A4A Industry Review and Outlook

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  • Real gross domestic product -- the value of the goods and services produced by the nation's economy less the value of the goods and services used up in production, adjusted for price changes
  • Ancillary reflects baggage and change/cancellation fees
  • The College Board (based on beginning of academic year, 4-year undergraduate institution) -- http://trends.collegeboard.org/college-pricing; http://trends.collegeboard.org/college-pricing/figures-tables/tuition-and-fee-and-room-and-board-charges-over-time; http://trends.collegeboard.org/sites/default/files/cp-2012-table-2_0.xlsx; now use net at http://trends.collegeboard.org/college-pricing/figures-tables/net-price, table 7; row 26
    Bureau of Labor Statistics (includes hedonic “quality-change” adjustments).
    National Automobile Dealers Association – www.nada.org (average retail selling price) - https://www.nada.org/nadadata/
    Census Bureau – http://www.census.gov/construction/nrs/xls/usprice_cust.xls (median)
    Department of Energy – http://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf, Table 9.4.
    National Association of Theatre Owners – www.natoonline.org (average U.S. ticket prices).
    Postal Service – www.usps.com/postalhistory/welcome.htm, Publication 100.
    A4A via Bureau of Transportation Statistics – www.airlines.org.
    Disney World - http://allears.net/tix/tixincrease.htm or http://allears.net/tix/tixpix00.htm
    http://www.natoonline.org/statisticstickets.htm
    NFL - http://www.fancostexperience.com/; http://www.fancostexperience.com/pages/fcx/blog_pdfs/entry0000018_pdf000.pdf, Team Marketing Report Fan Cost Index
    NIPA Table 2.1, Line 38 - http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=1&isuri=1

  • A4A Passenger Airline Cost Index
    http://www.washingtonpost.com/news/business/wp/2015/06/12/how-theme-parks-like-disney-world-left-the-middle-class-behind/
    http://www.nytimes.com/2016/02/28/business/disney-introduces-demand-based-pricing-at-theme-parks.html
    http://allears.net/tix/tixpix10.htm
  • A4A Passenger Airline Cost Index
    http://www.washingtonpost.com/news/business/wp/2015/06/12/how-theme-parks-like-disney-world-left-the-middle-class-behind/
    http://allears.net/tix/tixpix10.htm
    https://www.teammarketing.com/tmr/81
  • In accounting, profit is the difference between the purchase and the component costs of delivered goods and/or services and any operating or other expenses.
    Economic profit is similar to accounting profit but smaller because it reflects the total opportunity costs (both explicit and implicit) of a venture to an investor.
    In corporate finance, Economic Value Added or EVA, is an estimate of a firm’s economic profit – being the value created in excess of the required return of the company’s investors (being shareholders and debt holders). Quite simply, EVA is the profit earned by the firm less the cost of financing the firm’s capital. The idea is that value is created when the return on the firm’s economic capital employed is greater than the cost of that capital.
    In calculating economic profit, opportunity costs are deducted from revenues earned. Opportunity costs are the alternative returns foregone by using the chosen inputs. As a result, you can have a significant accounting profit with little to no economic profit.
    Investors typically demand that airlines generate a 10 percent after-tax return on their capital.
  • http://www.nber.org/cycles.html
    http://airlines.org/data/a4a-quarterly-passenger-airline-cost-index-u-s-passenger-airlines/
    http://www.bea.gov/iTable/index_nipa.cfm
  • https://research.stlouisfed.org/fred2/series/TWEXBMTH
  • Note: 40cpg at play translates to $7.6B ($0.40 * 19B gallons) annually at risk
    Each penny is $190M, each dime is $1.9B, each dollar is $19B
  • http://www.dot.gov/airconsumer/air-travel-consumer-reports
    http://transtats.bts.gov/OT_Delay/OT_DelayCause1.asp?pn=1

    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)
  • The credit rating is somewhat equivalent to getting a physical at the doctor – it’s a snapshot of one’s health – we (the airlines) are digging out of a hole, and this shows that we have a long way to go. Looking at results from one quarter or one year doesn’t tell anyone much – just like losing 10 lbs. in the past year is not enough information to tell me if a person is healthy or not. Or how about this – if the USA ran a federal budget surplus for a year, would that mean we don’t have a large national debt? No – I would call that a good start, not the finish line. Same with airlines.
    Every single U.S. airport rated by S&P enjoys an investment-grade rating, whereas only one U.S. airline is investment-grade – at the lowest level. In other words, the best-rated airline equals the worst-rated airport.
    Credit ratings are opinions about relative credit risk. They are just one factor investors may consider in making investment decisions. Companies (and governments) pay S&P to assess their creditworthiness to help raise money in the capital markets. Instead of taking a loan from a bank, these entities sometimes borrow money directly from investors by issuing bonds or notes. Investors and other market participants may use the ratings as a screening device to match the relative credit risk of an issuer or individual debt issue with their own risk tolerance or credit risk guidelines in making investment and business decisions.
    Better credit ratings signal less credit risk, which means were are more likely to be able to pay our bills, on time, in full – so that often gets us better payment terms, lower interest rates (to borrow money in a downturn or to purchase aircraft, for example). Companies with strong credit ratings (like many airports) an cheaply finance large projects by going to the capital markets and issuing bonds – IN OTHER WORDS THAT DON’T NEED TO RAISE MORE MONEY FROM AIRLINES/PASSENGERS to fund new projects.
