Updated August 6, 2020 Industry Review: Allocating Capital to Benefit Customers, Employees and Investors https://www.airlines.org/dataset/impact-of-covid19-data-updates/ http://airlines.org/dataset/a4a-presentation-industry-review-and-outlook/ http://airlines.org/blog/the-nature-and-status-of-u-s-airline-competition-beyond-the-80-percent-rhetoric/ https://atwonline.com/aeropolitics/op-ed-how-lower-aviation-fuel-taxes-boost-local-economies
Transcript
Updated August 6, 2020
Industry Review: Allocating Capital to Benefit Customers, Employees and Investors
Source: A4A, Bureau of Transportation Statistics, Diio by Cirium and company literature
U.S. Airlines* Facilitate the Safe and Rapid Movement of People and Goods WorldwideU.S. Passenger and Cargo Airlines Connect the World – 2019
Moving 58,000 tons of cargo
per day to/from more than 220
countries
Carrying 2.5M passengers
per day to/from nearly 80 countries
* Includes passenger/combination and cargo-only carriers
~ 750,000direct employees
Powering 28,000 flightsper day across
the globe
3
Contents
»Core» Trends in Traffic, Fares, Operations and Financial Performance
» Initiatives to Improve Profitability
» Affordability, Competition and Access to Air Travel
» Reinvestment in People and Product
» Customer Satisfaction
»APPENDIX
4
As Real Airfares Have Plunged, Growth in Flyers = 5x Growth in U.S. PopulationAncillary Services Included, 2019 Domestic Air Travel Was ~44% Cheaper Than in 1980
Source: Bureau of Economic Analysis, Bureau of Labor Statistics and Bureau of Transportation Statistics (DB1B via Airline Data Inc. and T1 scheduled service for U.S. airlines)
$695
$367
43
135
0
20
40
60
80
100
120
140
160
$0
$100
$200
$300
$400
$500
$600
$700
$800
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2022
2026
2030
Fare+Fees Possible Trips on Disposable Income
Domestic Round Trip (in 2019 Dollars)
927
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
3.0
0100200300400500600700800900
1,0001,100
1978
1982
1986
1990
1994
1998
2002
2006
2010
2014
2018
2022
2026
2030
Per CapitaM
illio
ns
Passengers per Capita Up 2.3x (+129%)
U.S. Airline Pax +237%
U.S. Population +48%
5
In 2019, U.S. Airline* Profitability Trailed U.S. Corporate Average by Three PointsPre-Tax Profit Margin (% of Operating Revenues)
1 Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United2 CSX, Norfolk Southern and Union PacificSource: Company SEC filings
34.6 28.6
21.5 16.7 13.8 13.8 12.9 12.0 11.3 9.9
6.3 6.3 0.0 0.0
(0.8)
Rai
lroad
s (2
)
McD
onal
d´s
Appl
e
Hon
eyw
ell
Dis
ney
Star
buck
s
All U
.S. C
orps
Com
cast
Cat
erpi
llar
Airli
nes
(1)
Mar
riott
Chi
potle
Nor
dstro
m
Ford
Boei
ng
6
Even in Best Years, the Profitability of U.S. Airlines Lags the U.S. Corporate AveragePre-Tax Profit Margin (%) Gap Widened in 2016-2018, But Narrowed in 2019
Source: ATA Annual Reports (1970-1976), A4A Passenger Airline Cost Index (1977-present); Bureau of Economic Analysis
(25)(20)(15)(10)(5)05
101520
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
1Q20
2022
2024
2026
2028
2030
U.S. Recession U.S. Passenger Airlines All U.S. Corporations
U.S. Airlines Continue to Strive for Solid Profitability Across the Business CycleIn Current U.S. Business Cycle, Airline Margins Are Less Than Half the U.S. Average
29.9 28.5
23.3
16.6 15.8
10.8 7.1
0
5
10
15
20
25
30
35
MCD AAPL DIS SBUX All USA CMG Airlines
Sources: U.S. Bureau of Economic Analysis, A4A Passenger Airline Cost Index and company SEC filings
McD
onal
d’s
App
le
Star
buck
s
Pre-Tax Profit Margin (%) in 2010-2019
