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John P. Heimlich
Vice President & Chief Economist
A4A Media Briefing
August 18, 2015
U.S. Airline Industry First Half 2015 Review
Sources: BTS and DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)
airlines.org2
Year Over Year, Airlines Saw Improvements in DOT’s Core Operational Metrics
Gains Driven by More Benign Weather and Investments in Systems, Procedures, Staffing
96.9
97.8
1H14
1H15
Flight Completion Factor (%)
99.62
99.65
1H14
1H15
Properly Handled Bag Rate (%)
1.20
0.82
1H14
1H15
Oversales* per 10,000 Customers
On-Time Arrival Rate (%)
74.2
77.7
1H14
1H15
* Involuntary denied boardings
In 2015, Amid Competitive Pressures, Domestic Air Fares Are Falling
Latin and Pacific Markets Seeing Even Larger Declines, in Part Due to Stronger Dollar
airlines.org3
Source: A4A revenue report, containing data from Alaska, American, Delta, JetBlue, Southwest and United and regional affiliates
% Change YOY in Domestic Passenger Yield (Fare per Mile)
* January through June
0.6
(0.8)
0.6
(1.9)
(3.6)
(5.5)Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
YTD* Chg. by Region
Domestic (1.9)
Atlantic (1.7)
Latin (7.6)
Pacific (10.0)
System (3.0)
Lower Fuel More Than Offsets Flat Revenues to Drive 1H 2015 Airline Profitability*
Higher Traffic But Lower Fares; Higher Labor But Lower Fuel Expense
* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
airlines.org4
Operating Revenues ($78.2B) 0.4
Operating Expenses ($65.3B) (8.1)
Wages & Benefits (29% of Op. Expenses) 10.2
Fuel (24%) (34.0)
Landing Fees & Terminal Rents (6%) 2.2
Maintenance, Materials & Repairs (6%) (1.1)
Depreciation & Amortization (5%) 6.9
Aircraft Rent (3%) (4.3)
Other Operating Expenses** (27%) 2.2
Interest & Other Non-Operating Expenses 25.3
Pre-Tax Profit: $11.3B (14.5% of Revenues) +7.3 pts.
Net Profit: $8.7B (11.2% of Revenues) +6.2 pts.
** Professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, nonfuel payments to regionals
% Change YOY 1H14 1H15 Change
Enplanements 364.2M 376.6M +3.4
Passenger Traffic1 414.6B 427.6B +3.1
Seating Capacity2 498.1B 516.2B +3.6
Load Factor3 83.2 82.8 (0.4)
Passenger Yield4 16.39¢ 15.87¢ (3.2)
U.S. Inflation5 236.384 236.265 (0.1)
Personal Income6 $40,112 $41,244 +2.8
Fuel Consumption7 7,731M 7,876M +1.9
Fuel Price8 $3.07 $1.99 (35.2)
1. Revenue passenger miles (RPMs) flown
2. Available seat miles (ASMs) operated
3. Utilization of capacity: RPMs divided by ASMs
4. Average airfare paid per mile flown, excluding taxes
5. U.S. Consumer Price Index (CPI): 1982-84 = 100
6. U.S. disposable personal income per capita, in current dollars
7. Gallons consumed
8. Average price paid per gallon
For Now, U.S. Airline Profitability is Finally in Line With the Average U.S. Company
For Every Dollar of Revenue Collected, U.S. Airlines Keeping ~11 Cents as Profit
airlines.org
23.2
20.4
17.4 16.3 16.2
14.8 14.0
11.5 11.2
8.9
6.4 6.2 5.2
4.2 4.0 3.9 3.4
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Sources: Standard & Poor’s and company SEC filings
* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
1H 2015 Net Profit Margin
(After-Tax Income as % of Operating Revenues)
Six Years into the Business Cycle, Airlines Finally Achieving Average U.S. Profitability
After-Tax Income as % of Operating Revenues, U.S. Airlines vs. Standard & Poor’s 500
airlines.org
1.6
0.3 0.1
7.5
4.4
11.2
8.8 8.9 8.5
9.6 9.2 8.9
0
2
4
6
8
10
12
2010 2011 2012 2013 2014 1H15
Airlines S&P 500
6