    As stated by S&P: “Issuers including corporations, financial institutions, national governments, states, cities and municipalities, use credit ratings to provide independent views of their creditworthiness and the credit quality of their debt issues. Issuers may also use credit ratings to help communicate the relative credit quality of debt issues, thereby expanding the universe of investors. In addition, credit ratings may help them anticipate the interest rate to be offered on their new debt issues. As a general rule, the more creditworthy an issuer or an issue is, the lower the interest rate the issuer would typically have to pay to attract investors. The reverse is also true: an issuer with lower creditworthiness will typically pay a higher interest rate to offset the greater credit risk assumed by investors.”
    United is currently rated “B,” which indicates that it “More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.” LAX Int’l Airport, on the other hand, is currently rated “AA,” which suggests a “Very strong capacity to meet financial commitments.” Therefore LAX is not only in superior financial condition relative to United but also has a far better ability to raise capital to fund projects at reasonable rates/terms.
    Airports do not need a PFC increase to fund necessary capital projects as they enjoy investment-grade credit and all have access to capital market. (To our knowledge no airport has been prevented from proceeding with a necessary capital project because it couldn’t issue bonds.)
    Airlines understand that the issuance of bonds is repaid through their rates and charges; therefore, if airlines are telling airports that airlines want to use rates and charges (vs. PFCs) to fund a project, airports should not object (especially since a PFC increase would increase the cost of air travel and hurt demand).
    Airlines are considering the big picture (the overall revenue impact) and telling them that they prefer that the airports use bonds.
     
  • Brent Crude per EIA
    2000 $28.66
    2010 $79.61
    2011 $111.26
    2012 $111.63
    2013 $108.56
    2014 $98.97
    2015 $52.32
    2016
  • 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.
  • http://atwonline.com/editorial/editorial-regulation-and-profitability-0

    “We see no significant change to our broader industry investment thesis, i.e. management teams focused on: 1) achieving sustainable profitability; 2) improving product/service; 3) deleveraging; and 4) enhancing shareholder returns.” -- Michael Linenberg, Deutsche Bank, “Takeaways from read-through of DOJ complaint blocking AA-US,” Aug. 14, 2013
  • “We’ve lost a lot of markets that were served only with the 50-seat (aircraft). We’d like more flights. But you’re not going to have any flights if the airlines don’t make money, so we understand their predicament.” (Larry Cox, president and CEO of the Memphis-Shelby County Airport Authority)
    ─ “Regional airlines face closings, bankruptcy,” USA Today (Aug. 20, 2012)
  • http://www.dot.gov/airconsumer/air-travel-consumer-reports
    http://transtats.bts.gov/OT_Delay/OT_DelayCause1.asp?pn=1

    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)
  • Free cash flow (FCF) is a measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as: EBIT(1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure. It can also be calculated by taking operating cash flow and subtracting capital expenditures.
  • https://www.tsa.gov/for-industry/security-fees
  • http://www.irs.gov/irb/2013-47_IRB/index.html
    http://www.irs.gov/irb/2013-47_IRB/ar11.html
    http://www.cbo.gov/publication/44964

    Source: A4A analysis of federal tax code, including IRS Revenue Bulletin 2013-47, Rev. Proc. 2013-35, Bipartisan Budget Act of 2013, and President’s FY2016 budget
  • http://www.theacsi.org/about-acsi/history
    http://www.theacsi.org/news-and-resources/press-releases/press-2016/press-release-travel-2016
    http://www.theacsi.org/index.php?option=com_content&view=article&id=147&catid=&Itemid=212&i=Airlines
    http://www.theacsi.org/index.php?option=com_content&view=article&id=148&Itemid=213
    http://www.gallup.com/poll/103237/airline-satisfaction-remains-high.aspx

    The American Customer Satisfaction Index (ACSI) is the only national cross-industry measure of customer satisfaction in the United States. This strategic economic indicator is based on customer evaluations of the quality of goods and services purchased in the United States and produced by domestic and foreign firms with substantial U.S. market shares. The ACSI measures the quality of economic output as a complement to traditional measures of the quantity of economic output.

    The ACSI was started in the United States in 1994 by researchers at the University of Michigan, in conjunction with the American Society for Quality in Milwaukee, Wisconsin, and CFI Group in Ann Arbor, Michigan. The Index was developed to provide information on satisfaction with the quality of products and services available to consumers. Before the ACSI, no national measure of quality from the perspective of the user was available.

    The ACSI model was derived from a model originally implemented in 1989 in Sweden called the Swedish Customer Satisfaction Barometer (SCSB). Claes Fornell, ACSI founder and Chair of ACSI LLC, developed the model and methodology for both the Swedish and American versions. Hailed as the "Father of Customer Satisfaction," Claes Fornell is without question one of the most influential scholars in marketing science today. His name can be found on 3 of the top 15 most academically cited papers from the leading sources in the field—Journal of Marketing, Journal of Marketing Research, Marketing Science, and Management Science.

    The ACSI was first published in October 1994, with updates released each quarter. Starting in May 2010, ACSI data became available to the public on a more frequent basis, with results released multiple times per year. This change allows stakeholders to focus more in-depth on different segments of the economy over the entire calendar year. The national ACSI score continues to be updated quarterly on a rolling basis, factoring in data from 10 economic sectors and 43 industries.
  • https://www.dhs.gov/trusted-traveler-comparison-chart
    David Lim (TSA), Garret Conover (CBP)
  • A4A Industry Review and Outlook

    1. 1. February 23, 2017 U.S. Airlines: Allocating Capital to Benefit Customers, Employees and Investors
    2. 2. Commercial Aviation Supports 5% of U.S. GDP and More Than 10M U.S. Jobs For Every 100 Airline Jobs, Approximately 300 Jobs Are Supported Outside the Industry airlines.org2 Source: FAA, The Economic Impact of Civil Aviation on the U.S. Economy (Nov. 2016) » In 2014, economic activity (output) in the United States attributed to commercial aviation-related goods and services totaled $1.54 trillion, generating 10.2 million jobs with $427 billion in earnings. » Commercial aviation contributed $846 billion (4.9 percent) to U.S. GDP, the value-added measure of overall U.S. economic activity. Terms • Commercial aviation – airlines, air couriers, airports, airframe/engine/parts/avionics manufacturers, visitor expenditures, R&D, travel arrangements. • Output – the total economic value of goods and services produced. • Earnings – wages/salaries/other labor income, benefits, and proprietors’ income paid to all employed persons who deliver final demand output and services. • Jobs – the number of people employed in the industry that provide civil-aviation services, manufacture aircraft and aircraft engines, or work in other industries that are indirectly affected by activity in the civil air transportation sector.