Dis
ney
Chi
potle
8
In 2019, U.S. Airlines Saw Average Profit Margin Rise 1.7 PointsStrong Travel Demand Helped Offset Cargo Weakness and Continued Cost Pressure
Source: A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United
1. Traffic = revenue passenger miles; yield = revenue per passenger-mile flown; U.S. CPI up 1.8 percent2. Sale of frequent flyer award miles to airline business partners, transportation of pets, in-sourced aircraft and engine repair, flight simulator rentals, inflight sales, etc.3. Aircraft rents, professional fees, food/beverage, insurance, commissions, GDS fees, communications, advertising, utilities, office supplies, crew hotels, payments to regionals
Change (%) in Operating Revenues and Expenses: 2019 vs. 2018
4.7
(8.6)
4.7 4.5 6.3
(4.5)
8.2 5.4
8.0 1.7 2.5
8.2 9.9
Pre-Tax ProfitMargin (%)
Traffic up 4.1%
9
Through 2019, U.S. Airline Passenger Traffic Held Steady, But Air Cargo Volumes Weakened2020 Is An Entirely Different Animal
Sources: Bureau of Transportation Statistics T1 all services
(100)(80)(60)(40)(20)
02040
Jan-
16
Apr-1
6
Jul-1
6
Oct
-16
Jan-
17
Apr-1
7
Jul-1
7
Oct
-17
Jan-
18
Apr-1
8
Jul-1
8
Oct
-18
Jan-
19
Apr-1
9
Jul-1
9
Oct
-19
Jan-
20
Apr-2
0
Jul-2
0
Oct
-20
Jan-
21
Cargo Traffic (RTMs) Passenger Traffic (RPMs)
Change (%) YOY in Traffic* – U.S. Passenger and Cargo Airlines
* RTMs = freight, mail and express revenue ton miles; RPMs = revenue passenger miles
10
World Crude-Oil Prices Averaged $64 in 2019, Trending Materially Lower in 2020Spot Price of Brent Crude Oil ($ per Barrel)
Sources: A4A, Energy Information Administration (https://www.eia.gov/dnav/pet/pet_pri_spt_s1_m.htm) and IHS Markit
In 2019, U.S. and Foreign Airlines Offered a Record 3.16M Daily Seats From U.S. AirportsIn 2019, 2.7 Percent YOY Growth in Flights Helped Drive 3.5 Percent Growth in Seats
Sources: Diio by Cirium published schedules as of Jan. 17, 2020, for all U.S. and non-U.S. airlines
Scheduled U.S. Airport Flights/Day (000s)
24.3 24.5 24.8 25.4 26.1
2.7 2.8 2.93 3.06 3.16
2015 2016 2017 2018 2019 2015 2016 2017 2018 2019
Scheduled U.S. Airport Seats/Day (Millions)
13
Scheduled Flights From Small Community U.S. Airports* Up 10 Percent From 2015 to 2019Flights Up 14 Percent at “Small Hub” Airports and 6 Percent at “Nonhub” Airports
Sources: Diio by Cirium published schedules as of Jan. 10, 2020, for all airlines providing scheduled passenger service from U.S. airports to all destinations
Aver
age
Dai
ly F
light
s
3,707 3,072 2,458 2,801
2,805 2,372
2,199 2,322
6,512
5,443 4,657
5,123
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2005 2010 2015 2019
FAA Small Hub Airport FAA Nonhub Primary Airport
* Per https://www.faa.gov/airports/planning_capacity/passenger_allcargo_stats/categories/, U.S. airports with less than 0.25% of annual passenger boardings
Notes: Recession (Dec-2007–Jun-2009); FAA pilot qualification (1,500-hour) rule effective Jul-2013; pilot flight/duty/rest rule effective Jan-2014
Airlines Have Deployed Larger Aircraft, and Mainline-Only Carriers Have GrownRegionals Now Just 44% of Domestic Departures; Over Half of Those are Large RJs
% of Domestic U.S. Departures by Aircraft Size*
Source: Diio by Cirium published schedules as of Jan 3, 2020
45 38 27 21
8 15 20 23
37 36 27 22
11 11 25 34
2005 2010 2015 2019
≤ 50 51-100 101-150 151+
* Numbers may not add to 100 due to rounding
15
Almost All U.S. Airlines Have Migrated to Larger Aircraft DomesticallyUltra Low-Cost Carriers Operate the Most Seats per Domestic Flight
102
107 11
