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AAI masFlight Webinar on American and US Airways

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On Thursday, March 14, at 10:30 AM EST, Josh Marks and Darryl Jenkins hosted a webinar to examine examine airline consolidation and competition considerations surrounding the recently proposed merger …

On Thursday, March 14, at 10:30 AM EST, Josh Marks and Darryl Jenkins hosted a webinar to examine examine airline consolidation and competition considerations surrounding the recently proposed merger between American Airlines and US Airways.

The webinar presented:

Competition before and after US/AA and WN/FL integration;
AA/US overlap by routes and airports served;
Competition by city, not just specific airport;
Low-cost competition overlap; and
Competitive changes, paying particular attention to smaller markets where US/AA dominate.

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  • 1. March 14, 201310:30am EDTAmerican Airlinesand US AirwaysReviewing the impactof the proposed mergerDarryl JenkinsJoshua MarksMore information atwww.theairlinezone.com andwww.masflight.com4833 RUGBY AVENUE SUITE 301 BETHESDA MD 20814
  • 2. Background & Participants SECTION 1 2AMERICAN AVIATION INSTITUTE © 2011 ALL RIGHTS RESERVED 3 SLIDE 2
  • 3. Study Participants This study was conducted by the following organizations, under the direction of Darryl Jenkins and Joshua Marks The American Aviation Institute The Airline Zone is a website masFlight is an aviation data is a commercial aviation think focused on airline economics analytics firm that aggregates tank and research organization with contributors from across the terabytes of schedule, operations based in Washington, D.C. aviation industry. It investigates and weather data from aroundAAI works with airlines, airports, aviation economics at the airport the world. masFlight helps and labor unions on the and route level, emphasizing airlines, airports, and vendors development of commercial competition and pricing. worldwide optimize operations, aviation regulatory policy, The Airline Zone offers a range find new opportunities andoperations, and safety initiatives. of analytics and metrics for the reduce cost. OAG provided flight U.S. aviation industry. schedule data in this report. www.aviationinstitute.org www.theairlinezone.com www.masflight.comAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 3
  • 4. Questions• Is there a material change in competitive position?• Is airport-level analysis the right focus?• How much low-fare competition is there?• What’s the small community impact?• What about international alliance competition?• What does this mean for travelers?Our observations are based on a rigorous reviewof schedule, operations and passenger revenue datafrom public government and commercial sources.AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 4
  • 5. Competition & Consolidation SECTION 2 5AMERICAN AVIATION INSTITUTE © 2011 ALL RIGHTS RESERVED 3 SLIDE 5
  • 6. What we’ll be presentingWe examine the following to assess how the mergerchanges overall competitive dynamics:• Competition before and after US/AA• US/AA overlap by routes and airports served• Looking at competition by city, not just specific airport• Low-cost carrier overlap• Small community competitionWe divide our analysis into nonstop and O&D competitionAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 6