    3. 3. U.S. Job Growth Averaging ~180K per Month airlines.org 1.7 2.4 2.6 1.6 2.3 0 1 2 3 2013 2014 2015 2016 2017F Real GDP Growth Rate (% CAGR) 3 Monthly Employment Growth (000) 192 250 226 187 227 0 100 200 300 2013 2014 2015 2016 Jan Sources: BEA, BLS, Federal Reserve and IHS Economics; U.S. GDP real annual average growth rate (%), U.S. nonfarm payroll employment growth (month-over-month, in 000s, seasonally adjusted), U.S. disposable personal income per capita (chained 2009 dollars, SAAR); U.S. household net worth in current dollars, not seasonally adjusted 36.4 37.4 38.4 39.2 36 37 38 39 40 41 2013 2014 2015 2016 Thousands Real ($2009) Personal Incomes ($000) Household Net Worth ($ Trillion, NSA) 78.8 83.7 87.1 87.8 88.6 90.2 76 80 84 88 92 96 2013 2014 2015 1Q16 2Q16 3Q16
    4. 4. With Personal Incomes Outpacing the Price of Air Travel, Americans Can Purchase ~2.5 Times the Amount of Air Travel They Could at the Outset of Deregulation Adjusted for Inflation, Domestic Air Travel Remains 40+ Percent Below 1980 Levels airlines.org 0.0 0.5 1.0 1.5 2.0 2.5 3.0 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 Fare Fare + Ancillary Domestic R/T Airfare as Share (%) of Per-Capita Disposable Personal Income 4 Source: A4A analysis of data from BEA, BLS and BTS Data Bank 1B (10% sample of tickets for all cabins and fare basis codes) $300 $350 $400 $450 $500 $550 $600 $650 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 Fare Fare + Ancillary Domestic R/T Airfare Adjusted for Inflation (in CY2015 Dollars)
    5. 5. Average Round-Trip Airfare Down $27.82 (7%) Since 2014; Fees Up 37¢ (1.6%) Airfare Has Constituted 94 Percent of Total Ticket Price in Each of the Past Six Years airlines.org5 Source: A4A analysis of data from BTS Data Bank 1B (10% sample of tickets: all cabins and fare basis codes) and DOT Form 41 315.12 342.95 354.63 362.91 376.24 363.23 348.89 $300 $310 $320 $330 $340 $350 $360 $370 $380 2010 2011 2012 2013 2014 2015 1H16 Airfare* (~94% of total) 21.77 21.71 22.38 22.41 22.87 22.87 $0 $5 $10 $15 $20 $25 2010 2011 2012 2013 2014 2015 Ancillary* (~6% of total) Airfare + Ancillary* 336.89 364.66 377.00 385.32 399.11 386.11 371.79 $300 $320 $340 $360 $380 $400 2010 2011 2012 2013 2014 2015 1H16 * Domestic round-trip average
    6. 6. Product (Unit) 2000 2015 % ∆ Public College Tuition & Fees (Net of Grant Aid & Tax Benefits) $1,020 $3,730 265.7 Jet Fuel (Gallon, Price Paid by U.S. Airlines) $0.807 $1.856 129.9 Walt Disney World® (One-Day Pass, Adult) $46 $105 128.3 Major League Baseball Game (Nonpremium Ticket) $16.22 $28.84 77.8 National Football League Game (Nonpremium Ticket) $48.97 $85.83 75.3 Prescription Drugs (BLS Index) 285.4 479.315 67.9 Gasoline (Gallon, Unleaded) $1.51 $2.45 62.1 Disposable Personal Income per Capita (Annual) $26,206 $42,026 60.4 Movie Ticket (One Adult) $5.39 $8.43 56.4 Single-Family Home (Existing) $143,600 $223,900 55.9 Food & Beverage (BLS Index) 168.4 246.798 46.6 U.S. Consumer Price Index (CPI-U)1 172.2 237.017 37.6 Vehicle (New) $24,923 $33,419 34.1 Air Travel (R/T Domestic Fare + Ancillary)2 $314.64 $386.11 21.8 Air Travel (R/T Domestic Fare Only)2 $317.13 $363.23 15.4 Apparel: Clothing/Shoes/Jewelry (BLS Index) 129.6 125.903 (2.9) Television (BLS Index) 49.9 3.378 (93.2) Relative to Most Goods/Services (and Jet Fuel), Air Travel Remains a Bargain This Century, U.S. Inflation and U.S. Personal Incomes Have Outpaced Domestic Airfare 1. Bureau of Labor Statistics “measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. 2. A4A analysis of data collected by BTS – excludes taxes; “ancillary” includes revenue from reservation changes/cancellations and baggage airlines.org6 Outpaced Inflation Lagged Inflation
    7. 7. Within the Travel & Tourism Sector, Airfare Remains One of the Better Bargains In Contrast to Air Travel, the Price of a Day at Disney Rose 30-Fold From 1971 to 2015 airlines.org7 Sources: A4A, BTS Data Bank 1B, allears.net, “How theme parks like Disney World left the middle class behind” (Drew Harwell, The Washington Post, June 12, 2015) and “Disney Introduces Demand-Based Pricing at Theme Parks” (Brooks Barnes, The New York Times, Feb. 27, 2016) $4 $105 $0 $20 $40 $60 $80 $100 $120 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 Magic Kingdom® ($/day) 5.54 14.07 0 2 4 6 8 10 12 14 16 18 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 U.S. Carrier Airfare (¢/mile) 0 500 1000 1500 2000 2500 3000 3500 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 2019 U.S. CPI Disney Airfare Price Index (1971 = 100) 30X 2.5X 5.9X 1971-1978: 5.7% CAGR 1978-2015: 1.5% CAGR
