(Best) ENJOY Call Girls in Faridabad Ex | 8377087607
U.S. Airline Industry Review: Capital Allocation and Economic Impact
1. Updated Oct. 4, 2017
U.S. Airline Industry Review: Allocating Capital to
Benefit Customers, Employees and Investors
2. Commercial Aviation Supports 5% of U.S. GDP and More Than 10M U.S. Jobs
For Every 100 Airline Jobs, Approximately 300 Jobs Are Supported Outside the Industry
airlines.org2
Source: FAA, The Economic Impact of Civil Aviation on the U.S. Economy (Nov. 2016)
» In 2014, economic activity (output) in the United
States attributed to commercial aviation-related
goods and services totaled $1.54 trillion, generating
10.2 million jobs with $427 billion in earnings.
» Commercial aviation contributed $846 billion (4.9
percent) to U.S. GDP, the value-added measure of
overall U.S. economic activity.
Terms
• Commercial aviation – airlines, air couriers, airports, airframe/engine/parts/avionics
manufacturers, visitor expenditures, R&D, travel arrangements.
• Output – the total economic value of goods and services produced.
• Earnings – wages/salaries/other labor income, benefits, and proprietors’ income paid to all
employed persons who deliver final demand output and services.
• Jobs – the number of people employed in the industry that provide civil-aviation services,
manufacture aircraft and aircraft engines, or work in other industries that are indirectly affected
by activity in the civil air transportation sector.
3. U.S. Airlines Help Grow U.S. Exports, Reduce Trade Deficit, Boost GDP
Travel/Tourism Exports Were $246B in 2016 – One-Third of All Services Exports
Source: Bureau of Economic Analysis
3 airlines.org
39.1206.833%
0%
10%
20%
30%
40%
50%
$0
$50
$100
$150
$200
$250
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Passenger Air Transport Other Travel & Tourism* Travel Share of Services
Travel/TourismExports(Billions)
ShareofTotalServicesExports
* Food, lodging, recreation, gifts, entertainment, local transportation in the USA, and other items incidental to foreign travel
4. U.S. Household Net Worth Reached All-Time High in 2016; Job Growth Continuing
airlines.org
1.7
2.6
2.9
1.5
2.1
2.7
0
1
2
3
4
2013 2014 2015 2016 2017F 2018F
Real GDP Growth Rate (% CAGR)
4
Monthly Employment Growth (000)
192
250
226
187 178
0
100
200
300
2013 2014 2015 2016 2017
Sources: BEA, BLS, Federal Reserve and IHS; U.S. GDP real annual average growth rate (%), U.S. nonfarm payroll employment growth (month-over-month, in 000s,
seasonally adjusted), U.S. disposable personal income (BEA) and median household income (Census); U.S. household net worth in current dollars, not seasonally adjusted
39.2
40.9
42.4
43.2
53.6
53.7
56.5
59.0
0
20
40
60
80
2013 2014 2015 2016
Thousands
Personal (per Capita) Household (Median)
Income ($000) Household Net Worth ($ Trillion, NSA)
78.9 83.9 87.3 92.8
0
25
50
75
100
2013 2014 2015 2016
5. Over the Decades, as Real Airfares Have Plunged, the Number of Flyers Has Tripled
Adjusted for Inflation, Domestic Air Travel Remains 40+ Percent Below 1980 Levels
airlines.org5
Source: Bureau of Economic Analysis, Bureau of Labor Statistics and Bureau of Transportation Statistics (Data Bank 1B and T1 systemwide for U.S. airlines)
$300
$400
$500
$600
$700
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
Fare Fare + Ancillary
Domestic R/T Airfare (in CY2016 Dollars)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
Fare Fare + Ancillary
Domestic R/T Airfare (% of Disposable Personal Income)
0
100
200
300
400
500
600
700
800
900
1,000
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
3X
Passengers Enplaned (Scheduled Service, Millions)
6. Average Round-Trip Airfare Down $32 (8.5%) Since 2014; Fees Down 17¢ (0.8%)
Airfare Has Constituted 94 Percent of Total Ticket Price in Each of the Past Six Years
airlines.org6
Source: A4A analysis of data from BTS Data Bank 1B (10% sample of tickets: all cabins and fare basis codes) and DOT Form 41
Domestic Round-Trip Average Ticket Price (Excluding Taxes)
315.12
342.95 354.63 362.91
376.24
363.23
344.2221.77
21.71 22.38 22.41
22.87
22.87
22.70336.89
364.66 377.00 385.32
399.11
386.11
366.92
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
2010 2011 2012 2013 2014 2015 2016
Airfare Ancillaries
7. Within the Travel & Tourism Sector, Airfare Remains One of the Better Bargains
In Contrast to Air Travel, the Price of a Day at Disney Rose 31-Fold From 1971 to 2016
airlines.org7
Sources: A4A, BTS Data Bank 1B, allears.net, “How theme parks like Disney World left the middle class behind” (Drew Harwell, The Washington Post, June 12, 2015) and
“Disney Introduces Demand-Based Pricing at Theme Parks” (Brooks Barnes, The New York Times, Feb. 27, 2016)
$3.50
$110
$0
$20
$40
$60
$80
$100
$120
1971
1976
1981
1986
1991
1996
2001
2006
2011
2016
2021
Magic Kingdom® ($/day)
5.54
13.45
0
2
4
6
8
10
12
14
16
18
1971
1976
1981
1986
1991
1996
2001
2006
2011
2016
2021
U.S. Carrier Airfare (¢/mile)
0
500
1000
1500
2000
2500
3000
3500
1971
1976
1981
1986
1991
1996
2001
2006
2011
2016
2021
U.S. CPI
Disney
Airfare
Price Index (1971 = 100)
31.4X
2.4X
5.9X
1971-1978: 5.7% CAGR
1978-2016: 1.3% CAGR
8. Product (Unit) 2000 2016 % ∆
Public College Tuition & Fees (4-Year, In-State, Net) $1,234 $3,770 205.5
Walt Disney World® (One-Day Pass, Adult, Regular Season) $46 $110 139.1
National Football League Game (Nonpremium Ticket) $43.70 $92.98 112.8
Major League Baseball Game (Nonpremium Ticket) $16.22 $31.00 91.1
Jet Fuel (Gallon, Price Paid by U.S. Airlines) $0.807 $1.447 79.3
Prescription Drugs (BLS Index) 285.425 502.549 76.1
Disposable Personal Income per Capita (Annual) $26,206 $43,194 64.8
Gasoline (Gallon, Unleaded Regular, Retail Including Taxes) $1.510 $2.142 62.1
Movie Ticket (One Adult) $5.39 $8.65 60.5
Single-Family Home (Existing) $147,300 $235,500 59.9
Food (BLS Index) 167.817 247.928 47.7
U.S. Consumer Price Index (CPI-U)1 172.200 240.007 39.4
Vehicle (New, Retail) $24,900 $34,449 38.3
Public Transit 209.492 265.389 26.7
Air Travel (R/T Domestic Fare + Ancillary)2 $317.13 $366.92 15.7
Air Travel (R/T Domestic Fare Only)2 $314.64 $344.22 9.4
Apparel: Clothing/Shoes/Jewelry (BLS Index) 129.583 126.045 (2.7)
Television (BLS Index) 49.925 2.727 (94.5)
Relative to Most Consumer Goods and Services, Air Travel Is a Bargain
This Century, U.S. Inflation and U.S. Personal Incomes Have Outpaced Domestic Airfare