  • 7. Big picture: Before the Mergers Competition before US/AA and WN/FL Integration Daily Mainline Regional Domestic Int’l Seats per Seat Seats Flights Flights Flights Flights Flights Day Share % /Flight United Airlines 5,023 1,735 3,289 4,277 747 447,953 18.7% 89.2 Delta Air Lines 4,684 2,149 2,535 4,244 440 502,791 21.0% 107.3 American Airlines 3,441 1,850 1,590 2,809 632 371,988 15.5% 108.1 US Airways 3,007 1,205 1,801 2,800 207 287,041 12.0% 95.5 Southwest Airlines 2,840 2,840 - 2,840 - 400,573 16.7% 141.1 Alaska Airlines 745 387 358 661 84 84,905 3.5% 113.9 JetBlue Airways 697 697 - 532 165 92,193 3.9% 132.2 AirTran Airways 528 528 - 472 56 63,936 2.7% 121.1 Frontier Airlines Inc. 230 207 23 210 20 31,923 1.3% 138.8 Spirit Airlines 220 220 - 189 31 35,288 1.5% 160.2 Hawaiian Airlines 206 206 - 193 13 31,181 1.3% 151.3 Virgin America 135 135 - 132 3 19,262 0.8% 142.8 Allegiant Air LLC 111 111 - 111 - 18,597 0.8% 167.5 Sun Country Airlines 47 47 - 35 12 6,961 0.3% 149.0 masFlight/OAG Schedules for February 1 to February 7 2013, operations by US major and national airlines with more than 29 seats per departure. Excludes freight and mixed cargo flights. Nonstop flights, no code-shares included. Average flights per day during sample period.AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 7
  • 8. Notes on current dynamics• United and Delta have similar competitive positions – Broad, multi-hub domestic and international networks – Significant regional jet operations (almost 2:1 regional to mainline at United) – Foundation members of respective alliances• American and US Airways have similar scale – American has a broad international network and flies larger aircraft Average flight distance 1,121 miles (836 including regional operations) – US Airways operates in smaller markets with smaller aircraft Average flight distance 848 miles (573 including regional operations) – #2 or #3 in several key markets (NYC, Los Angeles, San Francisco, etc.)• Southwest has the highest number of mainline departuresAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 8
  • 9. Big Picture: After Mergers & Integration Pro Forma After US/AA Merger and Southwest/AirTran Integration Daily Mainline Regional Domestic Int’l Seats Flight Seat Seats Flights Flights Flights Flights Flights per Day Share % Share % /Flight American + US 6,448 3,055 3,391 5,609 839 659,029 29.4% 27.5% 102.2 United Airlines 5,023 1,735 3,289 4,277 747 447,953 22.9% 18.7% 89.2 Delta Air Lines 4,684 2,149 2,535 4,244 440 502,791 21.4% 21.0% 107.3 Southwest + AirTran 3,368 3,368 - 3,312 56 464,509 15.4% 19.4% 137.9 Alaska Airlines 745 387 358 661 84 84,905 3.4% 3.5% 113.9 JetBlue Airways 697 697 - 532 165 92,193 3.2% 3.9% 132.2 Frontier Airlines Inc. 230 207 23 210 20 31,923 1.0% 1.3% 138.8 Spirit Airlines 220 220 - 189 31 35,288 1.0% 1.5% 160.2 Hawaiian Airlines 206 206 - 193 13 31,181 0.9% 1.3% 151.3 Virgin America 135 135 - 132 3 19,262 0.6% 0.8% 142.8 Allegiant Air LLC 111 111 - 111 - 18,597 0.5% 0.8% 167.5 Sun Country Airlines 47 47 - 35 12 6,961 0.2% 0.3% 148.1masFlight/OAG Schedules for February 1 to February 7 2013, operations by US major and national airlines with more than 29 seats per departure.Excludes freight and mixed cargo flights. Nonstop flights, no code-shares included.AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 9
