Icelandair Group | A Brief Introduction Magnús Þorlákur Lúðvíksson, Business Development May 2018 1 Today’s agenda Our A brief partnership introduction with Q&A to Icelandair Reykjavik Group University Icelandair Group at glance The Group is divided into two business segments Our vision is to unlock Iceland‘s potential as a International Equity year-round destination, to flight operations investments strengthen Iceland‘s position as a connecting Aviation: hub and to maintain our focus on flexibility and experience The Route Network EBITDA & Net Profit Tourism: 4.4 million USD million 2013-2017 to from via 227 passengers 220 forecasted in 2018 EBITDA Net Profit 170 154 144 111 89 66 56 44 2,400 3,900 80+ 38 shareholders employees successful years in aviation 2013 2014 2015 2016 2017 A brief introduction to Icelandair Group 2. A History of 1. Our Business 3. A Strong 4. Future Profitable Model Financial Position prospects Organic Growth 4 1 Our Business Model - Icelandair Iceland’s unique geographical position on the shortest flight-route between N-America and Europe is the key to Icelandair’s extensive 24 hour hub-and-spoke Network 23 Destinations USA 26 Destinations Europe 678 Connection options 5 1 Our Business Model - Icelandair Airlines position themselves on a spectrum from luxury Full Service Carriers to ultra Low Cost Carriers – correct positioning depends on market circumstances A lot included in ticket Little included in ticket Short-haul focus Long-haul focus 6 1 Our Business Model - Icelandair The via market between Europe and North America is Icelandair’s largest market and has led the growth +9% from +79% 4.400 12% the domestic market 4,046 in Iceland 3,679 36% 3,073 38% to 2,603 the tourist market 36% 36% 2,257 12% with Iceland as 36% a destination 12% 38% 15% 30% of via pax make a 16% „stop-over“ in Iceland 17% 52% 50% via 49% to 48% from 52% the international 45% market between via Europe and N-America 2013 2014 2015 2016 2017 2018 F Absolute figures in thousands Stop-over = On an Icelandair stopover you can stay for up to 7 nights at no additional airfare. 7 1 Our Business Model – Icelandair Cargo Cargo operations focus on air-freight services in the holds of Icelandair’s passenger aircraft combined with scheduled air cargo flights Revenue split in % Holds of 2 2011-2015 passenger freighter The vision of the Group’s 2% AC AC 5% 1% 2% 2% 2% 2% cargo operations is 17% 16% to be the leading freight carrier 2% 3% 30% 31% servicing Iceland and develop new 34% opportunities by leveraging the 29% 31% logistic expertise to grow 2008 16% Tonnes carried in a profitable way in passenger holds 66% 63% 59% 53% 49% 2016 48% Tonnes carried in passenger 2012 2013 2014 2015 2016 holds Regional ACMI Transit Import Export 8 1 Our Business Model – Loftleidir Icelandic Icelandair Group offers capacity solutions to international passenger airlines and tour operators under the Loftleidir Icelandic brand Loftleidir - Icelandic has developed from being a marketing vehicle operating in the international ACMI (Aircraft Crew Maintenance and Insurance) and charter markets, to become a capacity solution provider focusing mainly on AM (Aircraft and Maintenance) projects and consulting service. + Leasing of excess 3 1 2 2 capacity in the B 737-800 B 737-700 B 767-300 B 757-200 Route Network in off-season 9 1 Our Business Model – Air Iceland Connect Air Iceland Connect operates extensive and flexible flight schedule in Iceland Route Network of Air Iceland Connect 5 240 employees Number of passengers In thousands 2013-2017 349 Air Iceland Connect 323 65.9% 307 293 296 load factor is a regional carrier 2017 operating scheduled services to domestic destinations across Iceland and to 8,527 Greenland and Faroe flights annually Islands 2013 2014 2015 2016 2017 10 * Flights to Scotland and Ireland are in cooperation with Icelandair. 1 Our Business Model – Iceland Travel Icelandair Group operates Iceland largest travel agency: Iceland Travel, which offers a wide range of high-quality services for travellers visiting Iceland Revenue split Customer mix location 9% The vision of 3% Iceland Travel is to 7% 4% 39% be the leading 35% 9% 53% 33% tourism Global business reach based on 5% service provider local talent and Upper middle classappreciationMiddle class for Budget High class 2% Iceland’s in Iceland, uniqueness 1% offering a multi Number of passengers channel sales In thousands 2013-2017 approach with +76% 90 focus on enhancing 75 the development and 62 51 53 marketing of Iceland as a destination 2013 2014 2015 2016 2017 11 1 Our Business Model – Icelandair Hotels There are 24 hotels within Icelandair Group and several hotel projects underway Cohesive mix of international and local brands 690 81.2% employees occupancy 2017 Available hotel room nights In thousands 2013-2017 +18% 371 352 315 317 326 The vision of the Group’s hotel operations is to create an