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Airline Mergers, Competition and Impact: 2005-2013
 

Airline Mergers, Competition and Impact: 2005-2013

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A comprehensive review of the U.S. aviation industry market and seat share in 2013, merger and consolidation history from 2005 to 2013, and competitive dynamics in the post-consolidation airline ...

A comprehensive review of the U.S. aviation industry market and seat share in 2013, merger and consolidation history from 2005 to 2013, and competitive dynamics in the post-consolidation airline market. Specific focus on the US Airways - America West deal, followed by Delta-Northwest, United-Continental, Southwest-AirTran and US Airways-American. The presentation captures the highest revenue O&D routes for each consolidated airline as well as the impact of shifting alliance shares in the U.S. and intercontinental markets. As presented to

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    Airline Mergers, Competition and Impact: 2005-2013 Airline Mergers, Competition and Impact: 2005-2013 Presentation Transcript

    • May 2013Mergers and Competition:Reviewing the past decadeJoshua Marks, CEO+1 703 994 0000 Mobile  josh@masflight.comW W W . M A S F L I G H T . C O M
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DWe’re going to look at how mergershave changed the industry since 2005• Compare the five major mergers since 2005• Has there been a change in competitive position?• What about at the city or metro area level?• How has low-fare competition evolved?• What about international alliance competition?S L I D E 2
    • A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D3M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSECTION 2S L I D E 3INDUSTRY SNAPSHOT
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DLet’s start with a current snapshotWe start today’s discussion with a review of theU.S. airline industry today:• America West + US Airways complete (well, mostly)• Delta + Northwest complete• United + Continental almost complete• Southwest + AirTran in progress, late stage• US Airways + American in progress, early stage• Outliers – Alaska, Frontier, JetBlue, Hawaiian, Spirit, AllegiantWe focus on market share, network scale, andfleet dynamics for U.S. carriersS L I D E 4
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DToday: Before US/AA and WN/FLS L I D E 5DailyFlightsMainlineFlightsRegionalFlightsDomesticFlightsInt’lFlightsSeatsper DaySeatShare %Seats/FlightUnited Airlines 5,023 1,735 3,289 4,277 747 447,953 18.7% 89.2Delta Air Lines 4,684 2,149 2,535 4,244 440 502,791 21.0% 107.3American Airlines 3,441 1,850 1,590 2,809 632 371,988 15.5% 108.1US Airways 3,007 1,205 1,801 2,800 207 287,041 12.0% 95.5Southwest Airlines 2,840 2,840 - 2,840 - 400,573 16.7% 141.1Alaska Airlines 745 387 358 661 84 84,905 3.5% 113.9JetBlue Airways 697 697 - 532 165 92,193 3.9% 132.2AirTran Airways 528 528 - 472 56 63,936 2.7% 121.1Frontier Airlines Inc. 230 207 23 210 20 31,923 1.3% 138.8Spirit Airlines 220 220 - 189 31 35,288 1.5% 160.2Hawaiian Airlines 206 206 - 193 13 31,181 1.3% 151.3Virgin America 135 135 - 132 3 19,262 0.8% 142.8Allegiant Air LLC 111 111 - 111 - 18,597 0.8% 167.5Sun Country Airlines 47 47 - 35 12 6,961 0.3% 149.0masFlight/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.