  • 10. Shift in nonstop seat share Coast to coast overlap between the three majors & significant competition on almost all O&D markets inside the U.S. Seat Share, Before Seat Share, After US/AA and WN/FL US/AA and WN/FL Others UA Others UA 18.7% 13.4% 18.7% 16.1% US 12.0% DL US/AA DL 21.0% 27.5% 21.0% AA 15.5% WN 16.7% WN/FL 19.4% Source: masFlight/OAG, shares of major U.S. carriers and national airlines, nonstop systemwide seats including both mainline and regional operations. Includes Delta, United, American, US Airways, Southwest, Alaska, JetBlue, AirTran, Hawaiian, Frontier, Spirit, Virgin America, Allegiant, and Sun Country. Schedule sample from February 1, 2013 through February 7, 2013 for passenger services with 19 seats or greater.AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 10
  • 11. DCA and LGA Post-Merger Shares Washington Reagan (DCA) New York LaGuardia (LGA) Departure Shares After Mergers Departure Shares After Mergers Southwest/ Southwest/ AirTran, AirTran, JetBlue, 3.6% JetBlue, 4.9% 4.3% 3.2% Others, 4.8% Others, 7.9% United, 8.3% United, American/ 7.3% US, 29.9% Delta, 12.1% American/ US, 66.9% Delta, 46.7% March 2013, Post-Merger Departure % Shares per Week, March 1, 2013 through March 7, 2013AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 11
  • 12. US + AA Networks and Unique Cities US Airways Airports Unique Cities Brought to Merger February 2013 Unique US cities added (Black) Unique AA cities added (Red) 61 unique airports not served by AA American Airlines Airports February 2013 130 unique airports not served by US Combined network fills geographic gaps and adds nearly 8,000 new O&D pairs Schedules for February 1 through 7, 2013 Graphics masFlight and gcmap.comAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 12
  • 13. Airport, City and Metro DefinitionCompetition is regional, not airport-to-airportYou need a more nuanced definition of competitionthan simply airport-to-airport service Term Definition Example Airport A specific airport Washington Reagan (DCA) DOT-defined city with Washington, including both City multiple airports Reagan (DCA) and Dulles (IAD) All regional airports that Baltimore/Washington, Metro compete for air service including BWI, IAD and DCAAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 13
  • 14. Nonstop Overlap Nonstop Airport, City Airports, Cities and Metros and Metro Pairs Count of unique origins (2 Directional Pairs = 1 Route) with nonstop service Airport City Metro Unique Unique Unique Feb 1-7 2013 Feb 1-7 2013 Pairs Pairs Pairs Airports Cities Metros US serves, US serves, 772 754 558 61 60 45 but not AA but not AA AA serves, AA serves, 1,021 981 620 130 128 70 but not US but not US Overlap by Overlap by 24 30 34 134 131 87 US and AA US and AA Total US 796 784 592 Total US 195 191 132 Total AA 1,045 1,011 654 Total AA 264 259 157 1,817 1,765 1,212 325 319 202 Combined Combined airport city metro unique unique unique Network Network pairs pairs pairs airports cities metros masFlight/OAG Schedules February 1-7 2013AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 14
  • 15. Assessing overlap• AA and US networks are highly complementary• The American network has considerably more scope, but US Airways has more departures on routes they serve – Average of 4x daily per route for US vs. 3.4x daily for AA• We now focus on the overlap markets for US and AA – Who are the other competitors on the airport pair? – Do low-cost carriers compete in the overall market? How competitive are these markets?AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 15