    8. 8. Americans Have Seen Increases in the Average Price of Food, Shelter, Public Transportation and Entertainment Over The Past Two and a Half Decades airlines.org8 Source: Federal Reserve Bank of St. Louis, National Association of Relators, National Association of Theatre Owners, Team Marketing Report 125 150 175 200 225 250 275 300 1990 1994 1998 2002 2006 2010 2014 2018 Food Transit +88% +87% Food & Public Transit $0 $10 $20 $30 $40 1990 1994 1998 2002 2006 2010 2014 2018 +232% Movie Tickets PriceIndex:1982-84=100 $80 $100 $120 $140 $160 $180 $200 $220 $240 1990 1994 1998 2002 2006 2010 2014 2018 +132% Housing (Existing Home, $000) $4 $6 $8 $10 1990 1994 1998 2002 2006 2010 2014 2018 +100% Baseball (MLB) Tickets
    9. 9. Over the Past 25 Years, the Price of Purchasing Food, Taking the Bus/Train, or Going to the Movies/Ballpark Has Significantly Outpaced the Price of Taking a Trip by Air airlines.org9 Source: A4A, BTS Data Bank 1B, Federal Reserve Bank of St. Louis, National Association of Theatre Owners, Team Marketing Report 75 100 125 150 175 200 225 250 275 300 325 350 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Airfare* Food Transit Baseball (MLB) Movie * Domestic round-trip average, including bag and change fees PriceIndex:1990=100 % Change Baseball Game +232 Movie Ticket 100 Public Transit 88 Food 87 Airfare* 34
    10. 10. U.S. Passenger Airlines Set Multiple Traffic and Capacity Records in 2015 airlines.org10 466 452 475 489 529 548 581 595 613 636 666 622 614 647 704 739 745 770 743 704 720 731 737 743 763 798 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Passengers Enplaned (Millions) – Jan-Dec Revenue Passenger Miles (Billions) – Jan-Dec 458 448 479 490 519 541 579 603 618 652 693 652 642 657 734 779 797 829 812 769 798 814 823 840 863 902 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Available Seat Miles (Billions) – Jan-Dec 733 715 753 772 784 807 835 857 873 918 957 931 895 895 972 1,003 1,006 1,038 1,021 957 973 993 995 1,011 1,034 1,077 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Load Factor (Percent) – Jan-Dec 62.4 62.6 63.6 63.5 66.2 67.0 69.3 70.4 70.7 71.0 72.4 70.0 71.8 73.5 75.5 77.6 79.2 79.9 79.5 80.4 82.1 82.0 82.8 83.1 83.4 83.8 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Source: U.S. Bureau of Transportation Statistics T1, systemwide scheduled service on U.S. airlines
    11. 11. In First 11 Months of 2016, Capacity Outpaced Traffic, Driving Load Factor Down airlines.org11 680.7 698.9 731.8 755.2 2013 2014 2015 2016 Passengers Enplaned (Millions) – Jan-Nov Revenue Passenger Miles (Billions) – Jan-Nov Source: U.S. Bureau of Transportation Statistics T1, systemwide scheduled service on U.S. airlines 770.1 790.7 827.4 855.2 2013 2014 2015 2016 Available Seat Miles (Billions) – Jan-Nov 927.7 947.6 986.6 1,024.5 2013 2014 2015 2016 Load Factor (Percent) – Jan-Nov 83.00 83.46 83.85 83.47 2013 2014 2015 2016 +3.2%+3.8% +3.4%(0.37)
    12. 12. In 2015, U.S. Flights Needed to Fill 2 of Every 3 Seats to Avoid Losing Money Actual Load Factors Steady Over Past 5 Years, But Breakeven Requirement Has Fallen airlines.org Source: A4A Passenger Airline Cost Index 56.7 62.6 66.2 81.3 81.0 80.9 77.5 75.6 66.8 83.4 83.8 50 55 60 65 70 75 80 85 90 1971-1980 1981-1990 1991-2000 2001-2010 2011 2012 2013 2014 2015 Breakeven Actual LoadFactor(%) 12
    13. 13. In the Deregulated Period, U.S. Airline “Earnings” Have Been Cyclical and Volatile Cumulatively, Airlines Have Recorded Net Income of $5.6B (or 0.2% of Revenues) airlines.org Source: A4A Passenger Airline Cost Index 1.8 (11.4) 20.6 (65.0) 59.7 (80) (60) (40) (20) 0 20 40 60 80 1979-1989 1990-1994 1995-2000 2001-2009 2010-3Q16 NetIncome($Billions) 13 0.4%Net Margin: (3.3%) 3.8% (6.3%) 5.6%
    14. 14. Since the Great Recession,* U.S. Airlines Have Been Closing the Gap to Average U.S. Corporate Profitability; YTD16 Gap (14.2% vs. 15.8%) Is Narrowest on Record airlines.org Source: ATA Annual Reports (1970-1976), A4A Passenger Airline Cost Index (1977-present); Bureau of Economic Analysis NIPA Table 1.14 (25) (20) (15) (10) (5) 0 5 10 15 20 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 YTD16 2018 2020 U.S. Recession U.S. Passenger Airlines All U.S. Corporations Pre-Tax Profit Margin (%) 14 * Dec-2007-Jun-2009
    15. 15. Airlines Continue to Strive for Solid Profitability Across the Business Cycle In Current U.S. Business Cycle, Airline Margins Are Less Than Half the S&P 500 Average airlines.org 31.1 28.3 23.0 17.4 13.8 4.6 0 5 10 15 20 25 30 35 AAPL MCD DIS SBUX SPX* U.S. Airlines 15 Sources: Standard & Poor’s (S&P) and A4A Passenger Airline Cost Index plus company SEC filings Apple McDonald’s Starbucks S&P500 * Excludes unusual items and reflects 2011-2015 Pre-Tax Profit Margin (%) for 2010-2015 Disney
    16. 16. airlines.org16 30 40 50 60 70 80 90 100 110 120 130 140 150 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15 Jan-20 Source: Board of Governors of the Federal Reserve System (https://research.stlouisfed.org/) Strengthening U.S. Dollar Is a Headwind for U.S. Carrier International Revenues Downward Pressure on Foreign Point-of-Sale and Passenger Yield (Cents per RPM)U.S.DollarIndex:Jan.1997=100* * Trade-weighted
