Industry Review: Allocating Capital to Benefit Customers ...Ultra Low-Cost Carriers Operate the Most...
Transcript of Industry Review: Allocating Capital to Benefit Customers ...Ultra Low-Cost Carriers Operate the Most...
Updated March 18, 2020
Industry Review: Allocating Capital to Benefit Customers, Employees and Investors
http://airlines.org/dataset/a4a-presentation-industry-review-and-outlook/http://airlines.org/blog/the-nature-and-status-of-u-s-airline-competition-beyond-the-80-percent-rhetoric/https://atwonline.com/aeropolitics/op-ed-how-lower-aviation-fuel-taxes-boost-local-economies
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“This is probably the best time in modern
history in which to fly.”
Source: https://www.usatoday.com/story/travel/flights/2019/05/29/j-d-powers-best-airlines-customer-satisfaction-2019-southwest-jetblue-alaska/1256499001/
Michael Taylor, Sr. Director, Travel & Hospitality Intelligence, J.D. Power (May 29, 2019)
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Source: A4A, Bureau of Transportation Statistics, Diio by Cirium and company literature
U.S. Airlines* Facilitate the Safe and Rapid Movement of People and Goods WorldwideU.S. Passenger and Cargo Airlines Connect the World
Moving 58,000 tons of cargo
per day to/from more than 220
countries
Carrying 2.5M passengers
per day to/from nearly 80 countries
* Includes passenger/combination and cargo-only carriers
~ 750,000direct employees
Powering 28,000 flightsper day across
the globe
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Contents
»Core» Trends in Traffic, Fares, Operations and Financial Performance
» Initiatives to Improve Profitability
» Affordability, Competition and Access to Air Travel
» Reinvestment in People and Product
» Customer Satisfaction
»APPENDIX
5
As Real Airfares Have Plunged, Growth in Flyers = 5x Growth in U.S. PopulationAncillary Services Included, 2018 Domestic Air Travel Was ~44% Cheaper Than in 1980
Source: Bureau of Economic Analysis, Bureau of Labor Statistics and Bureau of Transportation Statistics (DB1B via Airline Data Inc. and T1 scheduled service for U.S. airlines)
$695
$369
43
133
0
20
40
60
80
100
120
140
160
$0
$100
$200
$300
$400
$500
$600
$700
$800
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2022
2026
2030
Fare+Fees Possible Trips on Disposable Income
Domestic Round Trip (in 2019 Dollars)
927
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
0100200300400500600700800900
1,0001,100
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2022
2026
2030
Per CapitaM
illio
ns
Passengers per Capita Up 2.3x (+129%)
U.S. Airline Pax +237%
U.S. Population +48%
6
In 2019, U.S. Airline* Profitability Trailed U.S. Corporate Average by ~ Three PointsPre-Tax Profit Margin (% of Operating Revenues)
1 Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United2 CSX, Norfolk Southern and Union PacificSource: Company SEC filings
34.6 28.6
21.5 16.7 13.8 13.8 12.8 12.0 11.3 9.9
6.3 6.3 0.0 0.0
(0.8)
Rai
lroad
s (2
)
McD
onal
d´s
Appl
e
Hon
eyw
ell
Dis
ney
Star
buck
s
All U
.S. C
orps
Com
cast
Cat
erpi
llar
Airli
nes
(1)
Mar
riott
Chi
potle
Nor
dstro
m
Ford
Boei
ng
7
Even in Best Years, the Profitability of U.S. Airlines Lags the U.S. Corporate AveragePre-Tax Profit Margin (%) Gap Widened in 2016-2018, But Narrowed in 2019
Source: ATA Annual Reports (1970-1976), A4A Passenger Airline Cost Index (1977-present); Bureau of Economic Analysis
9.9 12.8
(25)(20)(15)(10)(5)05
101520
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
2022
2024
2026
2028
2030
U.S. Recession U.S. Passenger Airlines All U.S. Corporations
Note: Recessions highlighted in gray
8