  • 16. Competition in Overlap Markets Overlap Route Legacy @ Legacy @ Other LCCs in the same Specific Airports City Airports metro area pair Phoenix to Los Angeles DL (4x), UA (2x) - WN (29x) Phoenix to Dallas/Ft. Worth - - WN (9x 1-stop) Charlotte to NY LaGuardia DL (6x) DL (1x), UA (6x) B6 (2x) Charlotte to O’Hare UA (4x) - - Charlotte to Dallas/Ft. Worth - - - Charlotte to Miami - - - Chicago to Philadelphia UA (7x) - WN (6x) Chicago to Phoenix UA (3x) - WN (7x) DC Reagan to Raleigh - UA (5x), DL (3x) WN (6x) DC Reagan to Nashville - UA (3x) WN (6x) Philadelphia to Dallas/Ft. Worth - - WN (1x 1-stop) Philadelphia to Miami - - WN/FL (6x), NK (3x) masFlight/OAG Schedules February 1-7 2013AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 16
  • 17. Positive change for small communities The network’s small communities are already either US or AA so combining networks doesn’t change competition. Combining the networks does significantly enhance network connectivity options in each of these small communities. Small Airports where US/AA Small Airports with 50%+ Share Code Code will provide 100% of Service (% Given of Weekly Departures) ABI Abilene, Texas (AA) LAW Lawton, Texas (97% - AA) HHH Hilton Head, South Carolina (US) SBY Salisbury, Maryland (US) GGG Longview, Texas (93% - AA) CMI Champaign, Illinois (AA) TOL Toledo, Ohio (87% - AA) LYH Lynchburg, Kentucky (US) GRI Grand Island, Nebraska (87% - AA) FLO Florence, South Carolina (US) HTS Huntington, West Virginia (81% - US) MHK Manhattan, Kansas (AA) EWN New Bern, North Carolina (78% - US) FLG Flagstaff, Arizona (US) STX St. Croix (68% - US and AA) PGV Greenville, North Carolina (US) ACT Waco, Texas (AA) YUM Yuma, Arizona (66% - US) HVN New Haven, Connecticut (US) OAJ Jacksonville, North Carolina (64% - US) SJT San Angelo, Texas (AA) GRK Killeen, Texas (62% - AA) SPS Wichita Falls, Kansas (AA) FSM Fort Smith, Arkansas (58% - FSM) IPT Williamsport, Pennsylvania (US) BGR Bangor, Maine (58% - US) ROW Roswell, New Mexico (AA) TXK Texarkana, Texas (AA) CLL College Station, Texas (57% - AA) DBQ Dubuque, Iowa (AA) TYR Tyler, Texas (57% - AA) GCK Garden City, Kansas (AA) LSE La Crosse, Wisconsin (55% - AA) JLN Joplin, Missouri (AA) ITH Ithaca, New York (52% - US) ALO Waterloo, Iowa (AA) EGE Eagle, Colorado (51% - AA) SUX Sioux City, Iowa (AA) ART Watertown, New York (US) masFlight/OAG Schedules February 1-7 2013AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 17
  • 18. Nonstop LCC Overlap • Start with an aggregate review of all LCCs • US has more direct LCC competition on airport pairs • American has more competition at other city airports • This understates true overlap – we need to consider O&D Airport Pairs City Pairs Metro Area Pairs Feb 1-7 2013 % LCC Overlap % LCC Overlap % LCC Overlap US not AA 18.4% 19.2% 28.4% AA not US 15.3% 24.3% 41.1% AA and US Overlap 8.3% 53.3% 76.5% System Nonstop 16.5% 22.6% 36.3% Overlap (not O&D!)AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 18
  • 19. So what about O&D?• We’ve been looking at nonstop overlaps• It’s really network competition that’s relevant• This is particularly true for metro areas• Reviewing O&D traffic helps us understand: – Where there’s competition for passengers – How US/AA stacks up against legacy and LCC peers – How top 40 U.S. cities will be impacted by US/AA mergerOur analysis is based on Q3 2012 fare data released by DOT and available at the BTS website.We did not utilize confidential information.AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 19