9 126 13
8 144 151 17
0 184 191
50
75
100
125
150
175
200
2010 2015 2019
Average Seats per Domestic Departure by Marketing Airline*
Source: Diio by Cirium schedules as of Dec. 6, 2019, for selected marketing airlines * Includes flights operated by regional/express airline partners
Domestically, Traditional U.S. Network Carriers Fly Similarly Sized Mainline EquipmentAircraft Size Varies More Widely Across Their Regional/Express Partners
159
159
160 166
76
64 67 60
0255075
100125150175
Alaska American Delta United Alaska American Delta United
2010 2015 2019
Average Seats per Domestic Departure for Traditional U.S. Network Carriers
Source: Diio by Cirium schedules as of Dec. 6, 2019
MAINLINE OPERATIONS REGIONAL PARTNER OPERATIONS
17
In 2019, Inflation-Adjusted Domestic Fares/Fees Fell for Fifth Consecutive YearFrom 2010-2019, the Real Price* of Domestic Air Travel – Including Ancillaries – Fell 7 Percent
Source: A4A analysis of DOT Data Bank 1B (all cabins and fare basis codes) and DOT Form 41 via Airline Data Inc. (airlinedata.com) * Excludes taxes; CPI rose 1.8% in 2019
Spirit Airlines Aims to Remain the Fastest Growing U.S. CarrierAt the Outset of 2020, the Company Was Targeting a Fleet of 300 Aircraft by the End of 2025
Source: Year-end active fleet data from Spirit Airlines as of Feb. 5, 2020 plus A4A estimates for 2022-2024; airports served in December from Diio by Cirium as of Nov. 15, 2019
On October 23, 2019, Spirit announced an MOU with Airbus for the purchase of 100 A320 family (A319neo/A320neo/A321neo) aircraft (plus 50 options) for delivery through 2027.
20
Smaller U.S. Carriers Are Serving More and More Domestic MarketsCompetitive Presence of Low-Cost and Ultra Low-Cost Carriers Continues to Expand
Source: Diio by Cirium schedules as of August 30, 2019, for selected marketing airlines including predecessors
74
54 50
15
48
18
99
120
102
22
6750
Alaska Allegiant Frontier Hawaiian JetBlue Spirit
2007 2019
Number of U.S. Airports Served*
* July 15-21 of each year
21
ALK/Hawaiian/JBLU/ULCCs Could Carry a Third of Domestic Passengers By 2030Global Network Carrier Share Fell From 73 Percent in 2000 to 54 Percent* in 2019
Source: DOT Data Bank 1B (each airline shown on a marketing-carrier basis and tracked with its respective merged/acquired predecessors [e.g., UA/CO]
LCCs/ULCCs and Other Non-AA/DL/UA Airlines* Now Carry Significant Share of Domestic Origin-Destination (O&D) Passengers in the Largest U.S. Metro Areas
Source: Compass Lexecon and A4A analysis of DOT Origin-Destination Survey (Data Bank 1B)
Metro Area Airport(s) 2000 2007 2018Atlanta, GA ATL 14.4 28.1 28.9Boston, MA BOS 7.8 27.1 49.5Charlotte, NC CLT 0.0 8.8 10.4Chicago, IL MDW/ORD 26.0 30.6 35.9Dallas/Fort Worth, TX DAL/DFW 27.3 26.6 36.6Denver, CO DEN 14.7 38.8 55.0Detroit, MI DTW 15.0 23.3 29.7Houston, TX HOU/IAH 34.0 30.6 42.7Los Angeles, CA BUR/LAX/LGB 35.8 43.7 50.8Miami, FL FLL/MIA 19.1 35.5 45.2Minneapolis/St. Paul, MN MSP 12.7 14.6 29.7New York, NY-NJ EWR/JFK/LGA 8.5 25.8 29.8Orlando, FL MCO/SFB 24.2 52.3 66.2Philadelphia, PA PHL 6.6 28.0 28.8Phoenix, AZ PHX 39.4 46.5 52.0St. Louis, MO STL 26.5 35.5 61.3Salt Lake City, UT SLC 23.3 34.2 30.5San Diego, CA SAN 48.5 55.0 63.4San Francisco, CA OAK/SFO 33.9 45.0 52.2Seattle, WA SEA 51.4 57.0 63.8Tampa, FL TPA/PIE 29.2 48.6 61.6Washington, DC BWI/DCA/IAD 17.5 35.7 46.0
23
Competitive Choices for Domestic Flyers Have Continued to IncreaseContrary to Some Assertions, Traffic Analysis Shows More Competitors on U.S. City Pairs