U.S. Airlines Continue to Strive for Solid Profitability Across the Business CycleIn Current U.S. Business Cycle, Airline Margins Are Less Than Half the U.S. Average
29.9 28.5
23.3
16.6 15.7
10.8 7.1
0
5
10
15
20
25
30
35
MCD AAPL DIS SBUX All USA CMG Airlines
Sources: U.S. Bureau of Economic Analysis, A4A Passenger Airline Cost Index and company SEC filings
McD
onal
d’s
App
le
Star
buck
s
Pre-Tax Profit Margin (%) in 2010-2019
Dis
ney
Chi
potle
9
In 2019, U.S. Airlines Saw Average Profit Margin Rise 1.7 PointsStrong Travel Demand Helped Offset Cargo Weakness and Continued Cost Pressure
Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United
1. Traffic = revenue passenger miles; yield = revenue per passenger-mile flown; U.S. CPI up 1.8 percent2. Sale of frequent flyer award miles to airline business partners, transportation of pets, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc.3. Aircraft rents, professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, payments to regionals
Change (%) in Operating Revenues and Expenses: 2019 vs. 2018
4.7
(8.6)
4.7 4.5 6.3
(4.5)
8.2 5.4
8.0 1.7 2.5
8.2 9.9
Pre-Tax ProfitMargin (%)
Traffic up 4.1%
10
Through 2019, U.S. Airline Passenger Traffic Held Steady, But Air Cargo Volumes Weakened2020 Will Be Entirely Different
Sources: Bureau of Transportation Statistics T1 all services
(20)(15)(10)(5)05
101520
Jan-
16
Apr-1
6
Jul-1
6
Oct
-16
Jan-
17
Apr-1
7
Jul-1
7
Oct
-17
Jan-
18
Apr-1
8
Jul-1
8
Oct
-18
Jan-
19
Apr-1
9
Jul-1
9
Oct
-19
Jan-
20
Apr-2
0
Jul-2
0
Oct
-20
Jan-
21
Cargo Traffic (RTMs) Passenger Traffic (RPMs)
Change (%) YOY in Traffic* – U.S. Passenger and Cargo Airlines
* RTMs = freight, mail and express revenue ton miles; RPMs = revenue passenger miles
?
11
World Crude-Oil Prices Averaged $64 in 2019 – Below 2018 But $10 Higher Than 2017Spot Price of Brent Crude Oil ($ per Barrel)
Sources: A4A and Energy Information Administration (https://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm)
$0$10$20$30$40$50$60$70$80$90
Jan-
16
Mar
-16
May
-16
Jul-1
6
Sep-
16
Nov
-16
Jan-
17
Mar
-17
May
-17
Jul-1
7
Sep-
17
Nov
-17
Jan-
18
Mar
-18
May
-18
Jul-1
8
Sep-
18
Nov
-18
Jan-
19
Mar
-19
May
-19
Jul-1
9
Sep-
19
Nov
-19
Jan-
20
Mar
-20
May
-20
Jul-2
0
Sep-
20
Nov
-20
Jan-
21
12
For U.S. Airlines, the Price of Oil* Is a Huge Determinant of Capacity GrowthWhen Fuel Costs Decline and Finances Improve, Growth Accelerates
Source: Bureau of Economic Analysis, EIA, IHS Markit and published airline schedules via Diio by Cirium as of Jan. 10, 2020
(1.8)
1.3
4.6
0.9 2.0 2.4
(8)
(6)
(4)
(2)
0
2
4
6
2005-2010 ($75) 2010-2014 ($108) 2014-2019 ($57) 2020 (???)
Domestic Airline Capacity (ASMs) U.S. Economy (Real GDP)
* Brent crude oil in dollars per barrel, shown next to each time period
Com
poun
d An
nual
Gro
wth
Rat
e (%
)
Oil Shock+ Weak GDP
Extreme Oil+ Better GDP
Oil Relief+ Good GDP
COVID-19+ Weak GDP
?
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In 2019, U.S. and Foreign Airlines Offered a Record 3.16M Daily Seats From U.S. AirportsIn 2019, 2.7 Percent YOY Growth in Flights Helped Drive 3.5 Percent Growth in Seats
Sources: Diio by Cirium published schedules as of Jan. 17, 2020, for all U.S. and non-U.S. airlines
Scheduled U.S. Airport Flights/Day (000s)
24.3 24.5 24.8 25.4 26.1
2.7 2.8 2.93 3.06 3.16
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Scheduled U.S. Airport Seats/Day (Millions)
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Scheduled Flights From Small Community U.S. Airports* Up 10 Percent From 2015 to 2019Flights Up 14 Percent at “Small Hub” Airports and 6 Percent at “Nonhub” Airports
