2013-2014 Winter Holiday Travel Forecast
for U.S. Airlines

John P. Heimlich
Vice President & Chief Economist
December 12,...
Overview

» Presentation of winter-holiday air travel forecast and key drivers of demand
» Review of rising premium of jet...
A4A Projects U.S. Airlines to Carry 44.3M Winter-Holiday Passengers in 2013-2014
Up 41,000 Passengers per Day, or 2 Percen...
Key Travel Forecast Drivers Trending Positively
U.S. Economy (% CAGR) Expanding

U.S. Job Growth (000) Accelerating

4.0

...
U.S. Jet-Fuel Prices Have Reached Their Highest Level in Three Months
Jet Fuel Has Averaged 38¢ More Than Gasoline over Pa...
Fall Operations Remain Strong, with U.S. Airlines Completing More Than 99 Percent
of Scheduled Flights and Arriving On Tim...
Bag-Handling Performance Continues to Improve Despite Rising Rate of Checked
Bags; Complaints Lowest in Four Years – Less ...
Improving Finances Enabling Significant Reinvestment in Customer Experience
Airline CapEx Up 125% Since 2010, with Plans t...
USG Seeking ~$800M/Year Security Tax Increase from Airlines/Travelers Even
Though TSA Has Been Expending More Resources to...
Recap

» Systemwide air travel on U.S. airlines during Winter 2013-2014 holiday period projected
to rise 2 percent from pr...
www.airlines.org
StopAirTaxNow.com
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2013-2014 Winter Holiday Travel Forecast for U.S. Airlines

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Airlines for America releases its annual Winter Holiday Air Travel Forecast projecting that 44.3 million travelers will fly during the 21-day period from December 16, 2013-January 5, 2014. This is a two percent increase from 2013, or roughly 41,000 passengers daily. In addition, U.S. airlines' improving financials are enabling significant reinvestment in the travel experience for the flying public.

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  • Endless debate about movements in airfares and ancillary services misses the key consumer question – are fares in line with costs and are they adequate to sustain air service and enable reinvestment?
  • 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)
  • 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)
  • 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.
  • From A4A Cost Index2000: AirTran, America West, ATA, Frontier, JetBlue, Midway, National, Southwest, Spirit, Sun Country, Vanguard2005: AirTran, Allegiant, America West, Frontier, JetBlue, Southwest, Spirit, Sun Country, USA 30002010: AirTran, Allegiant, Frontier, JetBlue, Southwest, Spirit, Sun Country, USA 3000, Virgin America2012: Allegiant, Frontier, JetBlue, Southwest, Spirit, Sun Country, Virgin America
  • Endless debate about movements in airfares and ancillary services misses the key consumer question – are fares in line with costs and are they adequate to sustain air service and enable reinvestment?
  • 2013-2014 Winter Holiday Travel Forecast for U.S. Airlines