Source: Compass Lexecon analysis of DOT Origin-Destination Survey (Data Bank 1B)
3.33
3.39
3.46
2000
2010
2019
* Carrying at least 5 percent of O&D passengers in the city pair; average number of competitors is passenger-weighted across city pairs
Average Number of Competitors* on All Reported Domestic U.S. Itineraries
24
Competition in Select City Pairs: Airline Share of O&D Passengers in 2019 vs. 2007Competitive Presence of Low-Cost and Ultra Low-Cost Carriers Continues to Expand
Source: DOT Data Bank 1B (nondirectional data for year ending 3Q19) and published airline schedules via Diio by Cirium
Nonstop Service Is Available in More Domestic Air-Travel Markets Than Ever BeforeShare of Busiest Markets With a Nonstop Service Option Rose From 69% in 1990 to 90% in 2019
Source: Compass Lexecon analysis of DOT O&D, OAG and T100 and Form 298C
69.2 70.8 75.3 80.7 78.8 84.5 90.1
0102030405060708090
100
1990 1995 2000 2005 2010 2015 2019
Share (%) of Top 2000 Domestic Markets (Origin-Destination Airport Pairs) With Nonstop Service*
* Top 2000 markets accounted for 80% of domestic O&D passengers in 2019; nonstop = as at least 40 round-trip flights per quarter
26
U.S. Passenger Airline Jobs Had Increased YOY for 77 Consecutive Months Until April 2020In March 2020, Passenger Airline Employment Reached Highest Level Since February 2003
Source: Bureau of Transportation Statistics for scheduled U.S. passenger airlines
U.S. Scheduled Passenger Airline Full-Time Equivalent Employees (000s)
2010-2019+69,978 (18.5%)
2000-2010-141,367 (27%)
27
For Five Years, U.S. Passenger Airline Job Growth Outpaced Overall U.S. Job GrowthBut Both Experienced Year-Over-Year Declines in April, Breaking a Long Streak of Steady Growth
Source: Bureau of Labor Statistics (U.S. nonfarm employment, CES0000000001) and Bureau of Transportation Statistics (U.S. scheduled passenger airline FTEs)
(15)(13)(11)(9)(7)(5)(3)(1)135
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Jul-1
5
Jan-
16
Jul-1
6
Jan-
17
Jul-1
7
Jan-
18
Jul-1
8
Jan-
19
Jul-1
9
Jan-
20
Jul-2
0
Jan-
21
U.S. Passenger Airlines Overall USA
Year-Over-Year Change (%)
28
From 2010-2019, U.S. Passenger Airlines Spent $424B on the Workforce and $143B on Fleet and Other Investments While Retiring $91B in Debt and Returning $56B to Shareholders
Source: Bureau of Transportation Statistics (Form 41 filings), SEC filings (10-K annual reports) and A4A research
2010 through 2019 $ BillionsCash Flow From Operations 189
Employee Wages and Benefits 424
Fleet and Other Investments (“CapEx”) 143
Debt Retirement 91
Dividends 8
Share Repurchases 48
29
U.S. Passenger Airlines Spent $424 Billion on Employee Wages & Benefits in 2010-2019Average Compensation per Employee Rose Approximately $46K (57 Percent) From 2009-2019
U.S. Airlines Have Been Spending Billions on Planes/Facilities/Ground Equipment/TechnologyCollectively, U.S. Passenger Carriers Took Delivery of ~880 New Aircraft in 2017-2019
Source: SEC filings of Alaska, Allegiant, American, Delta, Frontier, Hawaiian, JetBlue, Southwest, Spirit, United and merged/acquired predecessors* Includes payments made for aircraft and other flight equipment, ground and other property and equipment (e.g., vans, air stairs, lavatory trucks, deicing vehicles), airport and other facility construction and information technology
Capital Expenditures (Billions) for U.S. Passenger Airlines
From 2010-2019, Following the Financial Crisis, U.S. Airlines Retired ~$91 Billion in Debt and Returned ~$56 Billion to Shareholders to Lure and Retain New Equity Investors