Sources: Diio by Cirium published schedules as of Jan. 10, 2020, for all airlines providing scheduled passenger service from U.S. airports to all destinations
Aver
age
Dai
ly F
light
s
3,707 3,072 2,458 2,801
2,805 2,372
2,199 2,322
6,512
5,443 4,657
5,123
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2005 2010 2015 2019
FAA Small Hub Airport FAA Nonhub Primary Airport
* Per https://www.faa.gov/airports/planning_capacity/passenger_allcargo_stats/categories/, U.S. airports with less than 0.25% of annual passenger boardings
Notes: Recession (Dec-2007–Jun-2009); FAA pilot qualification (1,500-hour) rule effective Jul-2013; pilot flight/duty/rest rule effective Jan-2014
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Airlines Have Deployed Larger Aircraft, and Mainline-Only Carriers Have GrownRegionals Now Just 44% of Domestic Departures; Over Half of Those are Large RJs
% of Domestic U.S. Departures by Aircraft Size*
Source: Diio by Cirium published schedules as of Jan 3, 2020
45 38 27 21
8 15 20 23
37 36 27 22
11 11 25 34
2005 2010 2015 2019
≤ 50 51-100 101-150 151+
* Numbers may not add to 100 due to rounding
16
Almost All U.S. Airlines Have Migrated to Larger Aircraft DomesticallyUltra Low-Cost Carriers Operate the Most Seats per Domestic Flight
102
107 11
9 126 13
8 144 151 17
0 184 191
50
75
100
125
150
175
200
2010 2015 2019
Average Seats per Domestic Departure by Marketing Airline*
Source: Diio by Cirium schedules as of Dec. 6, 2019, for selected marketing airlines * Includes flights operated by regional/express airline partners
17
Domestically, Traditional U.S. Network Carriers Fly Similarly Sized Mainline EquipmentAircraft Size Varies More Widely Across Their Regional/Express Partners
159
159
160 166
76
64 67 60
0255075
100125150175
Alaska American Delta United Alaska American Delta United
2010 2015 2019
Average Seats per Domestic Departure for Traditional U.S. Network Carriers
Source: Diio by Cirium schedules as of Dec. 6, 2019
MAINLINE OPERATIONS REGIONAL PARTNER OPERATIONS
18
In 2018, Inflation-Adjusted Domestic Fares/Fees Fell for Fourth Consecutive YearFrom 2010-2018, the Real Price* of Domestic Air Travel – Including Ancillaries – Fell 6.9 Percent
Source: A4A analysis of DOT Data Bank 1B (all cabins and fare basis codes) and DOT Form 41 via Airline Data Inc. (airlinedata.com) * Excludes taxes; CPI rose 2.4% YOY
364384 389 392 400 386
360 348 340
13
13 13 1213
13
1314
14
9
9 9 1010
10
99
8
389
408 413 416424
410
384371
362
$320
$340
$360
$380
$400
$420
$440
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Airfare/Seat Selection/Upgrades Bag Fees Change Fees
Round-Trip Ticket Price ($ 2018)*
19
Among 11 U.S. Airline Brands, Smaller Carriers Have Been Growing the FastestFrom 2007 to 2019, Allegiant and Spirit Grew 4X and 5X, Respectively
3 6 11 23 3179 98 110 128 131
349408
050
100150200250300350400450
Change (%) in Systemwide Scheduled ASMs – 2007 to 2019
Source: Diio by Cirium schedules as of Jan. 17, 2020, for selected marketing airlines including predecessors
20
32 37 45 54 65 79
95 112 12
8 145 16
0 186 21
4 246 27
1 300
38 48 50 52 53 53 56 57 65 73
0
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F 2023F 2024F 2025F
Active Fleet Airports Served
Spirit Airlines Aims to Remain the Fastest Growing U.S. CarrierThe Company Is Targeting a Fleet of 300 Aircraft by the End of 2025
Source: Year-end active fleet data from Spirit Airlines as of Feb. 5, 2020 plus A4A estimates for 2022-2024; airports served in December from Diio by Cirium as of Nov. 15, 2019
On October 23, 2019, Spirit announced an MOU with Airbus for the purchase of 100 A320 family (A319neo/A320neo/A321neo) aircraft (plus 50 options) for delivery through 2027.
