - -

Apr-10 349 234 401 829 546 - 583 428 - - 800 - -

May-10 - - - 894 - - - 466 - - - - -



13/150



As shown in the exhibits above, passenger and cargo traffic volumes for most Asian

airlines have recovered to positive growth since September 2009 and have been able

to sustain solid positive volume growth since. We note that the apparent negative

passenger volume growth in April 2010 for some airlines was likely just a blip caused

by the temporary disruption from the volcanic ash cloud over Europe during the period.

Still, rather than focusing purely on volume growth, many airlines have opted to focus

on improving yield and load factors in order to maximise profitability and returns.

In terms of passenger load factor, most Asian airlines have been able to recover and

maintain loads at very high levels of close to 80%.

Exhibit 17. Airlines: passenger load factor


Jan-08 76.8 73.7 71.6 82.3 80.5 84.2 78.9 83.8 82.0 68.5 74.2 60.7

Feb-08 76.8 73.9 70.9 77.6 76.8 80.6 72.9 78.2 81.5 69.7 71.3 67.2

Mar-08 77.7 74.5 72.9 82.1 80.8 80.3 78.6 81.1 81.1 69.5 69.7 68.1 69.9

Apr-08 76.8 74.8 73.0 79.4 76.4 79.0 75.4 77.6 80.1 67.8 69.8 62.8

May-08 71.3 69.9 68.0 77.4 74.7 74.3 75.3 76.3 73.5 64.9 72.4 64.8

Jun-08 72.5 71.4 70.1 81.3 79.2 86.5 81.9 77.6 74.7 68.2 74.6 72.8 66.0Jul-08 73.3 75.1 73.0 84.1 81.0 82.2 82.3 79.4 77.2 71.4 73.8 66.4

Aug-08 71.1 71.7 69.4 78.4 79.4 77.7 80.9 82.7 75.1 70.2 77.4 72.3

Sep-08 75.8 76.2 71.0 72.3 76.9 79.8 77.3 80.9 66.8 67.7 69.4 70.9 69.3

Oct-08 78.3 76.5 72.1 75.5 77.5 79.9 73.3 80.3 68.0 66.1 71.4 68.8

Nov-08 75.6 74.9 69.7 75.7 78.1 78.3 73.4 80.1 68.6 64.1 65.6 67.3

Dec-08 73.6 72.1 67.7 79.0 79.9 80.2 70.9 76.3 63.8 65.7 68.7 75.9 59.4

Jan-09 77.2 74.5 70.2 79.5 74.1 81.8 74.0 78.8 75.2 55.7 72.2 57.6

Feb-09 76.8 78.4 72.1 76.6 69.7 78.4 72.2 74.9 77.2 53.7 70.4 61.6

Mar-09 74.0 75.6 70.3 79.1 69.4 78.3 75.0 76.9 76.8 58.7 65.0 67.0 67.1

Apr-09 75.5 76.4 72.6 82.6 72.2 80.4 76.1 75.0 71.1 65.4 66.7 58.8

May-09 71.2 71.6 69.5 75.8 66.9 77.9 69.8 68.1 62.2 62.6 65.3 59.3

Jun-09 73.4 72.7 70.3 76.8 75.7 80.0 72.7 72.2 65.1 69.4 68.6 73.5 59.1

Jul-09 78.2 75.2 72.3 83.5 79.7 82.9 78.1 80.8 71.3 77.4 74.0 65.1Aug-09 81.6 77.4 77.8 84.1 78.3 80.5 83.4 86.5 76.1 76.9 77.2 71.2

Sep-09 76.6 72.2 70.1 80.2 80.9 83.7 75.7 77.2 74.4 75.6 69.9 69.2 72.2

Oct-09 81.6 78.3 75.3 82.3 81.1 83.3 75.8 78.8 75.1 75.8 70.9 70.1

Nov-09 79.3 77.5 73.7 82.0 81.9 82.3 76.4 78.1 74.0 73.2 69.4 69.8

Dec-09 75.9 74.1 70.6 83.9 84.3 82.4 79.4 80.5 77.0 80.4 74.7 75.2 64.1

Jan-10 77.0 75.9 71.8 83.8 79.1 81.2 80.4 83.0 82.0 74.7 80.9 63.7

Feb-10 79.0 78.0 75.6 84.1 79.9 79.4 79.9 79.3 82.3 74.5 77.3 69.5

Mar-10 80.5 80.3 77.3 85.7 80.8 79.5 81.6 83.7 78.8 75.3 76.1 69.0 73.4

Apr-10 80.2 78.5 75.5 83.9 77.6 - 80.3 81.0 - - 75.0 63.9

May-10 - - - 81.3 - - - 79.3 - - - -


While cargo load factors vary more widely across different carriers, in general, all

airlines have recorded significant improvements from lows seen from mid-2008 to mid-

2009.

In addition to advance booking strength, the sustainability of the current recovery in the

Asian airline industry is also reinforced by our macro view of a global economic

recovery, especially for most Asian economies. For example, Nomura projects GDP

growth of more than 10% in China and Singapore in 2010F.

Passenger and cargo traffic

volume have been able to sustain

solid positi ve volume growth

since September 2009


14/150



Exhibit 18. Airlines: cargo load factor


Jan-08 58.0 51.1 53.1 63.6 58.6 - 68.7 73.5 51.2 61.9 74.0 - -

Feb-08 49.6 34.8 47.5 64.6 62.2 - 67.5 74.8 55.4 64.1 77.6 - -

Mar-08 60.5 48.7 54.3 68.2 62.8 - 68.8 78.1 57.2 66.9 76.8 - -

Apr-08 59.3 46.6 50.9 67.6 61.7 - 69.0 77.2 56.9 68.0 76.4 - -

May-08 60.3 46.2 50.5 67.0 60.7 - 69.6 76.7 56.3 69.4 76.5 - -Jun-08 61.1 47.0 55.2 67.5 61.6 - 73.2 81.8 58.2 75.1 78.1 - -