Source: SEC filings of AAL/ALGT/ALK/DAL/HA/JBLU/LUV/SAVE/UAL and merged predecessors * Payments on long-term debt and capital lease obligations
9.111.2
7.5 7.910.5
8.0 8.56.1
9.812.1
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Retirement of Long-Term Debt ($ Billions) Returns to Shareholders ($ Billions)
0.1 0.3 0.6 1.2
4.6
10.5
13.1
8.87.8
9.3
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Stock Repurchase Cash Dividends
32
Relative to Other U.S. Industries, Over the Past Five Years, Airlines Have Reinvested More Cash Into the Business (“CapEx”) Than They Have Spent on Shareholders (“Capital Returns”)
Source: Goldman Sachs, “Cash Flow Benchmarking by Sector” (March 2020), with data from CapIQ and Bloomberg compiled for 2015-2019 * Industry medians for 2015-2019
26.8
95.7
67.0 78.3
25.8 25.4
107.9
31.9
69.4
22.9
58.6 54.5
78.0 71.4
23.9 42.8
0
25
50
75
100
125
Airli
nes
Indu
stria
ls
Rai
ls
Hot
els
Cru
ise
Tech
Res
taur
ants
Ret
ail
Airli
nes
Indu
stria
ls
Rai
ls
Hot
els
Cru
ise
Tech
Res
taur
ants
Ret
ail
Dividends & Stock RepurchasesSpending Relative (%) to Operating Cash Flow
Investments in the Business (“CapEx”)Spending Relative (%) to Operating Cash Flow
Capital Expenditures ($ Billions) for Atlas/FedEx/UPS
34
J.D. Power: North America Airport Satisfaction* Climbs to Record HighLatest Results Released Sept. 25, 2019
Source: : J.D. Power North America Airport Satisfaction StudySM
* Now in its 14th year, the study is based on responses from 32,276 U.S. or Canadian residents who traveled through at least one U.S. or Canadian airport and covers both departure and arrival experiences (including connecting airports) during the past three months. Travelers evaluated either a departing or arriving airport from their round-trip experience. The study was fielded from October 2018 through September 2019..
Six factors (in order of importance):• Terminal Facilities*• Airport Accessibility• Baggage Claim• Security Check• Check-In / Baggage Check• Food / Beverage / Retail
Note: Scale = 0-1000; study not conducted in 2009/2011-2014
“Scaffolding and cranes are official welcome signs to several North American airports these days as record passenger volumes force major expansion efforts.”
35
ACSI 2019 Airline Customer Satisfaction Index: Second Best in 25-Year HistoryEase of Booking and Checking in for Flight Rank Highest
Source: ACSI Travel Report 2018-2019 (April 30, 2019)Note: ACSI and its logo are Registered Marks of the University of Michigan; see http://www.theacsi.org/the-american-customer-satisfaction-index
62
74
60626466687072747678
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
Scale = 0-100; ACSI for airlines commenced in 1994828282
8180808080
7979
7878
7775
7373
7169
Ease of check-inMobile app quality
Mobile app reliabilityEase of making reservation
Courtesy of flight crewCourtesy of gate staff
Timeliness of arrivalWebsite satisfication
Baggage handlingBoarding experience
Call center satisfactionCleanliness of cabin and lavatory
“North American airlines were headed into 2020 with some of the highest customer satisfaction scores ever recorded, thanks to heavy investment in newer aircraft, better in-flight services and improved customer service. Then COVID-19 hit.” (J.D. Power, May 27, 2020)
37
Involuntary Denied Boardings and Customer Complaints Have Been Trending DownGrounding of B737 MAX Largely Responsible for Anomalous 2019 Increase
Source: DOT Air Travel Consumer Report (http://www.dot.gov/airconsumer/air-travel-consumer-reports)
1.20
1.