    1. 1. 2013-2014 Winter Holiday Travel Forecast for U.S. Airlines John P. Heimlich Vice President & Chief Economist December 12, 2013
    2. 2. Overview » Presentation of winter-holiday air travel forecast and key drivers of demand » Review of rising premium of jet fuel relative to gasoline and continued price volatility » Assessment of recent airline operational performance » Analysis of capital expenditures; preview of near-term product/customer investment » Measurement of TSA aviation-security productivity and USG call for additional taxes » Recap 2 airlines.org
    3. 3. A4A Projects U.S. Airlines to Carry 44.3M Winter-Holiday Passengers in 2013-2014 Up 41,000 Passengers per Day, or 2 Percent, from Prior Year 2012-2013 2013-2014 21-Day Forecast Period Dec. 17-Jan. 6 Dec. 16-Jan. 5 Passengers: Total (Millions) 43.4 estimated 44.3 projected Passengers: Daily (Millions) 1.71 to 2.26 estimated 1.74 to 2.31 projected Busiest Days (in order) 12/21, 12/27, 12/20, 12/28 12/20, 12/27, 12/26, 1/3 Lightest Days (in order) 12/25, 12/24, 12/31, 1/5 12/25, 12/24, 12/31, 1/1 Load Factor (Seats Occupied) ~80 to ~90 percent varying by day Source: A4A, selected sample carriers and DOT T100 segment data 3 airlines.org
    4. 4. Key Travel Forecast Drivers Trending Positively U.S. Economy (% CAGR) Expanding U.S. Job Growth (000) Accelerating 4.0 210 3.0 200 2.0 190 1.0 180 0.0 170 1Q13 2Q13 3Q13 Sep-13 Personal Incomes ($000) Rising Oct-13 Nov-13 Household Net Worth ($T) Growing $37.0 $78 $36.8 $77 $36.6 $76 $36.4 $75 $36.2 $74 $36.0 $73 1Q13 2Q13 1Q13 3Q13 2Q13 3Q13 Sources: BEA, BLS and Federal Reserve; U.S. GDP real annual average growth rate (%), U.S. nonfarm payroll employment growth (month-over-month, seasonally adjusted), U.S. disposable personal income per capita (chained 2009 dollars, seasonally adjusted annual rates); U.S. household net worth in current dollars, not seasonally adjusted 4 airlines.org
    5. 5. U.S. Jet-Fuel Prices Have Reached Their Highest Level in Three Months Jet Fuel Has Averaged 38¢ More Than Gasoline over Past 14 Weeks, Peaking at 47¢ Jet Fuel vs. Motor Gasoline Weekly Average Price per Gallon Jet Fuel Price Volatility Daily Average Price per Gallon $3.25 $3.15 $3.10 $3.05 $3.00 $2.95 $2.90 $2.85 $2.80 $2.75 $2.70 27-Dec-13 13-Dec-13 29-Nov-13 15-Nov-13 1-Nov-13 18-Oct-13 4-Oct-13 -22¢ 20-Sep-13 3-Jan-14 13-Dec-13 22-Nov-13 1-Nov-13 11-Oct-13 20-Sep-13 30-Aug-13 9-Aug-13 19-Jul-13 28-Jun-13 $2.25 +23¢ 6-Sep-13 $2.45 -36¢ 23-Aug-13 $2.65 +17¢ 9-Aug-13 +47¢ $2.85 +39¢ 26-Jul-13 $3.05 12-Jul-13 Jet 28-Jun-13 Gasoline Source: A4A and Energy Information Administration (U.S. Gulf Coast spot prices) 5 airlines.org
    6. 6. Fall Operations Remain Strong, with U.S. Airlines Completing More Than 99 Percent of Scheduled Flights and Arriving On Time at a Rate of 84 Percent DOT: “October Airline Service Improved from Previous Year in all Major Categories” Flight Completion Rate (%) On-Time Arrival Rate (%) 2012 2013 2012 2013 September 99.2 99.1 83.3 83.8 October 97.2 99.4 80.2 84.1 November 99.0 TBD 85.7 TBD December 98.4 TBD 76.6 TBD Sources: DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports) and masFlight 6 airlines.org
    7. 7. Bag-Handling Performance Continues to Improve Despite Rising Rate of Checked Bags; Complaints Lowest in Four Years – Less Than 0.9 for Every 100,000 Customers DOT: “October Airline Service Improved from Previous Year in all Major Categories” October Checked Bags per Customer1 October Mishandled Bags per 1,000 Customers2 0.7 4.0 0.6 3.5 1.2 1.0 3.0 0.5 2.52 2.5 0.4 2.0 0.3 0.4 0.2 0.5 0.0 0.0 2010 2 0.8 1.0 0.1 1 0.84 0.6 1.5 0.2 October Complaints per 100,000 Customers2 2011 2012 2013 0.0 2010 2011 Number of persons screened at U.S. airport checkpoints Number of passengers enplaned on U.S. airlines in domestic service 2012 2013 2010 2011 2012 2013 Sources: TSA and DOT Air Travel Consumer Report 7 airlines.org
    8. 8. Improving Finances Enabling Significant Reinvestment in Customer Experience Airline CapEx Up 125% Since 2010, with Plans to Invest ~$32B over Next Three Years U.S. Airline* Capital Expenditures ($ Millions) Planned CapEx for 2014-2016: ~$32 Billion $11,584 » Aircraft, engines, winglets, spare parts $9,771 » Ground equipment, loading bridges » Airport facilities, aircraft hangars $6,613 » Premium seats, new aircraft interiors $5,156 » Maintenance facilities and machinery » Bag carousels, carts, scanners » In-flight entertainment and Wi-Fi » Computers, kiosks, mobile technology 2010 2011 2012 2013E * SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways 8 airlines.org
    9. 9. USG Seeking ~$800M/Year Security Tax Increase from Airlines/Travelers Even Though TSA Has Been Expending More Resources to Process Decreasing Workload % Change from FY2007 to FY2013 Transportation Security Administration Productivity 19.1 TSA Budget per Customer* 13.5 TSA FTEs per Million Customers* FY2007 $9.31 68.8 FY2013 $12.48 87.9 Change +$3.17 (34%) +19.1 (28%) (11.2) Budget Staffing Customers* Sources: A4A analysis of data from the TSA and the Office of Management and Budget 9 * A person screened by TSA at an airport checkpoint airlines.org
    10. 10. Recap » Systemwide air travel on U.S. airlines during Winter 2013-2014 holiday period projected to rise 2 percent from prior year, or 41,000 passengers per day; airlines are deploying more seats by using larger aircraft to accommodate the increase in demand » Jet-fuel prices remain high and volatile and are commanding a premium to gasoline » Airline operational performance is strong, boasting a completion factor exceeding 99 percent and an on-time arrival rate of 84 percent in recent months (per DOT), October best bag-handling performance of any month ever recorded, complaints falling » Delivering consistent (albeit slim) earnings has enabled airlines to increase capital expenditures by more than double over the past three years, with plans to reinvest an additional $32 billion over the next three years » This week’s bipartisan budget bill includes a tax increase on airlines/travelers (effective July 1, 2014) to support TSA even though the agency has been expending everincreasing financial and human resources to process a decreasing aviation workload 10 airlines.org
    11. 11. www.airlines.org StopAirTaxNow.com
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