Jul-08 58.9 41.3 50.8 66.0 60.3 - 71.7 79.5 56.9 70.8 75.2 - -

Aug-08 56.2 43.1 52.6 65.9 61.0 - 72.4 79.3 55.2 70.5 73.7 - -

Sep-08 54.1 46.7 53.0 66.5 61.1 - 65.7 73.5 60.2 66.7 80.6 - -

Oct-08 54.0 38.7 48.5 65.9 59.4 - 65.9 74.7 58.1 65.1 72.3 - -

Nov-08 52.2 37.4 45.0 64.5 60.3 - 60.4 75.5 54.5 68.3 70.0 - -

Dec-08 51.0 37.4 43.5 62.9 55.2 - 59.5 70.6 39.6 63.1 66.4 - -

Jan-09 40.7 30.3 35.9 59.1 54.2 - 56.8 69.7 40.3 60.8 63.3 - -

Feb-09 44.8 31.5 42.3 64.7 56.7 - 61.4 74.0 44.6 63.7 72.6 - -

Mar-09 51.9 37.6 45.5 67.9 58.5 - 62.5 75.5 49.8 67.3 75.5 - -

Apr-09 51.6 38.3 47.1 65.7 58.0 - 64.0 74.4 46.2 66.0 76.5 - -

May-09 50.8 38.6 48.4 68.2 61.2 - 68.2 77.9 47.9 70.2 86.6 - -

Jun-09 55.6 40.3 53.2 71.3 62.9 - 72.4 81.4 51.7 59.3 91.4 - -

Jul-09 55.3 38.8 47.5 72.6 63.6 - 74.0 84.0 50.5 82.4 87.0 - -

Aug-09 56.5 42.1 49.9 72.0 61.9 - 70.4 84.2 52.3 71.5 75.0 - -

Sep-09 61.4 51.2 58.8 74.5 63.2 - 72.0 81.3 58.8 74.2 76.5 - -

Oct-09 57.1 42.2 53.6 76.7 65.4 - 73.0 82.6 59.4 74.9 75.8 - -

Nov-09 60.3 48.8 61.0 76.8 66.4 - 72.1 81.9 61.7 74.8 74.8 - -

Dec-09 59.8 48.8 60.3 78.6 63.4 - 73.5 84.6 58.3 73.1 76.7 - -

Jan-10 56.6 49.6 59.9 74.9 60.1 - 73.4 84.8 54.5 72.7 70.7 - -

Feb-10 52.7 38.6 51.4 77.1 65.6 - 70.9 81.4 60.4 77.8 76.5 - -

Mar-10 62.9 53.0 62.3 81.7 68.4 - 73.7 85.1 63.9 81.6 77.5 - -

Apr-10 59.5 49.2 64.7 79.3 64.6 - 71.7 82.3 - - 78.0 - -

May-10 - - - 79.1 - - - 84.0 - - - - -


As domestic air traffic growth is generally a multiple of domestic GDP growth, our

macro view for economic recovery underpins our view for a sustained recovery for the

Asian airlines.

Exhibi t 19. Real GDP forecasts

(%) 2008 2009 2010F 2011F

China 9.0 8.7 10.5 9.8

India 7.3 6.4 8.8 8.3

Vietnam 6.2 5.3 6.5 6.6

Indonesia 6.1 4.5 5.9 6.3

Singapore 1.1 (2.0) 10.2 5.3

Malaysia 4.6 (1.7) 7.0 5.2

Thailand 2.6 (2.3) 3.3 4.8

Philippines 3.8 0.9 5.0 4.5

Taiwan 0.1 (1.9) 7.9 4.3

Korea 2.2 0.2 5.5 4.0

Hong Kong 2.4 (2.8) 5.5 4.0

US 1.1 (2.4) 3.3 2.7

UK 0.7 (4.9) 1.3 2.5

Japan (0.7) (5.2) 3.4 2.0

Euro zone 0.9 (4.0) 1.1 1.8

Source: Nomura Global Economics estimates


15/150



We note that projections by Boeing (below) also indicate sustained long-term air traffic

demand growth. Again, the intra-Asia (especially South Asia) and China domestic

routes are expected to see the strongest passenger traffic growth over the medium to

long term, according to Boeings estimates.

Exhibit 20. Passenger traffic growth projections by rou te (RPK bn)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2028F2000-08

CAGR (%)2008-28F

CAGR (%)

Africa-S.E Asia 3.2 3.4 3.6 3.7 3.9 4.7 4.8 5.7 5.6 32.2 7.2 9.2

S.W Asia-S.W Asia 16.0 16.6 17.4 17.7 21.3 25.0 29.5 39.1 44.2 236.4 13.5 8.7

China-China 76.7 86.9 101.5 106.9 143.8 163.8 182.4 210.7 227.6 1,174.9 14.6 8.6

S.E Asia-S.E Asia 53.7 57.0 60.6 59.4 73.9 82.4 89.2 96.7 90.0 424.0 6.7 8.1

S.E Asia-S.W Asia 10.9 11.6 12.6 12.5 14.9 17.1 19.1 20.0 22.2 100.9 9.3 7.9

Rest of world 15.2 16.0 16.9 18.2 26.7 31.9 38.7 53.9 64.2 273.5 19.7 7.5

Africa-N. America 4.4 4.6 4.3 4.4 3.9 3.8 4.8 8.3 8.5 35.5 8.6 7.4

Middle East- N. America 16.1 12.0 10.4 9.6 12.6 14.4 19.5 30.1 34.8 133.1 10.1 6.9

N. America-S. America 47.2 44.8 42.7 37.6 39.9 49.9 59.0 66.6 59.2 214.7 2.9 6.7

N. America-S.E Asia 32.1 29.3 30.5 26.8 33.6 36.5 36.5 42.7 27.4 136.2 (2.0) 6.7

Middle East-S.E Asia 24.0 22.9 24.0 26.4 29.2 33.3 38.3 45.1 45.7 165.0 8.4 6.6

S. America-S. America 53.5 50.8 52.7 47.9 52.9 60.8 72.8 78.8 80.0 287.9 5.2 6.6Africa-Africa 19.4 19.9 21.2 22.5 24.0 26.4 29.7 33.9 34.6 118.6 7.5 6.4

C. America-S. America 7.3 7.2 7.1 7.1 8.3 10.7 12.7 14.9 15.8 52.2 10.1 6.2

Middle East-Middle East 27.8 27.1 27.5 28.1 32.0 34.0 36.3 39.6 41.8 140.0 5.2 6.2