21
Smaller U.S. Carriers Are Serving More and More Domestic MarketsCompetitive Presence of Low-Cost and Ultra Low-Cost Carriers Continues to Expand
Source: Diio by Cirium schedules as of August 30, 2019, for selected marketing airlines including predecessors
74
54 50
15
48
18
99
120
102
22
6750
Alaska Allegiant Frontier Hawaiian JetBlue Spirit
2007 2019
Number of U.S. Airports Served*
* July 15-21 of each year
22
ALK/Hawaiian/JBLU/ULCCs Could Carry a Third of Domestic Passengers By 2030Global Network Carrier Share Fell From 73 Percent in 2000 to 53 Percent in 2018
Source: DOT Data Bank 1B (each airline shown on a marketing-carrier basis and tracked with its respective merged/acquired predecessors [e.g., UA/CO]
73 71 69 68 67 67 65 62 60 59 58 57 57 57 56 55 54 53 53
18 19 20 21 21 21 22 23 24 25 25 25 25 24 24 24 24 24 23
9 10 10 11 12 13 13 15 16 16 17 18 19 19 20 21 22 23 24
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Global Network (AA, DL, UA) Southwest Other
Alaska 6.3JetBlue 5.3Spirit 4.2Frontier 3.1Allegiant 2.4Hawaiian 1.5Sun Country 0.4Other 0.4
Share (%) of U.S. Domestic O&D Passengers by Airline Business Model
23
LCCs/ULCCs and Other Non-AA/DL/UA Airlines* Now Carry Significant Share of Domestic Origin-Destination (O&D) Passengers in the Largest U.S. Metro Areas
Source: Compass Lexecon and A4A analysis of DOT Origin-Destination Survey (Data Bank 1B)
Metro Area Airport(s) 2000 2007 2018Atlanta, GA ATL 14.4 28.1 28.9Boston, MA BOS 7.8 27.1 49.5Charlotte, NC CLT 0.0 8.8 10.4Chicago, IL MDW/ORD 26.0 30.6 35.9Dallas/Fort Worth, TX DAL/DFW 27.3 26.6 36.6Denver, CO DEN 14.7 38.8 55.0Detroit, MI DTW 15.0 23.3 29.7Houston, TX HOU/IAH 34.0 30.6 42.7Los Angeles, CA BUR/LAX/LGB 35.8 43.7 50.8Miami, FL FLL/MIA 19.1 35.5 45.2Minneapolis/St. Paul, MN MSP 12.7 14.6 29.7New York, NY-NJ EWR/JFK/LGA 8.5 25.8 29.8Orlando, FL MCO/SFB 24.2 52.3 66.2Philadelphia, PA PHL 6.6 28.0 28.8Phoenix, AZ PHX 39.4 46.5 52.0St. Louis, MO STL 26.5 35.5 61.3Salt Lake City, UT SLC 23.3 34.2 30.5San Diego, CA SAN 48.5 55.0 63.4San Francisco, CA OAK/SFO 33.9 45.0 52.2Seattle, WA SEA 51.4 57.0 63.8Tampa, FL TPA/PIE 29.2 48.6 61.6Washington, DC BWI/DCA/IAD 17.5 35.7 46.0
24
Competitive Choices for Domestic Flyers Have Continued to IncreaseContrary to Some Assertions, Traffic Analysis Shows More Competitors on U.S. City Pairs
Source: Compass Lexecon analysis of DOT Origin-Destination Survey (Data Bank 1B)
3.33
3.39
3.48
2000
2010
2018
* Carrying at least 5 percent of O&D passengers in the city pair; average number of competitors is passenger-weighted across city pairs
Average Number of Competitors* on All Reported Domestic U.S. Itineraries
25
Competition in Select City Pairs: Airline Share of O&D Passengers in 2019 vs. 2007Competitive Presence of Low-Cost and Ultra Low-Cost Carriers Continues to Expand
Source: DOT Data Bank 1B (nondirectional data for year ending 3Q19) and published airline schedules via Diio by Cirium
Los Angeles (BUR/LAX/LGB)-Seattle2007 2019
Alaska 63.7 Alaska 54.9United 17.1 Delta 23.2Southwest 7.9 JetBlue 5.9American 6.5 Southwest 5.4
American 5.3
Boston-Cleveland/Akron2007 2019
Continental 63.2 JetBlue 45.5AirTran 29.5 Delta 22.6
Spirit 12.9United 12.5
Chicago (MDW/ORD)-Sacramento2007 2019
United 45.1 United 41.1Southwest 41.8 Southwest 35.4US Airways 5.0 American 17.8
Memphis-Orlando (MCO/SFB)2007 2019
Northwest 60.6 Southwest 44.9AirTran 22.2 Delta 16.9Frontier 8.7 Allegiant 14.9Delta 5.6 Frontier 13.3
American 7.8
26
Nonstop Service Is Available in More Domestic Air-Travel Markets Than Ever BeforeShare of Busiest Markets With Nonstop Service Rose From 69 Percent in 1990 to 89 Percent in 2018
Source: Compass Lexecon analysis of DOT O&D traffic data, OAG schedule data, and T100 and Form 298C.traffic data
69.1 70.8 75.3 80.7 78.8 84.5 88.7
0102030405060708090
100
1990 1995 2000 2005 2010 2015 2018
Share (%) of Top 2000 Domestic Markets (Origin-Destination Airport Pairs) With Nonstop Service*
* Top 2000 markets accounted for 81% of domestic O&D passengers in 2018
27
U.S. Passenger Airline Jobs Averaging Highest Level Since 2002January 2020 Represented the 75th Consecutive Month of YOY Gains
Source: Bureau of Transportation Statistics for scheduled U.S. passenger airlines
520.
0
378.
6
437.
9 44
8.6
452.