authentic Icelandic experience for visiting tourist 2013 2014 2015 2016 2017 12 A brief introduction to Icelandair Group 2. A History of 1. Our Business 3. A Strong 4. Future Profitable Model Financial Position prospects Organic Growth 13 2 A History of Profitable Organic Growth Icelandair has grown significantly in recent years and the Route Network has developed and expanded, both in breadth and depth 102% 102% 16,8 7% 15,2 21% ASK* 13,7 million: 11,1 9,7 37% 8,3 35% 2013 2014 2015 2016 2017 2018F Byrjun Increased New Increased New frequency destinations frequency destinations N-America N-America Europe Europe * Capacity = ASK = Available Seat Kilometres 2 A History of Profitable Organic Growth Icelandair Group has seen steady revenue growth in recent years +58% 1,420 1,286 1,113 1,140 1,023 899 73% 74% 73% 75% 69% 67% 6% 7% Transport revenue 12% 7% 7% 13% Aircraft and aircrew lease 21% 20% 20% 19% 20% 18% Other revenues 2012 2013 2014 2015 2016 2017 15 All figures in USD million 2 A History of Profitable Organic Growth EBITDA in 2017 amounted to USD 170 million 227 220 170 154 144 110 111 89 66 56 44 38 EBITDA Net Profit 2012 2013 2014 2015 2016 2017 16 All figures in USD million. A brief introduction to Icelandair Group 2. A History of 1. Our Business 3. A Strong 4. Future Profitable Model Financial Position prospects Organic Growth 17 3 A Strong Financial Position Icelandair Group had a strong financial position at year-end 2017 with a 42% equity ratio USD million 31.12 2017 31.12 2016 Diff. USD million 31.12 2017 31.12 2016 Diff. Assets Equity and liabilities Operating Assets 652.7 602.6 50.1 Stockholders equity 591.5 568.2 23.3 Intangible assets and goodwill 180.4 174.7 5.7 Loans and borrowings non-current 280.3 196.7 83.5 Other non-current assets 126.7 97.7 29.0 Other non-current liabilities 76.9 71.5 5.4 Total non-current assets 959.8 875.0 84.8 Total non-current liabilites 357.1 268.2 88.9 0 Loans and borrowings current 9.3 45.7 -36.4 Other current-assets 230.0 167.4 62.6 Derivatives used for hedging 1.4 0.4 0.9 Short term investments 4.1 23.2 -19.1 Trade and other payables 232.2 210.1 22.1 Cash and cash equivalents 221.2 226.9 -5.7 Deferred income 223.6 199.9 23.7 Total current assets 455.3 417.5 37.8 Total current liabilites 466.4 456.1 10.3 Total assets 1,415.1 1,292.5 122.6 Total equity and liabilities 1,415.1 1,292.5 122.6 Equity ratio 42% 44% -2% Interest Net debt Current ratio 0.98 0.92 0.06 bearing debt USD Net interest bearing debt 64.3 -7.7 72.0 USD 289.5m 64.3m Interest bearing debt 289.5 242.4 47.2 18 3 A Strong Financial Position Icelandair Group’s fleet currently comprises 46 aircraft – thereof 34 are unencumbered on the balance sheet 46 4 3 3 37 423m 6 owned USD 30 1 book 4 value 1 34 16m unencumbered USD 29 secured 25 loans 8 1 6 3 3 Bombardier Q400 Boeing 737 700/800 Boeing 757 300 2 2 Bombardier Q200 Boeing 767 300 Boeing 757 200 2 3 Total fleet 19 A brief introduction to Icelandair Group 2. A History of 1. Our Business 3. A Strong 4. Future Profitable Model Financial Position prospects Organic Growth 20 4 Future Prospects Icelandair’s current fleet plan assumes continued growth, but it is flexible. The number of B757’s in operation can e.g. be adjusted in line with market conditions +37% 41 39 Boeing 767 Boeing 757 36 9 8 Boeing 737 MAX 33 6 30 3 4 4 3 6 7 4 4 4 26 26 23 21 21 737-8 MAX 737-9 MAX 767-300 757-200/300 2017 2018 2019 2020 2021 21 4 Future Prospects Icelandair still has a lot of room to grow in its core markets and new markets may open up in the near future North America Europe Our core markets of Europe and North-America still have a lot of growth potential… 78m 77m 77m 62m …and new markets outside our current area of operations may open up in the near future Population of metro Population of metro areas we areas already serving may add to our route network 22 Today’s agenda Our A brief partnership introduction with Q&A to Icelandair Reykjavik Group University Icelandair Group and Reykjavik University partnership Description of partnership • In recent years, a number of graduate students at Reykjavik University have written their final thesis in co- operation with Icelandair Group • This means that the students choose a subject related to Icelandair Group’s area of expertise and are during its writing supported practically and financially by the company • Graduate students that are interested in writing their thesis in co-operation with Icelandair Group need to apply to be a part of the program and a group composed of university and company representatives will choose which projects to back RU graduate students are free to propose the thesis topics they wish – we have also collected a few proposals that students can build on if they want (1/2) Icelandair Group thesis topic proposals 2017/2018 Subject Proposal Description Effect of complaints on • If a customer receives bad service from e.g.