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U.S. Airline Industry Summer Travel Forecast and First Quarter 2013 Financial/Operational Review

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U.S. Airline Industry Summer Travel Forecast and First Quarter 2013 Financial/Operational Review

  1. 1. U.S. Airline Industry Summer Air Travel Forecast &First Quarter 2013 Financial/Operational ReviewJohn HeimlichVP & Chief EconomistMay 16, 2013Dan ElwellSVP-Safety, Security & Operations
  2. 2. airlines.org2Executive Summary» A4A projects an increase in summer air travel on U.S. airlines, narrowing the gap to the 2007 peak» Continued restructuring helped U.S. airlines report a narrower net loss in seasonally difficult 1Q» Improving financial results are leading many analysts to forecast that U.S. airlines will finallygenerate an economic profit (not merely accounting profit) in 2013, enabling airlines to attract newinvestors, lower their costs of borrowing and reinvest in the product and customer experienceo Restoring air service – adding back flights and seats domesticallyo CAPEX at highest level in 11 years (in part reflecting several hundred passenger aircraft on order)o Significant new investment in aircraft, operational spares, premium seating, airport terminals, customerlounges, ground equipment, mobile technology, customer kiosks, in-flight entertainment and wirelesso Also intense focus (and results) on improving baggage handling – equipment , software, staffing, training,internal reporting and communication, airport/agency partnerships, performance incentives, logistics, etc.» Despite challenging year-over-year deterioration of weather, affirmed by FAA data and analysis, U.S.airline operations remained strong in 1Q13, notably second best 1Q on-time arrival rate since 2003» Along with airline reinvestments in the product, advances in flight operations, expansion of expeditedscreening (Pre ™) and continued affordability of air travel make it a great time for customers to fly
  3. 3. A4A Projects Summer 2013 Air Travel to Rise Modestly, Narrowing Gap to 2007 PeakExpecting Record Number of Passengers to Fly Internationally on U.S. Carriersairlines.org3192.4184.5176.2177.3179.8179.9181.225.125.724.125.826.326.727.42007 2008 2009 2010 2011 2012 2013FDomestic InternationalSource: A4A and BTS T100 segment dataU.S. Airline Onboard Passengers (Millions)Scheduled Service, June 1 through August 31217.6210.2200.3 203.1 206.1 206.6 208.7 Nearly 209M passengers (2.27M per day)• Up 1% from 2012; busiest since 2008• Remains 4% below 2007 all-time high• YOY Seats: DOM +0.6%, INT +2.5%• Average load factor: 86%-87% Includes 27.4M travelers (~298K per day)on international flights – a new record Includes 9 of 11 busiest air travel days ofthe year for U.S. airports (esp. Thu/Fri inmid-June through first week of August) Key drivers include:• Rising household net worth, corporate profits• Abating energy prices, affordable airfares• Improved airline financial conditionSummer 2013 Forecast Highlights
  4. 4. In Tough Quarter, 1Q 2013 Bottom Line for 10 U.S. Airlines* Improved from 1Q 20122.5% Increase in Revenues and 1.0% Reduction in Costs Drive Smaller Net Loss* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airwaysairlines.org41Q 2013 vs. 1Q 2012 % Better/(Worse)Operating Revenues ($34.3B) 2.5Operating Expenses (% of ) (2.3)Fuel (35%) (0.1)Wages & Benefits (24%) (3.0)Landing Fees & Terminal Rents (5%) (5.0)Maintenance, Materials & Repairs (6%) (3.8)Depreciation, Amortization & Rents (7%) (3.2)Other (23%) (4.0)Non-Op Income / (Expenses) and Tax 54.1Subtotal Expenses ($34.9B) 1.0Net Loss (-$552M, or -$3.30 per psgr.) 67.8(5.1)(1.6)1Q12 1Q13Net Profit MarginEarnings as % of Revenues