Africa-Middle East 9.8 10.6 13.2 13.9 13.9 16.4 17.9 19.9 23.0 75.3 11.3 6.1

Europe-S.W. Asia 26.2 27.5 27.6 29.5 35.7 44.3 54.1 54.3 53.6 174.6 9.4 6.1

C. America-C. America 24.0 23.0 23.4 24.8 26.0 25.2 26.0 26.9 27.7 88.3 1.8 6.0

China-N. America 33.2 36.2 33.2 24.9 34.4 40.2 48.5 56.4 57.2 182.3 7.0 6.0

Middle East-S.W Asia 29.4 29.9 31.1 33.8 35.6 38.3 44.0 48.8 58.2 188.1 8.9 6.0

China-Oceania 12.1 12.4 13.2 10.6 15.0 17.1 19.3 20.4 22.4 71.1 8.0 5.9

N.E Asia-S.E Asia 48.5 47.8 54.4 45.7 61.5 67.1 74.3 79.0 74.1 234.4 5.4 5.9

China-Europe 40.1 40.2 42.6 37.5 51.2 60.9 73.9 77.4 77.9 235.1 8.7 5.7

China-N.E Asia 19.4 18.4 24.5 20.1 27.3 29.0 30.0 35.7 33.3 101.9 7.0 5.7

Europe-S.E Asia 95.8 95.9 96.4 95.0 104.5 111.3 110.3 108.3 108.9 327.4 1.6 5.7N. America-Oceania 30.0 27.6 26.5 25.9 30.1 31.5 32.2 29.5 29.5 89.3 (0.2) 5.7

China-S.E Asia 29.3 31.7 36.9 27.7 41.2 48.9 48.6 52.1 50.4 145.7 7.0 5.5

R&CA-R&CA* 39.4 43.5 46.9 50.2 54.7 56.0 57.3 57.7 61.4 177.5 5.7 5.5

Europe-Middle East 65.0 59.8 58.6 58.9 67.7 74.1 88.3 105.2 113.8 329.8 7.3 5.5

Africa-Europe 99.4 96.2 97.2 99.1 105.2 111.3 115.2 122.4 126.3 359.9 3.0 5.4

Europe-S. America 53.2 52.1 49.2 49.5 57.9 65.4 71.7 78.7 84.9 241.1 6.0 5.4

Oceania-S.E Asia 46.2 47.6 46.6 42.0 54.6 60.1 57.3 55.7 65.7 183.3 4.5 5.3

N.E Asia-Oceania 24.1 22.5 24.5 22.8 27.1 25.7 24.6 23.3 20.9 57.3 (1.8) 5.2

R&CA-International 49.2 48.1 51.4 56.4 63.0 65.2 66.6 74.6 85.7 232.2 7.2 5.1

Europe-N. America 420.0 373.8 346.0 349.5 375.5 390.7 403.4 420.6 433.2 1,055.7 0.4 4.6

Europe-N.E Asia 63.6 55.8 53.3 48.3 59.8 61.0 61.8 68.3 68.7 163.1 1.0 4.4

Oceania-Oceania 49.2 50.7 50.2 55.5 58.8 63.0 67.8 72.6 78.2 184.3 6.0 4.4

N.E Asia-N.E Asia 79.0 80.2 85.0 86.1 83.6 83.9 84.1 82.0 81.6 167.1 0.4 3.6C. America-N. America 90.1 88.6 87.7 92.0 103.5 104.9 107.9 116.6 119.2 234.8 3.6 3.5

Europe-Europe 440.1 449.3 453.8 474.7 521.2 561.9 593.3 634.2 661.8 1,279.5 5.2 3.4

C. America-Europe 66.4 69.8 68.1 69.8 75.7 80.1 82.0 85.4 92.3 172.0 4.2 3.2

N. America-N.E Asia 140.2 127.5 121.2 103.0 120.8 126.2 122.4 124.1 122.9 229.7 (1.6) 3.2

N. America-N. America 857.5 812.8 783.5 828.3 927.7 972.3 977.4 1,022.4 976.0 1,583.8 1.6 2.5

World total 3,381 3,290 3,279 3,304 3,754 4,026 4,234 4,539 4,621 12,090 4.0 4.9

Source: Boeing


16/150



Cargo

Taiw anese and Korean a i r l ines most

exposed to c argo recover yNoting that the strength of recoveries has differed among passenger operations and

cargo operations, we see Taiwanese carriers as being the most exposed to the

ongoing stronger cargo recovery.

While yields and volumes have shown strong recoveries for both air passenger and

cargo operations, the magnitude of such recovery from trough has been much stronger

on the cargo front (albeit from a lower base).

Exhibit 21. Cargo operations as percentage of revenue

(%) 2008 2009

China Air 40.6 36.7

EVA Air 39.0 33.0

KAL 29.6 28.8

CX 28.4 25.8

SIA 18.6 16.6

CEA 13.0 10.6

Air China 13.6 10.5

MAS 10.7 10.5

ANA 8.9 8.7

CSA 6.3 5.3

AirAsia 2.0 3.0

Source: Nomura estimates

Exhibit 22. Passenger operations as percentage of revenue

(%) 2008 2009

CSA 91.2 91.3AirAsia 84.0 76.0

CEA 81.5 84.1

Air China 81.9 83.1

ANA 80.6 77.8

SIA 73.2 75.0

CX 67.0 68.6

EVA Air 55.2 60.0

MAS 57.6 59.7

KAL 58.3 58.2

China Air 54.7 58.2


Air cargo demand is more dependent on a recovery in the US and Europe, while air

passenger demand is more dependent on a recovery in domestic economies.

Therefore, despite the stronger recovery for air cargo vis--vis air passengers, our

expectation of a sustained recovery in air passenger demand is still higher than that of

a sustained recovery in air cargo demand. Still, a number of players advocate that the

strong recovery in air cargo will be sustained for at least six to nine months, for

instance Singapore Airlines.

Taiwanese carries are the most

exposed to the ongoing stronger

cargo recovery

Air p assenger recovery slow er

than cargo but from higher base

and higher clarity


17/150



The fleet

Fleet age and fo rw ard f lee t ex pans ionIn light of our view for a sustainable demand recovery, we now look to supply. Here we

see that scheduled increases in aircraft capacity within the next two years is relatively

limited (most to grow fleet by just single digits), which bodes well for the profitability of

the Asian airlines.

