U.S. Airlines and the Quest to Reinvest

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U.S. airlines' year-to-date 2013 financial review and Thanksgiving air travel forecast.

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U.S. Airlines and the Quest to Reinvest

  1. 1. U.S. Airlines and the Quest to Reinvest Year-to-Date 2013 Financial Review and Thanksgiving Air Travel Forecast John P. Heimlich Vice President & Chief Economist November 7, 2013
  2. 2. Jet Fuel Price Down from 2012 All-Time High But Highly Volatile in 2H 2013 Increase of 20 Cents in 1H, or 39 Cents in YTD 3Q, Would Have Wiped Out Earnings 29-Nov-13 15-Nov-13 1-Nov-13 18-Oct-13 4-Oct-13 20-Sep-13 6-Sep-13 23-Aug-13 9-Aug-13 26-Jul-13 12-Jul-13 28-Jun-13 $3.06 3.15 3.10 3.05 3.00 2.95 2.90 2.85 2.80 2.75 2.70 2012 2006-2010 $1.02 $0.58 1996-2000 2001-2005 $0.54 1991-1995 $2.17 $3.00 Jet Fuel Price Volatility Since 1H13 2011 Jet Fuel Spot Price per Gallon U.S. Gulf Coast Jet Fuel Source: A4A and Energy Information Administration 2 airlines.org
  3. 3. Fuel-Price Relief and Air-Travel Demand Drive Margin Gains in YTD 3Q 2013 Lower Fuel Expense Offsets Increases in All Other Operating Expense Categories YTD 3Q13 vs. YTD 3Q12 % Change Operating Revenues ($113.0B) 3.4 Operating Expenses (% of ) Net Profit Margin 0.2 Fuel (35%) at average of $3.11 w/taxes Earnings as % of OpRev 4.0 (3.4) Wages & Benefits (24%) 2.7 Landing Fees & Terminal Rents (5%) 5.9 Maintenance, Materials & Repairs (6%) 1.6 Depreciation & Amortization (4%) 6.1 Other** (26%) 0.5 Non-Op Income / (Expenses) and Tax (16.9) Subtotal Expenses ($108.5B) 0.3 (0.5) Net Profit ($4.5B) 1,354.3 YTD 3Q12 YTD 3Q13 * A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways ** Professional services, food/beverage, insurance, commissions, GDS fees, communications, advertising and promotion, utilities and office supplies, personnel expense 3 airlines.org
  4. 4. Airline Industry Profitability in 2013 Equals Half That of the S&P 500 Composite Net Profit Margin (%), Fiscal YTD 3Q 2013 Apple 27.8 Burger King 18.9 Walt Disney 15.3 Starbucks 11.2 Royal Carribean 8.8 S&P 500 Avg. 8.0 Marriott 5.0 U.S. Airlines 4.0 Ford Avis 3.7 0.7 Sources: FactSet and SEC filings for the indicated period; airlines include Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways 4 airlines.org
  5. 5. Airline Credit Ratings Continue to Lag Airports, Which Enjoy Stronger Balance Sheets All S&P-Rated U.S. Airports Enjoy Investment-Grade Credit AA ± BOS HOU* LAS LAX MSP NYC* OKC OMA PDX PHX SEA SNA WAS* 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 ONT ORD PBI PHL PIT RSW SAN SAT SDF SFO SJC SMF STL TPA TYS BBB ± ALB COS CRP FAT FNT GRR GUM MHT MOB PNS PVD PWM TUL VPS Southwest Investment Grade Alaska, Allegiant BB ± B± Delta, Hawaiian, JetBlue United, US Airways D Speculative Grade AMR Source: Standard and Poor’s * HOU = HOU/IAH; NYC = EWR/JFK/LGA; WAS=DCA/IAD 5 U S Passenger Airline airlines org
  6. 6. Even Modest Financial Recovery Enabling Significant Reinvestment in Customer At a Rate of Nearly $1B per Month, 2013 Capital Expenditures Are Highest Since 2001 » » » » Maintenance facilities and machinery Bag carousels, carts, scanners In-flight entertainment systems, wireless Computers, kiosks, mobile technology U.S. Airline* Capital Expenditures ($ Millions per Month) $965 $814 YTD 3… 201 2 $551 2011 $430 201 0 $490 $689 200 8 200 9 $653 200 7 $505 200 6 $449 $510 200 4 200 5 $551 200 3 $646 Up 125% 200 2 200 1 200 0 Aircraft, engines, winglets, spare parts Ground equipment, loading bridges Airport facilities, aircraft hangars Premium seats, new aircraft interiors $1,160 $1,356 $ Billions invested » » » » * Cash flow statements of AirTran, Alaska, Allegiant, America West, American, Continental, Delta, Hawaiian, JetBlue, Northwest, Southwest, Spirit, United, US Airways 6 airlines.org
  7. 7. A4A Projects U.S. Airlines to Carry 25M Thanksgiving-Period Passengers in 2013 Up 31,000 Passengers per Day, or 1.5 Percent, from 2012 2012 2013 Change Forecast Period Nov. 16-Nov. 27 Nov. 22-Dec. 3 Passengers: Total 24.7M estimated 25.1M projected 1.5% Passengers: Daily 2.06M estimated 2.09M projected 31K Busiest Day Sunday return Sunday return None Load Factor >85% on busiest days >85% on busiest days None n/a Source: A4A, selected sample carriers and DOT T100 segment data 7 airlines.org
  8. 8. A4A Projects Daily Thanksgiving Passenger Volumes to Range from 1.44M to 2.56M Sunday Return, Wednesday Before, Monday Return Expected to Be Three Busiest Days Projected Onboard Passengers (Millions) 2.35 2.28 2.07 1.87 2.56 2.42 2.36 2.12 2.04 1.94 1.60 HOLIDAY 1.44 Source: A4A, selected sample carriers and DOT T100 segment data Tue., 12/03 #3 Mon., 12/0 2 Sun., 12/01 Sat., 11/30 Fri., 11/29 Thu., 11/28 #1 Wed., 11/2 7 Tue., 11/26 Mon., 11/2 5 Sun., 11/24 Sat., 11/23 Fri., 11/22 #2 * Friday, Nov. 22 through Tuesday, Dec. 3 8 airlines.org
  9. 9. 4.0 1.5 2.0 0.0 (2.0) (4.0) (6.0) (8.0) 2Q14 1Q14 4Q13 3Q13 2Q13 1Q13 4Q12 3Q12 2Q12 1Q12 4Q11 3Q11 2Q11 1Q11 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 (10.0) 1Q08 % Change YOY in Seats from U.S. Airports As Airlines Begin to Generate Modest Returns on Capital, Seats Are Returning to U.S. Airports — Including Throughout 2013 and into 2014 Source: Innovata (via Diio Mi) published schedules as of Nov. 1, 2013 for all airlines providing scheduled passenger service from U.S. airports to all destinations 9 airlines.org
  10. 10. Recap » Air travel remains one of the best bargains in America » Consumers, employees, investors and the U.S. economy all are vastly better off with a financially strong industry that can cover its costs over the course of an entire business cycle and compete effectively on the global stage » Airline workers, too – and the millions of additional American workers whose jobs depend on a financially secure airline industry – are major beneficiaries » Delivering consistent (albeit slim) earnings has enabled airlines to attract new capital (investors), allowing them to make greater investments in people and technology to enhance the customer experience o The industry remains highly susceptible to the volatile nature of jet fuel prices 10 airlines.org
  11. 11. www.airlines.org

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