  5. 5. In 1Q 2013, U.S. Airlines* Lost 1.6 Pennies per Dollar of Revenue GeneratedWeak Margin – Albeit in Seasonally Weak 1Q – in Stark Contrast to Other Fortune 500sairlines.org5U.S. Airlines* 1Q13Net Income ($ Millions) (552)Net Margin (Percent) (1.6)Apple 1Q13Net Income ($ Millions) 9,547Net Margin (Percent) 21.9Ford Motor Co. 1Q13Net Income ($ Millions) 1,578Net Margin (Percent) 4.9Starbucks 1Q13Net Income ($ Millions) 390Net Margin (Percent) 11.0* A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways
  6. 6. Post-Recession, as Economic Conditions Improve and Airlines Begin to GenerateHealthy Returns on Capital, Levels of Domestic Air Service Are Growing Yet Againairlines.org(10.0)(8.0)(6.0)(4.0)(2.0)0.02.04.06.01Q083Q081Q093Q091Q103Q101Q113Q111Q123Q121Q133Q13Scheduled Flights Scheduled Seats%ChangeYOY6Source: Innovata (via Diio Mi) published schedules as of May 11, 2013
  7. 7. Improving Balance Sheets Enable Reinvestment in Product and Customer Experience2012 Annual Airline Cash Capital Expenditures (Billions) at Highest Level Since 2001airlines.org7$16.27$13.92$7.75$6.61$6.12$5.39$6.07$7.83$8.27$5.88$5.16$6.62$9.77$0$2$4$6$8$10$12$14$16$182000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Source: Cash flow statements of AirTran, Alaska, Allegiant, America West, American, Continental, Delta, Hawaiian, JetBlue, Northwest, Southwest, Spirit, United, US Airways» Aircraft, engines, winglets, spare parts» Ground equipment, loading bridges» Passenger terminals, aircraft hangars» Premium seats, new aircraft interiors» Maintenance facilities and machinery» Bag carousels, carts, scanners» In-flight entertainment systems, wireless» Computers, kiosks, mobile technologyBillions invested
  8. 8. Balance Sheet Recovery Enabling Significant Fleet Renewal for Airline CustomersA4A Passenger Airlines Have 1,299 Aircraft* on Order for Delivery through End of 2022Source: Carrier SEC filings for deliveries from April 2013 through December 2022airlines.org8663251183411432124972* Consists of 1,102 narrowbody aircraft and 197 widebody aircraft
  9. 9. 2007 2008 2009 2010 2011 2012 1Q13On-Time Arrival Rate(% of domestic flights within 00:15)73.4 76.0 79.5 79.8 79.6 81.9 80.1Involuntary Denied Boardings(per 10,000 passengers)1.12 1.10 1.19 1.09 0.82 0.99 1.06Mishandled Bags(per 1,000 domestic passengers)7.05 5.26 3.91 3.57 3.39 3.09 3.15Flight Cancellations(% of scheduled domestic departures)2.16 1.96 1.39 1.76 1.91 1.29 1.82Customer Complaints(per 100,000 systemwide passengers)1.37 1.13 0.97 1.20 1.18 1.42 1.13Sources: NTSB, BTS and DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)airlines.org9U.S. Airline Operations Remain Strong and Substantially ImprovedImprovements Enabled by Profitability (Reinvestment), Fewer Flights, Better Weather
  10. 10. Source: FAA Air Traffic Organization, AvMet Applications and National Oceanic and Atmospheric Administrationairlines.org10FAA Analysis of Monthly Snow Cover: “Much more winter weather in First Quarter2013 compared to 2012, especially DEN, MSP, ORD, MDW, DTW, BOS, EWR, LGA, JFK”Jan 2012 Feb 2012 Mar 2012Jan 2013 Feb 2013 Mar 2013
  11. 11. Source: FAA Air Traffic Organization and AvMet Applications (http://www.avmet.com/avmet/)airlines.org11FAA Analysis: 1Q 2013 Precipitation (including Snow) Up YOY at Key U.S. AirportsAirport Jan-Mar 2012 Jan-Mar 2013BOS 4.88” 7.54”JFK 4.51” 7.68”ATL 10.89” 16.82”ORD 6.18” 8.31”DFW 13.80” 8.01”DEN 1.14” 1.90”CLT 7.48” 11.18”MSP 3.48” 4.17”SFO 7.59” 1.36”SEA 17.66” 8.48”More precipitation“Overall, more weather (including snowstorms and 1-2 crippling blizzards) inNortheast-ORD-MSP to ATL/CLT (morerain) in 2013; more significant West Coastsystems and TX convection in 2012”-- FAA Air Traffic Organization and AvMet
