Today's airline industry faces challenges from many areas. From high speed rail to teleconferencing, the industry needs to become agile. Smart transportation for a smarter airline.

1. Let’s Build a Smarter Planet: Airlines

4. Asia-Pacific is enjoying robust demand growth. 10% 5% 0% -5% -10% -15% -20% -25% -30% 40% AUG 07 SEP 07 OCT 07 NOV 07 DEC 07 JAN 08 FEB 08 MAR 08 APR 08 MAY 08 JUN 08 JUL 08 AUG 08 SEP 08 OCT 08 NOV 08 DEC 08 JAN 09 FEB 09 MAR 09 APR 09 MAY 09 JUN 09 JUL 09 RPK GROWTH FTK GROWTH RPK AND FTK % CHANGE ASIA-PACIFIC INTERNATIONAL PASSENGER AND CARGO GROWTH AUG 09 SEP 09 OCT 09 NOV 09 DEC 09 JAN 110 FEB 10 MAR 10 APR 10 MAY 10 JUN 10 20% 15% 25% 35% 30%

7. Air travel is also under threat from high-speed rail which is perceived as more convenient, greener and competitively priced. 70% 80% 50% Share of Madrid-Seville market – AVE Estimated share of UK 3-hour domestic market – SNCF 46% 63% 60% Decline in inter-city flights – THSR Share of Tokyo-Akita market – JR East Share of Madrid-Barcelona market – AVE Share of Korea market – KTX “ An airplane on wheels” Air France-KLM Chairman, Jean-Cyril Spinetta on the TGV.

9. Meanwhile, higher fuel and airport services costs may compound the issue and increase average costs or cost volatility. 160 GLOBAL LANDING FEES QUARTERLY CHARGES TO AIRLINES JET FUEL PRICE TREND Singapore Kerosene-Type Jet Fuel Spot Price (Cents per Gallon) 150 140 130 120 110 100 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2000 = 100 Airport service charges collectively accounted for nearly 8% of AP airlines operating costs. On a global basis, Jet Fuel is down almost 30% from 2008 and up 25% from 2009 to 2010

10. These headwinds make it difficult to predict future performance. GLOBAL INDUSTRY PROFITABILITY TOTAL INDUSTRY PROFIT/LOSS PAST 20 YEARS $15 1989 $10 $5 $0 -$5 -$15 -$20 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010F US$ BILLIONS -$10 2010 forecasts are positive

11. Bigger is NOT always better. Smarter is better Smaller carriers tend to limit complexity and maintain higher prices in less contested regional markets Large carrier performance is limited to relatively modest profitability large performance variations year to year 1 Data collected from airline annual reports and industry fleet data from IATA, IBM Analysis 2 Relative size is a composite measure of 08/09 Revenue and total current seat capacity 3 Trend line is a 5 th degree polynomial function that accounts for only a portion of the variation in the data INVERSE RELATIONSHIP BETWEEN RELATIVE SIZE AND PROFITABILITY Relative size and profit performance in 2008-09 for 163 global airlines 1,2,3

12. Looking ahead, the horizon is increasingly clear… The world is becoming smaller and flatter, but also smarter.

14. The need for progress is clear. Projected global airline industry losses in 2008 and 2009 combined. $27.8 billion 60% and -19% 60% of consumer sentiment around the U.S. airline industry is negative, and there are 19% fewer brand-loyal travelers in 2008 than in 2006. This is a recipe for commoditization. Airlines generate 3% of all greenhouse gas emissions. Some say that because aircraft operate in the upper atmosphere, the impact is equivalent to 13% of emissions from all sources. 3% or 13% Estimated cost to airlines of mishandled baggage. $3 billion

15. The opportunity for progress is clear. Baggage handling A European airport reduced mishandled baggage by 60% using an innovative RFID-based solution. 60% improvement 1.5% per year 50% by 2050 Airline industry environmental impact targets 1.5% average annual improvement in fuel efficiency from 2009 to 2020. Cap aviation CO 2 emissions from 2020 onwards (carbon neutral growth). 50% reduction in CO 2 emitted by 2050 relative to 2005. 7 billion / 6 billion Increased demand By 2020 there will be global demand for 7 billion air passenger trips. Yet airports and airlines will only have capacity for 6 billion. (Organization for Economic Cooperation and Development) 80% downtime reduction IT management An Asian airline implemented an enterprise-wide IT issue management solution, ultimately saving millions of dollars, reducing risk and maintaining its reputation as a reliable, premium air carrier.

17. Demands on airlines will increase over time, driving the need for new intelligence and insight, greater connectivity and transparency, and improved customer service. DRIVERS OF CHANGE CHALLENGES Population explosion World population is growing and transportation providers will need to expand capacity to keep up. Urbanization As the number and size of cities grows, pressure on transportation systems to move people and materials between and within those cities grows. Globalization The growing interconnectedness of the world is driving inter-city and international growth in demand, with an expectation of improved service. Capacity and congestion How to meet the growing, changing demand efficiently, consistently and profitably? Empowered customers Deliver transportation choices in the way that end customers value. Efficient, green operations How to reduce dependency on scarce resources while reducing environmental impact? Safety and security How to unobtrusively reduce exposure to security risks and increase the safety of operations? Technology Technology now enables the capture and analysis of real-time information about the status, location and condition of everything. STRATEGIC IMPERATIVES Predict demand and optimize capacity and assets. Dramatically improve the end-to-end customer experience. Improve operational efficiency while reducing environmental impact. Assure safety and security.