Exhibit 23. Fleet development schedule

Fleet growth (%)Fleet size(# of aircrafts)

Avg fleet age(years) 2010F 2011F

Air China 262 7.4 10.3 10.4

CSA 378 6.2 9.0 8.5

ANA 210 9.8 8.6 9.2

CEA 257 7.2 7.8 5.8

AirAsia 84 2.5 4.8 17.0

KAL 126 9.0 4.8 12.1

CX 144 9.0 3.5 3.4

SIA 120 6.3 3.3 4.0

MAS 104 11.6 2.9 7.5

EVA Air 53 8.5 1.8 0.0

Source: Company data, Nomura estimates

The detailed aircraft fleet breakdowns for the various airlines are as follows:

Exhibit 24. Air China fleet development schedule

Type FY09 FY10F FY11F

Passenger aircrafts

A319 33

A320 33 12 14

B737-300/600/700 75

B737-700 20

B737-800 44 12 10

B757-200 13 (2) (1)

A330-200 20 3 5

A340-300 6

B747-400C 4 (1) (1)

B747-400P 4

B767-300 1 (1)

B767-300ER 5 (2) (1)

B777-200 10 4

Subtotal 250 21 30

Freighter

B747-200F 5 2

B747-400F 4

Turpolev TU 204F 1 2

Gulfstream IV 0

BJ/RJ 2 2

Subtotal 12 6 0

Total fleet 262 27 30

Total fleet size 262 289 319

Fleet growth (%) 10.3 10.4

Average age 7.4

Source: Company data; Fleet doesnt include Air Macau and Shenzhen Airlines; Nomura estimates

Limited supply may spur growth

in region, which bodes well for

the profitability of As ian airlines


18/150



Exhibit 25. China Eastern Airlines fleet development schedule


A340-600 5

A340-300 5

A330-300 15 0 3

A330-200 5

A320 83 14 11A319 15

MD-90 9

B767-300 3

B737-800 13 2 1

B737-700 39 4 1

B737-300 17

B737 NG

ERJ145 10

B747-400 F 2

A300F 3

MD-11F 6

CRJ-200 5

Total 257 20 16



Average age 7.2

Source: Company data, Fleet doesnt include Shanghai Airlines, Nomura estimates

Exhibit 26. China Southern Airlines fleet development schedule


B737-300 25

B737-500 2

B737-700 46B737-800 80

A330-300 8

A321-200 40

A300-600 5

A320-200 54

A319-100 44

B747-400F 2

B777F 2

MD82 3

MD90 13

ATR-72 5

ERJ145 6

Total 378 34 35



Average age 6.2



19/150



Exhibit 27. KAL fleet development schedule

Type Current FY10F FY11F FY12F

A380 0 5 1

A330 19 2 5 1

A300 8

B747 21

B777 25 3B787 0 2 4

B737 30 2 2

Passenger total 103 5 14 8

B747F 23 1 2 1

B777F 0 2

Cargo total 23 1 2 3

Total 126 6 16 11

Total fleet size 126 132 148 159

Fleet growth (%) 4.8 12.1 7.4

Average age 9.0


Exhibit 28. MAS fleet development schedule


B747-400 10

B777-200 17

A330-300 11 0 5 3

A330-200 3

B737-800 3 3 3 8

B737-400 37

A380 0 0 0 6

Freighters 6

ATR 17Total 104 3 8 17


Fleet growth (%) 2.9 7.5 14.7

Average age 11.6


Exhibit 29. AirAsia fleet development schedule


Malaysia AirAsia

A320 48 4 6 6

Thai AirAsia

A320 12 8 5 9

B737 8 (8)

Indonesia AirAsia

A320 10 4 5 9

B737 6 (4) (1)

Total 84 4 15 24


Fleet growth (%) 4.8 17.0 23.3

Average age



20/150



Exhibit 30. EVA airways fleet development schedule

FY09 FY10F FY11F

B747-400 3

B747-400 Combi 4 (1)

B747-400F 9 1

MD-11 0

MD-11F 8MD-90 6

B757-200 0

B767-200 0

B767-300ER 0

B777-300ER 14 1

A330-200 11

A320-200 0

B777-200LR 0

Total 55 1 0



Average age 8.5


Exhibit 31. Cathay Pacific fleet development schedule

FY09 FY10F FY11F

CX

B747-400 22

B747-400F 6

B747-400BCF 7 1

B747-400ERF 6

B747-8F 0 6

B777-200 5B777-300 12

B777-300ER 14 4 6

A330-300 32 1

A340-300 11 (1)

Total 115 6 11

Dragonair

A320-200 9 1 (2)

A321-200 6 (1) (2)

A330-300 14 (1) (2)

Total 29 (1) (6)

Total 144 5 5

Total fleet size 144* 149* 154*

Fleet growth (%) 3.5* 3.4*

Average age 9.0

Source: Company data, Nomura estimates: * Assumes that of the 10 aircraft that are parked and 1 that is leased out,4 are sold to the Air China cargo JV, 3 will be brought back into operation in 2010 and another 3 back into operation in2011.


21/150



Exhibit 32. Singapore Airlines fleet development schedule

FY09 FY10F FY11F

SIA

B747-400 5 2 1

B777-200 13 (10)

B777-200A 17

B777-200ER 15B777-300 12

B777-300ER 19

A340-500 5

A380-800 11 4 4

A330-300 11 8

B787-9 0

A350-900XWB 0

Total 108 4 5

SIA Cargo

B747-400F 12

Total 120 4 5

Total fleet size 120* 124* 129*

Fleet growth (%) 3.3* 4.0*

Average age 6.3

Source: Company data, Nomura estimates: * Assumes that of the 4 surplus aircrafts, 3 are brought back intooperation in 2010 and 1 back into operation in 2011

Exhibit 33. ANA fleet development schedule

FY09 FY10F FY11F

Boeing 747-400(International) 3 (3)

Boeing 747-400 10

Boeing 777-300ER 13 4Boeing 777-300 7

Boeing 777-200ER 7

Boeing 777-200 16

Boeing 787-8 0 8 12

Boeing 767-300ER 20 3 4

Boeing 767-300 32

Boeing 767-300F 4

Boeing 767-300BCF 4 2

Airbus A320-200(International) 5 (1)

Airbus A320-200(Domestic) 24

Boeing 737-800 9 5 2

Boeing 737-700ER 2

Boeing 737-700 16

Boeing 737-500 19 (1)

Bombardier DHC8/400(Q400) 14 1 3

Bombardier DHC8/300(Q300) 5

210 18 21



Average age 9.8



22/150



Forex is a major part of a capital-intensive business

Currenc y sensi t i v i t ies d i f fe r s igni f i can t lyIn addition to supply and demand, currency movement is another major factor that

affects the profitability of the Asian airlines.

Given their partial global exposure, the Asian airlines will necessarily be impacted by

global currency movements whether directly and/or indirectly. Depending on capitalstructure and route mix, the impact of domestic currency exchange rate movement will

impact different airlines differently.

A strong local currency, especially versus the US dollar, is seen as positive for the

Chinese, Japanese, Korean and Malaysian airlines.

On the other hand, a strong local currency is seen as negative for SIA (albeit not

against the US$) and CX (but not the Hong Kong-based players resting on the peg).

The Taiwanese airlines are largely seen as currency-impact neutral.