1. Bureau of Labor Statistics “measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.”
2. A4A analysis of data collected by BTS – excludes taxes; “ancillary” includes revenue from reservation changes/cancellations and baggage
airlines.org8
Outpaced
Inflation
Lagged
Inflation
9. For U.S. Airlines, 2016 Capacity Growth (3.9%) Outpaced Traffic Growth (3.5%)
Systemwide Average Load Factor Fell 0.35 Points to 83.4 Percent
airlines.org9
83.4
40
50
60
70
80
90
300
500
700
900
1100
1300
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
LoadFactor(%)
Billions
Load Factor (%) RPMs ASMs
Source: U.S. Bureau of Transportation Statistics T1, systemwide scheduled service on U.S. airlines – revenue passenger miles (RPMs) and available seat miles (ASMs)
+3.9%
+3.5%
10. U.S. Airline Traffic Flown and Capacity Operated Continue to Grow in 2017
Systemwide Passengers Enplaned Up 2.8% Year Over Year, 13.9% Over Five Years
airlines.org10
363.8 365.8 373.3 386.3
403.1 414.4
404.3 410.8 421.0
435.3
454.9
468.9
494.1 496.8 505.7
525.4
550.2
565.8
0
100
200
300
400
500
600
1H12 1H13 1H14 1H15 1H16 1H17
Passengers (Mils) RPMs (Bils) ASMs (Bils)
Source: U.S. Bureau of Transportation Statistics T1, systemwide scheduled service on U.S. airlines – revenue passenger miles (RPMs) and available seat miles (ASMs)
11. U.S. Airlines Transported More Cargo in 2016; Most Tons Enplaned Since 2007
airlines.org11
36.5
50.8
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
CargoRevenueTonMiles(Billions)
CargoRevenueTonsEnplanedperDay(000)
Source: U.S. Bureau of Transportation Statistics T1 and T100, systemwide, all services on U.S. passenger and cargo airlines
Billion RTMs per Year (Left Axis)
000 Tons per Day (Right Axis)
12. In 2015-2016, U.S. Flights Needed to Fill 2 of Every 3 Seats to Avoid Losing Money
Breakeven Load Factor Requirement Rose in 2016 on Lower Yield, Higher Unit Cost
airlines.org
Source: A4A Passenger Airline Cost Index (http://airlines.org/dataset/a4a-quarterly-passenger-airline-cost-index-u-s-passenger-airlines/)
56.7
62.6
66.2
81.3 81.0 80.9
77.5
75.6
66.8
68.4
83.4 83.8 83.4
50
55
60
65
70
75
80
85
90
1971-1980
1981-1990
1991-2000
2001-2010
2011
2012
2013
2014
2015
2016
Breakeven Actual
LoadFactor(%)
12
13. In the Deregulated Period, U.S. Airline “Earnings” Have Been Cyclical and Volatile
Cumulatively, Airlines Have Recorded Net Income of $7.6B (or 0.2% of Revenues)
airlines.org
Source: A4A Passenger Airline Cost Index
1.8
(11.4)
20.6
(65.0)
61.7
(80)
(60)
(40)
(20)
0
20
40
60
80
1979-1989 1990-1994 1995-2000 2001-2009 2010-2016
NetIncome($Billions)
13
0.4%Net Margin: (3.3%) 3.8% (6.3%) 5.5%
14. Since the Great Recession,* U.S. Airlines Have Been Closing the Gap to
Average U.S. Corporate Profitability; 2015 Gap Was Narrowest on Record
airlines.org
Source: ATA Annual Reports (1970-1976), A4A Passenger Airline Cost Index (1977-present); Bureau of Economic Analysis NIPA Table 1.14
12.8
15.8
(25)
(20)
(15)
(10)
(5)
0
5
10
15
20
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
U.S. Recession
U.S. Passenger Airlines
All U.S. Corporations
Pre-Tax Profit Margin (%)
14
* Dec-2007-Jun-2009
15. Airlines Continue to Strive for Solid Profitability Across the Business Cycle
In Current U.S. Business Cycle, Airline Margins Are About One-Third the U.S. Average
airlines.org
30.5
28.3
25.2
16.7
15.2
5.8
0
5
10
15
20
25
30
35
AAPL MCD DIS All USA SBUX Airlines
15
Sources: U.S. Bureau of Economic Analysis, A4A Passenger Airline Cost Index and company SEC filings
Apple
McDonald’s
AllUSCorps.
Starbucks
Pre-Tax Profit Margin (%) for 2010-2016
Disney
17. Steadier Oil and Jet-Fuel Prices Boosting Seats, Wages and Reinvestment
Every Penny per Gallon per Year Equates to ~$200M in U.S. Airline Industry Fuel Expenses
EIA Spot Price* of Crude Oil/Barrel (Brent)
airlines.org17
0.61
0.85
2.15
3.00
3.06
2.92
2.69
1.52
1.25
1.50
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
1991
2000
2010
2011
2012
2013
2014
2015
2016
2017
EIA Spot Price* of Jet Fuel/Gallon (U.S. Gulf)
20
29
80
111
112
109
99
52
44
52
$0
$20
$40
$60
$80
$100
$120
1991
2000
2010
2011
2012
2013
2014
2015
2016
2017
Source: A4A and Energy Information Administration (http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm) * 2017 reflects year-to-date average
18. 1H17 Revenues Up 4.2%, But All Major Expenses Rise – Up 9.1%
Profitability (Average Margin) Falls to 11.4%
airlines.org18
Year-over-Year Change (%) in Operating Revenues and Expenses
2.8
1.2
10.3
6.1
4.2
9.1
19.9
8.3
3.1
6.8
4.3
9.1
15.5
11.4
PaxTraffic
PaxYield(1)
CargoRev
OtherRev(2)
TotalOpRev
Labor
Fuel
Maintenance
Airports
Aircraft
Other(3)
TotalOpExp
1H2016
1H2017
Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United
1. Yield = fare per mile (cents per RPM)
2. Sale of frequent flyer award miles to airline business partners, pet transportation, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc.
3. Professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, nonfuel payments to regionals
Pre-Tax Profits
and Margin (%)
$9.2B
$12.0B
19. In 1H17, U.S. Airline Industry* Profit Margin Trailed the U.S. Average by 4.2 Points
U.S. Passenger Airline* Profitability Was Substantially Below McDonald’s/Apple/Starbucks
airlines.org
33.0
28.4
26.6
24.3
19.018.7
15.6
11.4
9.5
8.1
McDonald´s
Apple
Disney
CSX
Starbucks
Comcast
AllU.S.
Corps.
Airlines*
Marriott
Chipotle
19
* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United
1H17 Pre-Tax Profit Margin
(% of Operating Revenues)
SourceS: Company SEC filings and Bureau of Economic Analysis NIPA Table 1.14
20. Investment Grade1 (>= BBB-)
Source: Standard and Poor’s; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?”
airlines.org20
Johnson & Johnson, Microsoft AAA
ExxonMobil, USG AA+
Google, Wal-Mart AA
GE, Toyota AA-
UPS A+
McDonald’s, PepsiCo, Starbucks, Target A
Amtrak, BP A-
Ryanair, eBay BBB+
FedEx, Ford, Marriott, SWA BBB
Lufthansa, Qantas, WestJet BBB-
Alaska, Delta, Turkish BB+
Avis, British Airways BB
AC, ALGT, AAL, HA, JBLU, LATAM, UAL,
Sabre BB-
Virgin Australia, Hertz B+
SAS B
Gol Linhas Aereas (GOL) CCC
Speculative2 Grade (< BBB-)
1 Describes issuers with relatively high levels of creditworthiness and credit quality
2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk
Airline Creditworthiness Remains Far From Stellar
Per S&P, Only Two U.S. Passenger Airlines Have Investment-Grade Credit
“Standard & Poor’s ratings express the agency’s opinion about the ability and
willingness of an issuer…to meet its financial obligations in full and on time.”
Passenger Airline
21. From 2000-2016, U.S. Airlines’ Fuel Bill Doubled Despite Reducing Consumption
Average Systemwide Price Paid by U.S. Carriers Rose 79% from 2000 to 2016
airlines.org
$16.4
$25.6
2000
2016
... Incurring More Costs
Billion USD per Year
Source: BTS (Form 41 P-12(a) for U.S. airlines)
$0.81
$1.45
2000
2016
But Due to Higher Prices ...
Avg. Price Paid per Gallon Systemwide
Source: BTS (Form 41 P-12(a) for U.S. airlines)
56.2 54.7
2000
2016
Source: BTS (T2: 921) for U.S. airlines
Using Less Fuel ...