  • 20. Metro Area O&D Network Overlap Metro Area Pairs % Daily • What alternatives exist to flying Served by US+AA O&D Pax US+AA domestically? No overlap • Metro area O&D comparison US+AA was the < 3% (NYC area, Balt/Wash, etc.) only O&D option with nonstop + connect options • Less than 3% of US+AA LCC overlap passengers will travel itineraries Spirit, Southwest, AirTran, JetBlue, Virgin, Frontier, 78% where US+AA is the only option Allegiant, Sun Country O&D • 78% of US+AA passengers have a low-fare alternative Legacy overlap Delta, United, Alaska 96% • 96% have a legacy alternative or Hawaiian O&D Our analysis is based on Q3 2012 fare data released by DOT and available at the BTS website.AMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 20
  • 21. Top 20: Big 4 Shares of Departing PassengersSouthwest/AirTran will be the #1 or #2 airline in 17 of the top 20 markets,and AA/US will be the #1 airline in 5 of the top 20 markets.Ran Southwest + US Airways + Other Metro Area (Airports) Delta Unitedk AirTran American Airlines 1 New York (EWR/LGA/JFK/HPN/ISP/SWF) 7.3% 22.9% 20.0% 19.7% 30.1% 2 Los Angeles (LAX/BUR/SNA/LGB/ONT) 28.2% 10.4% 14.1% 18.2% 29.1% 3 San Fran/Oakland/San Jose (SFO/SJC/OAK) 31.5% 7.6% 20.3% 10.9% 29.6% 4 Chicago Metro (ORD/MDW) 28.1% 6.7% 24.9% 28.7% 11.7% 5 Baltimore/Washington (BWI/IAD/DCA) 30.2% 12.2% 16.2% 24.8% 16.6% 6 Las Vegas, NV 40.3% 9.1% 7.8% 10.3% 32.5% 7 Boston Metro (BOS/PVD/MHT) 18.7% 12.5% 10.4% 21.3% 37.2% 8 Denver, CO 30.4% 7.2% 24.3% 8.5% 29.6% 9 South Florida (MIA/FLL/PBI) 15.9% 17.0% 7.5% 27.9% 31.7% 10 Dallas Metro (DAL/DFW) 19.4% 6.0% 4.7% 54.4% 15.6% 11 Atlanta, GA 24.8% 58.4% 3.0% 7.9% 5.9% 12 Orlando Metro (MCO/SFB) 32.7% 14.3% 8.0% 13.0% 32.0% 13 Seattle, WA 15.0% 10.4% 10.2% 9.5% 54.9% 14 Houston Metro (IAH/HOU) 33.3% 6.3% 41.0% 10.7% 8.6% 15 Phoenix Metro (PHX/IWA) 41.9% 8.6% 5.9% 31.6% 12.0% 16 San Diego, CA 38.6% 9.4% 11.2% 12.9% 28.0% 17 Minneapolis, MN 10.6% 52.4% 6.6% 11.5% 18.8% 18 Philadelphia, PA 17.3% 9.8% 8.1% 52.9% 11.9% 19 Tampa Metro (TPA/PIE) 36.2% 15.1% 8.9% 15.6% 24.1% 20 Detroit, MI 10.3% 54.4% 4.1% 11.9% 19.3%Q2 2012 DB1B Data (DOT via masFlight) – Excludes bulk tickets and non-credible faresAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 21
  • 22. Top 20: LCC CompetitionLCC fares appear lower on average than legacy fares – but in most casesit’s driven by shorter stage lengths and single-cabin configurations Average % Legacy Average % Legacy Average % RevenueRank Metro Area (Airports) Domestic Base Fare is Fare Per Mile is by LCCs Fare Higher than LCC Higher than LCC 1 New York (EWR/LGA/JFK/HPN/ISP/SWF) 28% $195 27% 25% 2 Los Angeles (LAX/BUR/SNA/LGB/ONT) 37% $181 44% -12% 3 San Fran/Oakland/San Jose (SFO/SJC/OAK) 40% $181 44% -14% 4 Chicago Metro (ORD/MDW) 30% $178 34% 32% 5 Baltimore/Washington (BWI/IAD/DCA) 34% $180 38% 14% 6 Las Vegas, NV 56% $154 38% -8% 7 Boston Metro (BOS/PVD/MHT) 43% $176 26% 23% 8 Denver, CO 49% $161 34% 18% 9 South Florida (MIA/FLL/PBI) 37% $154 35% 22% 10 Dallas Metro (DAL/DFW) 22% $190 59% 15% 11 Atlanta, GA 21% $171 45% 35% 12 Orlando Metro (MCO/SFB) 56% $142 23% 3% 13 Seattle, WA 23% $189 18% 6% 14 Houston Metro (IAH/HOU) 30% $206 39% 3% 15 Phoenix Metro (PHX/IWA) 41% $163 28% -11% 16 San Diego, CA 42% $164 50% -17% 17 Minneapolis, MN 18% $202 43% 44% 18 Philadelphia, PA 18% $190 29% 40% 19 Tampa Metro (TPA/PIE) 50% $147 27% 9% 20 Detroit, MI 16% $186 68% 69%Q2 2012 DB1B Data (DOT via masFlight) – Excludes bulk tickets and non-credible faresAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 22