The table below sums up the estimated impact of a 1% appreciation in domestic

currency to the earnings and the book value of the various Asian airlines.

Exhibit 34. Impact of 1% appreciation in local currency

(%) FY10F earnings FY10 book value

CSA +22.5 +1.7

ANA +20.0 +0.2

CEA +13.8 +2.4

MAS +15.0 +1.0

AirAsia +5.9 +3.6

Air China +5.3 +1.0

KAL +2.1 +1.7

EVA Air +1.3 +0.2

CX (0.6) +0.4SIA (11.6) (16.1)


The main reason for the net positive domestic currency appreciation impact for the

Chinese, Japanese, Korean, and Malaysian airlines is that these airlines tend to have

substantial amounts of non-domestic currency-denominated debt and/or costs,

combined with significant amounts of domestic currency revenues.

The reason for the net negative domestic currency appreciation impact for SIA is that it

lacks non-domestic currency-denominated debt (it is net cash) and the group has a

relatively low level of domestic currency revenue (it has no domestic routes).

As for EVA Air and China Air, they tend to be more neutral to currency movements as

a result of neither currency hedges nor relatively balanced revenue and cost

exposures to non-domestic currencies.

We see from the following exhibits that currency exchange gains or losses have

historically been major earnings swing factors for the earnings of the Chinese airlines

and the Korean airlines.

Exhibit 35. Trend of exchange gains for Air China

(RMBmn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported net profit - - - 948 500 160 2,386 2,406 2,688 4,046 (9,256) 4,854 7,202 7,155

Exchange gain - - - 872 (361) (297) (55) 918 984 2,030 1,487 110 933 2,178Exchange gain as % ofreported profit

- - - 92 (72) (186) (2) 38 37 50 (16) 2 13 30

RMB/US$ exchange rate (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.6 3.3 7.0 7.0 0.0 2.6 5.3

Source: Company data; Nomura estimates

Strengthening of local currency

would be posit ive for Chinese,

Japanese, Korean and Malaysian

airlines; negative for SIA and CX


23/150



Exhibit 36. Trend of exchange gains for China Eastern Air


Reported net profit (481) 84 176 542 86 (950) 321 (467) (3,313) 379 (15,269) 169 2,089 2,760

Exchange gain (132) (111) 120 126 (38) (70) (21) 440 971 2,044 1,971 95 1,099 2,097

Exchange gain as % of reported profit 27 (132) 68 23 (43) 7 (6) (94) (29) 540 (13) 56 53 76



Exhibit 37. Trend of exchange gains for China Southern Air


Reported net profit (514) 83 503 340 576 (357) (48) (1,848) 188 1,697 (4,823) 330 1,772 1,802

Exchange gain (366) (427) 319 297 (175) (164) (59) 1,220 1,492 2,832 2,592 93 1,032 2,379

Exchange gain as % of reported profit 71 (515) 63 87 (30) 46 123 (66) 794 167 (54) 28 58 132



Exhibit 38. Trend of exchange gains for Korean Airlines

(Wbn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported net profit 297 259 (463) (713) 482 (241) 519 200 383 13 (1,942) (99) 431 412

Exchange gain 167 167 (289) (257) 528 (15) 767 196 408 (15) (1,853) 480 411 675

Exchange gain as % of reported profit 56 65 62 36 110 6 148 98 107 (119) 95 485 95 164

KRW/US$ exchange rate (%) 32.9 5.6 (9.9) (3.7) 10.7 (0.7) 15.3 2.5 8.6 (0.6) (25.7) 8.1 1.3 8.7


As for the other Asian airlines, the impact from currency movements tends to come

through less obviously, ie, via the revenue line as improved or reduced domestic yields

on tickets sold overseas rather than through the booking of exchange gains or losses.Hence, their currency exchange gains or losses tend to be minimal.

Exhibit 39. Trend of exchange gains for Malaysia Airlines

(RMmn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported net profit (700) (259) (417) (836) 337 461 (1,252) (134) 853 246 493 503 818

Exchange gain (393)* (551)* (409)* (4) (119) (28) 18 (42) (65) (83) 27 28 105

Exchange gain as % of reported profit 56 213 98 0 (35) (6) (1) 32 (8) (34) 5 6 13

RM/US$ exchange rate (%) 2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 7.0 6.8 (4.3) 1.5 6.6 5.7


Exhibit 40. Trend of exchange gains for AirAsia

(RMmn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported net profit 49 112 88 426 (497) 506 426 492

Exchange gain (0) (1) 29 (20) (230) 91 170 0

Exchange gain as % of reported profit (1) (1) 33 (5) 46 18 40 0

RM/US$ exchange rate (%) 2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 7.0 6.8 (4.3) 1.5 6.6 5.7


Exhibit 41. Trend of exchange gains for EVA Air

(NT$mn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported net profit 75 1,165 2,511 (3,175) 2,637 1,396 3,243 1,326 (1,687) (1,872) (16,890) (2,844) 3,332 4,532

Exchange gain 0 0 (117) (182) (252) 113 (174) 31 583 303 (5) (21) 57 328

Exchange gain as % of reported profit 0 0 (5) 6 (10) 8 (5) 2 (35) (16) 0 1 2 7

NT$/US$ exchange rate (%) 1.1 2.6 (5.1) (5.4) 0.7 2.1 7.4 (3.5) 0.8 0.4 (1.2) 2.5 1.3 5.1



24/150



Exhibit 42. Trend of exchange gains for China Air

(NT$mn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported net profit (2,189) 2,749 2,934 1,785 3,119 1,779 4,183 645 738 (2,519) (32,351) (3,805) na na

Exchange gain 583 173 0 1,122 (271) (79) (298) 483 365 18 (646) (219) na na

Exchange gain as % of reported profit (27) 6 0 63 (9) (4) (7) 75 49 (1) 2 (5.8) na na

NT$/US$ exchange rate (%) 1.1 2.6 (5.1) (5.4) 0.7 2.1 7.4 (3.5) 0.8 0.4 (1.2) 2.5 1.3 5.1


Exhibi t 43. Trend of exchange gains for Cathay Pacific

(HK$mn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported profit (542) 2,176 5,005 657 3,983 1,303 4,417 3,451 4,254 7,023 (8,558) 4,694 6,299 5,174

Exchange gain (88) (41) (166) 100 179 244 199 156 272 490 28 344 0 0

Exchange gain as % of reported profit 16 (2) (3) 15 4 19 5 5 6 7 0 7 0 0

HK$/US$ exchange rate (%) 0.0 (0.4) (0.3) 0.0 0.0 0.5 (0.1) 0.2 (0.3) (0.3) 0.7 (0.1) 0.1 0.0