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DInternational Exposure (% of Mainline)S L I D E 60% 0% 1%4%8%11%13% 14% 14%18%23%27%29%G4 WN VX F9 AS FL US NK HA DL B6 AA UAMonday, May 20, 2013 (OAG)% Seats % Flights
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DFleet Composition of Daily SeatsS L I D E 70%10%20%30%40%50%60%70%80%90%100%UA AS US AA DL F9 B6 FL G4 HA NK VX WN5/20/2013 - US Carriers OAG% One-Cabin RJ% Two-Cabin RJ% Narrowbody% Widebody
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DCode Shares (By Daily Departures)S L I D E 8F9FrontierHAHawaiianWNSouthwestFLAirTranASAlaskaAAAmericanDLDeltaUSUS AirUAUnitedAfrica 15 33 41 55Asia 36 145 221 72 196Europe 748 859 402 992Latin America 27 3 111 234 71 224Middle East 43 13 11 14US/Canada 186 162 539 1,371 1,907 818 785 2,113 2,176Pacific 5 80 51 32 53Carrier Total 186 198 566 1,374 1,912 1,960 2,196 2,742 3,710May 20, 2013 Flights (OAG)
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DOperational Performance (March 2013)S L I D E 968%74%80%80%82%91%75%81%82%83%85%86%FrontierUnitedAmericanUS AirwaysDeltaAlaskaMainlineRegional70%72%79%81%88%90%SpiritJetBlueAirTranSouthwestVirginAmericaHawaiianOPERATIONAL ONTIME ARRIVAL PERFORMANCE (A+14%)
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSection One Summary• 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 aircraftAverage flight distance 1,121 miles (836 including regional operations)– US Airways operates in smaller markets with smaller aircraftAverage 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 departuresS L I D E 1 0
    • A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D11M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSECTION 2S L I D E 11MERGER HISTORY
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DLooking at mergersWe will start with a review of thefive primary mergers of the last decade1. US + HP (2005)2. DL + NW (2008)3. UA + CO (2010)4. FL + WN (2011)5. AA + US (2013)S L I D E 1 2
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DUS Airways & America West (2005)S L I D E 1 3• HP acquired USAirways out ofChapter 11• Announced May2005; closedSeptember 2005• Airbus, AirWisconsin andACE invested• Merger “completed”2006 - partiallyAMERICA WESTDOMESTIC MAINLINEUS AIRWAYSDOMESTIC MAINLINE
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSetting The Stage for 2008-2012What made mergersattractive?• Growth in internationaltraffic 2002-2007• Escalated fuel cost• Bankruptcies alreadyremoved low fruit• Revenuesynergies, high-yielddominance• Network optimizationS L I D E 1 413.012.411.711.711.110.29.88.67.87.3UnitedContinentalAmericanNorthwestDeltaUSAirwaysAlaskaJetBlueAirTranSouthwestRASM 2007 (SLA)
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DDelta & Northwest (2008)• Both fresh from bankruptcy• Elevated fuel costs drove new cost pressure• Both in SkyTeam with competing JVs– NW + KLM– DL + Air France• Announced merger in April 2008in conjunction with a new pilot labor agreement• DOJ approved October 2008 with finalinfrastructure merged in January 2010.S L I D E 1 5
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DDL + NW – Network SynergiesS L I D E 1 6A natural merger• Complementary domestic:DL east, NW central• NW had Asian network(55% of capacity in 2008)• DL had Latin network• Both carriers had strongEuropean presence• Combined carrier targeted50/50 mix of domestic &international flyingDelta Air LinesDomestic MainlineNorthwest AirlinesDomestic Mainline
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DDL + NW Critical StatsS L I D E 1 7At Time of Merger Delta NorthwestEmployees 48,700 29,600Revenue (2007) $19.1 billion $12.5 billionPassengers (2007) 109.1 million 66.4 millionRPMs (2007) 122 billion 78 billionSystem Fleet Size 578 515Overlap Routes:Atlanta-Detroit (AirTran)Atlanta-Memphis (AirTran)Atlanta-Minneapolis (AirTran)Detroit-Salt Lake City (None)Minneapolis-Salt Lake City (None)LA – Las Vegas (AA/US/UA/WN)LA – Honolulu (AA/CO/HA/UA)SF – Honolulu (AA/HA/UA)