  • 23. #21-40: Big 4 Shares of Departing PassengersCharlotte is the smallest US/AA hub by O&D traffic, but it is a stronghold.All other US/AA hubs are top 20 markets.Ran Southwest + US Airways + Other Metro Area Delta Unitedk AirTran American Airlines 21 Portland, OR 22.5% 9.7% 12.1% 7.2% 48.5% 22 St. Louis, MO 42.8% 14.1% 7.0% 22.2% 14.0% 23 Charlotte, NC 4.6% 13.3% 5.8% 65.9% 10.5% 24 Salt Lake City, UT 22.3% 46.8% 5.3% 8.4% 17.2% 25 Kansas City, MO 39.0% 15.0% 9.5% 16.3% 20.2% 26 Sacramento, CA 50.2% 7.2% 7.2% 9.1% 26.3% 27 Austin, TX 35.0% 10.1% 11.7% 22.1% 21.1% 28 Raleigh/Durham, NC 24.7% 23.4% 7.4% 26.3% 18.2% 29 Nashville, TN 46.9% 13.4% 5.7% 20.8% 13.2% 30 Pittsburgh, PA 26.5% 15.2% 12.9% 26.4% 19.0% 31 New Orleans, LA 35.1% 18.5% 13.3% 16.2% 17.0% 32 San Antonio, TX 39.3% 14.6% 12.2% 22.7% 11.1% 33 Milwaukee, WI 45.2% 19.6% 7.1% 9.8% 18.3% 34 Indianapolis, IN 29.3% 20.3% 9.1% 21.5% 19.7% 35 San Juan, PR 13.4% 12.0% 5.9% 23.3% 45.4% 36 Columbus, OH 32.6% 18.5% 9.4% 24.1% 15.4% 37 Buffalo, NY 30.5% 15.1% 7.6% 12.2% 34.5% 38 Cleveland, OH 19.0% 9.5% 45.7% 15.6% 10.3% 39 Hartford, CT 26.9% 17.2% 8.3% 21.3% 26.4% 40 Albuquerque, NM 50.2% 9.5% 8.6% 17.5% 14.3%Q2 2012 DB1B Data (DOT via masFlight) – Excludes bulk tickets and non-credible faresAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 23
  • 24. #21-40: LCC CompetitionAs you move to mid-tier U.S. cities, LCC competition intensifies.Legacy airfare spread over LCCs drops significantly. Average % Legacy Average % Legacy Average % RevenueRank Metro Area Domestic Base Fare is Fare Per Mile is by LCCs Fare Higher than LCC Higher than LCC 21 Portland, OR 32% $167 34% 4% 22 St. Louis, MO 46% $163 16% 1% 23 Charlotte, NC 5% $193 47% 19% 24 Salt Lake City, UT 26% $182 41% 8% 25 Kansas City, MO 45% $161 28% 8% 26 Sacramento, CA 52% $156 49% -24% 27 Austin, TX 43% $176 22% 1% 28 Raleigh/Durham, NC 29% $153 25% 12% 29 Nashville, TN 49% $168 26% 16% 30 Pittsburgh, PA 29% $164 35% 32% 31 New Orleans, LA 40% $169 20% -7% 32 San Antonio, TX 38% $179 25% -5% 33 Milwaukee, WI 52% $156 31% 42% 34 Indianapolis, IN 32% $174 34% 43% 35 San Juan, PR 47% $170 32% 2% 36 Columbus, OH 30% $164 40% 29% 37 Buffalo, NY 53% $139 23% 19% 38 Cleveland, OH 16% $192 44% 12% 39 Hartford, CT 35% $173 36% 19% 40 Albuquerque, NM 52% $161 34% -11%Q2 2012 DB1B Data (DOT via masFlight) – Excludes bulk tickets and non-credible faresAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 24
  • 25. Global Alliances SECTION 3 25AMERICAN AVIATION INSTITUTE © 2011 ALL RIGHTS RESERVED 3 S L I D E 25
  • 26. Alliances & Global Competition• We have been focused on domestic competition• Let’s turn to the international arena• International competition is dominated by global alliances and joint-venture agreements• US shifting to oneworld will have a leveling impact on alliance dynamics, particularly transatlanticAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 26
  • 27. Alliance Mix: From the United States US’ shift from Star to oneworld will reduce the gap with Star Alliance – and should have a tangible competitive benefit Before Realignment After Realignment Oneworld Unaligned, 19.9% Unaligned Oneworld 22.1% , 22.1% 25.6% SkyTeam, 16.2% Star Star SkyTeam, Alliance, Alliance, 16.2% 41.8% 36.0% Schedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per WeekAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 27
  • 28. North Atlantic: Competitive Rebalance US’ shift to oneworld will make a significant difference in the competitive North Atlantic market Before Realignment After Realignment Unaligned, Unaligned, 8.9% 8.9% Oneworld 19.9% Oneworld 30.2% Star Star Alliance, Alliance, 37.2% 41.7% SkyTeam, 23.7% SkyTeam, 23.7% Schedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per WeekAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 28