    17. 17. Steadier Oil and Jet-Fuel Prices Boosting Seats, Wages and Reinvestment Every Penny per Gallon per Year Equates to ~$190M in U.S. Airline Industry Fuel Expenses EIA Spot Price* of Crude Oil/Barrel (Brent) airlines.org17 0.61 0.85 2.15 3.00 3.06 2.92 2.69 1.52 1.25 1.52 $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 1991 2000 2010 2011 2012 2013 2014 2015 2016 2017 EIA Spot Price* of Jet Fuel/Gallon (U.S. Gulf) 20 29 80 111 112 109 99 52 44 55 $0 $20 $40 $60 $80 $100 $120 1991 2000 2010 2011 2012 2013 2014 2015 2016 2017 Source: A4A and Energy Information Administration (http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm) * 2017 reflects year-to-date average
    18. 18. First Nine Months of 2016: Revenues Down 1.7% on 5.7% Lower Fares1 (3.4% More Traffic); Expenses Down 0.7% on 22% Lower Fuel; Labor, Other Expenses Rising airlines.org18 % Change YOY in Operating Revenues 3.4 (5.7) (13.0) 5.9 (1.7) Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, Virgin America and United % Change YOY in Operating Expenses 8.5 (22.0) 0.8 1.6 6.4 4.9 (0.7) 1. Yield = fare per mile (cents per RPM) 2. Sale of frequent flyer award miles to airline business partners, pet transportation, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc. 3. Professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, nonfuel payments to regionals
    19. 19. airlines.org19 Faster-Falling Revenues Drove Modest Reduction in U.S. Airline Profitability Pre-Tax Profit Margin of 15.5 Percent Remains in Line with Average for U.S. Companies $120.7 $118.6 2015 2016 Operating Revenues (Billions) – Jan-Sep $18.9 $18.4 2015 2016 Pre-Tax Income (Billions) – Jan-Sep 15.6 15.5 2015 2016 Pre-Tax Profit Margin (%) – Jan-Sep Operating Expenses (Billions) – Jan-Sep $99.3 $98.6 2015 2016 Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
    20. 20. In YTD 3Q, U.S. Airlines* Posted Respectable Margins, Averaging 15.5% Before Taxes U.S. Passenger Airline* Profitability Was Substantially Below Starbucks/McDonald’s/Apple airlines.org 31.5 28.227.6 26.3 24.8 19.118.4 15.5 7.0 0.3 Altria Disney McDonald´s Apple CSX Starbucks Comcast Airlines* Ford Chipotle 20 * A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America YTD 3Q16 Pre-Tax Profit Margin (% of Operating Revenues) $18.3B $36.8B
    21. 21. Investment Grade1 (>= BBB-) Source: Standard and Poor’s; “Guide to Credit Rating Essentials: What are credit ratings and how do they work?” airlines.org21 Johnson & Johnson, Microsoft AAA ExxonMobil, USG AA+ Google, Wal-Mart AA GE, Toyota AA- UPS A+ McDonald’s, PepsiCo, Starbucks, Target A Amtrak, BP A- Ryanair, eBay BBB+ FedEx, Ford, Marriott, SWA BBB Lufthansa, Qantas, WestJet BBB- Alaska, Delta, Turkish BB+ Avis, British Airways BB AC, ALGT, AAL, HA, JBLU, LATAM, UAL, Sabre BB- Virgin Australia, Hertz B+ SAS B Gol Linhas Aereas (GOL) CCC Speculative2 Grade (< BBB-) 1 Describes issuers with relatively high levels of creditworthiness and credit quality 2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk Airline Creditworthiness Remains Far From Stellar Per S&P, Only Two U.S. Passenger Airlines Have Investment-Grade Credit “Standard & Poor’s ratings express the agency’s opinion about the ability and willingness of an issuer…to meet its financial obligations in full and on time.” Passenger Airline
    22. 22. 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, WestJet AC ALK ALGT AAL DAL HA JBLU UAL None AA ± A ± BBB ± BB ± B ± Strong Credit Ratings Allow Airports to Access Capital Markets at Preferred Rates airlines org22 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 quality 2 Describes issuers with ability to repay but facing significant uncertainties, such as adverse business or financial circumstances that could affect credit risk
    23. 23. From 2000-2015, U.S. Airlines’ Fuel Bill Doubled Despite Reducing Consumption Average Systemwide Price Paid by U.S. Carriers Rose 130% from 2000 to 2015 airlines.org $16.4 $32.2 2000 2015 ... Incurring More Costs Billion USD per Year Source: BTS (Form 41 P-12(a) for U.S. airlines) $0.81 $1.86 2000 2015 But Due to Higher Prices ... Avg. Price Paid per Gallon Systemwide Source: BTS (Form 41 P-12(a) for U.S. airlines) 56.2 53.1 2000 2015 Source: BTS (T2: 921) for U.S. airlines Using Less Fuel ... Million Gallons per Day 23
    24. 24. 15.3 43.2 60.2 17.5 18.3 14.6 43.2 22.1 17.5 1994-2000 2001-2005 2006-2010 2011 2012 2013 2014 2015 2016 After 2014 Spike, Jet Fuel Price Volatility Subsided in 2015-2016 Standard Deviation of U.S. Gulf Coast Jet Fuel Spot Price (Cents per Gallon) airlines.org24 Source: U.S. Energy Information Administration
    25. 25. Like Other Responsible Businesses, Airlines Are Focused on Balanced Allocation of Capital to Benefit All Stakeholders: Customers, Employees and Investors airlines.org25  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)