Sources: Standard & Poor’s and A4A Passenger Airline Cost Index plus company SEC filings
U S Passenger Airline
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, Alaska, WestJet
Delta, Allegiant, American, United
Air Canada, Hawaiian, JetBlue
AA ±
A ±
BBB ±
BB ±
B ±
Strong Credit Ratings Allow Airports to Access Capital Markets at Preferred Rates
airlines org7
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 quality2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk
Like Other Responsible Businesses, Airlines Are Focused on Balanced Allocation of
Capital to Benefit All Stakeholders: Customers, Employees and Investors
airlines.org8
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)
U.S. Airlines Are Putting Half of Operating Cash Flow* Right Back Into the Product
Uses of Cash in First Six Months of 2015: 48 Percent Dedicated to Capital Expenditures
airlines.org9
$8.5B
Enhance the
Product $4.7B
Reward
Shareholders
$3.5B
Retire
Debt
$900M
Other
* SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America for 1H 2015; denominator is net cash from operating activities
Improving Finances Enabling Significant Reinvestment in Customer Experience
Airline Capital Spending Exceeding $1.4 Billion per Month
airlines.org10
5.26.6
9.8
12.413.9
8.5
2010 2011 2012 2013 2014 1H15
* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
U.S. Airline* Capital Expenditures
($ Billions)
» 2014 outlays exceeded $1.1B per month
Included delivery of 317 aircraft
At 12/31, firm orders for 1,800+ aircraft worth $94B
» 2015 outlays thus far @ $1.4B per month
~$23 per passenger or half of operating cash flow
10 carriers taking delivery of 367 aircraft
Since 2008, More Than $70B in Capital Improvement Projects Have Been Completed,
Are Underway or Have Been Approved by U.S. Airlines and Their Airport Partners at
the Country’s Largest 30 Airports (Selected Examples Below)
airlines.org11
» JFK & LGA (airlines have invested billions of their own money)
» LAX new international terminal and multiple other terminal renovations
» SAN new terminal
» Chicago O’Hare (ORD) modernization
» HNL terminal modernization
» SEA terminal modernization
» HOU (Hobby) terminal expansion
» DAL Love Field modernization
» GSP terminal modernization
» FLL runway extension (Sept. 2014)
» MIA – North & South Terminal projects
» MCO & TPA – automated people mover, terminal, rental car facility
» Panama City (ECP) – brand new airport (May 2010) serving Northwest Florida
» Wichita (ICT) new terminal (June 2015)
2.37
2.25
2.30
2.35
2.40
2.45
2.50
2.55
2007
2008
2009
2010
2011
2012
2013
2014
2015
As Airlines Generate Normal Returns on Capital, Customers Are Seeing More Seats
Domestic Supply at Highest Point in Seven Years; International Supply at All-Time High
airlines.org
Domestic USA (Million Daily Seats)
12
Source: Innovata (via Diio Mi) published schedules as of Aug. 14, 2015, for all airlines providing scheduled passenger service from U.S. airports to all destinations
351
260
270
280
290
300
310
320
330
340
350
360
2007
2008
2009
2010
2011
2012
2013
2014
2015
International (Thousand Daily Seats)
Up
~8
1K
YO
Y
Up
~20
K Y
OYHighest Since
Recession
Highest Ever
1H 2015 International Air Traffic Rose ~5 Percent to All-Time High of 100.7M Pax
United States Seeing Air Travel Gains Among U.S. and Non-U.S. Citizens
airlines.org13
Source: U.S. Department of Commerce National Travel and Tourism Office (July 31, 2015)
Nonstop Air Passengers* (Millions) to/from USA by Region and Citizenship