  12. 12. Industry’s Commitment to Customer-Centric Ops Has Outpaced USG’s Commitmentairlines.org12“The costs of air traffic control also have undoubtedly been inflated by the delaysand cost overruns attributable to the FAA’s inability to adopt new technology toupgrade and modernize the system. The long-anticipated next generation satellite-based air traffic control system…is billions over budget and years behind schedule.It may need to be renamed PastGen at the rate of its deployment.”Clifford Winston, Senior Fellow, Brookings Institution, “How to Avoid Another FAA Fiasco,” Wall Street Journal (May 8, 2013) Equipage (percent of Part 121 fleet)• 99% Area Navigation (RNAV)• 49% Required Navigation Performance (RNP) High-capacity, real-time weather modeling High-tech, 24-hour communications, includinguse of social media and smartphone alerts Early decision-making, preemptive cancellations Concerted multi-stakeholder collaboration• Airlines, airports, FAA, DHS, CBP, TSAU.S. Airlines Glacial roll-out of NextGen; few benefits to behad from airline investments made thus far Few Performance Based Navigation (PBN)procedures at even fewer key airports• Many in place at general-aviation airports• Development process is protracted, unproductive• FAA generally reluctant or unable to correctlyproduce efficient, timely procedures where andwhen airlines and their customers need them• Impediments include handbookchanges, procedural approvals, controller trainingU.S. Government (Congress and Administration)
  13. 13. Airlines Collaborating Actively with TSA to Expand Pre ™ Expedited ScreeningRecently, Partnership Yielding Significant Progress in Enhancing the Air Travel Experienceairlines.org13 TSA Pre ™ (an expedited screening initiative) nowavailable at 40 U.S. airports To date, almost 9 million U.S. airline travelers haveexperienced expedited screening By end of 2013, TSA expects that one out of four enrolledtravelers will have experienced Pre On April 25, TSA announced that passengers couldreceive notification of TSA Pre eligibility on boardingpasses (Delta, United and US Airways have commenced) As of May 7, Pre participants now eligible for expeditedscreening when traveling internationally on Alaska, AA,Delta, United or US Airways from TSA Pre airportsSource: Transportation Security Administration
  14. 14. Policy Focus: Allocation of U.S. Customs and Border Protection (CBP) ResourcesAbu Dhabi International Airport (AUH) Ranks 80th Among Aviation Gateways to the USAAvg. Daily Air Psgr.Arrivals to USA, 2012Rank Foreign Gateway Airport> 10,000 1-3 London Heathrow (LHR), Toronto (YYZ), Tokyo Narita (NRT)5,000 to 9,999 4-10Frankfurt (FRA), Paris (CDG), Cancun (CUN), Mexico City (MEX),Seoul (SEL), Vancouver (YVR), Amsterdam (AMS)1,000 to 4,999 11-60YUL / YYC / GRU / HKG / NAS / GDL / MBJ / PTY / MAD / SDQMUC / DXB / FCO / SYD / SJD / PEK / BOG / SJO / TPE / ZRHPUJ / PVG / KIX / DUB / LIM / SAL / TLV / LGW / EZE / MANPVR / AUA / YEG / CCS / BRU / IST / GCY / PAP / GIG / STIKIN / POS / DUS / MNL / MTY / SCL / YOW / SXM / NGO / GCM574 to 999 61-79BCN / AKL / BDA / MGA / MXP / KEF / DOH / LIR / CPH / PLSSVO / UIO / SAP / DEL / BZE / YWG / BGI / ARB / GYE573 80 Abu Dhabi International Airport (AUH)1 to 572 81-479 Too many to list in this spaceairlines.org14Source: DHS Advance Passenger Information System via U.S. Department of CommerceU.S. CBP preclearance location
  15. 15. CBP Has a Huge Opportunity to Better Align Its Resources and Improve the TravelExperience for the 90M Airline Customers Who Arrived at U.S. Airports in 2012airlines.org15Source: CBP “Airport Wait Times” (http://www.cbp.gov/xp/cgov/travel/wait_times/), Department of Commerce and DHS Advance Passenger Information System (APIS) Last year ~90M passengers (~246K/day)arrived at U.S. airports on international flights 15 airports saw more than 5K arrivals/day Average 2012 wait times as high as 1 hour Maximum 2012 wait times as high as 3 hours Some of longest CBP processing timesoccurred in July (and again in March 2013)010203040JFKMIALAXEWRORDATLSFOIAHIADDFWHNLBOSPHLMCOFLLTop 15: Daily International Pax Arrivals (000)~100K per day
  16. 16. airlines.org16www.DrawTheLineHere.com

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