    26. 26. U.S. Airlines Are Putting More Than $20 per Passenger* Right Back Into the Product Use of Operating Cash from 2010-3Q16 Included $78B of Capital Reinvestment airlines.org26 * SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America $12.9B Enhance Product $11.4B Reward Shareholders $5.6B Retire Debt YTD 3Q162010-2015 $64.9B Enhance Product $17.4B Reward Shareholders $54.3B Retire Debt
    27. 27. airlines.org27 Following Enormous Losses of 2001-2009, U.S. Airlines Have Retired $60B in Debt Adjusted Net Debt Now Just 32% of Operating Revenues, Down from 45% in 2010 Source: SEC filings of AAL/ALGT/AAL/DAL/HA/JBLU/LUV/SAVE/UAL/VA $0 $2 $4 $6 $8 $10 $12 2010 2011 2012 2013 2014 2015 YTD16 Thousands Payments on Debt* (Billions) Debt** as % of Operating Revenues Average = $9B per year 45.3 31.6 25 30 35 40 45 50 2010 2011 2012 2013 2014 2015 ** Includes 7x annual aircraft rents (capitalized operating leases) * Payments on long-term debt and capital lease obligations
    28. 28. Improving Finances Enabling Significant Reinvestment in Customer Experience YTD 3Q 2016 Capital Outlays Averaged $1.43B per Month, Exceeding 2015 Rate airlines.org28 1.29 1.15 0.64 0.55 0.49 0.43 0.55 0.82 1.04 1.16 1.41 1.43 2000 2001 2002 2003-08 2009 2010 2011 2012 2013 2014 2015 YTD16 * SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America U.S. Passenger Airline* Capital Expenditures ($ Billions per Month)
    29. 29. Improving Airline Finances Translating to Customer Benefits airlines.org29 “The recent wave of consolidation has meant higher profits and more stability…, which has led airlines to invest in technology, new airplanes and better customer service… ‘A healthy airline industry means a better flying experience overall.’” -- “Rick Seaney, FareCompare.com, in “AMR Stands to Gain Vast Route Network,” Wall Street Journal, Feb. 7, 2013 “What we’re seeing in airlines is what we’ve seen in railroads, telecom, and trucking... You’ll have fewer crises, fewer bankruptcies, more predictability, more stability.” -- Clifford Winston, Senior Fellow, Brookings Institution, Christian Science Monitor, Feb. 14, 2013
    30. 30. Improving Finances Enabling Significant Reinvestment in Customer Experience airlines.org30 » New or refurbished aircraft, larger overhead bins for luggage » Availability of lie-flat seating with AC power and USB, proliferation of Wi-Fi and inflight entertainment » Expanded route networks (scope and frequency) and schedules (seat growth) » Improved airport check-in areas, lounges, gate amenities, baggage systems, ground equipment » Continued development and roll-out of mobile technology and website/kiosk functionality » Increasing operational reliability (controlled for weather conditions) » Enhanced tools (computers, tablets, software) and training for customer-contact employees
    31. 31. 2,546 2,451 2,292 2,285 2,294 2,259 2,274 2,289 2,366 2,454 2,510 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H17 As Airlines See Higher Returns on Capital, Customers Are Seeing More Seats Domestic Supply Approaching Pre-Recession Levels; International Supply at All-Time High airlines.org Domestic USA (Thousand Daily Seats) 31 Source: Innovata (via Diio Mi) published schedules as of Feb. 17, 2017, for all airlines providing scheduled passenger service from U.S. airports to all destinations 288 292 275 282 292 299 310 330 351 368 388 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H17 International (Thousand Daily Seats)
    32. 32. In Addition to Expanding Schedules, Airlines Are Deploying Larger Aircraft Replacement of 50-Seaters With Larger Regional Jets Is Biggest Driver of Jump airlines.org32 38 37 36 35 32 27 25 23 15 15 15 16 18 20 21 22 48 48 49 49 51 53 54 55 2010 2011 2012 2013 2014 2015 2016 2017 1-50 Seats 51-100 Seats >100 Seats % of Domestic Departures by Aircraft Size1 Source: Innovata (via Diio Mi) published schedules as of Jan. 27, 2017 105.5 106.5 106.3 107.7 111.1 116.0 116.7 118.0 2010 2011 2012 2013 2014 2015 2016 2017 Average Seats per Domestic Departure2 1. All carriers 2. AAL, ALGT, ALK, DAL, HA, JBLU, LUV, SAVE, UAL networks
    33. 33. Sources: BTS and DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports) airlines.org33 U.S. Airlines Saw Continued Improvements in DOT Operational Metrics in 2016 Gains Driven by Investments in Aircraft, Systems, Procedures, Staffing 97.82 98.46 98.83 2014 2015 2016 Flight Completion Factor (%) – Jan-Dec 99.64 99.68 99.73 2014 2015 2016 Properly Handled Bag Rate (%) – Jan-Dec 0.92 0.76 0.62 2014 2015 2016 Oversales per 10,000 Customers – Jan-Dec On-Time Arrival Rate (%) – Jan-Dec 76.25 79.92 81.42 2014 2015 2016Best since 1992 Best ever recorded Best since 2012 Best ever recorded
    34. 34. How’s the Weather Affecting U.S. Airport Operations? http://airlines.org/data/current-operation-status-for-us-airports/