  • 29. What does it mean?• US brings strength to Caribbean, Atlantic and Canada• Star Alliance will be particularly impacted in Caribbean• US shift improves competitive balance in key markets oneworld % of weekly Change in weekly departures: Pickup departures U.S. to Canada +257 flights per week 7.1% U.S. to Caribbean +204 9.9% U.S. to Central America +162 5.9% U.S. to Europe +86 4.5% U.S. to Israel +7 3.7% U.S. to South America +7 0.8% Weekly Shift, Star  oneworld +723 weekly flights +5.8% Schedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per WeekAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 29
  • 30. Conclusions SECTION 4 30AMERICAN AVIATION INSTITUTE © 2011 ALL RIGHTS RESERVED 3 S L I D E 30
  • 31. Conclusions: Network CombinationUS Airways and American are highly complementary1. There is low direct overlap on an airport-to-airport basis2. Measured by city pairs, more overlap – and competition!3. US strength on the coasts, in the Caribbean and to Europe4. AA strength in the central U.S., Latin America and Asia5. New O&D pairs result – new competition6. There’s minimal hub overlap in catchment areaAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 31
  • 32. Conclusions: CompetitionStill a very competitive industry after these mergers1. United, Delta, American, Southwest, plus smaller airlines2. Most traffic is between major cities, and that’s where both legacy and LCC carriers compete intensively3. Southwest has a strong position in the Top 20 markets4. US + AA does not fundamentally change competition5. Larger markets continue multi-hub trend (e.g. DC – UA at IAD, Southwest at BWI, US/AA at DCA)6. LCC overlap is significant on both nonstop and O&D basisAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 32
  • 33. Conclusions: Small CommunitiesSmall community forecast improves1. Competitive change is minimal2. Smaller markets gain O&D connectivity and viability through combination of US+AA networks3. We don’t buy the argument that the merger will cause small community service reduction or higher faresAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 33
  • 34. Conclusions: AlliancesAlliance competition increases1. Minor shift in alliance share from Star  oneworld Particularly relative to DL/NW and UA/CO shifts2. Meaningful across Atlantic and Caribbean markets3. Significantly increases oneworld network (O&D pair) options from Central U.S. to Europe4. We think this is good for competition and long-term viability of three alliance modelAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 34
  • 35. Conclusions: Other ThoughtsBenefits for consumers1. New O&D and routing options from the merged network will benefit both business and leisure passengers2. Stronger network  better local service options3. Pricing pressure is alive and well. Southwest may not be as aggressive as it used to be, but their competitive footprint is wide and evident in fares and yields4. There are just 2 city pairs with high impact – Charlotte to South Florida – ripe for LCC entry – Charlotte to Dallas – more complex forecastAMERICAN AVIATION INSTITUTE © 2013 ALL RIGHTS RESERVED SLIDE 35
  • 36. Time for Questions and Answers Darryl Jenkins Joshua Marks The Airline Zone masFlight (540) 364-6913 (703) 994-0000 djenkins@aviationinstitute.org josh@masflight.com www.theairlinezone.com www.masflight.com 36AMERICAN AVIATION INSTITUTE © 2011 ALL RIGHTS RESERVED 3 S L I D E 36