Exhibit 44. Trend of exchange gains for Singapore Airlines

(S$mn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported profit* 1,033 1,164 1,549 632 1,065 849 1,352 1,241 2,129 2,049 1,062 216 1,259 1,667

Exchange gain 76 (80) (14) 3 (8) (42) (74) (163) (80) (118) 65 (72) 0 0

Exchange gain as % of reported profit 7 (7) (1) 1 (1) (5) (5) (13) (4) (6) 6 (33) 0 0

S$/US$ exchange rate (%) (7.1) 1.0 (5.4) (2.1) 4.3 5.0 1.5 2.1 6.1 9.3 (10.7) 8.1 7.1 5.4

Source: Company data; Nomura estimates; * FY99 to FY11 numbers used rather than CY98 to CY10 numbers given March year-end

Exhibit 45. Trend of exchange gains for All Nippon Airways

(mn) FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F FY11F

Reported profit (4,732) (15,201) 40,286 (9,456) (28,256) 24,756 26,970 26,722 32,658 64,143 (4,260) (57,387) 5,000 19,000

Exchange gain (9,254) 2,043 (1,101) 939 (1,900) 1,139 1,774 746 (1,653) 1,126 1,694 na na

Exchange gain as % of reported profit 61 5 12 (3) (8) 4 7 2 (3) (26) (3) na na

JPY/US$ exchange rate (%) 14.6 11.1 (10.4) (13.1) 10.8 10.8 4.5 (12.8) (1.1) 6.5 23.2 (2.4) (3.8) 4.1

Source: Company data; Nomura estimates, YE-March

Below are the official currency sensitivities provided by the airlines themselves

(however, many do not provide official sensitivities) based on a 1% appreciation of the

domestic currency versus all other currencies.

Exhibit 46. Effect of 1% appreciation of HK$ against all other currencies

(except US$) for CX(%) FY09 FY07

Impact on profit (0.6) (0.7)

Impact on book value 0.4 0.3

Source: CX

Exhibit 47. Effect of 1% appreciation of S$ against all other currencies for

SIA

(%) FY09 FY08

Impact on profit before tax (11.6) (21.8)

Impact on book value (16.1) (18.1)

Source: SIA


25/150



Given the differing and sometimes significant magnitude in the currency sensitivities,

views on the forward movement of currencies will necessarily be an important factor in

the formation of a view on the different airlines.

With our house view, shown in Exhibits 47 and 48 below, calling for the appreciation of

most domestic Asian currencies (especially against the US dollar), we should arguably

be more positive on the Chinese, Japanese, Korean, and Malaysian airlines on this

factor in isolation.

Exhibit 48. Nomura currency exchange rate estimates vs US$

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 End-10F End-11F

RMB 8.278 8.278 8.278 8.278 8.278 8.278 8.278 8.071 7.813 7.305 6.826 6.826 6.650 6.300

SG$* 1.729 1.712 1.804 1.843 1.764 1.676 1.650 1.616 1.517 1.376 1.523 1.399 1.380 1.310

HK$ 7.746 7.774 7.800 7.798 7.800 7.764 7.773 7.754 7.779 7.801 7.750 7.754 7.750 7.750

NT$ 32.200 31.387 33.080 34.953 34.722 34.014 31.682 32.822 32.567 32.428 32.820 32.005 31.600 30.000

W 1,204 1,140 1,265 1,314 1,186 1,194 1,035 1,010 930 936 1,260 1,165 1,150 950

* 118.864 102.796 126.310 132.714 118.120 104.264 107.147 117.758 117.827 99.691 98.971 93.458 97.000 93.000

RM 3.799 3.799 3.799 3.801 3.799 3.799 3.799 3.776 3.530 3.306 3.455 3.406 3.180 3.000

THB 36.657 37.495 43.384 44.209 43.103 39.683 38.904 41.005 35.500 29.750 34.769 33.368 32.000 30.200

Source: Nomura Economics team; * Rates are as of March of following year in order to match fiscal year-end of SIA and ANA

Exhibit 49. Estimated appreciation of various currencies vs US$

(%) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 End-10F End-11F

RMB 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.6 3.3 7.0 7.0 0.0 2.6 5.3

SG$* (7.1) 1.0 (5.4) (2.1) 4.3 5.0 1.5 2.1 6.1 9.3 (10.7) 8.1 1.4 5.1

HK$ 0.0 (0.4) (0.3 0.0 0.0 0.5 (0.1) 0.2 (0.3) (0.3) 0.7 (0.1) 0.1 0.0

NT$ 1.1 2.6 (5.1) (5.4) 0.7 2.1 7.4 (3.5) 0.8 0.4 (1.2) 2.5 1.3 5.1

W 32.9 5.6 (9.9 (3.7) 10.7 (0.7) 15.3 2.5 8.6 (0.6) (25.7) 8.1 1.3 8.7

* 14.6 11.1 (10.4) (13.1) 10.8 10.8 4.5 (12.8) (1.1) 6.5 23.2 (2.4) (3.8) 4.1

RM 2.0 0.0 0.0 0.0 0.0 0.0 0.0 0.6 7.0 6.8 (4.3) 1.5 6.6 5.7

THB 28.3 (2.2) (13.6) (1.9) 2.6 8.6 2.0 (5.1) 15.5 19.3 (14.4) 4.2 4.1 5.6

Source: Nomura estimates; * rates are as of March of following year in order to match with fiscal year-end of SIA and ANA

However, we note that our currency appreciation expectations have actually been cut

recently, resulting in some earnings and book value estimate changes (details in the

company sections).

Exhibit 50. Summary of recent changes in currency exchange rate expectations

New exchange rate project ion vs US$Old exchange rateprojection vs US$

New appreciationexpectation vs US$(%)

Old appreciationexpectation vs US$ (%)

2009 End-10F End-11F End-10F End-11F End-10F End-11F End-10F End-11F

RM 6.826 6.650 6.300 6.450 6.100 2.6 5.3 5.5 5.4

S$* 1.399 1.380 1.310 1.300 1.230 1.4 5.1 7.1 5.4

HK$ 7.754 7.750 7.750 7.750 7.750 0.1 0.0 0.1 0.0

NT$ 32.005 31.600 30.000 30.500 28.500 1.3 5.1 4.7 6.6

W 1,165 1,150 950 1,050 950 1.3 8.7 9.8 9.5

* 93.458 97.000 93.000 97.000 90.000 (3.8) 4.1 (3.8) 7.2

RM 3.406 3.180 3.000 3.150 3.090 6.6 5.7 7.5 7.3

THB 33.368 32.000 30.200 31.500 30.000 4.1 5.6 5.6 4.8

Source: Nomura Economics Team

Given our house view calling for

the appreciation of most

domestic Asian currencies,

Chinese, Japanese, Korean and

Malaysian airlines should benefit

the most


26/150



Debt and forex

CSA has lar gest loc a l revenue/great est

fore ign debt ex posure; SIA t he leastAs noted in the previous section, airlines with lower exposure to non-domestic

revenues tend to be beneficiaries of domestic currency appreciations. whereas airlines

with higher exposure to non-domestic revenues tend to be victims of domesticcurrency appreciation.