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DUnited & Continental (2010)S L I D E 1 8At Time of Merger United ContinentalEmployees 48,000 43,000Daily Departures 3,300 2,400Fleet Size 386 351Destinations 217 2622008 Revenue $20.2 billion $15.2 billionUnited Mainline Continental Mainline
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DUA+CO Overlap RoutesS L I D E 1 9Chicago-Cleveland (AA, WN)Chicago-Houston (AA, WN)Chicago-Newark (AA)Denver-Houston (F9, WN)Denver-Newark *Los Angeles - Honolulu(AA, DL/NW, HA)Houston-San Francisco *Houston-Washington *Newark - San Francisco *
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DComparing DL/NW and UA/CO• You can argue that once DL+NW happened,it was inevitable that UA+CO would occur• US and AA were natural pairs (antitrust matters!)S L I D E 2 0United + Continental Delta + NorthwestRevenue (2009) $28.9 billion $28.1 billionRPMs (1H 2010) 41.6 billion 36.5 billionAtlantic RPMs 8.1 billion 7.3 billionPacific RPMs 7.0 billion 5.0 billion
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DUnited/Continental Fleet MixingS L I D E 2 101002003004002004200520062007200820092010201120122013Cleveland (Mainline)03006009001200150018002004200520062007200820092010201120122013Denver (Mainline)0300600900120015002004200520062007200820092010201120122013Newark (Mainline)03006002004200520062007200820092010201120122013Washington (Mainline)Domestic mainline flying by United (RED) and Continental (BLUE)
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D S L I D E 2 205001000150020002004200520062007200820092010201120122013Houston (Mainline)050010001500200025002004200520062007200820092010201120122013Chicago (Mainline)03006009002004200520062007200820092010201120122013Los Angeles (Mainline)030060090012002004200520062007200820092010201120122013San Francisco (Mainline)United/Continental Fleet Mixing (2)Domestic mainline flying by United (RED) and Continental (BLUE)
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSouthwest & AirTran (2010)• Announced September 27, 2010• First modern mega-merger ofnationwide Low-Cost Carriers• FL had attempted acquisition of Midwest in2007, built presence at MKE after deal failed• Southwest needed stronger access in keymarkets and access to international marketsS L I D E 2 3
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DWN + FL – Key Stats at AnnouncementS L I D E 2 4Southwest AirTranEmployees (2010) 34,636 8,083Aircraft 544 138Employees/Plane 64 59Boeing 717 86Boeing 737 Classics 198Boeing 737NG 345 52Routes 461 177Cities 69 69Routes per City 6.6 2.5
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DWN + FL: Domestic RoutesS L I D E 2 5Key deal synergies:• Pricing power inkey metro areas(Orlando, Chicago)• Strong position inAtlanta, last majorWN “hole”• Access to slot-controlled markets• Fleet simplificationSouthwest NetworkAirTran Network
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DWN/FL service discontinuation• Market size – could not support incremental seatsof 737NG vs. 717– Allentown, Asheville, Bloomington, Charleston,Huntsville, Knoxville, Lexington, Moline• Regulatory – Wright Amendment– Dallas/Fort Worth• Service Overlap – Catchment area shared withexisting Southwest cities or larger AirTran markets– Atlantic City, Harrisburg, Miami,Newport News, Sarasota, White PlainsS L I D E 2 6
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DAmerican and US Airways Merger• Announced February 14, 2013• Creates largest airline with 6,700 daily flights to 336destinations in 56 countries• Fleet renewals on both sides• AA and US networks are highly complementary– Little geographic overlap– Where they do, LCC competition or entry threat– 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 AAS L I D E 2 7
