American Airlines
Rhett Workman
Managing Director,
Government & Airport Affairs
April 5, 2017
Industry Overview
The U.S. Airline Industry: Fundamental Change
Airlines have been
a death trap for
investors.
May 2013
November 2016: Warren’s investment firm Berkshire Hathaway
amassed a $1 billion investment in American Airlines
If a farsighted capitalist
had been present at Kitty
Hawk, he would have done his
successors a large favor
by shooting Orville down.
February 2008
Airlines Are Closing the Gap to U.S. Corporate Profitability
Source: ATA Annual Reports (1970-1976), A4A Passenger Airline Cost Index (1977-present); Bureau of Economic Analysis NIPA Table
1.14
(25)
(20)
(15)
(10)
(5)
0
5
10
15
20
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70
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YT
D16
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18
20
20
U.S. Recession
Pre-Tax Profit Margin (%) AVERAGE
Reinvestment in Customer Experience
1.29 1.15
0.64
0.47 0.43 0.55
0.82
1.04 1.16
1.41 1.43
2000 2001 2002 2003-09 2010 2011 2012 2013 2014 2015 YTD162016
* SEC filings of Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America
U.S. Passenger Airline* Capital Expenditures ($ Billions per Month)
U.S. Airlines are Putting Their Profits Back Into the Business
airlines.org
Renewing fleets, improving the product at all stages of travel
Adding capacity
Adding staff
Improving airports
Reducing debt
Returning cash to shareholders
Buying back stock
Issuing dividends
Increasing job security
Restoring/increasing employee wages and benefits
Shoring up pensions/retirement accounts
North American Airline Satisfaction Climbs to 10-Year High
692 687
668
658
673
683 681
695
712 717
726
650
670
690
710
730
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
Air Travel is Still a Great Bargain!
Source: A4A, BTS Data Bank 1B, Federal Reserve Bank of St. Louis, National Association of Theatre Owners, Team Marketing Report
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8
Airfare* Food Transit Baseball (MLB) Movie* Domestic round-trip average, including bag and change fees
Price
In
de
x: 1
99
0 =
100
% Change
Baseball Game +232
Movie Ticket 100
Public Transit 88
Food 87
Airfare* 34
American Airlines Update
American Airlines 2017 Airline of The Year
$5.3
$2.2 $2.0
$6.2
$3.2
$2.7
$5.7
$3.4 $3.2
$5.5
$3.5
$4.3
Total Capital Expenditures 2014 - 2017
Non-Aircraft Aircraft
Unprecedented Investment in Product
2014 2015 2016 2017E
$22.7 Billion
Source: SEC filings and other company guidance
Investments in Our Fleet
14.0 yrs
9.8 yrs
16.8 yrs 16.6 yrs
13.3 yrs
14.4 yrs
10.4 yrs 10.4 yrs
8
13
18
2012 2013 2014 2015 2016 2017E
Years
Average Fleet Age
By the end of 2017, we will have inducted 395 new airplanes into the fleet
since the merger, while retiring 391 older aircraft – giving us the youngest
fleet of the major airlines . . . one new plane every five days.
Source: Company filings and Ascend data
Enhanced Customer Notifications
Deliver customers the right information, at the right time, through the right channel
Dynamic Reaccom Proactive Baggage Notification
Mobile Boarding Text Updates
Enhancing our Product: Airports
LGA Terminal Rebuild
DCA Express Terminal
New lounges; refreshed airport experience
PHL OTG Boarding Gates
Planned
Completion
Lie-flat seats 2017
Lounge renovation 2018
Premium Economy 2020
Power outlets 2021
Wi-Fi 2018
Investing in the Future: Product Investments
15
Investing in Our Team
10,000 additional team members
38% average pay rate increase per team member
Implementation of profit sharing ($314M for 2016)
Elevate the Experience customer service training
Two positive space tickets for ATW Airline of the Year
Best-in-class maternity and adoption assistance program
Trust
The PHL Story
Existing PHL
UPS
Facility
Tinicum
Township
18
Runway 9R–27L
Runway 9L–27R
Runway 8–26
Terminal Complex
Delaware River
I-95
I-95
PHL – Capacity Expansion Program (CEP)
19
In 2010, the FAA approved a $7.8 billion CEP that included a new river runway
and a new terminal complex and new cargo areas
The FAA approved at $467.5 million LOI toward airfield development
PHL EIS Alternatives
Alternative B:
Parallel Runway 8-26 West
Alternative C:
Midfield Terminal
Alternative A:
Parallel Runway 8-26 East
The PHL CEP Was Based on Outdated Data Forecast
2002 (actual) 2005 2010 2015 2020
Enplaned Passengers
Air Carrier 10,986,782 11,200,000 13,350,000 15,850,000 18,650,000
Commuter 1,429,801 2,350,000 2,790,000 3,310,000 3,900,000
Total Enplaned Passengers
12,416,583 13,550,000 16,140,000 19,160,000 22,550,000
Aircraft Operations
Passenger Airlines-- Air Carrier 242,702 238,400 270,400 306,400 342,400
Passenger Airlines-- Commuter 132,586 180,000 188,000 202,000 226,000
Cargo and Air Taxi 19,732 28,600 36,600 40,600 47,600
General Aviation 67,499 60,000 63,000 66,000 69,000
Military 648 1,000 1,000 1,000 1,000
Total Aircraft Operations
463,167 508,000 559,000 616,000 686,000
Air Cargo (tons) 596,394 620,000 780,000 980,000 1,200,000
Average Aircraft Size
Air carrier 139 138 142 147 153
Commuter 38 43 48 52 54
Average Load Factor
Air carrier 65% 68% 69% 70% 71%