9
375
400
425
450
475
500
525
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
U.S. Scheduled Passenger Airline Full-Time Equivalent Employees (000s)
2010-2019+69,978 (18.5%)
2000-2010-141,367 (27%)
28
U.S. Airline Job Growth Continues to Outpace Overall U.S. Job Growth
Source: Bureau of Labor Statistics (U.S. nonfarm employment, CES0000000001) and Bureau of Transportation Statistics (U.S. scheduled passenger airline FTEs)
(3)(2)(1)012345
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
Jul-1
6
Jan-
17
Jul-1
7
Jan-
18
Jul-1
8
Jan-
19
Jul-1
9
Jan-
20
Jul-2
0
Jan-
21
U.S. Airlines Overall USA
Year-Over-Year Change (%)
29
U.S. Passenger Airlines Spent $424 Billion on Employee Wages & Benefits in 2010-2019Average Compensation per Employee Rose Approximately $40K (47 Percent)
Source: A4A Passenger Airline Cost Index
$32.3 $33.3 $35.6 $35.8 $38.3$42.6
$46.7$50.3 $52.7
$56.4
85.3 86.492.4 94.0
99.5
107.8113.6
118.1 120.2125.7
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Total ($Bils) Per FTE ($000)
Employee Wages and Benefits
30
From 2010-2019, U.S. Passenger Airlines Spent $424B on the Workforce and $139B on Fleet and Other Investments While Retiring $91B in Debt and Returning $56B to Shareholders
Source: SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and merged/acquired predecessors; wages and benefits include all other carriers (approximately 6% of the total)
2010 through 2019 $ BillionsCash Flow From Operations 189
Employee Wages and Benefits 424
Fleet and Other Investments (“CapEx”) 139
Debt Retirement 91
Dividends 8
Share Repurchases 48
31
U.S. Airlines Have Been Spending Billions on Planes/Facilities/Ground Equipment/TechnologyCollectively, U.S. Passenger Carriers Took Delivery of ~880 New Aircraft in 2017-2019
Source: SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and merged/acquired predecessors* Includes payments made for aircraft and other flight equipment, ground and other property and equipment (e.g., vans, air stairs, lavatory trucks, deicing vehicles), airport and other facility construction and information technology
Capital Expenditures (Billions) for U.S. Passenger Airlines
$5.2$6.6
$9.8$12.5
$13.9$17.0 $17.5
$19.8 $18.6 $17.8
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Red
uced
due
to
dela
yed
a/c
deliv
erie
s
32
Investments in Aircraft, Facilities, Ground Vehicles and IT on the Rise for U.S. Cargo Airlines
Source: SEC filings of Atlas, FedEx and UPS * Facilities, vehicles, information technology, package handling and ground support equipment
4.36.2 6.7 6.0 6.4 7.0
8.1
10.912.7 12.2
- 2 4 6 8
10 12 14 16
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Aircraft and Related Equipment Other*
Capital Expenditures ($ Billions) for Atlas/FedEx/UPS
33
Source: A4A analysis of FAA Form 127 reports
Capital Improvements at U.S. Airports, Too, Are on the RiseIn 2018, Terminal-Related Projects Constituted 48 Percent of Airport Capital Spending
3.1 2.4 2.4 3.0 2.9 3.1 2.5 2.9 2.7
4.8 4.1 3.6 3.5 3.4 3.7 4.2
5.5 7.0 1.3
1.4 1.4 0.9 0.8 1.1 1.8 2.2
2.2 1.7 1.3 1.4 1.4 1.7 1.9 1.8
2.1 2.7 $10.9
$9.2 $8.8 $8.9 $8.9 $9.8 $10.3$12.7
$14.7
2010 2011 2012 2013 2014 2015 2016 2017 2018
Airfield Terminal Parking/Roads/Rail/Transit Other
Capital Expenditures (Billions) for U.S. Commercial-Service Airports
34
Airport Investment Is Booming Across the United StatesU.S. Airports With Capital Improvements Exceeding $100M From 2001-2018
Source: FAA Form 127 reports (capital expenditures and construction in progress) and A4A research; note: large hub airports include projects underway or approved
$1-4.9B
$5-9.9B
$10B+
$100-$999M
.