    35. 35. Heard on the Street… airlines.org35 “With airlines in the U.S. now generating acceptable returns, their ability to reinvest in their products has been greatly enhanced. Today’s traveler is likely to check in via smart phone, monitor the upgrade list in real time, board and enjoy a sufficiently sized overhead, and pass the time en route surfing the Internet. There is no way any of this would have been possible had the industry not found its way to firmer financial footing. For those in premium cabins, long gone are the EZ-boy recliners requiring a ‘double excuse me’ in order to get to the aisle. Today’s business traveler is likely to enjoy direct aisle access and a lie-flat seat suitable for sleeping, even on transcon flights. Absent the industry’s financial turnaround, these benefits simply would not be available.” -- Jamie Baker, Managing Director, Global Equity Research, J.P. Morgan, Feb. 28, 2014 Jamie Baker is a Research Analyst at J.P. Morgan. His views may not be representative of others at the Company. For disclosures related to companies that Mr. Baker covers, please see https://jpmm.com/research/disclosures
    36. 36. U.S. Airline Industry Headcount Ended 2016 at Highest Level Since 2000 Year-End Full-Time + Part-Time Employees at U.S. Passenger and Cargo Airlines (000s) airlines.org36 Source: Bureau of Transportation Statistics – https://www.transtats.bts.gov/Employment/ 753.6 666.8 649.2 612.0 624.8 611.0 602.8 621.2 587.3 563.7 568.1 583.4 582.7 583.9 594.3 614.8 685.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
    37. 37. In 2016, U.S. Passenger Airline Jobs Averaged Highest Level Since 2007 December 2016 Was 38th Consecutive Month of YOY Gains airlines.org37 Source: Bureau of Transportation Statistics for scheduled U.S. passenger airlines 520.6 413.1 407.6 385.9 378.3 395.5 411.1 2000 2007 2008 2009 2010 2015 2016 Full-Time Equivalent (FTE) U.S. Scheduled Passenger Airline Employees (000s)
    38. 38. U.S. Passenger Airline Job Growth Is Exceeding Overall U.S. Job Growth airlines.org Source: Bureau of Labor Statistics and Bureau of Transportation Statistics (2) (1) 0 1 2 3 4 5 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Year-Over-YearChange(%) U.S. Passenger Airlines (FTEs) U.S. Nonfarm Jobs 38
    39. 39. U.S. Airlines* Continue to Pump More Wages and Benefits into the Economy Airlines* Spent $3.7 Billion/Month on the Workforce in 2016 – Up 44 Percent from 2010 airlines.org39 2.55 2.61 2.73 2.76 2.99 3.35 3.66 2010 2011 2012 2013 2014 2015 2016 * SEC filings of Alaska/Virgin America, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United Total Employee Wages and Benefits* ($ Billions per Month)
    40. 40. U.S. Passenger Airline Wages Averaged 38% More Than U.S. Private Sector in 2015 From 2010 to 2015, Airline Wages Rose 29% (More Than Double 13% for Overall USA) airlines.org40 Source: BEA NIPA Table 6.6D and A4A Passenger Airline Cost Index $51.9 $53.5 $54.9 $55.4 $56.4 $58.7 $62.6 $63.1 $67.3 $70.0 $74.5 $80.9 $84.4 $50 $55 $60 $65 $70 $75 $80 $85 $90 2010 2011 2012 2013 2014 2015 YTD16 2017 Thousands USA* Airlines Wages and Salaries (000) per Full-Time Equivalent Employee (FTE) * For al private industries +38% N/A
    41. 41. airlines.org41 As U.S. Airlines Generate More Cash from Operations, They Are Better Positioned Not Only to Fund Capital Improvements But Also to Enhance Shareholder Value Source: SEC filings of Alaska/Allegiant/American/Delta/Hawaiian/JetBlue/Southwest/Spirit/United/Virgin America CashFlow(Billions) $4.5 $3.0 ($0.0) $0.6 $2.5 $11.1 $28.1 -$5 $0 $5 $10 $15 $20 $25 $30 2010 2011 2012 2013 2014 2015 Free* (FCF) Operating * Operating cash flow minus capital expenditures
    42. 42. airlines.org42 In YTD 2016, U.S. Airlines Continued Efforts to Retain and Lure New Equity Investors, Returning $11.4B to Shareholders Via Stock Buybacks ($10.5B) and Dividends ($912M) Stock Repurchases (Billions) Dividends (Millions) $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2010 2011 2012 2013 2014 2015YTD16 $0 $2 $4 $6 $8 $10 $12 2010 2011 2012 2013 2014 2015 YTD16 * SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
    43. 43. U.S. Federal Commercial Aviation Tax Burden* Reached Record-High $23.1B in 2016 Sources: A4A, CBP, EPA, FAA, OMB and TSA * Federally levied/approved commercial aviation taxes/fees only; some taxes/fees shown include collections from non-U.S. carriers; PFC figure is FAA estimate for CY2016 3,694 795 607 607 3,130 9,910 3,396 476 406 94 23,115 FY 2016 Collections ($Millions) from Airlines and their Customers airlines.org43 ~$63M/Day Dept. of Homeland Security U.S. Airports FAA (Airport & Airway Trust Fund)