* Numbers may not add due to rounding
70.4
73.3
13.6
14.2
12.1
13.3
1H14
1H15
Overseas Canada Mexico
96.1M
100.7M
43.0
45.8
53.0
55.0
1H14
1H15
USA Non-USA
96.1M
100.7M
0
5
10
15
20
25
30
35
40S
pirit
Alle
gia
nt
Fro
ntie
r
Je
tBlu
e
Ala
ska
So
uth
we
st
Ha
wa
iian
De
lta
Am
erica
n
Virgin
Un
ite
d
Competitive Pressure Is Alive and Well Amid Rising Supply and Improving Finances
On Average, U.S. Airlines Increasing Domestic Capacity by 5.5% YOY in Third Quarter
airlines.org
YOY Growth (%) in Domestic Available Seat Miles: 3Q 2015 vs. 3Q 2014
14
Source: Innovata (via Diio Mi) published schedules as of Aug. 14, 2015; ASMs include regional affiliates
Avg. = 5.5%
June 16 – United Airlines Strengthens New York/New Jersey
Hub with Move of p.s. Transcontinental Service to Newark
June 18 – “JetBlue Adds Additional Mint Coast-
to-Coast Service From JFK”
Profile in Competition: Recent Developments in Transcontinental (NY-CA) Service
June 29 – Expanding coast-to-coast
service, Delta to offer the most seats of any
airline between JFK and LAX, SFO
Schedules Show Healthy Increases in Air Service Continuing in 4Q 2015
Carriers Boosting Domestic and International Flights / Seats / Average Aircraft Size
airlines.org16
DOMESTIC 4Q 2014 4Q 2015 % Change
Flights/Day 21,731 22,164 2.0
Seats/Day 2.27M 2.37M 4.6
Seats/Flight 104.3 107.0 2.6
INTERNATIONAL 4Q 2014 4Q 2015 % Change
Flights/Day 1,936 2,012 4.0
Seats/Day 317K 338K 6.7
Seats/Flight 163.7 168.0 2.6
Source: Innovata (via Diio Mi) published schedules as of Aug. 14, 2015, for all airlines providing scheduled passenger service from U.S. airports to all destinations
After a Decade of Sharp Workforce Reductions, U.S. Airline Jobs on the Rise Again
May 2015 Was 18th Consecutive Month of YOY Employment Gains at U.S. Airlines
airlines.org17
Source: Bureau of Transportation Statistics
520.6
378.3
384.6
391.1
2000
2010
2014
2015
Employment at U.S. Passenger Airlines – Thousand Full-Time Equivalents (FTEs)
Down ~142,300 (-27.3%) from 2000
Up ~6,300 (+1.7%) from 2010
YTD* through May (up ~7,600 from YTD May 2014)
* Year to date average
airlines.org18
After Several Years of Huge Losses in 2001-2009, U.S. Airlines* Are Paying Down
Debt and Returning Cash to Shareholders, Helping Lure New Equity Investors
* SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America; payments on long-term debt and capital lease obligations
$0.0
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
2010 2011 2012 2013 2014 1H15
Th
ou
san
ds
Annual Cumulative
Payments on Debt* (Billions) Returns to Shareholders* (Billions)
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
2010 2011 2012 2013 2014 1H15
Dividends
Stock Repurchases~$9B/year
Recap
airlines.org19
» An expanding U.S. economy, employment growth, rising personal incomes and the
highest U.S. consumer sentiment in a decade driving healthy demand for air travel
» Six years post-recession, deep into the business cycle, U.S. airlines are finally
achieving profitability in line with the Standard & Poor’s 500 average and, in turn:
boosting staffing and wages
acquiring new aircraft and ground equipment
launching new routes and enhancing airport and inflight amenities
offering domestic flyers the highest number of seats since the Great Recession
reducing debt and returning cash to shareholders
working their way toward investment-grade creditworthiness
» The airlines’ use of cash continues to reflect a commitment to allocate capital to
benefit customers, employees and investors
www.airlines.org