ATL
CLT
DCA
DFW
IAH
MDW
MIA
PHL
SEA
TPA
MSP
PDX
DEN
LAS
PHX
SLC
SAN
LAX
BWI
MYR
IND
ICT
AUS
MEM
LGB
SJC
MSY
MCI
BHMDAL
HOU
RDUBNA
SMF STL
SGF
DSM
TULOKC
BOI
GPT
ELPTUS
JAX
COS
HSV
GRR
SNA
FAT
ONT
XNA
LIT
ECP
BDL
GEG
AEX
PNS
PBI
RSW
SAV
SFB
LEX
BTR
PWM
LFT
BUF
GSO
DLH
OMA
ROC SYR
MHT
ABQ
BOS
PVD
ABE
CLE
CAKPIT
CHS
DAY
CVG
CMH
SAT
TYS
IAD
SWF
FLL
DTW
SDF
ORF
RIC
BTV
MKE
SFO
OAK
ORD
HNL
ANC
FAIOGG
ITOBET
ALB
BUR
LCK
SJUANI
JNU
SBA
STT
LIH
KOA
MOB
IWAAGS
RNO
CID
FSDIDA
SHV
BGR
MRY
PSP
LIH
LIH
BFI
PUW
SBP
SGU
PSC
RDM
EUG
MFR
BLI
LIHJAC
MSO
GTF
BZNBIL
PIE
SRQ
DABMLB
ISN
MOT
BISFAR
LNK
RST
LBB
ABI
CRPEFD
MSN
ATW
JAN
TLH
ILMLIH
MCO
CAE
AVL
GSP
TRI
CRW
ROA PHF
CHO
HGR
RFD
PIA
MLISBN FWA
TOL
EVV
ERI ELM HPN
AVP
ACK
PBG
ISPMDTJFK
EWR
LGAACY
35
J.D. Power: North America Airport Satisfaction* Climbs to Record HighLatest Results Released Sept. 25, 2019
Source: : J.D. Power North America Airport Satisfaction StudySM
* Now in its 14th year, the study is based on responses from 32,276 U.S. or Canadian residents who traveled through at least one U.S. or Canadian airport and covers 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. The study was fielded from October 2018 through September 2019..
689
675 69
0 725
731 74
9 761
762
600
650
700
750
800
2007 2008 2010 2015 2016 2017 2018 2019* Concourses, lounges, signage, restrooms, gate areas
Six factors (in order of importance):• Terminal Facilities*• Airport Accessibility• Baggage Claim• Security Check• Check-In / Baggage Check• Food / Beverage / Retail
Note: Scale = 0-1000; study not conducted in 2009/2011-2014
“Scaffolding and cranes are official welcome signs to several North American airports these days as record passenger volumes force major expansion efforts.”
36
ACSI 2019 Airline Customer Satisfaction Index: Second Best in 25-Year HistoryEase of Booking and Checking in for Flight Rank Highest
Source: ACSI Travel Report 2018-2019 (April 30, 2019)Note: ACSI and its logo are Registered Marks of the University of Michigan; see http://www.theacsi.org/the-american-customer-satisfaction-index
62
74
60626466687072747678
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
Scale = 0-100; ACSI for airlines commenced in 1994828282
8180808080
7979
7878
7775
7373
7169
Ease of check-inMobile app quality
Mobile app reliabilityEase of making reservation
Courtesy of flight crewCourtesy of gate staff
Timeliness of arrivalWebsite satisfication
Baggage handlingBoarding experience
Call center satisfactionCleanliness of cabin and lavatory
Range of flight schedulesLoyalty program
Overhead storageQuality of premium food/beverage
Quality of inflight entertainmentSeat comfort
37
J.D. Power: North America Airline Customer Satisfaction Climbs to Record HighLatest Results Released May 29, 2019
Source: : J.D. Power North America Airline Satisfaction StudySM
Notes: The study is based on responses from 5,966 passengers who flew on a major North American airline between March 2018 and March 2019.
658
773
650
675
700
725
750
775
800
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Note: Scale = 0 to 1000
Seven factors (in order of importance):• Cost and fees• In-flight services (food/beverage/IFE)• Aircraft• Boarding/deplaning/baggage• Flight crew• Check-in• Reservation
“Airlines continue to deliver on the operational side of air travel. New technology investments have dramatically improved the reservation and check-in process. Fleets are newer and travelers generally feel that they are getting great value for their money. These improvements have been most profound in the traditional carrier segment, where customer satisfaction has climbed considerably.”
— Michael Taylor, J.D. Power (May 29, 2019)
38
Involuntary Denied Boardings and Customer Complaints Have Been Trending DownGrounding of B737 MAX Largely Responsible for Anomalous 2019 Increase
Source: DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)
1.20
1.
18 1.42
1.
13 1.38
1.90
1.52
1.
34
0.98
0.
99
0.0
0.5
1.0
1.5
2.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
DOT Customer Complaints per 100K Pax*1.
09
0.82
0.
99
0.92
0.
92
0.76
0.
62
0.40
0.