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DUS + AA Networks and Unique CitiesS L I D E 2 8US Airways AirportsFebruary 2013American Airlines AirportsFebruary 2013Unique Cities Brought to MergerUnique US cities added (Black)Unique AA cities added (Red)Combined network fills geographic gapsand adds nearly 8,000 new O&D pairs61 unique airportsnot served by AA130 unique airportsnot served by USSchedules for February 1 through 7, 2013Graphics masFlight and gcmap.com
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DCompetition in Overlap MarketsS L I D E 2 9Overlap Route Legacy @Specific AirportsLegacy @ OtherCity AirportsLCCs in the samemetro area pairPhoenix 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 2013
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DWAS and NYC Post-Merger SharesS L I D E 3 0March 2013, Post-Merger Seat % Shares per Week, March 1, 2013 through March 7, 2013Washington Airports (DCA/BWI/IAD)Departing Seat SharesNew York Airports (JFK/LGA/EWR)Departing Seat SharesAmerican/US Airways17.7%Delta22.3%United24.7%JetBlue12.8%Southwest/AirTran3.1%Others19.5%American/US Airways25.0%Delta9.9%United26.3%JetBlue2.8%Southwest/AirTran27.5%Others8.5%
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSection Two Summary• Dominoes: Once Delta-Northwest occurred,it was inevitable the rest would follow– HP+US was merger of opportunity (and necessity)– The next four were driven by the recession of 2008(and competitive requirements once DL+NW happened)• Bankruptcy exits set the stage for mergers– Non-core costs cut to the bone– Not much slack left when the economic recession hit– Fuel costs elevated at the same time• Revenue optimization is underway– Fleet reassignment, base consolidation evidentS L I D E 3 1
    • A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D32M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSECTION 3S L I D E 32COMPETITION AFTER MERGERS
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DBig Picture: After Mergers & IntegrationS L I D E 3 3DailyFlightsMainlineFlightsRegionalFlightsDomesticFlightsInt’lFlightsSeatsper DayFlightShare %SeatShare %Seats/FlightAmerican + US 6,448 3,055 3,391 5,609 839 659,029 29.4% 27.5% 102.2United Airlines 5,023 1,735 3,289 4,277 747 447,953 22.9% 18.7% 89.2Delta Air Lines 4,684 2,149 2,535 4,244 440 502,791 21.4% 21.0% 107.3Southwest + AirTran 3,368 3,368 - 3,312 56 464,509 15.4% 19.4% 137.9Alaska Airlines 745 387 358 661 84 84,905 3.4% 3.5% 113.9JetBlue Airways 697 697 - 532 165 92,193 3.2% 3.9% 132.2Frontier Airlines Inc. 230 207 23 210 20 31,923 1.0% 1.3% 138.8Spirit Airlines 220 220 - 189 31 35,288 1.0% 1.5% 160.2Hawaiian Airlines 206 206 - 193 13 31,181 0.9% 1.3% 151.3Virgin America 135 135 - 132 3 19,262 0.6% 0.8% 142.8Allegiant Air LLC 111 111 - 111 - 18,597 0.5% 0.8% 167.5Sun 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.
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DMergers cause significant share shiftCoast to coast overlap between the three majors &significant competition on almost all O&D markets inside the U.S.S L I D E 3 4Source: 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.UA18.7%DL21.0%WN16.7%AA15.5%US12.0%Others16.1%Seat Share, BeforeUS/AA and WN/FLUA18.7%DL21.0%WN/FL19.4%US/AA27.5%Others13.4%Seat Share, AfterUS/AA and WN/FL
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DUsing O&D as competitive metric• In last section we looked 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 carrier stack up against peersAnalysis is based on Q3 2012 fare data released by DOT and available at the BTS website.I did not utilize confidential information.S L I D E 3 5
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DUS/AA Key O&D Markets (2012)S L I D E 3 6Rank Top US+AA Markets Pax/Day Revenue Av Fare LCC Rev Nonstop %1 New York to Los Angeles 1,312 412,915 $315 33% 90%2 New York to Dallas 1,145 350,377 $306 8% 88%3 New York to Chicago 1,814 320,500 $177 21% 98%4 Los Angeles to Dallas 1,448 313,432 $216 21% 90%5 Dallas to Washington 957 272,258 $284 9% 85%6 Chicago to Los Angeles 1,048 232,337 $222 35% 91%7 Miami/FLL to New York 1,309 229,758 $176 46% 97%8 Chicago to Dallas 1,072 226,898 $212 16% 95%9 Los Angeles to Chicago 1,032 225,236 $218 35% 92%10 New York to San Francisco 669 195,327 $292 32% 91%