Million Gallons per Day
21
23. Like Other Responsible Businesses, Airlines Are Focused on Balanced Allocation of
Capital to Benefit All Stakeholders: Customers, Employees and Investors
airlines.org23
Renewing fleets, improving the product at all stages of travel
Boosting operational reliability, advancing environmental objectives
Restoring/increasing air service levels (capacity)
Adding staff
De-risking (reducing debt)
Returning cash to shareholders
Buying back stock
Issuing dividends
Increasing job security
Restoring/increasing employee wages and benefits
Shoring up pensions (or comparable retirement accounts)
24. U.S. Airlines Are Putting More Than $20 per Passenger* Right Back Into the Product
Use of Operating Cash from 2010-2016 Included $82B of Capital Reinvestment
airlines.org24
$17.5B
Enhance
Product
$13.1B
Reward
Shareholders
$8.5B
Retire
Debt
20162010-2015
$64.9B
Enhance
Product
$17.4B
Reward
Shareholders
$54.3B
Retire
Debt
* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and merged/acquired predecessors
25. airlines.org25
Following 2001-2009 Financial Hemorrhaging, U.S. Airlines Have Retired $63B in Debt
Carriers Ended 2016 With $75B in Gross Debt1 and $22B in Liquidity2
Source: SEC filings of AAL/ALGT/AAL/DAL/HA/JBLU/LUV/SAVE/UAL/VA
$9.1 $11.2
$7.5 $7.9
$10.5
$8.0 $8.5
$62.8
$0
$20
$40
$60
$80
2010 2011 2012 2013 2014 2015 2016
Thousands
Annual Cumulative
Payments on Long-Term Debt and Capital Lease Obligations (Billions)
1 Includes 7x annual aircraft rents (capitalized operating leases)
2 Cash, cash equivalents and short-term investments
Year-End 2016
$75.1B gross debt1
$21.6B liquidity2
26. Improving Finances Enabling Significant Reinvestment in Customer Experience
1H 2017 Capital Outlays Exceeded $1.5B per Month, Outpacing 2016 Rate
airlines.org26
1.29
1.15
0.64
0.55
0.49 0.43
0.55
0.82
1.04
1.16
1.41 1.46
1.58
2000 2001 2002 2003-08 2009 2010 2011 2012 2013 2014 2015 2016 1H17
* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and merged/acquired predecessors
U.S. Passenger Airline* Capital Expenditures ($ Billions per Month)
27. Airlines Strongly Support Infrastructure Investment Across the Country
Airline-Airport Collaboration Has Paved the Way for Widespread Capital Improvements
airlines.org27
» Over $100 billion of capital projects have been completed, are underway or approved at
the nation’s 30 largest airports alone since 2008, including, for example:
o New runways at Fort Lauderdale, Washington Dulles, Seattle, and Charlotte
o Multiple new runways at Chicago O’Hare
o New international facilities at Atlanta and Los Angeles
o New, expanded or modernized terminals at Miami, Las Vegas, Orlando, Hawaii,
Houston, Denver, Seattle, Salt Lake City and San Francisco
» Development is also robust at smaller airports, including, for example:
o Runway projects at Erie, Columbus, Dayton, Des Moines, Nashville and Sioux Falls
o Terminal projects at New Orleans, Eugene, Grand Rapids, Greenville-Spartanburg,
Norfolk, Portland (Maine), Reno-Tahoe and Wichita
28. J.D. Power: North American Airport Satisfaction Climbs to Record High
airlines.org
689
675
690
725
731
749
650
675
700
725
750
2007 2008 2010 2015 2016 2017
Source: J.D. Power 2017 North America Airport Satisfaction Study (http://www.jdpower.com/press-releases/jd-power-2017-north-america-airport-satisfaction-study)
“Overall passenger satisfaction with North American airports has reached an all-time
high, as airports of every size have found creative ways to address the challenges of
constant construction projects and increased passenger capacity demand… [M]ajor city
airports that are in the thick of massive construction efforts—notably Newark Liberty,
LaGuardia, Los Angeles International and Chicago O’Hare—are still fighting the
headwinds of traveler disruption and access challenges that are handicapping their overall
satisfaction scores.” (Sept. 21, 2017)
Notes: Scale = 0-1000; study not conducted in 2009/2011-2014
28
Six factors (in order of importance):
Terminal Facilities* (24%)
Airport Accessibility (19%)
Security Check (16%)
Baggage Claim (15%)
Check-In/ Baggage Check (14%)
Food / Beverage / Retail (13%)
Notes: The study, fielded Jan-Aug 2017, is based on responses from 34,695 North American travelers who traveled through at least one domestic airport with both departure
and arrival experiences (including connecting airports) during the past three months. Travelers evaluated either a departing or arriving airport from their round-trip experience.
* Concourses, lounges, signage, restrooms, gate areas
29. BOS HOU* LAS LAX MSP NYC* OMA PDX PHX SEA SNA WAS* + U.S.A.
ABQ ATL AUS BDL BNA BUR BWI CHS CLE CLT CMH CVG DAY
DEN DFW DSM DTW ELP FLL GEG GSO HNL IND JAX LIT MCI
MCO MDW MEM MIA MSY MYR OAK OKC ONT ORD PBI PHL PIT
RSW SAN SAT SDF SFO SJC SMF STL TPA TYS
ALB COS CRP FAT FNT GRR GUM MHT
MOB PNS PVD PWM TUL VPS
Southwest, WestJet
AC ALK ALGT AAL
DAL HA JBLU UAL
None
AA ±
A ±
BBB ±
BB ±
B ±
Strong Credit Ratings Allow Airports to Access Capital Markets at Preferred Rates
airlines org29
Source: Standard and Poor’s
Investment Grade1
Speculative Grade2
* HOU = HOU/IAH; NYC = EWR/JFK/LGA; WAS=DCA/IAD
1 Describes issuers with relatively high levels of creditworthiness and credit quality
2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk
30. Improving Airline Finances Translating to Customer Benefits
airlines.org30
“The recent wave of consolidation has meant higher profits and more
stability…, which has led airlines to invest in technology, new airplanes
and better customer service… ‘A healthy airline industry means a better
flying experience overall.’”
-- “Rick Seaney, FareCompare.com, in “AMR Stands to Gain Vast Route Network,”
Wall Street Journal, Feb. 7, 2013
“What we’re seeing in airlines is what we’ve seen in railroads, telecom, and
trucking... You’ll have fewer crises, fewer bankruptcies, more
predictability, more stability.”