14
0.24
0.0
0.5
1.0
1.5
2.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Involuntary Denied Boardings per 10K Pax*
B737 MAX Grounded 3/13
* U.S. passenger airlines
39
40
Diminished Airline Pricing Power Has Led to Diminished “Take” of U.S. EconomySystemwide Passenger and Ancillary Revenues as Share of U.S. Gross Domestic Product
Source: A4A Passenger Airline Cost Index
0.6%
0.7%
0.8%
0.9%
1.0%19
80
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
Passenger Revenue Passenger and Ancillary Revenue
1980-2000 average = 0.93%
($45B)
41
In 2019, Passenger Traffic on U.S. Airlines Grew 4.4 Percent While Capacity Rose Just 3.3 Percent Due to Grounding of B737 MAX, Airbus Delays, Labor Issues and Disruptive Weather
Source: U.S. Bureau of Transportation Statistics T1, systemwide scheduled service on U.S. airlines – revenue passenger miles (RPMs) and available seat miles (ASMs)
82.1 82.0 82.8
83.1 83.4 83.8
83.4 83.5 83.7
84.6
80
81
82
83
84
85
86
700
800
900
1000
1100
1200
1300
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Load Factor (%)
Bill
ions
Load Factor (%) RPMs ASMs
42
U.S. Airlines Have Continued to Move More People and Goods Over Longer Distances
Source: U.S. Bureau of Transportation Statistics (T1 systemwide for U.S. airlines – all services) Note: Recessions highlighted in gray
00
10
20
30
40
50
60
70
80
90
100
0
200
400
600
800
1,000
1,200
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2022
2026
2030
Revenue Passenger Miles (Billions)
00
10
20
30
40
50
60
70
80
90
100
05
101520253035404550
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2022
2026
2030
Cargo Revenue Ton Miles (Billions)
43
Especially Since 2000, Changes in the Price to Fly a Mile on U.S. Carriers Have Correlated Closely With Changes in the Cost of Inputs to Airline Production
Source: A4A Passenger Airline Cost Index
0
50
100
150
200
250
10.00
11.00
12.00
13.00
14.00
15.00
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Passenger Yield (Left Axis) Airline Cost Index (Right Axis)
Yiel
d (C
ents
per
RPM
) Cost Index (2000=100)
44
In 2011-2018, Average Load Factor Has Exceeded Breakeven RequirementStable at 82 to 84 Percent Over Past Several Years, With Breakeven Rising to 75 Percent
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 68.2 71.2 74.6
83.7
50556065707580859095
10019
71-1
980
1981
-199
0
1991
-200
0
2001
-201
0
2011
2012
2013
2014
2015
2016
2017
2018
Breakeven Actual
Load Factor (%)
45
Low-Cost Carriers In Particular Continue to Put Substantial Pressure on Fares“Southwest Effect” Remains in Force – Brueckner/Lee/Singer
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 (2013) 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.: Alaska ↓ 24.0 percent JetBlue ↓ 25.4 percent Spirit ↓ 18.5 percent
46
Low-Cost Carriers In Particular Continue to Put Substantial Pressure on Fares“Southwest Effect” Remains in Force – Beckenstein/Campbell
Source: Alan R. Beckenstein, Ph.D., Professor of Business Administration at the Darden School of Business, University of Virginia; and Brian M. Campbell, Ph.D., Principal, the Campbell-Hill Aviation Group, LLC, “Public Benefits and Private Success: The Southwest Effect Revisited,” Darden Business School Working Paper Number 206 (August 2017)
“The presence and magnitude of the Southwest Effect has endured through time. Even today, when new markets have frequently been affected already by Southwest’s fares on connecting services, the Southwest Effect still shows, on average, an additional market fare reduction of 15% and corresponding traffic increase of 28% to 30%, from the introduction of nonstop service by Southwest.”
“The Southwest Effect is alive and well. We find no evidence that the Southwest Effect has been eroded or overtaken in significance or magnitude by other airlines… Our study finds that Southwest produces $9.1 billion annually in domestic consumer fare savings. One-way average market fares are $45 lower when Southwest serves a market nonstop than when it does not. If Southwest provides only connecting service in a city-pair market, average market fares are $17 lower (one-way) than when there is no competitive effect from Southwest.”