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DUnited Key O&D Markets (2012)S L I D E 3 7Rank Top United Markets Pax/Day Revenue Av Fare LCC Rev Nonstop %1 New York to San Francisco 1,265 481,107 $380 32% 91%2 New York to Los Angeles 1,285 437,459 $340 33% 90%3 Chicago to New York 1,577 332,900 $211 21% 98%4 Washington to San Francisco 845 258,219 $306 37% 82%5 Houston to New York 882 256,515 $291 19% 88%6 Chicago to Washington 1,280 22,024 $17 28% 97%7 Washington to Los Angeles 734 211,920 $289 31% 79%8 San Francisco to Boston 674 211,527 $314 54% 90%9 Miami/FLL to New York 1,293 208,527 $161 46% 97%10 San Francisco to Chicago 770 199,277 $259 34% 94%
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DDelta Key O&D Markets (2012)S L I D E 3 8Rank Top Delta Markets Pax/Day Revenue Av Fare LCC Rev Nonstop %1 Atlanta to New York 2,094 379,723 $181 16% 94%2 Miami/FLL to New York 1,721 256,504 $149 46% 97%3 Atlanta to Washington 1,424 240,175 $169 28% 97%4 New York to Los Angeles 839 222,360 $265 33% 90%5 Atlanta to Los Angeles 890 218,521 $246 21% 87%6 Minneapolis to New York 685 190,955 $279 13% 91%7 New York to San Francisco 636 178,051 $280 32% 91%8 New York to Detroit 759 165,146 $218 13% 94%9 Atlanta to Boston 812 160,245 $197 23% 92%10 Atlanta to San Francisco 573 152,468 $266 16% 86%
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSouthwest Key O&D Markets (2012)S L I D E 3 9Rank Top WN/FL Markets Pax/Day Revenue Av Fare Legacy Rev Nonstop %1 Los Angeles to San Francisco 6,663 790,113 $119 21% 99%2 San Diego to San Francisco 2,544 302,832 $119 13% 99%3 Los Angeles to Sacramento 2,119 268,233 $127 6% 99%4 Las Vegas to Los Angeles 2,167 249,697 $115 19% 99%5 Las Vegas to San Francisco 1,953 227,615 $117 18% 97%6 Los Angeles to Phoenix 1,614 186,791 $116 33% 99%7 Boston Area to DC/Balt 1,611 185,504 $115 39% 98%8 Houston to Dallas 1,094 161,467 $148 32% 99%9 San Francisco to Phoenix 1,065 142,319 $134 38% 98%10 Los Angeles to Denver 1,028 138,787 $135 41% 94%
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DDomestic O&D Share (2012)S L I D E 4 00%10%20%30%40%50%60%70%80%90%100%OthersAmericanUS AirwaysUnitedDeltaSouthwest/AirTran
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSection Three Summary• On a metropolitan area basis, competition is stillalive and well in the U.S., even with mergers• With scale, carriers are now concentratingoperations on their fortress hubs – which cancoexist in the same metro area• Low-cost carriers are now engaging legacy hubsby picking off highest-yield opportunities– Southwest/AirTran in Atlanta, Denver; Spirit at DFW• Antitrust analysis will need to change in thefuture based on the changed, consolidatedlandscapeS L I D E 4 1
    • A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D42M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSECTION 4S L I D E 42GLOBAL ALLIANCES
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DAlliances & Global Competition• We have been focused on domestic competition• Let’s turn to the international arena• International competition is dominated by globalalliances and joint-venture agreements• US shifting to oneworld will have a leveling impacton alliance dynamics, particularly transatlanticS L I D E 4 3
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DS L I D E 4 4Daily Departures by RegionDaily NONSTOP departures and markets based on OAG schedules week of October 1, 2012Source: masFlight (www.masflight.com)2383,2835,1779,667EtihadQatarEmiratesoneworldSkyTeamStarAllianceNorth America9192176394752EtihadQatarEmiratesoneworldSkyTeamStarAllia…Asia-12262561691EtihadQatarEmiratesoneworldSkyTeamStarAllianceCentral & SouthAmerica8252799210735EtihadQatarEmiratesoneworldSkyTeamStarAllia…Africa2742572,5063,2185,519EtihadQatarEmiratesoneworldSkyTeamStarAllia…Europe102115164209230496oneworldEtihadStarAllianceQatarEmiratesSkyTeamMiddle East131835642748QatarEtihadEmiratesSkyTeamStarAllia…oneworldPacific