-- Clifford Winston, Senior Fellow, Brookings Institution,
Christian Science Monitor, Feb. 14, 2013
31. Improving Finances Enabling Significant Reinvestment in Customer Experience
airlines.org31
» New or refurbished aircraft, larger overhead bins for luggage
» Availability of lie-flat seating with AC power and USB, proliferation of Wi-Fi and inflight entertainment
» Expanded route networks (scope and frequency) and schedules (seat growth)
» Improved airport check-in areas, lounges, gate amenities, baggage systems, ground equipment
» Investments in new automated security screening lanes (including automatic bin returns)
» Continued development and roll-out of mobile technology and website/kiosk functionality
» Increasing operational reliability (controlled for weather conditions)
» Enhanced tools (computers, tablets, software) and training for customer-contact employees
32. 2,574 2,494 2,546
2,451
2,292 2,285 2,294 2,259 2,274 2,289 2,366 2,454 2,543
272 278 288 292
275 282 292 299 310 330 351
368
390
2,846 2,772 2,834 2,743
2,567 2,567 2,586 2,558 2,584 2,620
2,717
2,823
2,934
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Domestic International
As Airlines Achieve Economic Profits, Customers Are Seeing More Seats
Domestic Supply Highest in a Decade; International Supply at All-Time High
airlines.org
Daily Seats (000) Departing U.S. Airports in Scheduled Service
32
Source: Innovata (via Diio Mi) published schedules as of Sept. 29, 2017, for all airlines providing scheduled passenger service from U.S. airports to all destinations
2017: DOM +3.6%, INT +6.0%, SYSTEM +3.9%
33. In Addition to Expanding Schedules, Airlines Are Deploying Larger Aircraft
Replacement of 50-Seaters With Larger Regional Jets Is Biggest Driver of Jump
airlines.org33
38 37 36 35 32 27 25 22 21
15 15 15 16 18
20 21 22 23
48 48 49 49 51 53 54 56 56
2010
2011
2012
2013
2014
2015
2016
2017
2018
1-50 Seats 51-100 Seats >100 Seats
% of Domestic Departures by Aircraft Size1
Source: Innovata (via Diio Mi) published schedules as of Sept. 22, 2017
105.5
106.5
106.3
107.7
111.1
116.0
116.7
118.0
2010
2011
2012
2013
2014
2015
2016
2017
Average Seats per Domestic Departure2
1. All carriers
2. AAL, ALGT, ALK, DAL, HA, JBLU, LUV, SAVE, UAL networks
34. Use of Larger RJs and Mainline Aircraft Boosting Seats on Many U.S. Routes
Net Number of Seats Often Grows Without Reduction in Daily Departures
airlines.org34
Source: Innovata (via Diio Mi) published schedules as of May 26, 2017, comparing 3/6/2017 to 3/9/2015
Airline Hub Spoke Mar-2015 Mar-2017
Alaska Seattle Omaha RJ-70, 1x B737, 1x
American Dallas/Ft. Worth Greensboro RJ-50, 2x RJ-76, 2x
Dallas/Ft. Worth Madison RJ-50, 4x RJ-76, 3x
Dallas/Ft. Worth Mobile RJ-50, 3x RJ-76, 3x
Dallas/Ft. Worth Tallahassee RJ-50, 2x RJ-76, 2x
Los Angeles Albuquerque RJ-50, 2x RJ-76, 2x
Los Angeles El Paso RJ-50, 1x RJ-76, 2x
Los Angeles Phoenix RJ-76, 3x A321/B757, 7x
Delta Atlanta Scranton RJ-76, 1x B717, 1x
Cincinnati Hartford RJ-50, 2x RJ-76, 1x
Cincinnati Raleigh-Durham RJ-50, 3x RJ-76, 2x
United Chicago Rochester RJ-50/A319, 2x/1x RJ-50/A319, 1x/2x
Denver Des Moines RJ-50/70/A320, 4x A319/B737, 4x
Newark Cincinnati RJ-50, 5x RJ-70/76, 6x
Newark Jacksonville RJ-50, 5x RJ-50/A320, 3x
San Francisco Eugene RJ-50, 5x A319/A320, 3x
San Francisco Reno RJ-50/70, 6x RJ/B737, 4x
Wash. Dulles New York LGA RJ-50, 4x RJ-70, 2x
Wash. Dulles Philadelphia RJ-50, 4x RJ-70, 4x
35. U.S. Airports of All Sizes Have Realized Air Service Gains Over Past Two Years
On Average, Small Communities Have Experienced an 8% Increase in Seats
airlines.org35
87
100
64
69
13
0
36
31
Large Hub
Medium Hub
Small/Non Hub
All
Grew or Unchanged Shrank
% of U.S. airports by two-year change in seats
Source: Innovata (via Diio Mi) published schedules as of June 9, 2017, for all airlines providing scheduled passenger service from U.S. airports to all destinations
+ 7.8%
+ 11.9%
+ 8.2%
+ 8.5%
Change in scheduled seats departing U.S. airports from 3Q 2015 to 3Q 2017 by DOT “Hub” Size*
% change in seats, flights
DOTAirportSizeClassification*
* https://www.faa.gov/airports/planning_capacity/passenger_allcargo_stats/categories/
+ 3.0%
+ 6.1%
+ 1.3%
+ 3.1%
36. For Small U.S. Communities, 2017 = Fifth Consecutive Year of Seat Growth
Seats Up 13.7% Over Past Five Years, More Than Offsetting 3.6% Fewer Departures
airlines.org36
Source: Innovata (via Diio Mi) published schedules as of June 9, 2017, for all airlines providing scheduled passenger service from U.S. airports to all destinations
* Per https://www.faa.gov/airports/planning_capacity/passenger_allcargo_stats/categories/, U.S. airports with less than 0.25% of annual passenger boardings
Flights and Seats Departing Small U.S. Commercial Airports*
495.6
563.4
5.62
5.42
4.50
4.75
5.00
5.25
5.50
5.75
6.00
450
475
500
525
550
575
600
2012 2013 2014 2015 2016 2017
Seats (Left Axis) Flights (Right Axis)
AverageDailySeats(000)
AverageDailyFlights(000)
37. airlines.org37
Smaller U.S. Carriers Have Been Growing Far Faster Than the Four Largest Carriers
Growth in Systemwide Scheduled ASMs Since 2010
(50)
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Percent
Spirit
Sun Country
Hawaiian
Alaska
JetBlue
Southwest
American/Delta/United
Source: Innovata (via Diio Mi) published schedules as of Sept. 8, 2017, for selected marketing airlines including predecessors
Allegiant
Frontier
38. From 2000-2016, Global Network Carrier Domestic Share Fell From 73% to Just 54%
Share (%) of U.S. Domestic Origin-and-Destination Passengers by Airline Business Model
airlines.org
Source: DOT Data Bank 1B, with each airline measured on a marketing-carrier (network) basis and tracked with its respective merged/acquired predecessors (e.g., UA/CO)
38
73 71 69 68 67 67 65 62 60 59 58 57 57 57 56 55 54
18 19 20 21 21 21 22 23 24 25 25 25 25 24 24 24 24
9 10 10 11 12 13 13 15 16 16 17 18 19 19 20 21 22
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Global Network Southwest Other
39. Competition Is Intense
Numerous Carriers Continue to Put Substantial Downward Pressure on Fares
airlines.org39
Source: Jan K. Brueckner, Darin Lee and Ethan S. Singer, “Airline competition and domestic US airfares: A comprehensive reappraisal”, Economics of Transportation, 2013
A December 2016 update of the frequently cited
Brueckner/Lee/Singer study demonstrated that the
“Southwest Effect” remains in force:
o In the period 3Q 2015 through 2Q 2016, Southwest’s
presence on a route lowered fares 21.2 percent
o In addition, the update found that many smaller but rapidly
expanding carriers put substantial downward pressure
on global network carrier domestic air fares, e.g.:
o Alaska ↓ 24.0 percent
o JetBlue ↓ 25.4 percent
o Spirit ↓ 18.5 percent
40. The Four Largest U.S. Carriers Have Grown Aggressively at Each Other’s Hubs
Growth (%) in Daily Domestic ASMs* at Competitors’ Hubs & Focus Cities: 2010 to 2017
airlines.org40
Source: Compass Lexecon analysis of OAG schedule data * Scheduled available seat miles by marketing carrier (and merged/acquired partners)
15.2
20.8
24.0
26.3
35.2
40.5
117.6
US GDP (Real)
Houston
San Francisco
Denver
Charlotte
Dallas/Ft.Worth
Seattle
15.2
20.9
27.7
31.5
32.9
35.1
85.7
US GDP (Real)
Houston
Denver
Seattle
Minneapolis/St. Paul
Atlanta
Salt Lake City
15.2
43.7
49.3
51.2
81.7
US GDP (Real)
Minneapolis/St. Paul
Salt Lake City
Miami
Atlanta
15.2
18.9
21.4
22.5
33.5
37.4
143.3
200.9
215.5
US GDP (Real)
San Francisco