Exhibit 51. Exposure to home currency

2008 2009

CSA 90.5 92.5

ANA 89.9 90.4

CEA 79.6 84.5

Air China 75.8 80.5

AirAsia 90.0 90.0

MAS 71.0 71.0

CX 51.7 52.4KAL 56.2 45.2

EVA Air 38.0 36.9

China Air 38.8 39.4

SIA 29.8 31.9*

Source: Nomura estimates; *Based on breakdown derived via origin of sale but actual exposure to S$ provided by SIAis 46%

Hence, we see that indeed SIA, which is a net victim of any local currency appreciation,

has close to 70% of its revenue in foreign currencies, whereas CEA, ANA, and CSA

have only 16%, 10% and 8% of their respective revenues, respectively, in non-

domestic currencies.

We note that airlines with a heavier cargo bias, such as the Taiwan-based and Korean

airlines, tend to have greater US dollar exposure than the Origin of Sales breakdown

may indicate, given that most cargo rates are priced in US dollars.

Exhibit 52. Revenue breakdown for Ai r China by origin of sale

FY07 FY08 FY09

Domestic currencies

China 77.0 75.8 80.5

Non-domestic currencies

Europe 7.4 8.5 6.4

North America 4.6 5.4 4.2

Japan / Korea 4.5 4.0 3.5Asia Pacific, others 2.7 3.0 2.8

HK / Macau 3.9 3.4 2.7

Overall 100.0 100.0 100.0

Source: Air China; Nomura research

SIA is a benefici ary of a weak US$

but net victim of local currency

appreciation


27/150



Exhibit 53. Revenue breakdown for CEA by origin of sale

FY07 FY08 FY09

Domestic currencies

China 78.4 79.6 84.5


Japan 4.3 4.3 3.5

HK / Macau 3.2 3.0 2.5

Other International 14.2 13.1 9.5

Overall 100.0 100.0 100.0

Source: CEA; Nomura research

Exhibit 54. Revenue breakdown for CSA by origin of sale

FY07 FY08 FY09

Domestic currencies

China 89.9 90.5 92.5


HK / Macau 1.1 1.0 1.0

Other International 9.1 8.6 6.6

Overall 100.0 100.0 100.0

Source: CSA; Nomura research

Exhibit 55. Revenue breakdown for KAL by origin of sale

FY07 FY08 FY09

Domestic currencies

Korea 64.2 56.2 45.2


Americas 13.8 15.6 18.2

Japan 8.3 10.4 16.3

China 4.0 5.0 6.3

Europe 5.0 6.3 6.3SE Asia 2.7 4.5 5.5

Oceania 2.0 2.0 2.3

Overall 100.0 100.0 100.0

Source: KAL; Nomura research

Exhibit 56. Revenue breakdown for MAS by origin of sale

FY07 FY08 FY09

Domestic currencies

Malaysia 71.0


America 20.0Europe 7.0

Australia & Japan 2.0

Overall 100.0 100.0 100.0

Source: MAS; Nomura research

Exhibit 57. Revenue breakdown for AirAsia by origin of sale

FY07 FY08 FY09

Domestic currencies

Malaysia 90.0


Others 10.0

Overall 100.0 100.0 100.0

Source: AirAsia; Nomura research


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Exhibit 58. Revenue breakdown for EVA Air by origin of sale

FY07 FY08 FY09 FY07

Domestic currencies

Taiwan 38.8 38.0 36.9


America 41.6 42.2 40.6

Europe 3.3 3.8 3.0Asia 55.1 54.0 56.4

Overall 100.0 100.0 100.0

Source: EVA Airways; Nomura research

Exhibit 59. Revenue breakdown for China Air by origin of sale

FY07 FY08 FY09

Domestic currencies

Taiwan (%) 39.0 38.8 39.4

America (%) 22.7 21.3 20.3

Southeast Asia (%) 12.7 13.6 12.8

Northeast Asia (%) 8.2 8.6 8.0

Europe (%) 12.3 12.4 10.7

Hong Kong (%) 4.0 3.7 3.3

Australia (%) 1.1 1.2 1.4

Mainland China (%) 0.0 0.5 4.0

Overall 100.0 100.0 100.0

Source: China Air; Nomura research

Exhibit 60. Revenue breakdown for CX by origin of sale

FY07 FY08 FY09

Domestic currencies

Hong Kong 40.1 38.2 39.8North America 12.8 13.5 12.6


Europe 11.6 12.3 11.8

SE Asia and Middle East 10.2 11.5 12.8

North Asia 15.0 14.1 12.6

Australia and South Africa 6.7 7.1 7.0

China 3.6 3.3 3.3

Overall 100.0 100.0 100.0

Source: CX; Nomura research

Exhibit 61. Revenue breakdown for SIA by origin of sale

FY07 FY08 FY09

Domestic currencies

Singapore 29.8 29.8 31.9


Europe 18.8 21.2 19.8

SW Pacific 17.5 18.4 16.7

Other East Asia 17.3 16.0 17.2

Americas 9.0 7.8 8.0

West Asia and Africa 7.7 6.8 6.4

Overall 100.0 100.0 100.0

Source: SIA; Nomura research


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Exhibit 62. Revenue breakdown for ANA by or igin of sale

FY07 FY08 FY09

Domestic currencies

Japan - 89.9 90.4


Non Japan - 10.1 9.6

Overall 100.0 100.0 100.0Source: ANA; Nomura estimates

Given the relative currency exposure on both the revenue and debt fronts, a weak euro

would be seen as the most negative for SIA whereas a strong US dollar would be seen

as the most negative for KAL. Nevertheless, if we assume that the renminbi exchange

rate is allowed to freely move against the US dollar, a strong US dollar would then be

seen as the most negative for Chinese airlines.