18. Success on the new horizon depends on deeper, more holistic and informed planning, collaboration and execution. Airlines will need to become smarter. IMPROVE THE END-TO-END CUSTOMER EXPERIENCE Understand customer needs and provide information and services to meet those needs in the manner preferred. ASSURE SAFETY AND SECURITY Leverage new sources of information and new ways of using that information to improve security and safety. AIRLINE IMPROVE OPERATIONAL EFFICIENCY WHILE REDUCING ENVIRONMENTAL IMPACT Continuously balance cost and environmental impact of scarce resource use while exploring new operational alternatives. PREDICT DEMAND AND OPTIMIZE CAPACITY AND ASSETS Predict demand, align transportation asset and infrastructure deployment and continuously adapt operations.

19. They will do so by becoming instrumented, interconnected and intelligent.

23. An opportunity for airlines to think and act in new ways. Assure safety and security. Improve the end-to-end customer experience. + + = Improve operational efficiency while reducing environmental impact. Predict demand and optimize capacity and assets.

25. Predict demand and optimize capacity and assets. Netherlands Railways uses ILOG software to weigh 56,000 variables—including available assets and passenger demand—to assemble and schedule over 5,000 trains per day, realizing a 6% saving in operating efficiency and saving US$28.5M per year. Also improved on-time performance by 2%, helping capture an additional US$57M in fares. A European airport was able to predict passenger volumes up to seven days in advance, with an accuracy of >90%, using IBM’s PaxFlow Simulator. The solution enables airports and airlines to optimize costs according to forecasted service levels, identify passenger volume for future business opportunities and minimize passengers’ idle waiting time. A U.S.-based airline uses a Maximo enterprise asset management and MRO solution to increase reliability and availability while reducing maintenance and materials cost. Streamlined maintenance processes have reduced delays and decreased material and maintenance costs. A Middle Eastern container shipping firm uses a fleet of 300 vessels servicing 400 ports worldwide. By using advanced analytics to optimize the location and movement of its 200,000 containers, IBM Research helped them cut empty container movement costs (~10% of turnover) by 10%. A Southeast Asian port uses IBM ILOG software to produce their loading plan in less than 30 minutes.

26. Improve the end-to-end customer experience. Improve efficiency while reducing environmental impact. Atlas Air Worldwide Holdings used SOA and a Business Process Management solution to improve their ability to choreograph the complex movement of crews, aircraft and cargo, increasing operational efficiency. They expect an 80% reduction in the cost of integrating operations with strategic delivery partners, a 50% time savings and a 30% application development cost savings. COSCO, a global shipping firm, engaged IBM to help optimize their supply chain using the Supply Chain Network Optimization Workbench (SNOW). As a result of the three month engagement, COSCO consolidated from 100 to 40 distribution centers, lowered logistics cost by 23% and reduced CO 2 emissions by 15%. A major European airport, in partnership with an international airline, reduced mishandled baggage by 60% by implementing an RFID-based baggage handling system. They have reduced transfer time by 22% and operational cost by 40%. Air Canada introduced an innovative application for the Apple iPhone and iPod Touch, allowing passengers to book flights, download electronic boarding passes, check-in, receive flight status updates and book rental cars and other services. There were over 30,000 downloads of the application from 47 countries in the first six days.

27. Assure safety and security. Using biometrically enabled access to collect and verify traveler identity information as early as possible, a collaborative cross-industry pilot was successfully conducted to re-use the information throughout the remainder of the airport journey, facilitating easier air travel while maintaining high standards of security and identity management. Through the use of RFID tags on parts and containers, IBM has helped a major aircraft manufacturer intelligently track aircraft parts throughout the product’s entire life cycle including all maintenance conducted on it and the plane in which it is used. The solution has allowed them to be more responsive to customers, and reduce fleet maintenance down-time without compromising safety. A U.S. hub airport implemented a digital video surveillance solution and a security command and control center. The system also uses information from biometric handprints and badge readers. The system is more effective at recognizing risks and alerting the command center. The effective labor cost savings is US$2.2m per year. A major Asian airline implemented an enterprise-wide maintenance and parts management solution to replace approximately 40 systems. The primary objective was to improve maintenance quality and cross-department collaboration through the use of standard processes, real-time data availability and reduced opportunity for human error.

29. The value they can realize through collaboration extends across the entire air transportation ecosystem. Predict demand and optimize capacity and assets. Improve the end-to-end customer experience. Assure safety and security. Improve operational efficiency while reducing environmental impact.

34. The value they can realize through collaboration extends across the entire air transportation ecosystem. Fewer delays and disruptions Increased cost effectiveness, aircraft turns, process efficiency and quality Improved control and oversight, flow management, verification and flexibility Increased capacity, asset and resource utilization Lower operational costs, fuel consumption and noise pollution More effective supply chain management Regulatory compliance Quicker, more informed operational decisions Increased customer satisfaction, loyalty and safety Reduced environmental impact

35. Airlines and airports play a unique and critical role: together, they are the point of connection between end users and the broader ecosystem. Travel service providers Airports Airlines Regulators Governments Freight and logistics service providers Influencers: Associations and universities Passengers Freight customers OEMs and suppliers

37. IBM’s solution strategy is aligned with the needs of airlines IBM IS INVESTING IN… AIRLINES ARE FOCUSED ON… Assuring safety and security Predicting demand and optimizing capacity Delivering customer-driven products and services Operating efficiently and profitably while minimizing environmental impact Digital video surveillance, biometric identification, identify and access mgmt, risk analytics, condition based monitoring using wireless sensors Reservation system modernization, Multi-channel self service, one view of the customer, customer analytics, CRM, loyalty management, cargo mgmt Demand and revenue management, irregular operations management, enterprise asset management and MRO, business intelligence dashboards, crew scheduling Enterprise asset management, enterprise infrastructure management, green supply chain optimization, carbon management