Miami
Los Angeles
Houston
Minneapolis/St. Paul
Dallas/Ft.Worth
Charlotte
New York
41. Meanwhile, Smaller Carriers Have Been Expanding Rapidly at Large-Carrier Hubs
Growth (#) in Daily Domestic Seats* at Competitors’ Hubs & Focus Cities: 2010 to 2017
airlines.org41
Source: Compass Lexecon analysis of OAG schedule data * Scheduled seats by marketing carrier (and merged/acquired partners)
1,733
2,108
2,424
2,572
2,586
3,083
New York
Minneapolis/St. Paul
Detroit
Washington
Atlanta
Houston
143
216
478
829
869
1,431
Houston
Atlanta
Dallas/Ft.Worth
Washington
New York
San Francisco
381
935
1,704
2,721
Washington
Dallas/Ft.Worth
New York
Los Angeles
528
991
2,012
2,578
3,316
Salt Lake City
San Francisco
Washington
Los Angeles
New York
42. LCCs/Others* Now Carry a Significant Share of Passengers in Large-Carrier Hub Cities
Share (Percent) of Domestic O&D Passengers [in Ascending Order by 2016 Share]
airlines.org42
Hub City Airport(s) 2000 2007 2016
Charlotte, NC CLT 2.6 10.2 8.9
Philadelphia, PA PHL 8.2 29.0 25.5
New York, NY-NJ EWR/JFK/LGA 9.6 26.6 29.3
Atlanta, GA ATL 15.2 29.0 29.6
Detroit, MI DTW 15.3 25.0 30.4
Minneapolis/St. Paul, MN MSP 13.2 16.4 30.8
Salt Lake City, UT SLC 23.8 35.4 33.2
Dallas/Fort Worth, TX DAL/DFW 27.9 27.3 38.5
Chicago, IL MDW/ORD 26.1 31.2 39.2
Miami, FL FLL/MIA 20.0 36.2 43.1
Houston, TX HOU/IAH 34.3 33.2 44.7
Washington, DC BWI/DCA/IAD 18.3 36.6 45.6
Phoenix, AZ PHX 39.6 47.4 50.1
Los Angeles, CA BUR/LAX/LGB 35.8 44.4 50.4
San Francisco, CA OAK/SFO 33.7 45.8 53.0
Denver, CO DEN 15.2 39.5 56.7
Source: Compass Lexecon analysis of DOT Origin-Destination Survey (Data Bank 1B) * Airlines other than American, Delta United and their predecessors
43. Competitive Choices for Domestic Flyers Have Increased Over the Past Decade
Analysis of Traffic Flows Shows More Competitors on Domestic City Pairs in 2016
airlines.org
3.3
3.4
3.5
2000
2007
2016
43
* Defined as carrying at least 5 percent of O&D passengers in the city pair
Average Number of Competitors* on All Reported Domestic Itineraries
Source: Compass Lexecon analysis of data from DOT Data Bank 1B
The growth of low-cost carriers, emergence of ultra-low-cost carriers and mergers among network
carriers have led to additional competitors and new options for flyers in large and small markets:
Sample O&D Market
(Passengers/Day Each Way)
Competitors* in 2007
(Share of O&D Passengers)
Competitors* in 2016
(Share of O&D Passengers)
Washington, DC–Detroit (1,048) Northwest 72% Southwest 19% Delta 56% Southwest 20% Spirit 8% American 8% United 7%
Charleston, SC–NYC (669) Delta 45% US Airways 36% Continental 12% JetBlue 36% Delta 35% United 24% American 5%
Raleigh/Durham–Orlando (507) Southwest 76% Delta 15% Southwest 46% Delta 31% Frontier 10% Allegiant 8%
Cleveland–Boston (402) Continental 63% AirTran 30% JetBlue 41% United 31% Spirit 14% American 7%
Fort Myers–Cleveland (363) Continental 44% USA 3000 29% AirTran 17% Frontier 39% Southwest 18% Spirit 18% United 12% Delta 8%
Birmingham–Dallas (209) American 57% Southwest 39% Southwest 48% American 44% Delta 7%
Norfolk–Chicago (197) United 47% Southwest 33% American 9% Southwest 37% United 32% American 23% Delta 8%
Boise–Las Vegas (174) Southwest 88% Southwest 62% Allegiant 20% Delta 10%
Columbus, OH–Houston (155) Continental 66% Southwest 22% United 42% Southwest 34% Delta 13% American 11%
Lubbock–Houston (124) Southwest 84% Continental 14% Southwest 53% United 41% American 6%
44. The Number of Carriers Serving an Airport Is Directly Related to the Level of Traffic*
Smaller Airports Tend to Have Fewer Carriers Due to Minimal Demand
airlines.org
78
137
893
1,110
2,258
3,998
18,277
1
2
3
4
5
6
7+
44
* Domestic only
Average Daily Domestic Passengers Each Way, 2016
Source: Compass Lexecon analysis of data from OAG and DOT Data Bank 1B
#ofCarriersServingAirport
45. Several Secondary U.S. Cities Now Enjoy Nonstop Transoceanic Service
Nonstop Services Are Provided by a Mix of Traditional and Low-Cost Carriers
Airport Destination Airport (Marketing Airline)
ANC/FAI Frankfurt (Condor), Reykjavik (Icelandair, from ANC)
AUS Frankfurt (Condor), London LGW (NAS), London LHR (BA)
BDL Dublin (Aer Lingus), Edinburgh (NAI)
CVG Paris (Delta)
JAX/PBI Bimini/Marsh Harbour/Nassau: Bahamas (Bahamasair, Silver)
KOA Tokyo Haneda (Hawaiian), Tokyo Narita (JAL)
MSY Frankfurt (Condor), London LHR (BA), Panama City (Copa)
OAK Barcelona (Iberia/NAS), London LGW (BA/NAS), Copenhagen/Rome**/Oslo/Stockholm (NAS)
PIT Frankfurt (Condor), Paris (Delta), Reykjavik (WOW)
PVD Belfast/Bergen/Cork/Dublin/Edinburgh/Shannon (NAI), Azores (SATA), Cape Verde (TACV)
RDU London LHR (American), Paris (Delta)
RSW Düsseldorf (airberlin), Nassau (Silver)
SJC Beijing (Hainan), Frankfurt (Condor), London LHR (BA), Shanghai (Air China), Tokyo NRT (ANA)
airlines.org45
* Slated to commence Mar. 27, 2018 ** Slated to commence Feb. 6, 2018
46. Among Top 60 U.S. Airports, the Picture for Air Cargo Volumes Is Split
Though Average Post-2010 Decline is 5.8%, 29 of the 60 Have Experienced Gains
airlines.org
136.5
48.3
44.7
32.3
26.0
23.4
19.1
16.9
16.8
14.1
12.5
11.6
10.9
9.4
7.8
7.5
6.8
6.1
5.9
5.5
4.9
4.2
4.0
3.2
3.2
2.5
2.2
1.3
1.2
(0.7)
(0.9)
(1.7)
(3.0)
(3.0)
(3.0)
(3.0)
(3.8)
(5.3)
(5.8)
(6.4)
(7.3)
(7.9)
(8.1)
(8.4)
(9.5)
(9.9)
(11.9)
(12.2)
(14.2)
(14.5)
(14.6)
(16.0)
(18.8)
(22.0)
(22.4)
(24.3)
(26.7)
(27.3)
(30.1)
(33.1)
(40.4)
(75)
(50)
(25)
0
25
50
75
100
125
150
CVG
TPA
DCA
PHX
ONT
MCO
MCI
LAX
DTW
SAN
BWI
DFW
PIT
SLC
SEA
LGA
CLT
PDX
SMF
OAK
OGG
CMH
SJU
DAL
HNL
FLL
OMA
IND
JAX
BNA
MKE
BOS
AUS
BDL
ORD
ATL
SFO
SJC
Mean
MSP
PHL
SAT
CLE
LAS
STL
BUF
SNA
DEN
RDU
IAH
RSW
PBI
EWR
MSY
ABQ
MIA
ANC
JFK
HOU
IAD
MDW
46
% Change in Avg. Daily Onboard Cargo Volumes from 2010 to 2016
Source: DOT T-100 (via Diio Mi) segment data, scheduled and nonscheduled services
47. Sources: BTS and DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)
airlines.org47
U.S. Airlines Saw Continued Improvements in DOT Operational Metrics in 2016
Gains Driven by Investments in Aircraft, Systems, Procedures, Staffing
97.82
98.46
98.83
98.60
2014
2015
2016
2017
Flight Completion Factor (%)
99.64
99.68
99.73
99.74
2014
2015
2016
2017
Properly Handled Bag Rate (%)
0.92
0.76
0.62
0.52
2014
2015
2016
1H17
Involuntary Denied Boardings*
On-Time Arrival Rate (%)
76.25
79.92
81.42
78.39
2014
2015
2016
2017
Best since 1992
Best ever recorded
Best since 2012
Best ever recorded
* Per 10,000 enplaned passengers
Jan-Jul Jan-Jul
Jan-Jul
49. How’s the Weather Affecting U.S. Airport Operations?
http://airlines.org/dataset/current-operation-status-for-us-airports
50. Heard on the Street…
airlines.org50
“With airlines in the U.S. now generating acceptable returns, their ability to
reinvest in their products has been greatly enhanced. Today’s traveler is likely to
check in via smart phone, monitor the upgrade list in real time, board and enjoy a
sufficiently sized overhead, and pass the time en route surfing the Internet. There is
no way any of this would have been possible had the industry not found its way
to firmer financial footing. For those in premium cabins, long gone are the EZ-boy
recliners requiring a ‘double excuse me’ in order to get to the aisle. Today’s business
traveler is likely to enjoy direct aisle access and a lie-flat seat suitable for sleeping,
even on transcon flights. Absent the industry’s financial turnaround, these
benefits simply would not be available.”