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DAlliance Reach from Key CitiesS L I D E 4 5Flights to/from: Oneworld SkyTeamStarAllianceAtlanta 33.8 78.8 60.2Bangkok 45.3 54.3 77.3Barcelona 44.1 65.3 77.8Berlin 47.2 59.2 79.2Bogota 42.6 45.6 87.4Boston 46.9 64.7 78.9Buenos Aires 59.1 59.9 35.6Chicago 47.5 56.0 82.0Hong Kong 50.5 58.6 61.9Istanbul 27.0 55.1 84.7Jakarta 37.8 66.2 61.4London 52.6 59.7 76.5Los Angeles 38.0 64.7 78.4Madrid 51.6 64.4 72.7Melbourne 53.3 42.4 50.5Mexico City 32.9 75.6 67.5Miami/Ft. Lauderdale 56.0 55.8 70.4Milan 42.3 66.4 78.5Flights to/from: Oneworld SkyTeamStarAllianceMoscow 35.6 73.0 69.2New York/Newark 43.5 63.7 82.7Paris 38.9 72.9 72.6Philadelphia 43.7 54.2 84.0Rio de Janeiro 46.4 25.7 89.0Riyadh 38.1 60.3 64.8Rome 38.4 69.7 74.3San Francisco 41.9 57.6 80.1Santiago 55.3 58.9 31.2Sao Paulo 44.9 38.5 86.2Seoul 31.4 72.3 70.1Shanghai 35.9 76.4 64.3Singapore 41.1 57.3 75.8Sydney 50.7 44.1 65.6Tel Aviv Yafo 40.5 63.8 75.0Tokyo 39.5 60.1 77.5Toronto 40.3 57.2 83.6Washington DC 40.9 59.6 81.3Out of 100 potential points per market, based on breadth of service
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DAlliance Mix: From the United StatesUS’ shift from Star to oneworld will reduce the gap withStar Alliance – and should have a tangible competitive benefitS L I D E 4 6Oneworld19.9%SkyTeam,16.2%StarAlliance, 41.8%Unaligned,22.1%Before RealignmentOneworld25.6%SkyTeam,16.2%StarAlliance, 36.0%Unaligned, 22.1%After RealignmentSchedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per Week
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E D S L I D E 4 7Oneworld19.9%SkyTeam,23.7%StarAlliance, 41.7%Unaligned,8.9%Before RealignmentOneworld30.2%SkyTeam,23.7%StarAlliance, 37.2%Unaligned,8.9%After RealignmentSchedule snapshot for first week of February 2013 (masFlight/OAG) – Share of Departures per WeekNorth Atlantic: Competitive RebalanceUS’ shift to oneworld will make a significant differencein the competitive North Atlantic market
    • A M E R I C A N A V I A T I O N I N S T I T U T E © 2 0 1 1 A L L R I G H T S R E S E R V E D48M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DSECTION 5S L I D E 48CONCLUSIONS
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DConclusions: Network CombinationMergers from 2008 followed a similar pattern1. Driven by pairing complementary networks, increasingnetwork scope, consolidating hubs and reducing duplicatedcost structures2. Once the DL/NW merger occurred, the race was on amongremaining U.S. majors to leapfrog competitors3. DOJ standards defined the mergers, not the other wayaround4. Mergers created the stability the industry needs goingforwardS L I D E 4 9
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DConclusions: 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 bothlegacy 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 basisS L I D E 5 0
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DConclusions: AlliancesAlliance competition increases1. Minor shift in alliance share from Star  oneworldParticularly relative to DL/NW and UA/CO shifts2. Meaningfully changes Atlantic and Caribbean markets3. Significantly increases oneworld network (O&D pair)options from Central U.S. to Europe4. I think US’ shift is good for competition and long-termviability of three alliance modelS L I D E 5 1
    • M A S F L I G H T © 2 0 1 3 A L L R I G H T S R E S E R V E DConclusions: Other ThoughtsBenefits for consumers1. New O&D and routing options from the merged networkwill benefit both business and leisure passengers2. Stronger networks  better local service options3. Pricing pressure is alive and well.– Southwest may not be as aggressive as it used to be, but theircompetitive footprint is wide and evident in fares and yields4. The US/AA merger is relatively tame given just 2 city pairswith high impact– Charlotte to South Florida – ripe for LCC entryCharlotte to Dallas – more complex forecastS L I D E 5 2