47
From 2017-2019, Medium-Sized U.S. Airports Grew Faster Than Large U.S. AirportsPercent Change in Scheduled Available Seat Miles at Top U.S. Airports: 2017 to 2019
Source: Diio by Cirium published schedules as of Jan. 10, 2020, for all airlines providing scheduled service
81
53
44
34
31
27
25
22
20
20
20
18
18
16
15
15
15
14
13
12
12
12
11
11
11
11
11
10
10
9 9 9 9 8 8 8 7 7 7 7 6 6 6 6 6 5 5 5 5 4 4 3 3 3 3 3 2 2 (2
)(3
)(4
)
(10)0
102030405060708090
ON
TBU
RJA
XBN
AAU
SR
DU
OG
GSM
FSA
TM
SY TPA
CM
HSJ
CD
EN IND
RSW CVG BO
SSA
NM
CO
OM
AD
AL FLL
SEA
EWR
PHL
SLC
HO
UST
LPB
ID
FW CLE PI
TSF
OIA
HSJ
UAB
QD
TW BUF
ANC
CLT
MSP IA
DO
RD
ATL
LGA
BDL
PDX
OAK
PHX
LAS
LAX
SNA
DC
ABW
IJF
KH
NL
MC
IM
KE MIA
MD
W
48
E-Commerce and Rapid Fulfillment Redrawing the Map for Distribution of Air CargoCincinnati (CVG) and Tampa (TPA) Are Among the Biggest Winners
Source: DOT T100 segment data
15
(8)
19 38
(4)
18
263
(18)
2 32
(7)
11
69 25 20 13 8 6 19
42
101
9 31
(3)(21)
2 39 23 19
149 104
40 17 34 41
(100)(50)
050
100150200250300
MEM AN
CSD
FLA
XM
IAO
RD
CVG JF
KIN
DD
FWEW
RAT
LO
NT
HN
LO
AKSF
OPH
LIA
HSE
APH
XR
FDBO
SPD
XD
EN IAD
MSP
MC
OD
TW SLC
TPA
BWI
CLT
AFW
SJU
LCK
% Change in Outbound Cargo Payload at Largest U.S. Cargo Airports, 2010-2018
49
In the Deregulated Period, U.S. Airline “Earnings” Have Been Cyclical and VolatileCumulative Net Income = $35 Billion (0.9 Percent of Revenues)
Source: A4A Passenger Airline Cost Index
1.8
(11.4)
20.6
(65.0)
88.9
(100)(80)(60)(40)(20)
020406080
100
1979-1989 1990-1994 1995-2000 2001-2009 2010-2018
Net
Inco
me
($ B
illio
ns)
0.4%Margin: (3.3%) 3.8% (6.3%) 6.0%
50
Airline Creditworthiness Has Improved But Continues to Lag Many Fortune 500sStandard & Poor’s Ratings (as of March 18, 2020)
Source: Standard and Poor’s; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?”
InvestmentGrade1
Speculative2
Grade
1 Describes issuers with relatively high levels of creditworthiness and credit quality2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk
Johnson & Johnson, Microsoft AAAAlphabet (Google), ExxonMobil AA+Walmart AAToyota AA-Airbus, PepsiCo A+Amtrak, Target, UPS ABoeing, BP A-EasyJet, Ryanair, Southwest, eBay, GE, McDonald’s, Starbucks BBB+British Airways/IAG, Lufthansa, FedEx, Marriott BBBDelta, Ford BBB-Air Canada BB+Alaska, United, Avis Budget Group, Sabre BBAeromexico, Air Baltic, American, Hawaiian, JetBlue, LATAM, TAP BB-Allegiant, Azul, SAS, Turkish, Virgin Australia, Spirit, WestJet, Hertz B+Gol Linhas Aereas (GOL) BAvianca SD
51
From 2010-2019, Following the Financial Crisis, U.S. Airlines Retired ~$91 Billion in Debt and Returned ~$56 Billion to Shareholders to Lure and Retain New Equity Investors
Source: SEC filings of AAL/ALGT/ALK/DAL/HA/JBLU/LUV/SAVE/UAL and merged predecessors * Payments on long-term debt and capital lease obligations
9.111.2
7.5 7.910.5
8.0 8.56.1
9.812.1
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Retirement of Long-Term Debt ($ Billions) Returns to Shareholders ($ Billions)
0.1 0.3 0.6 1.2
4.6
10.5
13.1
8.87.8
9.3
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Stock Repurchase Cash Dividends
52
As U.S. Airlines Generate Sufficient Cash from Operations, They Are Better Able to Fund Capital Improvements, Improve Customer Experience and Enhance Shareholder Value
Source: SEC filings of AAL/ALGT/ALK/DAL/HA/JBLU/LUV/SAVE/UAL and merged predecessors * Operating cash flow minus capital expenditures
Cas
h Fl
ow (B
illion
s)
4.5 3.0
(0.0)0.6
2.5
11.1 10.5
1.5
6.8 9.8
27.6
($5)
$0
$5
$10
$15
$20
$25
$30
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Free* (FCF) Operating
53
U.S. Airline Industry Employment Has Reached Its Highest Level Since the End of 2000Over the Past Decade, Since the Great Recession, U.S. Airlines Added 186,000 Jobs (33%)
Source: Bureau of Transportation Statistics * 2016 includes FedEx acquisition of TNT on May 25, 2016, which increased headcount by approximately 55,000
754
667
649
612
625
611
603
621
587
564
568
583
583
584
594
615 68
6 70
5 73
0 75
0
0
100
200
300
400
500
600
700
80020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Year-End Full-Time + Part-Time Employees at U.S. Passenger and Cargo Airlines (000s)
54