-- Jamie Baker, Managing Director, Global Equity Research, J.P. Morgan, Feb. 28, 2014
Jamie Baker is a Research Analyst at J.P. Morgan. His views may not be representative of others at the Company. For
disclosures related to companies that Mr. Baker covers, please see https://jpmm.com/research/disclosures
51. U.S. Airline Industry Headcount Ended 2016 at Highest Level Since 2000
Year-End Full-Time + Part-Time Employees at U.S. Passenger and Cargo Airlines (000s)
airlines.org51
Source: Bureau of Transportation Statistics
753.6
666.8
649.2
612.0
624.8
611.0
602.8
621.2
587.3
563.7
568.1
583.4
582.7
583.9
594.3
614.8
686.0
692.7
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Note: 2016 includes FedEx acquisition of TNT on May 25, 2016, which increased headcount by approximately 55,000
YTDJuly
52. U.S. Passenger Airline Jobs Averaging Highest Level Since 2004
July 2017 Represented the 45th Consecutive Month of YOY Gains
airlines.org52
Source: Bureau of Transportation Statistics for scheduled U.S. passenger airlines
520.0
378.6
411.1
423.6
375
400
425
450
475
500
525
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
U.S. Scheduled Passenger Airline Full-Time Equivalent Employees (000s)
Jan-Jul
2000-2010
-141,367 (27%)
2010-YTD17
+45,014 (12%)
53. Since April 2015, U.S. Airline Job Growth Has Exceeded Overall U.S. Job Growth
Airline Employment Growing at More Than Double the Rate of Overall U.S. Jobs
airlines.org
Source: Bureau of Labor Statistics (U.S. nonfarm employment, CES0000000001) and Bureau of Transportation Statistics (U.S. scheduled passenger airline FTEs)
(2)
(1)
0
1
2
3
4
5
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Year-Over-YearChange(%)
U.S. Airlines Overall USA
53
54. U.S. Airlines* Continue to Pump More Wages and Benefits into the Economy
Airlines* Spent $3.87 Billion/Month on the Workforce in 1H17 – Up 52 Percent from 2010
airlines.org54
2.55
2.61
2.73 2.76
2.99
3.35
3.66
3.87
2010 2011 2012 2013 2014 2015 2016 1H17
* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United
Total Employee Wages and Benefits*
($ Billions per Month)
55. U.S. Passenger Airline Wages Averaged 45% More Than U.S. Private Sector* in 2016
From 2010 to 2016, Airline Wages Rose 37% (More Than Double 15% for Overall USA*)
airlines.org55
Source: BEA NIPA Table 6.6D and A4A Passenger Airline Cost Index
$51.9
$53.5
$54.9 $55.4
$57.1
$58.7 $59.5
$62.6 $63.1
$67.3
$70.0
$74.5
$80.9
$86.0
$50
$55
$60
$65
$70
$75
$80
$85
$90
$95
2010 2011 2012 2013 2014 2015 2016
Thousands
U.S. Private Sector* U.S. Airlines
Wages and Salaries (000) per Full-Time Equivalent Employee (FTE)
* For all private industries
+45%
56. airlines.org56
As U.S. Airlines Generate More Cash from Operations, They Are Better Positioned
Not Only to Fund Capital Improvements But Also to Enhance Shareholder Value
Source: SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America
CashFlow(Billions)
$4.5
$3.0
($0.0)
$0.6
$2.5
$11.1 $10.5
$28.0
-$5
$0
$5
$10
$15
$20
$25
$30
2010 2011 2012 2013 2014 2015 2016
Free* (FCF) Operating
* Operating cash flow minus capital expenditures
57. airlines.org57
In 2016, U.S. Airlines Continued Efforts to Retain and Lure New Equity Investors,
Returning $13B to Shareholders Via Stock Buybacks ($12B) and Dividends ($1B)
Stock Repurchases (Billions) Dividends (Billions)
$1.2
$0.0
$0.2
$0.4
$0.6
$0.8
$1.0
$1.2
$1.4
2010 2011 2012 2013 2014 2015 2016
$12.0
$0
$2
$4
$6
$8
$10
$12
$14
2010 2011 2012 2013 2014 2015 2016
* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
ALGT,ALK,AAL,DAL,LUV
Allcompanieslistedbelow
58. airlines.org
50
55
60
65
70
75
80
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Up 13 points from 2008-2017
Note: ACSI and its logo are Registered Marks of the University of Michigan; see http://www.theacsi.org/the-american-customer-satisfaction-index
Scale = 0-100; ACSI for airlines commenced in 1994
58
“[T]here is a notable improvement this year in customer satisfaction for several airlines… Much of the
increase…appears to be driven by price… In addition, airlines have made strides to improve on-time arrivals
and in-flight meals, plus lost baggage is down… [E]very aspect of flying is better than it was a year ago.”
ACSI Airline Customer Satisfaction Index Up Again in 2017
ACSI Travel Report 2017 (April 25, 2017)
82
82
81
81
81
80
79
78
77
76
74
71
81
80
79
79
79
77
78
75
75
73
71
67
Ease of check-in process
Ease of making a reservation
Courtesy of flight crew
Timeliness of arrival
Website satisfication
Baggage handling
Boarding experience
Call center satisfaction
Range of flight schedules
Loyalty program
Quality of inflight services
Seat comfort
2017 2016
59. J.D. Power: North American Airline Satisfaction Climbs to Record High
airlines.org
658
726
756
650
670
690
710
730
750
770
2006 2008 2010 2012 2014 2016 2018
Up 98 points from 2009-2017
Source: J.D. Power 2017 North America Airline Satisfaction Study (http://www.jdpower.com/press-releases/jd-power-2017-north-america-airline-satisfaction-study)
“Lower fares, better on-time performance, fewer lost bags and the lowest bump rate
ever recorded have contributed to steady improvement in customer satisfaction with North
American airlines. According to the J.D. Power 2017 North America Airline Satisfaction
Study,SM released today, overall customer satisfaction with airlines has reached its highest
level ever, continuing a trend that now stretches five consecutive years.” (May 10, 2017)
Note: Scale = 0 to 1000
59
Seven factors (in order of importance):
Cost & fees
In-flight services
Aircraft
Boarding/deplaning/baggage
Flight crew
Check-in
Reservation
“Scores are higher this year than one year
ago in all of the study factors that measure
customer satisfaction.”
Notes: The study is based on responses from 11,015 passengers who flew on a major North American airline between March 2016 and March 2017.
60. Half of 2016 U.S. Flight Delays Were Attributable to the National Airspace System
An Additional 5 Percent Were a Function of Extreme Weather or Security Issues
airlines.org60
Source: A4A analysis of data from the Bureau of Transportation Statistics
Air Carrier,
46.0%
Extreme
Weather,
4.7%
National
Airspace
System,
49.0%
Security,
0.3%
DOT Categories for Causes of Delay
National Airspace System
Non-extreme weather conditions, airport ops,
heavy traffic volume, air traffic control, etc.
Security
Caused by evacuation of a terminal or concourse,
re-boarding of aircraft because of security breach,
inoperative screening equipment and/or long lines
in excess of 29 minutes at screening areas.
Extreme Weather
Significant meteorological conditions (actual or
forecasted) that, in the judgment of the carrier,
delays or prevents the operation of a flight such
as tornado, blizzard or hurricane.
Air Carrier
Circumstances within the airline’s control (e.g.,
maintenance/crew problems, aircraft cleaning,
baggage loading, fueling).
61. According to FAA, Flight Delays Cost the USA an Estimated $25B in 2016
More Than Half of Delay Costs Relate to Passenger Value of Time
Source: FAA Air Traffic Organization update to “Total Delay Impact Study: A Comprehensive Assessment of the Costs and Impacts of Flight Delay in the United States”
$7.0
$13.2
$1.7
$3.2 $25.12016 Flight Delay Costs ($Billions)
airlines.org61
1. Increased expenses for crew, fuel, maintenance, etc.
2. Time lost due to schedule buffer, delayed flights, flight cancellations, missed connections
3. Estimated welfare loss incurred by passengers who avoid air travel as the result of delays
4. Increased cost of doing business for other sectors, making associated business less productive
62. The Coalition for Modern Skies advocates to build on our first-rate safety
record, to reduce flight delays, to accelerate modernization and to restore
America’s global leadership in air traffic control.