18 1.42
1.
13 1.38
1.90
1.52
1.
34
0.98
0.
99
0.0
0.5
1.0
1.5
2.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
DOT Customer Complaints per 100K Pax*1.
09
0.82
0.
99
0.92
0.
92
0.76
0.
62
0.40
0.
14
0.24
0.0
0.5
1.0
1.5
2.0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Involuntary Denied Boardings per 10K Pax*
B737 MAX Grounded 3/13
* U.S. passenger airlines
38
39
Heightened Competition and Substitutes to Air Travel Have Put Downward Pressure on U.S. Airlines’ Revenue Footprint Relative to the Size of the U.S. Economy
Source: A4A Passenger Airline Cost Index
0.75%
0.80%
0.85%
0.90%
0.95%
1.00%
1.05%
1.10%
1.15%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
1980-2000 average = 1.04%
($27B)
* DOT Form 41 systemwide operating revenues
U.S. Passenger Airline Revenues* as Share of U.S. Gross Domestic Product
40
In 2019, Passenger Traffic on U.S. Airlines Grew 4.4 Percent While Capacity Rose Just 3.3 Percent Due to Grounding of B737 MAX, Airbus Delays, Labor Issues and Disruptive Weather
Source: U.S. Bureau of Transportation Statistics T1, systemwide scheduled service on U.S. airlines – revenue passenger miles (RPMs) and available seat miles (ASMs)
82.1 82.0 82.8
83.1 83.4 83.8
83.4 83.5 83.7
84.6
80
81
82
83
84
85
86
700
800
900
1000
1100
1200
1300
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Load Factor (%)
Bill
ions
Load Factor (%) RPMs ASMs
41
U.S. Airlines Have Continued to Move More People and Goods Over Longer Distances
Source: U.S. Bureau of Transportation Statistics (T1 systemwide for U.S. airlines – all services) Note: Recessions highlighted in gray
Especially Since 2000, Changes in the Price to Fly a Mile on U.S. Carriers Have Correlated Closely With Changes in the Cost of Inputs to Airline Production
Source: A4A Passenger Airline Cost Index
0
50
100
150
200
250
10.00
11.00
12.00
13.00
14.00
15.00
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Passenger Yield (Left Axis) Airline Cost Index (Right Axis)
Yiel
d (C
ents
per
RPM
) Cost Index (2000=100)
43
In 2011-2019, Average Load Factor Exceeded the Airlines’ Breakeven RequirementStable at 83-85 Percent Over Past Several Years, With Breakeven Rising to 73-75 Percent
Source: A4A Passenger Airline Cost Index (http://airlines.org/dataset/a4a-quarterly-passenger-airline-cost-index-u-s-passenger-airlines/)
Low-Cost Carriers In Particular Continue to Put Substantial Pressure on Fares“Southwest Effect” Remains in Force – Brueckner/Lee/Singer
Source: Jan K. Brueckner, Darin Lee and Ethan S. Singer, “Airline competition and domestic US airfares: A comprehensive reappraisal,” Economics of Transportation, 2013
A December 2016 update of the frequently cited Brueckner/Lee/Singer study (2013) demonstrated that the “Southwest Effect” remains in force:
o In the period 3Q 2015 through 2Q 2016, Southwest’s presence on a route lowered fares 21.2 percent
o In addition, the update found that many smaller but rapidly expanding carriers put substantial downward pressure on global network carrier domestic air fares, e.g.: Alaska ↓ 24.0 percent JetBlue ↓ 25.4 percent Spirit ↓ 18.5 percent
45
Low-Cost Carriers In Particular Continue to Put Substantial Pressure on Fares“Southwest Effect” Remains in Force – Beckenstein/Campbell
Source: Alan R. Beckenstein, Ph.D., Professor of Business Administration at the Darden School of Business, University of Virginia; and Brian M. Campbell, Ph.D., Principal, the Campbell-Hill Aviation Group, LLC, “Public Benefits and Private Success: The Southwest Effect Revisited,” Darden Business School Working Paper Number 206 (August 2017)
“The presence and magnitude of the Southwest Effect has endured through time. Even today, when new markets have frequently been affected already by Southwest’s fares on connecting services, the Southwest Effect still shows, on average, an additional market fare reduction of 15% and corresponding traffic increase of 28% to 30%, from the introduction of nonstop service by Southwest.”