Exhibit 63. Debt breakdown for Air China

(%) FY08 FY09

Net debt/equity 252 253

Debt/(cash) breakdown

RMB domestic 17 18

US$ 73 70

HK$ (pegged to US$) 4 10

Euro 0 0

Yen 5 1

Source: Air China; Nomura research

Exhibit 64. Debt breakdown for CEA

(%) 2008 2009

Net debt/equity neg 3,481Debt/(cash) breakdown

RMB domestic 39 32

US$ 57 68

Euro 0 0

Yen 4 0

Source: CEA; Nomura research

Exhibit 65. Debt breakdown for CSA

(%) 2008 2009


Debt/(cash)breakdown

RMB domestic 28 90

US$ 71 10

Euro 0 0

Yen 1 0

Source: CSA; Nomura research

We note that since 2009, Chinese airlines have increased their US dollar-denominated

debt as a percentage of the overall debt mix. Based on company guidance, we have

assumed that CSA will have 100% of its gross debt in US dollars by FY11F, that Air

China will have 80% and that CEA will have 70%.

A weak euro would be most

negative for SIA, in our view


30/150



Exhibit 66. Debt breakdown for KAL

(%) FY08 FY09


Debt breakdown

Korean domestic 36 46

US dollar 58 50

Yen 4 3Euro 2 1

Source: KAL; Nomura research

Exhibit 67. Debt breakdown for MAS

(%) FY08 FY09

Net debt/equity (54) (113)


RM domestic (61) (66)

US$ (35) (30)

Euro (3) (3)

/A$/S$ (1) (1)

Source: MAS; Nomura research

Exhibit 68. Debt breakdown for AirAsia

(%) FY08 FY09



MYR domestic 10 10

US$ 90 90

Source: AirAsia; Nomura research

Exhibit 69. Debt breakdown for EVA

(%) FY08 FY09



NT$ domestic 80 85

US$ 20 15

Source: EVA; Nomura research

Exhibit 70. Debt breakdown for China Air

(%) FY08 FY09


Debt breakdown

NT$ domestic 70 70

US$ 30 30

Source: China Air; Nomura research

Exhibit 71. Debt breakdown for Cathay Pacific

FY08 FY09


Debt breakdown

US$ domestic 53.4 52.4

HK$ domestic 19.1 19.0

JPY 7.1 11.9

Euro 7.6 6.0

S$ 5.1 4.8

Others 7.6 6.0



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Exhibit 72. Debt breakdown for SIA

(%) FY08 FY09

Net debt/equity Net cash Net cash


Singapore domestic (76.8)

US$ (21.2)

Euro (1.5)JPY (0.5)


Exhibit 73. Debt breakdown for ANA

(%) FY08 FY09



JPY domestic 100.0 100.0

Source: ANA; Nomura research


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Local carrier model

Chinese and Japanese car r ie rs m ore

focused on domest i c rou tesAs for exposure to various routes, the Chinese airlines, Japanese airlines and AirAsia

are the most domestically focused deriving more than 50% of revenue from local

routes. SIA, CX, the Taiwanese airlines and MAS, on the other hand, are overseas-focused generating more than 85% of revenue from regional and international routes.

Based on macro GDP projections as well as studies done by Boeing (outlined in the

section titled Macro environment continues to recover), the intra-Asia (especially

South Asia) as well as the China domestic routes are expected to see the strongest

passenger traffic growth over the medium to long term.

Not surprisingly, the Chinese airlines have the greatest exposure to China domestic

routes.

Exhibi t 74. Local route exposure, 2009

Airl ine (%) Exposure (%)

CSA 85.0

ANA 74.7

CEA 69.0

Air China 61.0

AirAsia 40.0

MAS 20.0

KAL 8.5

CAL None

EVA None

CX None

SIA None

Source: Company data; Nomura research

SIA has the greatest exposure to European routes (ie, Europe-SE Asia), while EVA

and KAL have the largest exposures to North American routes (ie, N. America-NE

Asia).

Exhibi t 75. Route exposure to Europe in 2009


SIA 21.0

CX 19.4

MAS 16.0

KAL 15.8CAL 15.5

EVA 15.0

Air China 12.7

ANA 6.8

CEA Single digits

CSA Single digits

AirAsia na

Source: Company data; Nomura research

Chinese and Japanese airlines,

and AirAsia are the most

domestically focused


33/150



Exhibi t 76. Route exposure to North America, 2009


EVA 47.8

CAL 36.8

KAL 33.7

CX 24.6

SIA 20.0ANA 8.7

Air China 8.3

MAS Single digits

CEA Single digits

CSA Single digits

AirAsia na

Source: Company data, Nomura research

As for the intra-Asia routes, which have recently seen the strongest recoveries, CX,

SIA, KAL, and the Taiwanese airlines have the largest exposure.

Exhibit 77. Route exposure to Asian routes in 2009

Airl ine (%) Exposure

CAL 47.7

KAL 42.0

CX 39.7

SIA 38.3

EVA 37.2

Air China 18.0

MAS 15.9

CEA 12.0

CSA 5.0

ANA na

AirAsia na

Source: Company data, Nomura research

The detailed route breakdowns for the various Asian airlines are shown below.

Exhibit 78. Route breakdown for Air China (as a percentage of overall airline revenue)

1998 1999 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F

China domestic 51.1 47.5 52.5 55.1 53.5 53.1 53.9 51.5 61.0 58.6

Europe 11.0 14.0 14.4 12.6 13.3 13.8 14.8 17.0 12.7 12.6

North America 6.6 9.0 9.5 7.4 7.7 8.5 9.1 10.8 8.3 8.7

Japan / Korea 13.3 12.3 9.3 11.5 11.1 9.5 9.0 7.9 7.0 8.7

Asia Pacific, others 9.3 9.1 8.0 8.2 8.4 9.0 5.4 6.0 5.6 6.8

HK/Macau 8.8 8.1 6.4 5.2 5.9 6.2 7.7 6.7 5.4 4.6

Overall 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Company data; FY10F are Nomura estimates

Exhibit 79. Route breakdown for China Eastern Air (as a percentage of overall airline revenue)

1998 1999 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10F

China domestic 41.3 44.7 41.9 46.6 46.3 48.7 55.7 56.7 59.2 69.0 67.7

Japan 14.1 13.0 14.0 11.0 10.1 9.6 9.5 8.6 8.6 7.0* 6.4

HK/Macau 18.8 17.7 16.6 14.2 13.3 11.5 8.6 6.3 6.0 5.0 5.9

Other

International25.8 24.6 27.6 28.1 30.2 30.2 26.2 28.4 26.2 19.0* 20.1

Overall 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Company d

asia airlines

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