The coalition will continue do this by advancing sensible policies to improve
Air Traffic Control systems through government accountability, reliable
funding, modern technology and improving efficient procedures to get
passengers and cargo to their destination more quickly.
www.modernskies.org
airlines.org51
63. 1H 2017 Operational and Financial Recap: U.S. Passenger Airlines
airlines.org63
» U.S. airlines projected to carry record number of passengers in 2017 on steadily
improving economy and continued air-travel affordability
» Profitability fell, as surging expenses outpaced modest growth in revenues, placing the
industry’s margin behind McDonald’s, Apple, Disney, Starbucks and Comcast
» Airlines continue to increase supply at airports, with domestic levels at their highest level
in a decade and international levels at an all-time high
» The number of works employed by U.S. passenger airlines stands at its highest level
since 2005 and is growing at twice the rate of overall U.S. employment
» Airlines are spending 52 percent more on wages and benefits than they were at the
beginning of the decade
» Broadly, a combination of data from DOT and independent entities shows a decline in
customer complaints and an increase in customer satisfaction
International Transactions (ITA) Table 3.1 - U.S. International Trade in Services Lines 8 and 12
http://www.bea.gov/iTable/iTable.cfm?ReqID=62&step=1#reqid=62&step=6&isuri=1&6210=1&6200=51
http://travel.trade.gov/research/reports/recpay/index.html
https://www.bea.gov/newsreleases/international/transactions/transnewsrelease.htm
Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes
http://money.cnn.com/2017/02/28/news/companies/flying-is-cheap/index.html
https://www.nytimes.com/2017/05/27/opinion/sunday/there-was-no-golden-age-of-air-travel.html?_r=0
https://www.washingtonpost.com/outlook/five-myths/five-myths-about-air-travel/2017/06/22/ffb9357a-553a-11e7-b38e-35fd8e0c288f_story.html
https://www.forbes.com/sites/mikeboyd/2017/07/10/the-airline-industry-a-new-disruptive-economic-model-is-emerging
http://www.stamfordadvocate.com/technology/businessinsider/article/How-airlines-are-making-flying-better-AAL-DAL-11736432.php
http://www.travelandleisure.com/airlines-airports/history-of-flight-costs
Americans Can Purchase ~2.9x the Amount of Air Travel They Could in 1978
Adjusted for Inflation, Domestic Air Travel Remains 40+ Percent Below 1980 Levels
Ancillary reflects baggage and change/cancellation fees
A4A Passenger Airline Cost Index
http://www.washingtonpost.com/news/business/wp/2015/06/12/how-theme-parks-like-disney-world-left-the-middle-class-behind/
http://www.nytimes.com/2016/02/28/business/disney-introduces-demand-based-pricing-at-theme-parks.html
http://allears.net/tix/tixpix10.htm
CPI - https://www.bls.gov/cpi/questions-and-answers.htm
Tuition = The College Board (based on beginning of academic year, 4-year undergraduate public institution, net of grants and ) -- http://trends.collegeboard.org/college-pricing; http://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fee-and-room-and-board-charges-over-time; http://trends.collegeboard.org/sites/default/files/cp-2012-table-2_0.xlsx; now use net at http://trends.collegeboard.org/college-pricing/figures-tables/net-price, table 7; row 11
Cars/Vehicle = National Automobile Dealers Association – www.nada.org (average retail selling price) - https://www.nada.org/nadadata/
Gasoline = https://www.eia.gov/totalenergy/data/browser/?tbl=T09.04#/?f=A&start=1990&end=2016&charted=5-10-11 or http://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf, Table 9.4.
Stamp = www.usps.com/postalhistory/welcome.htm, Publication 100.
Airfares = A4A via Bureau of Transportation Statistics – www.airlines.org.
Disney Magic Kindgom = http://allears.net/tix/tixincrease.htm or http://allears.net/tix/tixpix00.htm
Movies = http://www.natoonline.org/data/ticket-price/
NFL - https://www.teammarketing.com/public/uploadedPDFs/NFL_FCI_2016.pdf, http://www.cmaxxsports.com/ec228/NFL%20Ticket%20Prices%20TMR.pdf
MLB - https://www.teammarketing.com/public/uploadedPDFs/MLB_FCI_2016.pdf; http://roadsidephotos.sabr.org/baseball/earlyticketprices.htm, https://sportslistoftheday.com/2012/09/07/mlb-average-ticket-prices-and-fan-cost-index-for-all-30-baseball-teams-2008-2012/, http://twinstrivia.com/wp-content/uploads/2013/02/2007-MLB-fan-cost-index.pdf,
DPI = NIPA Table 2.1, Line 38 - http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1
Existing Homes = National Association of Realtors - https://www.nar.realtor/topics/existing-home-sales (previously http://www.census.gov/construction/nrs/xls/usprice_cust.xls, which has sales of NEW homes)Rx Drugs = https://beta.bls.gov/dataViewer/view/timeseries/CUSR0000SEMF01
Apparel = https://data.bls.gov/cgi-bin/surveymost?cu, CUUR0000SAA or https://beta.bls.gov/dataViewer/view/timeseries/CUUS0000SAA
Television = https://beta.bls.gov/dataViewer/view/timeseries/CUUR0000SERA01 (not seasonally adjusted)
In accounting, profit is the difference between the purchase and the component costs of delivered goods and/or services and any operating or other expenses.
Economic profit is similar to accounting profit but smaller because it reflects the total opportunity costs (both explicit and implicit) of a venture to an investor.
In corporate finance, Economic Value Added or EVA, is an estimate of a firm’s economic profit – being the value created in excess of the required return of the company’s investors (being shareholders and debt holders). Quite simply, EVA is the profit earned by the firm less the cost of financing the firm’s capital. The idea is that value is created when the return on the firm’s economic capital employed is greater than the cost of that capital.
In calculating economic profit, opportunity costs are deducted from revenues earned. Opportunity costs are the alternative returns foregone by using the chosen inputs. As a result, you can have a significant accounting profit with little to no economic profit.
Investors typically demand that airlines generate a 10 percent after-tax return on their capital.
1979-2016 was 14.0% for USA, 0.6% for airlines
2001-2016 was 15.2% for USA, -0.2% for airlines
http://www.nber.org/cycles.html
http://airlines.org/data/a4a-quarterly-passenger-airline-cost-index-u-s-passenger-airlines/
http://www.bea.gov/iTable/index_nipa.cfm
Payments made in cash or cash equivalents over a period of more than one year. Capital expenditures are used to acquire assets or improve the useful life of existing assets. An example of a capital expenditure is the funding to construct a factory. In accounting, capital expenditures must be capitalized; that is, the expenditure is recognized on a balance sheet gradually over the course of an asset's useful life. Capital expenditures are recorded as liabilities on a balance sheet. They are also called capital outlays. See also: Capital asset.
Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year. CAPEX are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings.[1] In the case when a capital expenditure constitutes a major financial decision for a company, the expenditure must be formalized at an annual shareholders meeting or a special meeting of the Board of Directors. In accounting, a capital expenditure is added to an asset account ("capitalized"), thus increasing the asset's basis (the cost or value of an asset adjusted for tax purposes). CAPEX is commonly found on the cash flow statement under "Investment in Plant, Property, and Equipment" or something similar in the Investing subsection.
http://www.jdpower.com/press-releases/jd-power-2017-north-america-airport-satisfaction-study
http://www.jdpower.com/resource/north-america-airport-satisfaction-study
http://www.jdpower.com/sites/default/files/2017_n.a._airport_satisfaction_study_brochure_2.15.17.pdf
“The trifecta of a steadily improving economy, record passenger volume and billion-dollar renovation projects unfolding in airports across the country has created a challenging environment for customer satisfaction,” Taylor added. “The fact that many airports are overcoming those challenges is incredibly instructive for the industry as it remodels and improves airport infrastructure.”
The credit rating is somewhat equivalent to getting a physical at the doctor – it’s a snapshot of one’s health – we (the airlines) are digging out of a hole, and this shows that we have a long way to go. Looking at results from one quarter or one year doesn’t tell anyone much – just like losing 10 lbs. in the past year is not enough information to tell me if a person is healthy or not. Or how about this – if the USA ran a federal budget surplus for a year, would that mean we don’t have a large national debt? No – I would call that a good start, not the finish line. Same with airlines.