    44. 44. The Administration Is Pushing to Increase the Government’s Share of Each Ticket Growing Take of $300* Itinerary Leaves Less Revenue for Carriers to Reinvest 2014-2017 9/11 Fee Hike 21% ($63)* 1971-1972 AATF Begins 7% ($22)* 1992-1993 PFC Begins 13% ($38)* Taxes Airfare ** Based on proposed increases in President’s FY2017 budget * Sample itinerary is a $300 domestic round trip with one stop each way and maximum passenger facility charge (PFC) per airport; total ticket price includes taxes airlines.org44 Proposed** POTUS FY2017 26.5% ($80)* AATF = Airport and Airway Trust Fund 2002 9/11 Fee Begins 19% ($58)*
    45. 45. U.S. Airports Have Ample/Multiple Resources from Which to Fund Improvements airlines.org45 9.2 9.1 8.7 9.2 10.4 10.5 11.5 12.0 10.7 10.6 11.6 12.6 12.9 13.5 14.3 14.4 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 AATF* Revenues ($ Billions) – All-Time High AATF* Unobligated Balance ($ Billions) – Nearly $6B 7.3 4.8 3.9 2.4 1.9 1.8 1.5 1.4 0.3 0.7 1.4 2.8 4.9 5.8 5.6 5.7 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Source: A4A, FAA, Standard & Poor’s; PFC collections exclude any compensation received for collecting/handling/remitting U.S. Airport Revenues ($ Billions) – All-Time High U.S. Airport Credit Ratings (per S&P) – Investment Grade * Airport and Airway Trust Fund 1.6 1.9 2.1 2.0 2.2 2.5 2.8 2.6 2.5 2.7 2.7 2.8 2.8 2.9 3.0 19.4 19.0 18.6 18.2 19.6 21.0 22.6 23.9 20.9 20.7 21.3 21.4 22.7 23.8 23.7 21.0 20.9 20.6 20.2 21.8 23.5 25.5 26.5 23.4 23.4 24.1 24.2 25.5 26.6 26.8 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 PFC (net) Non-PFC 16 49 14 0 AA ± A ± BBB ± Lower
    46. 46. 2016 Airline Customer Satisfaction Tied All-Time High airlines.org 72 75 80 50 55 60 65 70 75 80 85 2000 2002 2004 2006 2008 2010 2012 2014 2016 ACSI ex-ULCCs ACSI All Ipsos Up 10 points from 2008-2016 Note: ACSI and its logo are Registered Marks of the University of Michigan; see http://www.theacsi.org/the-american-customer-satisfaction-index Note: Scale = 0 to 100; ACSI for airlines commenced in 1994 “‘New planes, more options for in-flight entertainment, and the return of free snacks have resulted in higher passenger satisfaction.’ Ticket prices have fallen, and ACSI data show passengers are perceiving a better value for their money.” 15 16 JetBlue 81 80 Southwest 78 80 Alaska 75 77 American 66 72 Delta 71 71 United 60 68 Frontier 58 66 Allegiant 65 65 Spirit 54 62 -- “ACSI: Better In-Flight Experience Increases Passenger Satisfaction” (April 26, 2016) 46
    47. 47. J.D. Power: North American Airline Satisfaction Climbs to 10-Year High airlines.org 692 687 668 658 673 683 681 695 712 717 726 650 660 670 680 690 700 710 720 730 740 750 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Up 68 points from 2009-2016 Source: J.D. Power 2016 North America Airline Satisfaction Study (http://www.jdpower.com/press-releases/2016-north-america-airline-satisfaction-study) “The airlines are clearly listening to their passengers and are taking action. As a result, we see satisfaction rising across all touch points of the passenger experience. Airlines are making positive strides by adding value to its products and services with newer and cleaner planes, better in-flight services, improving on-time arrivals and bumping fewer passengers from their flights.” -- Rick Garlick, J.D. Power (May 11, 2016) Note: Scale = 0 to 1000 47
    48. 48. Flyer Satisfaction Rises Markedly With Enrollment in Expedited Screening Programs Airlines and U.S. Government Have Collaborated to Increase Enrollment Significantly airlines.org 36% 50% 68% Neither TSA Pre✓® Global Entry % of 2016 Flyers Indicating “Very Satisfied” With Overall Air Travel Experience Sources: Ipsos survey of American adults (January 2017), Transportation Security Administration, Customs and Border Protection 48 Millions of Persons Enrolled in DHS Trusted Traveler Programs (Dec. 31) 0.8 2.0 4.2 3.1 4.0 5.3 2014 2015 2016 TSA Pre✓ Global Entry/NEXUS/SENTRI
    49. 49. 2016 Operational and Financial Recap: U.S. Passenger Airlines airlines.org49 » YTD 3Q16 saw continuation of consummate airline safety performance, as well as significant year-over-year improvements in operational reliability » Declining fares exceeded traffic gains to drive operating revenues lower, but reduced fuel costs helped offset increases in labor, airport, aircraft and other expenses to drive modestly reduced profitability, with airlines realizing a pre-tax margin of 15.5%  Airline profitability continued to lag that of Starbucks, McDonald’s and Apple » Among other uses beneficial to stakeholders, cash flow generated during this period allowed U.S. airlines to retire expensive debt; acquire new, larger aircraft; deploy more seats in the marketplace; boost staffing and wages; and reward investors » Sharp airfare declines and U.S. job growth are fueling record passenger volumes » Market research affirms that participation in expedited screening programs markedly improves the air travel experience; enrollment rising accordingly
    50. 50. www.airlines.org

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