Commuter 57% 61% 62% 63% 64%
2016 Actual
394,022
15,059,111
CEP Passenger Forecast
Forecast
2002
(actual) 2005 2010 2020
Enplaned Passengers
Base 12,416,583 13,550,000 16,140,000 22,550,000
Low 12,416,583 12,500,000 14,000,000 19,500,000
High 12,416,583 15,270,000 18,750,000 26,400,000
Historical Forecast
Forecast Range
0
6
12
18
24
30
36
1980 1985 1990 1995 2000 2005 2010 2015 2020
Calendar Year
En
pla
ned
Pas
sen
ger
s
(milli
ons)
Base Forecast
Summary of Passenger Forecast Range
Actual Enplaned Passengers
CEP - Operations Forecast
Forecast
2002
(actual) 2005 2010 2020
Aircraft Operations
Base 463,167 508,000 559,000 686,000
Low 463,167 429,000 447,000 549,000
High 463,167 582,000 657,000 811,000
Historical Forecast
Forecast Range
0
200
400
600
800
1000
1980 1985 1990 1995 2000 2005 2010 2015 2020
Calendar Year
Airc
raft
Ope
ratio
ns
(thou
sand
s)
Base Forecast
Historical Forecast
Forecast Range
0
200
400
600
800
1000
1980 1985 1990 1995 2000 2005 2010 2015 2020
Calendar Year
Airc
raft
Ope
ratio
ns
(thou
sand
s)
Base Forecast
Summary of Operations Forecast Range
Actual Operations
FAA vs. Actual Forecasts Trending Lower
PHL Aircraft Operations which drive airfield delay are down significantly
24 March 28, 2017
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2004 2009 2014 2019 2024 2029 2034 2039 2044
Actual Operations vs. Forecasts
FINAL EIS
2010 TAF
2012 TAF
2016 TAF
Linear Trend on Actuals
Actual Operations
2014 TAF
2011 TAF 2013 TAF
The PHL Story – Operational Changes
25
380
400
420
440
460
480
500
520
540
-
5
10
15
20
25
30
35
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
To
tal Tak
eo
ffs
& L
an
din
gs
(Th
ou
san
ds
)
To
tal
Pa
ss
en
ge
rs (
Mil
lio
ns
)
Total Operations vs. Passengers (all PHL airlines)
PHL Airspace Linked to other NE Airports
27
New Runway Won’t Ease Congestion – 2008 Slide
Runway to Nowhere?
Record of Decision & Written Re-Evaluation of the NY/NJ/PHL Metropolitan Area
Airspace Redesign Final Environmental Impact Statement July 31, 2008
NY/NJ/PHL Airspace Redesign Record of Decision (ROD)
“A Capacity Enhancement Program (CEP) is on-going at PHL. As noted
in the ROD, the CEP has the potential for cumulative impacts with the
Airspace Redesign. However at the time the ROD was signed, there
was insufficient information about this evolving proposal to include it
within the study of cumulative impacts in the Airspace Redesign EIS.
The ROD for CEP is expected to be published in September 2009, and
if approved, construction would not be completed until 2020, well
beyond the 2011 full implementation date for the Airspace Redesign
CEP alternatives retain the runway geometry, and the Airspace
Redesign procedures are incorporated into the CEP analysis. Thus
potential cumulative impacts from the projects will be captured in the
environmental analysis for that proposed project.”
The PHL CEP ROD did not include the cumulative impacts raised in the
NY/NJ/PHL ROD:
“The cumulative effects of the Airspace Redesign project on PHL were
taken into consideration for the CEP EIS analysis. The CEP EIS analysis
assumed full implementation of the Airspace Redesign project because,
based on Airspace Redesign project phasing plans, changes to the
airspace around PHL will be in place by the time CEP construction is
complete.”
PHL CEP ROD – Incomplete
So What Happened?
30
Fundamental and structural changes in the Industry
Consolidation in the industry through multiple mergers
Load factors increased due to fuel crisis and recession
Aircraft up-gaging
Fleet changes due to AA and US merger
Significant decline in operations
Improvements in airspace
Airport economics
Lessons Learned
31
Airport masterplans are good: All airports should develop a masterplan to
guide future infrastructure and facility development programs in a logical,
sustainable and cost efficient manner
The masterplan is prepared by independent consultants with global expertise,
delivering plans that enable all stakeholders to expand their operations and
undertake profitable business
Airlines must be fully involved in the creation, development and review of the
masterplan
The masterplan should allow for incremental expansion of all facilities until the
ultimate capacity of the site is reached; capacity enhancement is tied to the
masterplan
No development should proceed until there is a masterplan in place
What’s Next?
32
Reassess plan for airfield and terminal development
Base new plan on realistic forecasts with meaningful triggers
Work with FAA on a plan on how the handle currently approved CEP
Figure out what to do with LOI?
Proceed with capital development at PHL that makes sense
Long Term Planning is Underway
33
Parking Garage
Connector
Support Facilities /
RON Apron / Gate V01
Duration: 4 Years
FAA Control Tower
Duration: 6 Years
CBIS Replacement
Duration: 5 Years
Headhouse
Duration: 4 Years
Terminal Garage Connector
Duration: 3.5 Years
BHS Connection to Concourse F
Duration: 3 Years
New AA & BB
Concourses
Duration: 7 Years
APM – Headhouse to
Concourse AA
Duration: 3 Years
APM – Headhouse to Concourse F
OR
Enhanced Bussing
Duration: 6 Years
Thank You