Every single U.S. airport rated by S&P enjoys an investment-grade rating, whereas only one U.S. airline is investment-grade – at the lowest level. In other words, the best-rated airline equals the worst-rated airport.
Credit ratings are opinions about relative credit risk. They are just one factor investors may consider in making investment decisions. Companies (and governments) pay S&P to assess their creditworthiness to help raise money in the capital markets. Instead of taking a loan from a bank, these entities sometimes borrow money directly from investors by issuing bonds or notes. Investors and other market participants may use the ratings as a screening device to match the relative credit risk of an issuer or individual debt issue with their own risk tolerance or credit risk guidelines in making investment and business decisions.
Better credit ratings signal less credit risk, which means were are more likely to be able to pay our bills, on time, in full – so that often gets us better payment terms, lower interest rates (to borrow money in a downturn or to purchase aircraft, for example). Companies with strong credit ratings (like many airports) an cheaply finance large projects by going to the capital markets and issuing bonds – IN OTHER WORDS THAT DON’T NEED TO RAISE MORE MONEY FROM AIRLINES/PASSENGERS to fund new projects.
As stated by S&P: “Issuers including corporations, financial institutions, national governments, states, cities and municipalities, use credit ratings to provide independent views of their creditworthiness and the credit quality of their debt issues. Issuers may also use credit ratings to help communicate the relative credit quality of debt issues, thereby expanding the universe of investors. In addition, credit ratings may help them anticipate the interest rate to be offered on their new debt issues. As a general rule, the more creditworthy an issuer or an issue is, the lower the interest rate the issuer would typically have to pay to attract investors. The reverse is also true: an issuer with lower creditworthiness will typically pay a higher interest rate to offset the greater credit risk assumed by investors.”
United is currently rated “B,” which indicates that it “More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.” LAX Int’l Airport, on the other hand, is currently rated “AA,” which suggests a “Very strong capacity to meet financial commitments.” Therefore LAX is not only in superior financial condition relative to United but also has a far better ability to raise capital to fund projects at reasonable rates/terms.
Airports do not need a PFC increase to fund necessary capital projects as they enjoy investment-grade credit and all have access to capital market. (To our knowledge no airport has been prevented from proceeding with a necessary capital project because it couldn’t issue bonds.)
Airlines understand that the issuance of bonds is repaid through their rates and charges; therefore, if airlines are telling airports that airlines want to use rates and charges (vs. PFCs) to fund a project, airports should not object (especially since a PFC increase would increase the cost of air travel and hurt demand).
Airlines are considering the big picture (the overall revenue impact) and telling them that they prefer that the airports use bonds.
http://atwonline.com/editorial/editorial-regulation-and-profitability-0
“We see no significant change to our broader industry investment thesis, i.e. management teams focused on: 1) achieving sustainable profitability; 2) improving product/service; 3) deleveraging; and 4) enhancing shareholder returns.” -- Michael Linenberg, Deutsche Bank, “Takeaways from read-through of DOJ complaint blocking AA-US,” Aug. 14, 2013
“We’ve lost a lot of markets that were served only with the 50-seat (aircraft). We’d like more flights. But you’re not going to have any flights if the airlines don’t make money, so we understand their predicament.” (Larry Cox, president and CEO of the Memphis-Shelby County Airport Authority)
─ “Regional airlines face closings, bankruptcy,” USA Today (Aug. 20, 2012)
Upgauging:
Crew availability
Capital discipline, maintenance costs, etc.
Congested airspace/airfields
Lack of new-generation small aircraft
In 2016, 88 percent of domestic passengers traveled in city pairs with non-AA/DL/UA airline options
Up from just 65 percent in 2000 and 85 percent in 2007 (including merged/acquired predecessors)
http://www.dot.gov/airconsumer/air-travel-consumer-reports
http://transtats.bts.gov/OT_Delay/OT_DelayCause1.asp?pn=1
Also intense focus (and results) on improving baggage handling – through multifaceted approach including equipment (bag carousels/carts/scanners), software (real-time tracking for company and customers, shortest-path routings and real-time gate/status updates for drivers), training, internal reporting and communication, dedicated bag performance personnel, partnerships (e.g., airports, TSA, CBP), financial incentives (i.e., for employees, third-party contractors or interline partners), logistics (e.g., use of freighters in Alaska, improved delivery processes from plane to carousel, new sorting procedures, shuttling of bags twice during unloading of large aircraft, contingency plans if belts down)
Free cash flow (FCF) is a measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as: EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure. It can also be calculated by taking operating cash flow and subtracting capital expenditures.
2016 2017
JetBlue 80 82
Southwest 80 80
Alaska 77 78
American 72 76
Delta 71 76
Allegiant 65 71
United 68 70
Frontier 66 63
Spirit 62 61
All Others 74 74
Composite 72 75
http://www.theacsi.org/about-acsi/history
http://www.theacsi.org/news-and-resources/press-releases/press-2017/press-release-travel-2017
http://www.theacsi.org/news-and-resources/customer-satisfaction-reports/reports-2017/acsi-travel-report-2017
http://www.theacsi.org/news-and-resources/press-releases/press-2016/press-release-travel-2016
http://www.theacsi.org/index.php?option=com_content&view=article&id=147&catid=&Itemid=212&i=Airlines
http://www.theacsi.org/index.php?option=com_content&view=article&id=148&Itemid=213
http://www.gallup.com/poll/103237/airline-satisfaction-remains-high.aspx
The American Customer Satisfaction Index (ACSI) is the only national cross-industry measure of customer satisfaction in the United States. This strategic economic indicator is based on customer evaluations of the quality of goods and services purchased in the United States and produced by domestic and foreign firms with substantial U.S. market shares. The ACSI measures the quality of economic output as a complement to traditional measures of the quantity of economic output.
The ACSI was started in the United States in 1994 by researchers at the University of Michigan, in conjunction with the American Society for Quality in Milwaukee, Wisconsin, and CFI Group in Ann Arbor, Michigan. The Index was developed to provide information on satisfaction with the quality of products and services available to consumers. Before the ACSI, no national measure of quality from the perspective of the user was available.
The ACSI model was derived from a model originally implemented in 1989 in Sweden called the Swedish Customer Satisfaction Barometer (SCSB). Claes Fornell, ACSI founder and Chair of ACSI LLC, developed the model and methodology for both the Swedish and American versions. Hailed as the "Father of Customer Satisfaction," Claes Fornell is without question one of the most influential scholars in marketing science today. His name can be found on 3 of the top 15 most academically cited papers from the leading sources in the field—Journal of Marketing, Journal of Marketing Research, Marketing Science, and Management Science.
The ACSI was first published in October 1994, with updates released each quarter. Starting in May 2010, ACSI data became available to the public on a more frequent basis, with results released multiple times per year. This change allows stakeholders to focus more in-depth on different segments of the economy over the entire calendar year. The national ACSI score continues to be updated quarterly on a rolling basis, factoring in data from 10 economic sectors and 43 industries.
The North America Airline Satisfaction Study, now in its 13th year, measures passenger satisfaction with North American airline carriers based on performance in seven factors (in order of importance): cost & fees; in-flight services; aircraft; boarding/deplaning/baggage; flight crew; check-in; and reservation. Satisfaction is calculated on a 1,000-point scale.
The study measures passenger satisfaction among both business and leisure travelers, and is based on responses from 11,015 passengers who flew on a major North American airline between March 2016 and March 2017. The study was fielded between April 2016 and March 2017.
https://www.rita.dot.gov/bts/help/aviation/html/understanding.html#q4
How are these categories defined?
Air Carrier: The cause of the cancellation or delay was due to circumstances within the airline's control (e.g. maintenance or crew problems, aircraft cleaning, baggage loading, fueling, etc.).
Extreme Weather: Significant meteorological conditions (actual or forecasted) that, in the judgment of the carrier, delays or prevents the operation of a flight such as tornado, blizzard or hurricane.
National Aviation System (NAS): Delays and cancellations attributable to the national aviation system that refer to a broad set of conditions, such as non-extreme weather conditions, airport operations, heavy traffic volume, and air traffic control.
Late-arriving aircraft: A previous flight with same aircraft arrived late, causing the present flight to depart late.
Security: Delays or cancellations caused by evacuation of a terminal or concourse, re-boarding of aircraft because of security breach, inoperative screening equipment and/or long lines in excess of 29 minutes at screening areas.