“The Southwest Effect is alive and well. We find no evidence that the Southwest Effect has been eroded or overtaken in significance or magnitude by other airlines… Our study finds that Southwest produces $9.1 billion annually in domestic consumer fare savings. One-way average market fares are $45 lower when Southwest serves a market nonstop than when it does not. If Southwest provides only connecting service in a city-pair market, average market fares are $17 lower (one-way) than when there is no competitive effect from Southwest.”
46
From 2017-2019, Medium-Sized U.S. Airports Grew Faster Than Large U.S. AirportsPercent Change in Scheduled Available Seat Miles at Top U.S. Airports: 2017 to 2019
Source: Diio by Cirium published schedules as of Jan. 10, 2020, for all airlines providing scheduled service
E-Commerce and Rapid Fulfillment Redrawing the Map for Distribution of Air CargoCincinnati (CVG) and Tampa (TPA) Are Among the Biggest Winners
Source: DOT T100 segment data
15
(8)
19 38
(4)
18
263
(18)
2 32
(7)
11
69 25 20 13 8 6 19
42
101
9 31
(3)(21)
2 39 23 19
149 104
40 17 34 41
(100)(50)
050
100150200250300
MEM AN
CSD
FLA
XM
IAO
RD
CVG JF
KIN
DD
FWEW
RAT
LO
NT
HN
LO
AKSF
OPH
LIA
HSE
APH
XR
FDBO
SPD
XD
EN IAD
MSP
MC
OD
TW SLC
TPA
BWI
CLT
AFW
SJU
LCK
% Change in Outbound Cargo Payload at Largest U.S. Cargo Airports, 2010-2018
48
In the Deregulated Period, U.S. Airline “Earnings” Have Been Cyclical and VolatileCumulative Net Income = $50 Billion (1.2 Percent of Revenues)
Source: A4A Passenger Airline Cost Index
1.8
(11.4)
20.6
(65.0)
103.8
(100)
(50)
0
50
100
150
1979-1989 1990-1994 1995-2000 2001-2009 2010-2019
Net
Inco
me
($ B
illio
ns)
0.4%Margin: (3.3%) 3.8% (6.3%) 6.2%
49
As U.S. Airlines Generate Sufficient Cash from Operations, They Are Better Able to Fund Capital Improvements, Improve Customer Experience and Enhance Shareholder Value
Source: SEC filings of AAL/ALGT/ALK/DAL/HA/JBLU/LUV/SAVE/UAL and merged predecessors * Operating cash flow minus capital expenditures
In February 2020, U.S. Airline Employment Reached Its Highest Level Since May 2001From April 2010 to February 2020, U.S. Airlines Added ~193,000 Jobs – a 34 Percent Increase
Source: Bureau of Transportation Statistics Note: FedEx acquired TNT on May 25, 2016, increasing headcount by approximately 55,000
753.
6
760.
8
666.
8
562.
3
750.
2
751.
6
755.
2
753.
3
716.
7
697.
2
699.
7
0100200300400500600700800
Dec
-00
May
-01
Dec
-01
Apr-1
0
Dec
-19
Jan-
20
Feb-
20
Mar
-20
Apr-2
0
May
-20
Jun-
20
Jul-2
0
Aug-
20
Sep-
20
Oct
-20
Nov
-20
Dec
-20
Full-Time + Part-Time Employees at U.S. Passenger and Cargo Airlines (000s)
